Birchmeier et al v. Caribbean Cruise Line, Inc. et al

Filing 629

MEMORANDUM OPINION AND ORDER (CORRECTED) signed by the Honorable Matthew F. Kennelly on 4/10/2017: The Memorandum Opinion and Order issued on 4/6/2017 is vacated due to a calculation error on page 19 and is replaced by the accompanying Memorandum Opinion and Order. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
GERARDO ARANDA, GRANT
BIRCHMEIER, STEPHEN PARKES, and
REGINA STONE, on behalf of themselves
and classes of others similarly situated,
Plaintiffs,
v.
CARIBBEAN CRUISE LINE, INC.,
ECONOMIC STRATEGY GROUP,
ECONOMIC STRATEGY GROUP, INC.,
ECONOMIC STRATEGY, LLC, THE
BERKLEY GROUP, INC., and VACATION
OWNERSHIP MARKETING TOURS, INC.,
Defendants.

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Case No. 12 C 4069

MEMORANDUM OPINION AND ORDER (CORRECTED)
MATTHEW F. KENNELLY, District Judge:
In this class action, plaintiffs allege that defendants—Caribbean Cruise Line, Inc.
(CCL), Vacation Ownership Marketing Tours, Inc. (VOMT), The Berkley Group Inc., and
Economic Strategy Group and its affiliated entities (collectively ESG)—violated the
Telephone Consumer Protection Act, 47 U.S.C. § 227, by placing millions of automated
telephone calls to consumers without their consent. After roughly four years of hotly
contested litigation, the parties settled the case days before trial. A little over a month
ago, the Court entered an order of final approval of the settlement agreement. See
Aranda v. Caribbean Cruise Line, Inc., No. 12 C 4069, 2017 WL 818854, at *1 (N.D. Ill.
Mar. 2, 2017). The agreement provides that defendants will establish a common fund,
in an amount no lower than $56 million and no higher than $76 million, from which class

members with approved claims will be paid. Individual class members will be paid $500
per call received, unless the $76 million cap is reached, in which case they will receive a
pro rata share of the fund. Plaintiffs' counsel, lawyers from Edelson PC (Edelson) and
Loevy & Loevy (Loevy), have petitioned for an award of attorney's fees in an amount
equal to one-third of the final common fund total, minus the costs of administering the
fund and providing notice to the class. Defendants and one of the class members,
Freedom Home Care, Inc., object to the size and structure of the requested fee award.
For the reasons stated below, the Court grants plaintiffs' motion for attorney's fees,
costs, and incentive awards but makes a fee award lower than plaintiffs have requested.
Discussion
The Court assumes familiarity with the background facts of the case, which the
Court has discussed in a number of prior opinions. See, e.g., Aranda v. Caribbean
Cruise Line, Inc., 179 F. Supp. 3d 817, 820–22 (N.D. Ill. 2016). No party has objected
to plaintiffs' request that each of the four plaintiffs acting as class representatives
receive a $10,000 incentive award, and nobody has disputed plaintiffs' assertion that the
class representatives actively engaged in the litigation by reviewing the complaint and
other documents, responding to requests for information, and sitting for depositions.
The Court concludes that $10,000 is a reasonable award for the time and effort those
plaintiffs expended on behalf of the class. See Cook v. Niedert, 142 F.3d 1004, 1016
(7th Cir. 1998).
As mentioned above, in addition to incentive awards for the class
representatives, plaintiffs have requested attorney's fees in an amount equal to onethird of the common fund, minus notice and administrative costs. Defendants and

2

Freedom Home Care object to the size and structure of the requested award. They
argue that attorney's fees in similar cases usually comprise a smaller percentage of the
common fund and that plaintiffs have failed to justify the award of a higher percentage in
this case. In addition, defendants and Freedom Home Care contend that the flatpercentage structure of the requested award deviates from the "sliding scale" model
courts in the Seventh Circuit often use to award attorney's fees for class action
settlements, a model outlined by the Seventh Circuit in In re Synthroid Marketing
Litigation, 264 F.3d 712, 721 (7th Cir. 2001) (Synthroid 1).
Courts overseeing certified class actions "may award reasonable attorney's
fees . . . that are authorized by law or by the parties' agreements." Fed. R. Civ. P.
23(h). Defendants in this case have agreed to pay a reasonable fee award out of the
settlement's common fund, up to a maximum of $24.5 million. In "common fund" cases
like this, plaintiffs' attorneys petition the Court to recover their fees out of the fund, and
the Court determines the appropriate portion of the fund that plaintiffs' counsel may
recover. Nationsbank of Georgia, N.A., 34 F.3d 560, 563 (7th Cir. 1994). To determine
the reasonableness of counsel's fee requests in such cases, a court "must balance the
competing goals of fairly compensating attorneys for their services rendered on behalf
of the class and of protecting the interests of the class members in the fund." Skelton v.
Gen. Motors Corp., 860 F.2d 250, 258 (7th Cir. 1988).
In the Seventh Circuit, when determining the appropriate fee levels in commonfund cases, a court "must do [its] best to award counsel the market price for legal
services, in light of the risk of nonpayment and the normal rate of compensation in the
market at the time." Synthroid 1, 264 F.3d at 718. In the absence of a negotiated

3

agreement between the plaintiffs and their attorneys, the Seventh Circuit's marketbased approach requires the Court to "set a fee by approximating the terms that would
have been agreed to ex ante, had negotiations occurred." Id. at 719. In addition to
considering the risk of nonpayment and data about normal compensation rates, a court
attempts to determine the market rate by looking to factors such as the quality of
counsel's performance, the amount of work necessary to resolve the litigation, and the
stakes of the case. Id. at 721.
A.

General size and structure of the fee award
Plaintiffs argue that an award amounting to one-third of the net common fund

accurately reflects the result of a hypothetical ex ante negotiation. Plaintiffs' counsel
represent that Edelson, one of the two firms representing plaintiffs, regularly charges a
contingency fee of at least one-third of the recovery, plus expenses, when it brings
TCPA cases on behalf of individual plaintiffs. Professor Todd Henderson, one of
plaintiffs' experts, reports that other attorneys charge between 40 and 45 percent of the
recovery in such cases. According to plaintiffs, counsel's request of one-third of the
common fund, without an accompanying request for payment of costs and expenses, is
thus less than a standard rate for individual TCPA cases. This lower rate is
unsurprising, they explain, because class actions allow for more efficient resolution of
claims. Professor William Rubenstein, another of plaintiffs' experts, notes that counsel's
requested rate of one-third would be higher than the average rate approved in
consumer class actions in the Seventh Circuit, but plaintiffs contend that the aboveaverage rate is justified (and would be agreed to ex ante) because of the high value
plaintiffs' lawyers generated in the case.

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Plaintiffs rely in large part on Professor's Henderson's expert report to establish
that plaintiffs' attorneys generated better-than-average value for the class and should be
paid accordingly. Professor Henderson distinguishes between cases with high and low
inherent values. In a case with high inherent value, the defendant or defendants are
solvent, their potential exposure is high, and liability is relatively obvious and easy to
establish. Imagine, for example, a large multinational corporation whose widely sold
product turns out to have a clear defect that injured millions of consumers. In such a
case, the defendant likely would be willing to settle the case for a large amount soon
after the filing of the complaint. For cases like that, plaintiffs argue that class members
and their attorneys would agree to a lower fee in an ex ante negotiation because there
is "no need to pay counsel to 'produce' a recovery that is there for the asking."
Synthroid 1, 264 F.3d at 721. But in a case where there are apparent obstacles to
recovering a significant sum (or any sum at all), plaintiffs argue, potential class
members would be willing to pay a higher rate to a law firm that would produce a large
recovery. In such cases, Professor Henderson explains, to the extent the class can
obtain a high-value recovery, that value is generated by the work of the lawyers.
Professor Henderson identifies a number of characteristics of this case that
indicate it is a "lawyer-generated-value" case. First, he notes that although the conduct
giving rise to this case allegedly involved over 50 million calls placed to individuals
across the country, only five TCPA cases were brought against defendants, three of
which were consolidated into this case. Thus the relatively low level of interest from the
plaintiffs' bar "suggests that most members of the . . . bar saw this litigation as too risky
for their practices." Silverman v. Motorola Sols., Inc., 739 F.3d 956, 958 (7th Cir. 2013).

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Similarly, only two firms served as class counsel, and the expertise of each firm
(Edelson's expertise in TCPA cases and Loevy's expertise in conducting class action
trials) appeared to complement the other's. According to Professor Henderson, this
complementary collaboration between only two firms contrasts with cases in which a
large number of firms with overlapping skill sets bring a case together, hoping to extract
and share a significant portion of the case's inherent value. Unlike those cases, he
says, this case is one in which the two firms worked together efficiently to generate
value for the class.
Professor Henderson also points to circumstantial evidence indicating that
defendants, themselves, placed a low value on the case at the outset and in its early
stages. Specifically, Professor Henderson notes that defendants were unwilling to offer
any significant cash value to settle the case early on and only became willing to settle
for a significant amount after a class had been certified and plaintiffs had survived
motions to dismiss and two motions for summary judgment. This course of dealing
suggests, according to Professor Henderson, that the case's value was not inherent but
was generated over time through counsel's efforts. Finally, Professor Henderson
argues, the quality of the settlement for individual class members—specifically, the fact
that each approved claimant stands to gain hundreds of dollars from the settlement—
shows that the high settlement total is not simply the result of the size of the class, but
reflects the value that counsel generated for the class by litigating the case until the eve
of trial. Thus, according to Professor Henderson, plaintiffs in an ex ante bargaining
situation would gladly agree to pay a high percentage for a large recovery in this lowinherent-value case. Professor Rubenstein reaches the same conclusion by

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considering similar factors. See Rubenstein Decl. [dkt. no. 533-4] at 36–37 (discussing,
among other factors, uncertainty of liability and settlement at outset of litigation,
significance of monetary relief obtained for class, and length and contested nature of
litigation).
Plaintiffs concede that "several courts in this District considering fee requests in
TCPA cases have applied different [fee] structures, such as the declining marginal
percentage scale used in In re Capital One Telephone Consumer Protection Act
Litigation, 80 F. Supp. 3d 781, 803–06 (N.D. Ill. 2015) [(Holderman, J.)]." Pls.' Mot. for
Attorneys' Fees at 17. The district court in Capital One, a TCPA class action that
resulted in a $75.5 million settlement, modeled its award after the award made in In re
Synthroid Marketing Litigation, 325 F.3d 974, 980 (7th Cir. 2003) (Synthroid 2). In
Synthroid 2, the Seventh Circuit broke a class-action settlement fund into tiers or bands
and awarded class counsel a decreasing percentage of each band: 30% of the fund's
first $10 million, 25% of the next $10 million, 22% of the band from $20 million to $46
million, and 15% of everything about $46 million. Synthroid 2, 325 F.3d at 980. The
Seventh Circuit has explained the rationale behind this so-called "sliding scale" award
structure as follows:
Many costs of litigation do not depend on the outcome; it is almost as
expensive to conduct discovery in a $100 million case as in a $200 million
case. Much of the expense must be devoted to determining liability, which
does not depend on the amount of damages; in securities litigation
damages often can be calculated mechanically from movements in stock
prices. There may be some marginal costs of bumping the recovery from
$100 million to $200 million, but as a percentage of the incremental
recovery these costs are bound to be low. It is accordingly hard to justify
awarding counsel as much of the second hundred million as of the first.
The justification for diminishing marginal rates applies to $50 million and
$500 million cases too, not just to $200 million cases.

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Awarding counsel a decreasing percentage of the higher tiers of recovery
enables them to recover the principal costs of litigation from the first bands
of the award, while allowing the clients to reap more of the benefit at the
margin (yet still preserving some incentive for lawyers to strive for these
higher awards).
Silverman, 739 F.3d at 959. And, as the court in Capital One added, the rationale the
court in Silverman, a securities fraud case, "applies equally, if not more, to TCPA cases
because nearly all of counsel's efforts are devoted to determining liability. Damages are
fixed by statute." Capital One, 80 F. Supp. 3d at 803.
Plaintiffs argue that the sliding-scale approach is inappropriate in this case,
pointing out that although the Seventh Circuit approved a sliding-scale award in
Synthroid 1, the court recognized that "systems with declining marginal percentages are
[not] always best." Synthroid 1, 264 F.3d at 721. A sliding-scale approach is not best,
according to plaintiffs, for cases that have a low inherent value. Rather, they argue, the
sliding-scale approach from cases like Capital One is the standard approach only for
cases where plaintiffs' lawyers perform a relatively light amount of legal work and settle
the case at an early stage for a relatively small percentage of the possible recovery on a
per-person basis. In Capital One, for example, the case settled prior to a contested
motion for class certification or summary judgment and after only limited discovery, and
class members with approved claims received $34.60, Capital One, 80 F. Supp. 3d at
789, well below the hundreds-of-dollars recovery that approved claimants are set to
receive in this case.
Plaintiffs contend that class members would prefer to pay a flat one-third rate for
the high recovery in this case than to pay a lower, sliding-scale rate to receive a low
recovery like that in Capital One. Plaintiffs point to an empirical studying conducted by

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one of their experts, Professor Larry Chiagouris, as evidence that real people actually
prefer such an arrangement. Plaintiffs also point to Judge Posner's remark in Synthroid
1 that a sliding-scale approach can "create declining marginal returns to legal work,
ensuring that at some point attorneys' opportunity cost will exceed the benefits of
pushing for a larger recovery, even though extra work could benefit the client."
Synthroid 1, 264 F.3d at 721. The sliding-scale arrangement thus leads to results like
that in Capital One, plaintiffs suggest, where attorneys accept settlement offers for
relatively low recovery amounts per class member rather than proceeding toward trial in
order to generate greater value. Potential class members who wish to incentivize
aggressive litigation that would result in high recoveries would agree to a flat rate ex
ante, plaintiffs argue.
As discussed in greater depth below, the Court agrees with plaintiffs and their
experts that the unique circumstances of this case—in particular, the relatively low level
of interest from the plaintiffs' bar and the late stage at which settlement occurred—
warrant a higher fee award than those granted in other TCPA class actions that resulted
in settlement, such as Capital One. The Court disagrees, however, that the award
should be as high as the one plaintiffs request or that there is a sufficient basis to depart
from the sliding-scale structure, which appears to have become become the standard
model for cases like this in the Seventh Circuit. Plaintiffs provide only one example of a
recent, large class action settlement in this circuit where an award was not structured as
a sliding scale: Silverman. In contrast, defendants and Freedom Home Care point to a
number of examples of sliding-scale awards for cases in this district involving TCPA
class-action settlements. See, e.g., Gehrich v. Chase Bank USA, N.A., 316 F.R.D. 215,

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239 (N.D. Ill. 2016) (Feinerman, J.); Craftwood Lumber Co. v. Interline Brands, Inc., No.
11-CV-4462, 2015 WL 2147679, at *1 (N.D. Ill. May 6, 2015) (St. Eve, J.); Wilkins v.
HSBC Bank Nevada, N.A., No. 14 C 190, 2015 WL 890566, at *10 (N.D. Ill. Feb. 27,
2015) (Holderman, J.); Capital One, 80 F. Supp. 3d at 804–05.
In addition, in Silverman, the Seventh Circuit approved a flat-rate award only
after providing the defense of the sliding-scale approach that the Court quoted above.
The court noted, however, that no objector had raised the prospect of a sliding-scale
structure in the district court. Silverman, 739 F.3d at 959. The court in Silverman also
mentioned that no objector had presented the data showing that the 27.5% rate
awarded "substantially exceeds the norm for large settlements." Id. Despite the strong
policy rationale supporting the sliding-scale approach and the fact that the 27.5% flatrate award was "at the outer limit of reasonableness," the court approved the award
"given the way the subject was litigated in the district court." Id. Thus, in a case like
this one in which an objector and defendants have raised concerns about the size and
structure of the award, Silverman does not appear to support plaintiffs' argument.
Rather, the reasonableness of both the size and structure of plaintiffs' requested award
is undermined by the Seventh Circuit's concern that fee awards should "allow[] the
clients to reap more of the benefit at the margin" and Judge Easterbrook's comment that
a 27.5% award represents the "outer limit of reasonableness." Id.; see also Capital
One, 80 F. Supp. 3d at 803–04 ("[T]he data available on past awards in TCPA cases
and other class actions show that the mean and median recovery for a $75.5 million
TCPA case are between 20% and 24% of the settlement fund.").
The Court is also not persuaded that this case fits into the category of cases the

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Seventh Circuit identified as those in which "declining marginal percentages are [not]
always best." Synthroid 1, 264 F.3d at 721. In discussing such cases, Judge Posner
described the possibility that declining marginal returns would lead attorneys to forego
engaging in the extra work needed to increase their clients' recovery because the
opportunity costs of doing so would exceed the benefit to the lawyers of the larger
recovery. Id. But based on plaintiffs' own representations, that concern was not
present in this case. According to plaintiffs, "[u]p until the very end, Class Counsel were
fighting to get anything more than $0 for the class." Pls.' Reply in Supp. of Attorneys'
Fees at 11. Thus counsel would have had the same or virtually the same incentive to
fight for that award whether they were receiving a flat rate or a sliding-scale rate. For
this reason, the concern identified in Synthroid would not provide a reason for potential
class members to deviate from the sliding-scale structure in an ex ante negotiation in
this case.
The Court also disagrees with plaintiffs that class members necessarily would
accept a flat rate in this case because of its low inherent value or because of the
possibility that counsel could generate a high recovery through aggressive litigation. It
appears to be true that the plaintiffs' bar's interest in suing the defendants was limited,
such that counsel would have been well positioned to bargain for a favorable fee
structure. That said, the record does not suggest that counsel would have been
negotiating in a completely non-competitive market. Plaintiffs and Professor Chiagouris
may be correct that class members would be willing to pay a higher, flat-rate percentage
of a settlement fund in order to gain a larger absolute recovery. But in a hypothetical
bargaining situation, well-informed class members would also be aware that the sliding-

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scale structure is, as Professor Rubenstein says, "often used in Seventh Circuit cases,"
Rubenstein Decl. at 3, and likely would shop around to see if any other firm would be
willing to take their case and pursue a large recovery for a sliding-scale fee. It is not
clear that the hypothetical class members in this case would be faced with the binary
choice between a high-percentage fee with a large recovery, on the one hand, and a
sliding-scale fee for a small recovery, on the other. Just as hypothetical plaintiffs may
be willing to accept a higher fee percentage for a larger absolute recovery, it is also
likely, all else being equal, that they would prefer the sliding-scale approach to a higher
flat rate if both hypothetical law firms were willing and able to pursue a large recovery.
In short, although it is possible that a hypothetical bargain would result in an agreement
for a flat rate, it seems no more probable than an agreement for a sliding-scale rate, and
thus the Court sees no reason to depart from the sliding-scale approach that, as noted,
appears to have become the standard model in this circuit for cases of this type.
B.

Specific structure and size of the award
Given that the Court has determined that a sliding-scale structure is appropriate

in this case, the question becomes how the recovery should be split into bands and
what percentage of each band should go toward the fee award. Determining what
numbers class members and attorneys would agree to for a hypothetical downward
scaling fee arrangement is necessarily "more art than science." Capital One, 80 F.
Supp. 3d at 804. As a starting place, however, the cases have established 30% as the
benchmark percentage for the first band of recovery in sliding-scale arrangements. See
Synthroid II, 325 F.3d at 980; Gehrich, 316 F.R.D. at 239; Craftwood, 2015 WL
2147679, at *4; Wilkins, 2015 WL 890566, at *10; Capital One, 80 F. Supp. 3d at 804–

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05. As this Court has noted before, "attorney's fee awards in analogous class action
settlements shed light on the market rate for legal services in similar cases." Kolinek v.
Walgreen Co., 311 F.R.D. 483, 501 (N.D. Ill. 2015) (Kennelly, J.).
The parties disagree about whether, if a sliding-scale arrangement is used, the
benchmark percentages should be adjusted upward to account for the high risk (or, to
use Professor's Henderson's term, the low inherent value) of the case. In Capital One,
for example, Judge Holderman applied a six-percentage-point risk premium because
empirical evidence presented to the court in that case showed that "high risk" consumer
class actions usually result in a percentage fee premium of six percentage points over
"low and medium risk" cases. He determined that potential legal impediments to class
certification and to establishing liability made the case a risky one. Capital One, 80 F.
Supp. 3d at 806. Thus, the court in Capital One took the fee structure from Synthroid 2
(30% for the first $10 million, 25% for the second $10 million, 22% for the band from
$20 million to $46 million, and 15% for the remainder) and added six points to the
percentage applied to the first band of recovery while rounding down to an even 20% for
the third band (36% for the first $10 million, 25% for the second $10 million, 20% for the
band from $20 million to $45 million, and 15% for the remainder). The court declined to
add the risk premium to bands other than the first one. It reasoned that sophisticated
class members would have balked at doing so "because the risk factors present in [that]
case related only to establishing liability and would not have affected Class Counsel's
ability to achieve the additional damages recovery reflected in the second, third and
fourth tiers." Id. at 807. This Court has also applied a six-point risk premium to the 30%
benchmark in a TCPA case with a smaller total settlement ($11 million) where the risks

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involved in establishing liability were "real and significant." Kolinek, 311 F.R.D. at 502.
Defendants and Freedom Home Care maintain that this case does not warrant a
risk premium and that if a risk premium is applied, it should be confined to the first band,
as in Capital One. They note that risk premiums were not applied, for example, in
Gehrich, Craftwood, or Wilkins, and they contend that the risks the plaintiffs faced in
Capital One and Kolinek are not present in this case. Defendants say that, unlike
plaintiffs in this case, the plaintiffs in Capital One faced manageability concerns that
posed a potential obstacle to class certification and that plaintiffs risked losing on
summary judgment or at trial if they failed to rebut the defendant's defense that the
plaintiffs' consented to the calls or if forthcoming FCC orders barred their claims. See
Capital One, 80 F. Supp. 3d at 790–91. And defendants argue that this case is unlike
Kolinek because the plaintiffs did not face "significant risks" associated with undertaking
class representation. Kolinek, 311 F.R.D. at 502.
According to defendants, plaintiffs overstate the level of risk in the case and
understate its inherent value. They note that Edelson and Loevy filed separate cases in
this district within days of each other, with a third group of firms filing suit a few months
later in the Southern District of Florida (the Vigus case), and they argue that, once the
cases were consolidated in this Court, the efforts by Edelson and Loevy to prevent the
lawyers in Vigus from acting as class counsel demonstrate that the case had significant
inherent value and was not as high-risk as plaintiffs assert. Defendants also contend
that the risk in this case was reduced because the attorneys general in Washington and
Maine, whose statements plaintiffs quote in the complaint, had already investigated the
conduct at issue, and the Federal Trade Commission had already launched an

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investigation that would eventually result in a lawsuit and a consent judgment. Finally,
defendants argue that the "type of potentially bankruptcy-level of exposure" defendants
faced from the claims of willful TCPA violations increased the possibility of an "in
terrorem settlement . . . that reduces Class Counsel's risk of non-payment." Capital
One, 80 F. Supp. 3d at 805.
The Court agrees with defendants that plaintiffs are incorrect when they assert
that "the inherent value of this case was effectively zero." Pls.' Mot. for Attorneys' Fees
at 15. But the Court is convinced that the risks of non-recovery in this case were
greater than those faced by the plaintiffs and their counsel in Capital One and Kolinek.
To be sure, plaintiffs in this case did not face the identical risks present in Capital One
and Kolinek. But although the issue of plaintiffs' consent to the calls was not at issue in
this case, as it was in Capital One, other difficult legal and factual issues did pose
potential obstacles to plaintiffs' success at the case's outset. The difficulty in identifying
class members, for example, especially given the absence of retained records regarding
who was called, raised serious questions about the likelihood of class certification. 1
Plaintiffs' success also depended critically on the difficult legal and factual question of
defendants' vicarious liability, because success by the plaintiffs on that point was the
only way they could impose liability on a defendant that had the financial wherewithal to
satisfy an eight-figure judgment.
As the Court has discussed, the fact that the case proceeded to the eve of trial

1

The Court notes that although defendants attempt to distinguish Capital
One on the basis of the manageability issues in that case, defendants themselves
argued at the class certification stage in this case that the "[m]anageability challenges . .
. would be enormous." Defs.' Mem. in Supp. of Mot. to Decertify at 13.
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and that defendants offered significant value in settlement only at that late stage
indicates that defendants believed their prospects for escaping liability without settling
were good. And as the Court has also discussed, defendants and Freedom Home Care
have not rebutted plaintiffs' assertion that the plaintiffs' bar was relatively uninterested in
this case, suggesting a belief that it was saddled with risk. Once they had already filed
their cases, the fact that Edelson and Loevy sought to be the sole firms to act as class
counsel in this case does not change the assessment of the case's risk, as that decision
may have reflected a good-faith belief that their exclusive collaboration was the most
efficient way to litigate the case.
Regarding defendants' assertion that government involvement prior to the lawsuit
reduced plaintiffs' risks, it simply does not appear that government activity had much
effect on this case. The only government action brought with regard to the conduct in
this case was filed after this lawsuit, did not name Berkley or VOMT as defendants, and
resulted in a small consent judgment of $500,000. Finally, although the Court agrees
that there was likely an in terrorem component to defendants' ultimate decision to settle
the case for the amount they did, this is not a case where plaintiffs' "leverage . . .
derives primarily from the magnitude of [the defendant's] liability." Wilkins, 2015 WL
890566, at *11. The magnitude of potential liability provided plaintiffs with significant
leverage, to be sure. But the settlement negotiation history 2 reveals that this was
insufficient to secure a significant offer from defendants at the litigation's early stages.

2

In this regard, the Court relies on the discussion of the settlement history
contained in plaintiffs' brief. See Pls.' Mot. for Attorneys' Fees at 15. Defendants
interposed no objection to plaintiffs' discussion of the settlement negotiations, nor do
they dispute the details.
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When plaintiffs did settle this case, their leverage derived in large part from their pre-trial
success and the fact that they had advanced to the eve of trial.
Because of the relative lack of interest from other plaintiffs' attorneys and the fact
that the case progressed as far as it did, the Court is persuaded that plaintiffs and their
counsel faced materially greater risks in this case than those faced in the other recent
TCPA class actions the parties have discussed. Thus the Court believes that at least a
6% premium should be added to the first band of recovery and that class members
would have agreed to pay at least that risk premium in a hypothetical negotiation.
Professor Rubenstein contends that in this case, based on "the degree of effort
the attorneys would need to put in, the likelihood of success, and the risks associated
with undertaking class representation," Kolinek, 311 F.R.D. at 502–503, a six-point
premium should be applied to the Synthroid 2 scale at each band of recovery (for
example, 36% for the first $10 million, 31% for the second $10 million, 28% for the band
between $20 million and $46 million, and 21% for the remainder of the fund). In the
alternative, he suggests that the recovery bands should be expanded, citing as a model
the Seventh Circuit's discussion of a hypothetical agreement that granted counsel 35%
of the first $20 million, 25% of the next $20 million, and 10% of the remainder. See
Synthroid 2, 325 F.3d at 978.
Defendants and Freedom Home Care argue that applying a risk premium at each
band would be inappropriate for the same reasons the courts in Capital One and
Gehrich declined to do so. In Capital One, Judge Holderman declined to apply a risk
premium at each band because plaintiffs' "risk existed only with regard to liability, not
damages." Capital One, 80 F. Supp. 3d at 806. Thus, once plaintiffs overcame the

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obstacles to establishing liability, "Class Counsel's ability to obtain a large recovery was
no longer materially affected by that risk." Id. Similarly, Judge Feinerman opined in
Gehrich that the "issue is not how hard the lawyers did or did not work; rather, it is how
hard they did or did not work for each dollar of recovery, and that does indeed differ
between the first large chunk and the rest of the settlement." Gehrich, 316 F.R.D. at
239. But this case differs from those two in an important respect: both Capital One and
Gehrich settled at an early stage, prior even to a contested class certification motion.
See id. at 230 ("[T]he parties have not engaged in substantial motion practice or
discovery[.]"); Capital One, 80 F. Supp. 3d at 791 (discussing "serious obstacles to
class certification" should the plaintiffs proceed to trial). It is thus not clear that there
was a significant difference between the work class counsel in this case did "for the first
large chunk and the rest of the settlement" or that the risk of a non-recovery
substantially decreased once they had filed the complaint or survived a motion to
dismiss. Rather, as indicated above, defendants do not dispute plaintiffs' representation
that "up until the very end, Class Counsel were fighting to get anything more than $0 for
the class."
The Court concludes, therefore, that it would be reasonable for plaintiffs in an ex
ante bargaining situation in a case like this to recognize that counsel's efforts can
increase the size of the settlement beyond "the first large chunk." In such a negotiation,
for example, plaintiffs and their potential attorneys might consider that at each
successive, successful stage of the litigation (for example, the denial of a motion to
dismiss stage to certification of a class to the denial of summary judgment), the size of
the expected payout increases as defendants' bargaining power decreases. A

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defendant may, for example, be unwilling to settle for any amount initially because it
believes the case will be dismissed, and following the denial of a motion to dismiss, the
defendant may be willing to pay $10 million, but not more, because it still believes the
class is unlikely to be certified. The defendant would be likely to offer more following
class certification, and plaintiffs' counsel could reasonably expect to be awarded a
considerable portion of that increased fund, which only became available following
counsel's work to certify the class. But at the same time that counsel's success at each
stage of the litigation may increase the expected value for his clients, counsel's own risk
of nonpayment also decreases as another obstacle to recovery is removed. Plaintiffs in
a hypothetical negotiation might, therefore, agree to pay a risk premium at each band in
a high-risk case like this but insist that the size of the premium decrease at each band,
as the risk of non-recovery decreases. The Court will apply this logic by awarding a
decreasing risk premium to the standard sliding-scale structure.
Taking the award structure in Gehrich, Wilkins, Craftwood, and Capital One as a
guide (30% for the first band, 25% for the second band, 20% for the third band, 15% for
the fourth band), the Court applies a six-point premium to the first band, a five-point
premium to the second band, a four-point premium to the third band, and a three-point
premium to the fourth band. Thus, the Court awards class counsel 36% of the first $10
million ($3.6 million), 30% of the second $10 million ($3 million), 24% of the band from
$20 million to $56 million ($8.64 million), and 18% of the remainder. Although the
"standard" third band spans from $20 million to $45 million (Capital One) or $46 million
(Synthroid 2), the Court expands it to $56 million in this case, because that number
represents the amount defendants have agreed to pay regardless of the number of

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approved claims. This provides a rough guide to the portion of the recovery whose
value is most clearly attributable to the work of the lawyers, as opposed to the size of
the class. Cf. Synthroid 2, 325 F.3d at 980 (defining the boundaries of the third band
($22 million to $46 million) by using aspects of the settlement the parties had agreed to
ex post as benchmarks). That said, the Court also applies a risk premium of three
points (from 15% to 18%) to the portion of the recovery from $56 million up to $74
million (the settlement fund total less the $2 million estimated cost for notice and
administration). Although that band may appear to be more analogous to the bands
discussed in Capital One and Gehrich, where the material risks have been reduced and
the counsel need not work as hard for each dollar of recovery, the Court concludes that
a premium is still appropriate. Plaintiffs' ability to recover an amount above $56 million
is at least partly attributable to the aforementioned establishment of vicarious liability, as
well as the lawyers' efforts to identify claimants and assist them in substantiating their
claims. 3
Thus, should the fund reach the $76 million cap, the Court intends to award
counsel 18% of the remaining $18 million ($3.24 million). In sum, therefore, if the total
settlement fund is at the $56 million floor, and $2 million goes toward notice and
administration, the Court will award counsel $14.76 million ($3.6 million plus $3 million

3

The Court declines plaintiffs' suggestion to adopt a structure that pays
34% of the first $56 million and 30% of the remainder. Using only two bands, with the
first going up to $56 million, would conflict with the Seventh Circuit's suggestion to
divide a large settlement into multiple tiers to "allow[] the clients to reap more of the
benefit at the margin." Silverman, 739 F.3d at 959. In addition, plaintiffs do not explain
where they derived the 34% and 30% numbers, and their proposal appears to be an
attempt to arrive at a final figure close to their original request.
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plus 24% of $34 million, or $8.16 million), which amounts to 27.3% of the common fund,
net of notice and administration costs. If the fund reaches the $76 million ceiling, the
Court will award counsel $18.48 million ($3.6 million plus $3 million plus $8.64 million
plus $3.24 million), which amounts to roughly 25% of the common fund, net of notice
and administration costs. That final percentage is slightly higher than the 20% to 24%
range that Judge Holderman considered to be the mean and median recoveries for
TCPA cases of this value, but the Court has explained above why an above-average
fee award is reasonable and appropriate in this case. 4
The Court notes that it did not engage in a lodestar analysis in determining a
reasonable fee award in this case. None of the parties advocated for the lodestar
approach, and the Court does not think the lodestar analysis would be particularly
helpful in this case. As Professor Henderson explains, the lodestar approach may be
useful "where the quality of the output or the assessment of the lawyers' work is
unclear, [in which case] the district court might want to focus on inputs instead of
outputs." Expert Report of M. Todd Henderson [dkt. no. 533-3] at 14. In this case,
however, it is clear that counsel provided exceptional representation for the class and
produced high-value output, securing the "largest and strongest TCPA settlement in
history." Id. at 27. Thus, although plaintiffs provided a lodestar analysis as a "cross
check" on its percentage request, and despite the parties' disagreements about the
appropriateness of plaintiffs' selected lodestar multiplier, the Court bases its analysis of

4

The Court also notes that plaintiffs have not requested reimbursement for
expenses, which they represent to be over $400,000 at the time of their motion. The
fact that the Court's award does not include expenses gives the Court even greater
confidence that the slightly-above-average award is justified in this case.
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the fee award in this case largely on factors other than the hours counsel worked, the
reasonableness of their billing hours, and the appropriate multiplier rate.
Conclusion
For the reasons stated above, plaintiffs' motion for attorney's fees, costs, and
incentive awards [dkt. no. 533] is granted in part and denied in part. The Court awards
$10,000 to each of the class representatives. Because the process for approving
claims is still ongoing, the Court awards at this time only those attorney's fees
corresponding to the minimum amount defendants will be required to pay into the
common fund. As discussed above, that fee amount is $14.76 million. Class counsel
may petition the Court for the remainder of the fee award upon conclusion of the claimsapproval process.

________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: April 10, 2017

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