Antitrust Law Daily Wrap Up, RICO—N.D. Cal.: Settlement in AT&T “cramming” case given final approval, (Dec 2, 2013)

By Jody Coultas, J.D.

A settlement agreement between purported class of current and former AT&T landline customers and AT&T Inc. has been granted final approval by the federal district court in San Francisco (Nwabueze v. AT&T Inc., November 27, 2013, Illston, S.). The court also found that the incentive awards were fair and reasonable, but required more detailed information before awarding attorney fees and expenses.

The customers alleged that they had been billed by AT&T for unauthorized charges placed on their bills by billing aggregators on behalf of third-party providers. This practice is known as “cramming.” AT&T allegedly did not permit the third-party providers to directly charge its customers but required them to bill through “billing aggregators.” Billing aggregators then acted as an intermediary between the third-party service providers and the local exchange carriers . The customers filed RICO claims seeking actual, treble, and exemplary damages, injunctive and declaratory relief, interest, costs, and reasonable attorney fees.

After negotiations, the parties agreed to a settlement. The terms of the settlement included: (1) billing credit (for current customers) or refunds (for former customers) for 100% of the unauthorized third-party charges; (2) remedial remedies; (3) payment of attorney fees and expenses in an amount not to exceed $5,500,000; and (4) incentive awards of $5,000 to the two class representatives. AT&T represented that it had fully implemented the remedial remedies to which the parties agreed. Specifically, AT&T no longer allows any third-party billing of enhanced services.

Federal Rule of Civil Procedure 23(e) provides that a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval. Courts look at (1) the strength of the plaintiffs’ case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceedings; (6) the experience and views of counsel; (7) the presence of a governmental participant; and (8) the reaction of class members to the proposed settlement.

The court held that the settlement agreement was fair, adequate, and reasonable. Numerous cramming cases have resulted either in outright dismissal, or in settlements with little significant recovery for the plaintiffs. Given the challenges the customers faced, this factor weighed in favor of approving the settlement. AT&T would vigorously defend against this action, and the customers risked denial of a motion for class certification, dismissal at the summary judgment stage, and a judgment in AT&T’s favor after trial. These risks, coupled with the considerable expense associated with further litigation, weighed in favor of approval. Courts have frequently refused to certify classes in cramming cases. Considering the difficulties in certifying and maintaining a class of this type, the settlement conferred a substantial benefit upon the class. Sufficient discovery was conducted, and the experience and views of counsel also supported approval. Only 25 individuals have objected to the settlement and 1,339 people have chosen to opt out. The parties also reached the settlement as a result of good faith, arms-length negotiations. The only issue weighing against approving the agreement was that the Federal Trade Commission and the Department of Justice weighed in with concerns about the settlement agreement despite not being parties to the litigation. Thus, the relevant factors weighed in favor of approval.

A number of the objections to the settlement were rejected for lack of standing and procedural deficiencies by the court. Those that were not rejected were insufficient to support rejection of the settlement agreement. Some did not state the basis for their objection, while others were not objecting to the actual substance of the settlement. The objections also failed to show why the settlement was not fair, adequate, or reasonable.

FTC, Department of Justice concerns. The court held that the FTC and the Department of Justice concerns regarding the settlement did not establish that the settlement should be rejected. The FTC stated that: (1) the form of notice was inadequate; (2) the claims process was unduly complicated; (3) permitting challenges to any claims brought was unreasonable; (4) the remedial relief was inadequate; (5) the required release was too broad; and (6) the requested attorneys’ fees were too high. The government’s concerns were insufficient to show that the agreement was anything other than fair, adequate, and reasonable. Customers received notice in the form of a “call-out” on the front of their monthly bills, informing them that their bill contained additional important information. AT&T had already received over half a million requests for billing summaries, and more than $16,000,000 in claims have been filed. Therefore, the FTC and Department of Justice could not show that the notice was inadequate. The claims process was not as burdensome, as the government contended, and the process for challenging claims was not unfair or unworkable. Finally, the terms of the release were not too broad and the court was persuaded by AT&T’s statement that, without this broad release, no settlement would have been possible.

Incentive awards, fees, expenses. The court held that the requested incentive award of $5,000 for each of the class representatives was reasonable. The representatives provided information and documents, in the pre-litigation phase, and continued to assist counsel after the lawsuit was filed. Both representatives helped with discovery and submitted to depositions. This was sufficient to support the incentive award.

The class counsel was ordered to file a sworn, written description detailing the projects and tasks completed by each lawyer involved in the case, as well as each firm’s expense records for the expenses incurred during this litigation, according to the court. Where, as here, a settlement does not create a common fund from which to draw, the court may analyze the case as a “constructive common fund” for fee-setting purposes. To calculate attorney fees under the constructive common fund method, the court looks at the maximum settlement amount that could be claimed. Class counsel failed to provide sufficient information to determine whether the fees requested were fair and reasonable. The total hours each attorney at each firm billed were submitted, but there was no information regarding the nature of the tasks performed, or when they were performed.

The case is No. C 09-01529 SI.

Attorneys: Jeffrey Farley Keller (Keller Grover LLP) for Joy Nwabueze. Roxane Alicia Polidora (Pillsbury Winthrop Shaw Pittman LLP) for Pacific Bell Telephone Co., AT&T Services, Inc. and AT&T Operations, Inc.

Companies: AT&T Inc.

Cases: RICO CaliforniaNews