Plaintiffs alleged that GoDaddy.com violated the TCPA by using an automatic telephone dialing system (ATDS) to make calls or send text messages to their telephones. The parties negotiated a settlement: GoDaddy would provide up to $35 million to pay both class members’ claims and up to $10.5 million to their lawyers as attorney’s fees. The District Court, presumably applying Rule 23(e)(1), determined that the Plaintiffs had produced evidence sufficient to show that the Court would likely approve the proposed settlement. Thus, it granted the Plaintiffs’ motion and appointed the Plaintiffs’ lawyers as Class Counsel. In its order granting the motion, the District Court directed that notice of the proposed settlement be given to the class pursuant to Rule 23(e)(1)(B) and that it contain the information specified in Rule 23(c)(2)(B).

On July 9, 2020, the day the Settlement Administrator emailed the notice to the class, the U.S. Supreme Court granted certiorari in Facebook v. Duguid to resolve a conflict among the Courts of Appeals regarding whether an autodialer must have the capacity to generate random or sequential phone numbers. The issue before the Court was the same as the principal issue in the Plaintiffs’ consolidated actions: “whether the definition of an ATDS encompasses equipment like GoDaddy used that can store and dial telephone numbers, even if the device does not use a random or sequential number generator.” The Supreme Court held that it did not. “To qualify as an ATDS, a device must have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator.”

Class Counsel realized that if the proceedings in their cases were stayed pending the Supreme Court’s decision in Facebook, and Facebook was decided in a way that favored GoDaddy, the $2,267,570 of class members’ claims would likely be worthless and the attorney’s fees would not be forthcoming. To avoid that scenario, Class Counsel would have to persuade the District Court to enter a final judgment that approved the settlement agreement and granted their motion for attorney’s fees before the Supreme Court decided Facebook. So, once the time for class members to file claims expired, Class Counsel moved the District Court to hold a Rule 23(e)(2) final hearing to certify the class, approve the settlement agreement, and grant their motion for attorney’s fees.  The District Court heard their motion six days after the Supreme Court heard argument in Facebook.  The District Court issued its final judgment and order approving the proposed settlement agreement, class, and attorney’s fees three months before the Supreme Court decided Facebook, which was favorable to GoDaddy.

The District Court granted Class Counsel’s motion over the objection of Juan Pinto, who argued that the District Court ruled on the motion for attorney’s fees prematurely because it was before the deadline for objections, a violation of Rule 23(h) and Due Process. Pinto’s main objection, however, was that the District Court’s order approving the settlement agreement should be vacated as an abuse of discretion because the fees awarded Class Counsel were far in excess of what the class members would receive. This arguably breached the District Court’s fiduciary duty and made the settlement agreement unfair, unreasonable, and inadequate. If the order were not vacated, he contended that the District Court should be instructed to reconsider the attorney’s fees issue because it failed to consider the issue under the heightened scrutiny for “coupon settlements” under CAFA.

The Eleventh Circuit, on rehearing, found that the District Court abused its discretion in several ways. First, it failed to consider the 2018 amendments to Rule 23(e)(2). Second, the District Court overlooked evidence indicating that the settlement agreement was the product of collusion, such as the overbroad release provision and the inadequate relief provided to the class relative to what Class Counsel and GoDaddy received. Next, the notice of the proposed settlement failed to inform the absent class members of the “claims, issues, or defenses” in the Plaintiffs’ cases required by Rule 23, Due Process, and the Court’s fiduciary obligation to the absent class members. Finally, the District Court erred in three ways when it calculated attorney’s fees because it: (i) misapplied Rule 23(h), (ii) treated the settlement as a common fund when it was claims-made, and (iii) determined that this was not a coupon settlement.

“In concluding that the District Court abused its discretion” the Court of Appeal noted, “we are not unmindful that Class Counsel contributed to the abuse. As officers of the court, they should have reminded the District Court that Rule 23(c)(2)(B)(iii) required that the notice of settlement sent to the class members inform them about Facebook. They knew that the Supreme Court’s Facebook decision would decide the dispositive issue in their clients’ cases: whether systems like what GoDaddy used here came under the definition of an ATDS in the TCPA….

“Rule 23(e)(1)(A) placed on the parties the burden of providing the District Court with information sufficient to enable it to decide whether to give notice of the proposed Settlement Agreement to the class. Implicit in this burden is the duty to provide the District Court with information sufficient to satisfy the court’s obligations under Rule 23(c)(2) and Rule 23(e)(2). Class Counsel undertook to carry this burden for the parties. As it turned out, the information they provided the District Court was materially insufficient to enable the court to comply with Rule 23(c)(2)(B)(iii). Class Counsel induced the noncompliance. The information, or lack thereof, caused the District Court to err.

“Rule 23(e)(2) required the District Court to determine whether the proposed Agreement was fair, reasonable, and adequate after considering, among other things, whether the class representatives and class counsel have adequately represented the class. While Class Counsel were asking the District Court to make this determination, they were representing each of the Plaintiffs who sought a service award of $5,000. They were also representing the absent Class Members. ‘One cardinal rule defines the scope of counsel’s ethical obligations in class actions: class counsel owes a duty to the class as a whole and not to any individual members of the class.’ Class Counsel, in seeking $10.5 million in fees, were representing themselves. They were the absent Class Members’ adversaries. At the same time, Class Counsel were in effect representing GoDaddy in obtaining overbroad releases of GoDaddy and scores of ‘affiliates’ from claims yet to materialize. A class of 1.26 million members had to be bound by those releases. Class Counsel had agreed to the release provisions GoDaddy wanted. Their hope for attorney’s fees depended on their agreement.

“If the Class Members had known that GoDaddy was getting rid of a $600 million exposure for up to $35 million less $10.5 million in attorney’s fees (as if paid to the lawyers for eliminating the exposure), they would have wondered why.  And they would likely have discovered why if the notice had informed them — that is, if the District Court as fiduciary had ordered the notice to inform them — of Facebook and the probability that their claims would be worthless if Facebook were decided before the District Court could approve the proposed Settlement Agreement.  The District Court neglected its duty in failing to inform the absent Class Members about the Facebook issue: whether GoDaddy used an ATDS in making the calls and sending the text messages. This was the dispositive issue in the case. Both sides agreed that this was so. Can there be any doubt that the District Court’s failure to inform the Class Members denied them due process of law?

“The Class Members were entitled to know that if the District Court waited until the Supreme Court decided Facebook before considering whether to approve the Settlement Agreement, the deal would probably have collapsed. That is because if the Supreme Court ruled that a system materially similar to the one GoDaddy used was not an ATDS, the Class Members’ claims would have vanished along with Class Counsel’s anticipated attorney’s fees. On the other hand, if the Supreme Court ruled to the contrary, their claims would have a value well in excess of $35 in cash or a $150 voucher, and so too Class Counsel’s right to attorney’s fees.”

 

Drazen v. Pinto, No.21-10199, 2024 WL 3422404 (11th Cir. July 16, 2024) (on rehearing).