Antitrust Law Daily Wrap Up, ADVERTISING—7th Cir.: $4.2M TCPA suit fund deemed security interest, not common fund, (Jul 11, 2016)

By Greg Hammond, J.D.

A $4.2 million fund that was created to compensate a class of fax recipients for violations of the Telephone Consumer Protection Act (TCPA) represented security for payment, not a common fund, the U.S. Court of Appeals in Chicago has decided. Class counsel was therefore not entitled to a third of the $4.2 million fund. Instead, class counsel is entitled to approximately $167 of each $500 payment that is accepted by a class member, and the remainder of the fund should be returned to the defendant, the court decided. The judgment was reversed in part and remanded (Holtzman v. Turza, July 8, 2016, Easterbrook, F.).

A series of faxes containing business advice were sent under attorney Gregory Turza’s name to various CPAs, including plaintiff Ira Holtzman. Holtzman filed a class action against Turza, brought under of the TCPA, which prohibits unsolicited fax advertisements. The lower court ordered Turza to deposit $4.2 million into the court’s registry; decided that class counsel should get a third of this money (approximately $1.4 million) as compensation for legal services; and ordered that two-thirds of each $500 statutory award per improper fax be sent to every class member. The remaining amount in the fund would be returned to Turza.

On appeal, Turza argued that paying counsel based on the total value of the fund was inappropriate, and the appellate court agreed. Although attorneys are entitled to be compensated from a common fund, under Supreme Court precedent, this was not a common fund case, according to the court. Rather, suits under the TCPA seek recovery for discrete wrongs to recipients, the court stated. The $4.2 million in this case was consequently deemed security for payment, not a genuine common fund.

Because the $4.2 million was security for payment, the litigants were responsible for covering their own legal costs, the court next determined. Therefore, of each $500 in damages for a given fax, counsel is entitled to approximately $167, and the fax recipient should receive the rest. However, if a particular recipient cannot be found, or rejects the money, counsel are not entitled to be paid for that fax, the court stated.

The district court also ordered a second round of distributions in the event some class members could not be located or did not cash their checks. The appellate court, however, concluded that this second round of distribution would be inconsistent with the American Rule on the allocation of legal fees, because the distribution would either exceed the statutory $500 cap, or effectively shift the class’ legal fees to Turza.

Lastly, the court determined that because the $4.2 million represented a security for payment, rather than a common fund, once a debt has been satisfied, the security interest must be released. As a result, the district court did not abuse its discretion in concluding that any surplus goes back to Turza.

The case is Nos. 15-2164 and 15-2256.

Attorneys: Phillip A. Bock (Bock, Hatch, Lewis & Oppenheim, LLC) for Ira Holtzman. Steven D. Pearson (Cozen O’Connor) for Gregory P. Turza.

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