Gehrich v. Chase Bank USA, N.A.

Citations: 316 F.R.D. 215; 2016 U.S. Dist. LEXIS 26184; 2016 WL 806549Docket: 12 C 5510

Court: District Court, N.D. Illinois; March 1, 2016; Federal District Court

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Jonathan Gehrieh initiated a putative class action lawsuit against Chase Bank in July 2012, alleging violations of the Telephone Consumer Protection Act (TCPA), which prohibits unsolicited automated calls and texts to cell phones without prior consent. By July 2013, settlement discussions were underway, leading to a motion for preliminary settlement approval in August 2014, which the court granted along with a notice program for the class. Current motions include a request to certify the settlement class, approval of attorney fees and expenses, and an incentive award for five class representatives. The court approved the class certification and incentive awards, partially granted the attorney fees, and approved the settlement.

The TCPA allows consumers to recover damages for violations, with potential awards of $500 per violation and up to $1500 for willful violations. Plaintiffs claimed Chase made unauthorized automated calls and sent alerts regarding account updates or debt collection despite requests to cease communications. The case includes two consolidated actions and is part of a broader trend of TCPA-related litigation involving the same attorneys. Settlement negotiations started nine months post-complaint, with a class-wide settlement reported in November 2013. The court has scrutinized settlement compliance with relevant legal principles, and the final approval hearing was delayed due to the discovery of approximately 7.1 million additional class members whose records were held by Chase.

Class Counsel and the Garden City Group (GCG) effectively notified nearly 80% of the nearly 32.3 million members of the proposed Settlement Class via mail, email, and publications in three national magazines. The Settlement Class includes individuals who received non-emergency calls, SMS text messages, or voice alerts from Chase USA or JPMC Bank between July 1, 2008, and December 31, 2013, through an automatic dialing system or prerecorded voice. The Class is divided into two subclasses: the Alert Call Subclass, with approximately 13.9 million members who received SMS messages or voice alerts related to account information, and the Collection Call Subclass, comprising about 18.4 million members who received calls related to debt collection.

Chase is required to make a non-reversionary payment of $34 million, allocated as follows: $18.3 million for Settlement Class member claims, a $1 million cy pres distribution, approximately $5.2 million for settlement administration costs, $7,500 for incentive awards to the five named Plaintiffs, and $9.5 million for attorneys’ fees and costs. Each Collection Call Subclass member who files a claim is eligible to receive between $19.40 and $77.60, with potential for additional distribution if not all claims are cashed. Any unclaimed funds will be directed to the Electronic Frontier Foundation as a residual cy pres distribution. The Alert Call Subclass will not receive direct monetary compensation; instead, they will benefit from a dedicated $1 million cy pres distribution to the Consumer Federation of America to settle their TCPA claims against Chase.

Settlement Class Members submitted 349,206 claims, constituting 1.08% of the class, with Chase agreeing to honor untimely claims received by the date of the final approval order. Multiple class members objected to attorney fees, cy pres distributions, and other provisions, with 225 members opting out of the class. Plaintiffs have filed motions for class certification, settlement approval, attorney fees, and incentive awards for five representatives. Following an approval hearing on October 22, 2015, the court requested lodestar data from Class Counsel, which was submitted on November 5, 2015, and the hearing continued on December 15, 2015.

For class certification, a court must ensure the proposed class meets the four requirements of Rule 23(a): (1) numerosity, (2) common questions of law or fact, (3) typicality of claims, and (4) adequacy of representation. If Rule 23(a) is met, the class must also fit into one of the categories in Rule 23(b), which include mandatory class actions, actions seeking injunctive or declaratory relief, or cases with predominating common questions. The class must be definable and ascertainable. In the context of settlement-only class certification, the district court is not required to assess management problems that would arise in a trial. However, heightened scrutiny is necessary to ensure that Rule 23's protections for absent class members are upheld, as these protections are not actively invoked in settlement scenarios. Failure to meet any Rule 23 requirement prevents class certification.

Rule 23(a) outlines the requirements for class certification, which include numerosity, commonality, typicality, and adequacy of representation. Numerosity is met when joinder is impracticable, with no specific number needed; however, the Seventh Circuit has indicated that even 40 members may suffice if individual claims are too small to pursue separately. Commonality demands that class members share common legal or factual questions, capable of resolution in a single proceeding. Typicality is established when the representative's claims arise from the same events or practices as those of the class. Adequacy assesses whether the named plaintiffs and class counsel can fairly represent the class's interests.

In this case, the proposed class exceeds the numerosity requirement with over 32 million individuals allegedly harmed by Chase's telemarketing practices, thus meeting the first prong. Commonality and typicality are also satisfied, as all members experienced similar injuries from receiving calls or texts from Chase. Variations in the number and subject of communications do not undermine commonality, provided that significant common questions exist. Key issues for resolution include whether providing a cellular number implies consent for calls, if certain calls fall under TCPA exceptions, and whether Chase used automated systems for these communications. Resolving these questions is central to validating the claims of all class members.

Typicality under Rule 23(a)(3) is assessed based on the company's actions rather than potential defenses against individual class members. Despite some members, including those in the Alert Call Subclass, consenting to calls or signing arbitration clauses that could extinguish their TCPA claims, this does not undermine the typicality of the class representatives’ claims, as all members allegedly received calls or texts from Chase in violation of the TCPA.

Concerns about adequacy arise from two objectors. One argues that preferential treatment of Chase credit card holders over bank account customers creates a conflict that undermines Class Counsel's effectiveness. The Settlement Agreement specifies that credit card holders receive three Award Units, while bank account holders receive one, with those holding both capped at four. This perceived conflict does not invalidate adequacy because the difference in treatment stems from the stronger claims of credit card holders compared to bank account customers, who agreed to arbitration upon account opening. 

Legal precedents affirm that when significant differences in claim strength exist, it is acceptable to allocate settlement distributions accordingly, favoring those with stronger claims. The disparity in awards based on claim strength does not necessitate separate counsel for different groups. Class Counsel has demonstrated competence and effective representation for the class, while proposed class representatives must not have conflicting interests with other representatives or the absent class members.

Plaintiffs claim they received unauthorized calls and voice alerts from Chase on their cell phones without prior consent. This claim does not face unique defenses and is not considered idiosyncratic. An objector argues that named plaintiffs have breached their fiduciary duty to the class, which pertains more to objections regarding incentive awards than the adequacy of representation. The requirements of Rule 23(a) have been met.

For Rule 23(b)(3), which is preferred for cases seeking substantial damages, a class can be certified if common legal or factual questions predominate over individual issues and if a class action is a superior method for resolving the dispute. Factors for this include the interests of class members in controlling separate actions, existing litigation related to the controversy, the desirability of concentrating claims in a specific forum, and potential management difficulties of a class action. Predominance is satisfied when the common questions are significant and resolvable in a single adjudication. An objector's assertion that some class members welcomed the calls does not negate the lack of prior consent required under the TCPA, which applies uniformly regardless of individual reception of the calls. The common legal questions prevail over individual concerns, meeting the Rule 23(b)(3) criteria.

Regarding ascertainability, the class must be defined clearly enough for identification. This requirement is met as the class consists of individuals who received non-emergency calls from Chase between July 1, 2008, and December 31, 2013, using automated dialing or prerecorded messages. No objections to ascertainability were raised, as the class description is objective and straightforward. The proposed subclasses are similarly defined and easily ascertainable.

The Alert Call Subclass includes individuals who received text messages or voice calls from Chase during the class period concerning account information. The Collection Call Subclass consists of those who received non-emergency calls related to debt collection for Chase credit cards or bank accounts within the same timeframe. The proposed class meets the requirements of Rules 23(a) and 23(b)(3) and is ascertainable, warranting certification.

For settlement approval, a court must ensure that the proposal is 'fair, reasonable, and adequate' following proper notice and a public hearing, as outlined in Fed. R. Civ. P. 23(e)(2). The court must not merely approve a settlement without scrutiny, as it has a fiduciary duty to the class. Factors to evaluate settlement fairness include the strength of the plaintiffs’ case versus the settlement amount, the complexity and cost of potential litigation, opposition to the settlement, counsel's opinion, and the stage of proceedings at the time of settlement.

The court found the settlement to be fair, reasonable, and adequate, concluding it satisfies Rule 23(e)(3). The Settlement Agreement requires Chase to contribute $34 million to a fund, from which eligible Collection Call Subclass members who file claims by the order date will receive a pro rata share. Although the theoretical recovery per subclass member is about $1.00, actual recoveries are approximately $52.50. While some objectors pointed out that this amount is significantly less than the $500 statutory recovery per call or text under 47 U.S.C. 227(5)(B)(C), it is still within the range of recoveries seen in recent TCPA class actions.

The court emphasizes that settlements should not be rejected simply because they do not result in a total victory for plaintiffs, highlighting the nature of settlement as a compromise. An acceptable settlement involves both parties making concessions. In this case, individual class members will receive less than the full value of their TCPA claims; however, they will benefit from a prompt monetary payout for minimal inconvenience, avoiding the burdens of litigation. Chase benefits from resolving the matter and reducing risk, as a complete victory for plaintiffs could lead to significant financial liabilities, potentially bankrupting the company. The settlement offers $52.50 per claimant in cash, in contrast to disapproved coupon-based settlements, ensuring that these funds will not revert to Chase. Any excess funds after distribution will be allocated to a cy pres award for the Electronic Frontier Foundation (EFF).

Plaintiffs face considerable challenges if they continue litigation, including potential defenses from Chase, such as consent from call recipients or arbitration clauses. Additionally, FCC regulations might support Chase's position, as a 2008 order allows autodialed calls to individuals who provided their wireless numbers related to existing debts. Previous rulings suggest that consent could lead to summary judgment for the defendant. Moreover, if the case were contested, managing class certification could pose serious challenges, as courts must evaluate practical issues that may arise in class actions.

Predominance in class certification can be challenged when liability determinations require individual assessments and when affirmative defenses necessitate personal evaluations of conduct for each class member. Courts must analyze potential defenses when evaluating predominance, regardless of whether such defenses affect class members differently. In discovery, Chase argued that it lacked calling data for most class members and complete identification information, asserting that determining consent for calls would involve extensive individual inquiries, thus hindering class certification. Previous cases have denied certification under similar circumstances, citing the need for multiple mini-trials to ascertain consent. Additionally, recent legal developments, including a Supreme Court case questioning the standing of statutory damage class actions without concrete harm, present risks to Plaintiffs’ claims. The potential for unfavorable outcomes in ongoing litigation, coupled with industry appeals regarding consent definitions under the TCPA, further complicated the situation. Given these challenges, the settlement was deemed to provide fair actual cash value. The complexity, length, and expense of continued litigation also strongly favored the approval of the settlement.

The parties have engaged in limited discovery aimed at evaluating settlement but would require extensive additional discovery of Chase's call and text records if litigation continues. This additional discovery would necessitate expert retention, data analysis, and substantial motion practice, potentially delaying any judgment in favor of the Plaintiffs and likely leading to appeals.

Regarding opposition to the settlement, only 225 class members opted out, which is approximately 0.000697% of the class. Out of 32.3 million class members, only eighteen filed timely objections, mainly concerning attorney fees and cy pres distributions rather than the settlement's fundamental value. This minimal opposition suggests that the settlement is fair, reasonable, and adequate, supported by precedent indicating that low opt-out rates favor approval.

Class Counsel, experienced in TCPA litigation, strongly supports the settlement despite potential bias due to their vested interest in its approval. The stage of proceedings indicates that, although settlement negotiations began early with limited motion practice and discovery, the parties conducted "confirmatory discovery" sufficient to assess their respective positions without incurring substantial costs.

The absence of collusion is emphasized, with the Seventh Circuit stressing the need for vigilance in class action settlements to prevent exploitation by class counsel and defendants. The record does not indicate any collusion among Chase, the class representatives, or Class Counsel that would undermine the settlement's integrity.

The settlement includes a "clear-sailing" provision, wherein the defendant, Chase, agrees not to contest class counsel's request for attorneys' fees, which is typically in the defendant's interest to challenge. However, this provision is compensated by a reduction in the amount allocated to class members; nonetheless, any decrease in attorney fees will benefit the class due to the non-reversionary nature of the Settlement Agreement. Chase's total payment remains fixed at $34 million, and given the court's scrutiny of attorney fees, the risk of harm to the class from this clause is minimal.

Several objections to the settlement were overruled. Objectors claimed that the individual awards to class members were insufficient relative to statutory damages. However, achieving a class-wide recovery matching statutory awards is highly unlikely and could financially harm Chase. The strength of the plaintiffs' claims does not justify a settlement amount near the statutory limits. Furthermore, federal courts can release claims not specifically presented in the class action if they arise from the same factual basis, and global releases of past, present, and future claims are common.

Additionally, some class members objected that the payout structure does not consider the number of calls received, as TCPA statutory damages are per violation. However, assessing individual call volumes would be administratively burdensome and could significantly reduce the settlement fund available to claimants, ultimately delaying awards.

The settlement fund will be fully utilized by two pro rata distributions, alleviating concerns about leftover funds reverting to Chase. Some objectors have raised issues regarding the notice and claims process, citing the need for the best practicable notice under Rule 23(b)(3), which requires individual notification to identifiable class members. When individual notice is not feasible, alternative methods such as third-party notifications and advertisements can be employed, provided they meet due process standards. The notice provided in this case exceeded requirements by effectively reaching a wide audience through direct mail, email, and publications, with follow-up reminders. The claim forms were designed to be simple, adhering to Federal Judicial Center guidelines, requiring only a signature and checkbox to file a claim.

Despite one objector's claim that initial oversights by Chase indicated negligence in notification, the court observed that Class Counsel acted diligently by taking necessary steps to inform newly identified class members and re-notify existing ones. Concerns regarding the adequacy of notice due to the settlement website’s address lacking the word "Chase," the absence of posted documents at the time of notification, and unclear deadlines were deemed unfounded. Notices included the settlement website link and clearly stated deadlines in bold. While earlier posting of the complaint and approval notice would have been preferable, it was not mandated by Rule 23, and the notices effectively facilitated access to the necessary information.

Notice to potential claimants is deemed adequate despite objections, as interested class members could have sought additional information. Objectors also contend that Chase should offer debt relief alongside settlement payments; however, such relief is unrelated to the alleged TCPA violations and is not included in the settlement. 

Objections were raised regarding the cy pres distributions, which allow funds to be allocated to charities when direct distribution to class members is impractical. This doctrine permits the use of funds to achieve a purpose close to the original intent when circumstances change. In this case, the Settlement Agreement mandates Chase to donate $1 million to the CFA instead of distributing minimal amounts to nearly fourteen million class members, where each would receive about $0.07—an amount insufficient to cover distribution costs.

The Alert Call Subclass is treated less favorably than the Collection Call Subclass because most members had provided their cell phone numbers and consented to receive alerts from Chase, indicating they likely lack viable TCPA claims. This reflects a legal precedent where prior express consent negates TCPA violations. Consequently, the court finds that consent to receive automated calls exists, leading to a summary judgment favoring the defendants in related cases.

The viability of the plaintiffs' TCPA claim hinges on the consent given, suggesting that the Alert Call Subclass may have nominal value despite its large size. Chase's decision to settle, even if viewed as a nuisance settlement, is justified due to the costs associated with defense. However, the $1 million dedicated cy pres award—representing 5% of the total settlement—poses issues as it reduces the settlement fund available to the Collection Call Subclass, which has potentially valid claims. Chase argued that the cy pres distribution was negotiated separately, but the court disagreed, emphasizing that funds are fungible and the allocation is ultimately immaterial to Chase's overall liability.

Consequently, the court reduced the cy pres award to $50,000, redistributing the remaining $950,000 to benefit the Collection Call Subclass. This adjustment addresses concerns regarding the adequacy of the cy pres distribution. Objections raised against the cy pres concept and the CFA as a recipient were deemed unmeritorious, as the Seventh Circuit supports such awards when distributing to class members is impractical. The CFA's mission aligns with the interests of the class, validating its selection as a cy pres recipient. Additional objections related to residual cy pres awards were found to misinterpret the Settlement Agreement, clarifying that these do not limit the amounts payable to the Collection Call Subclass members.

After the second pro rata distribution, any remaining funds will be allocated as cy pres to the Electronic Frontier Foundation (EFF) 365 days post-Effective Date. This residual distribution occurs only after the pro rata distributions to claimants, specifically targeting funds where distribution costs would exceed individual claimant awards from a hypothetical third distribution. This approach aligns with the Seventh Circuit's directive that unclaimed funds should benefit the class as much as possible. Objections to the EFF cite concerns about its spending practices and mission relevance to the case. However, Class Counsel highlights that the EFF's objectives include consumer privacy protection related to new technologies, and objections regarding expenditures primarily focus on staff salaries, which are deemed appropriate given their alignment with the organization's mission.

Additionally, several objectors challenge Class Counsel's attorney fee request. In certified class actions, courts can award reasonable attorney’s fees based on legal authorization or party agreement. Since Chase is providing a settlement sum in exchange for liability release, equitable principles allow the court to determine attorney fees from the settlement fund, reflecting that all beneficiaries of the litigation should share its costs. Attorney fees in class actions should mirror prevailing market rates for legal services. The court must assess the value of the settlement and the reasonableness of the attorney fees, noting that higher fees can reduce class member compensation. The focus is on the outcomes achieved for the class rather than the effort expended by counsel. The likelihood of success at litigation's start is relevant, but class control over counsel is often minimal. Courts should strive to award fees reflective of market value, considering the risks of nonpayment and typical compensation rates at the time.

Estimation of attorney's fees in class action cases is inherently speculative, with the Seventh Circuit allowing district courts discretion to choose between percentage and lodestar methods for fee calculation. Class Counsel has requested a fee of $9,507,603 from a $34 million common fund, leaving $19,281,967.49 for class members after expenses and awards. The appropriate ratio for assessing the reasonableness of the fees is the proportion of the attorney's fee to the total amount received by class members. The requested fee represents 33.02% of the net settlement fund, which increased to 34.15% with additional cy pres funds included.

Class Counsel argues that their fee is reasonable compared to market standards in complex litigation, the risks involved, and their performance quality, citing a customary contingency fee range of 33% to 40% in the Seventh Circuit. However, it is suggested that fees awarded in consumer class actions should not exceed one-third to one-half of the total recovery for class members, a range within which the requested fees fall. Agreements between class representatives and Class Counsel stipulate fees between 33.3% and 50% of any judgment or settlement, but these agreements hold little weight since named plaintiffs often lack sufficient bargaining power.

Moreover, Class Counsel's references to other cases with similar fee percentages overlook a key principle: as the value of the common fund increases, the percentage of the settlement awarded as attorney fees typically decreases. The Seventh Circuit has noted that fee agreements often provide for a diminishing recovery rate as the fund grows, as many litigation costs remain constant regardless of the case value. Therefore, justifying similar fees for significantly larger recoveries becomes increasingly difficult.

Diminishing marginal rates for attorney fees apply to cases involving $50 million and $500 million, as well as $200 million, allowing counsel to cover litigation costs from initial settlement tiers while providing clients with greater marginal benefits. Empirical studies indicate that attorney fees as a percentage of total settlement decrease with larger settlements. For settlements between $2.8 million and $5.3 million, the median fee was 25%, while for settlements between $22.8 million and $38.3 million, it was approximately 24.9%. Further studies show similar trends, with fees constituting a smaller percentage as settlement amounts rise. Class Counsel argues that a study by Fitzpatrick is irrelevant because it uses different ratios than those approved in past cases; however, this argument overlooks the Seventh Circuit's citation of the study to illustrate the decreasing fee percentages with increasing fund sizes. Class Counsel's reliance on examples of cases awarding fees over one-third of the settlement amount is criticized, as most of those settlements were significantly lower than the $34 million common fund in this case, with many below $5 million.

The court adopts a sliding-scale approach to attorney fees based on the common fund size and relative settlement amounts, following the precedent set in *In re Synthroid Mktg. Litig.*, where fees are allocated at decreasing percentages across settlement tiers. The court emphasizes the importance of fee structure over absolute amounts, noting that negotiated agreements typically reflect a decreasing fee recovery rate. This model considers factors such as the risk of nonpayment, quality of legal performance, necessary workload, and case stakes. Although risks of nonpayment existed, they were deemed insufficient to justify a fixed-percentage fee for Class Counsel at the case's outset, especially given established templates for TCPA litigation that reduced uncertainty. Class Counsel's assertion of substantial resource investment did not sway the court, as this is inherent to contingency work. The court concluded that informed plaintiffs would likely negotiate for a sliding-scale fee structure to align compensation with recovery, reinforcing the incentive for counsel as stated in *Silverman*.

Counsel is awarded a decreasing percentage of settlement amounts to balance recovery costs and client benefits, specifically 30% of the first $10 million, 25% of the second $10 million, and 20% for amounts between $20 million and $28.79 million. After deductions for cy pres distribution, incentive awards, and administrative costs from the total $34 million fund, the overall attorney fee amounts to $7,257,914.10, representing 21.35% of the common fund and 25.21% of the combined fees and class recovery of $28,789,570.49. The 20% fee for amounts from $20 to $28.79 million is lower than the 22% from a prior case (Synthroid II) but deemed appropriate due to the lower risks involved. The court did not adopt the lodestar method for fee calculation, though the data is noted: Class Counsel billed 2,323 hours at a blended rate of $654 per hour, leading to a lodestar of $1.287 million. Their original fee request of $9.507 million would have resulted in an inflated blended rate of $4,092 per hour, a nearly 740% increase over the lodestar. The final reduced fee still represents a 564% increase over the lodestar. Class Counsel’s fee request evolved from an initial $11 million to $9.507 million after considering recent Seventh Circuit decisions, yet their failure to proportionally adjust this request in light of rising administrative costs raises questions about the principled nature of their methodology. The court expresses disappointment in Class Counsel's lack of adjustment to their fee request and warns against future unprincipled approaches.

Class Counsel asserts that litigating TCPA cases necessitates persistent diligence throughout the process. However, their experience with similar cases and the swift transition to settlement negotiations reduced the need for extensive litigation efforts. The excerpt emphasizes that all attorneys are bound by ethical obligations to exercise diligence in legal matters, and simply demonstrating persistent diligence does not justify a higher fee award. Class Counsel cites potential defenses from Chase as significant challenges, but given the potential liability for Chase, they should have anticipated a likely settlement outcome.

Class Counsel's fee request of $9,507 million is compared to previous sliding-scale fee structures from similar cases. They argue for a 6% risk premium to apply at every level of settlement recovery, rather than just the initial $10 million, but this overlooks the purpose of sliding scales, which accounts for diminishing returns on effort relative to recovery amounts. Ultimately, the court awards $7,257,914.10, with the remaining $2,249,688.90 returned to the common fund for distribution to the Collection Call Subclass.

Additionally, plaintiffs request $1,500 incentive awards for each of the five class representatives due to their role in the litigation. Such awards are deemed appropriate when they encourage individuals to serve as representatives. The determination of these awards considers the representatives' actions to protect class interests, the benefits to the class, and the time and effort they invested, despite the case not advancing far in formal discovery.

One objector claimed that the named plaintiffs' acceptance of high attorney fees violated their fiduciary duty to the class; however, it is acknowledged that the plaintiffs, not being legal experts, could not be expected to scrutinize these fees as thoroughly as a court. The contingency fee agreements entered into by the named plaintiffs were deemed not excessively apparent to non-lawyers. Additionally, Gehrich's prior unpaid internship at Class Counsel's firm does not constitute a conflict of interest as defined by the Seventh Circuit. It was noted that it was inappropriate for the lead class counsel to be related to the lead class representative, as fiduciaries must avoid conflicts of interest without informed consent from beneficiaries. The requested $1,500 service awards for the class representatives were considered nominal, especially compared to recent awards of $5,000 in similar cases. Consequently, the court granted the motions for class certification and incentive awards, while partially granting and partially denying the motions for final settlement approval and attorney fees. The court modified the settlement distribution from a $34 million common fund to include: $21,531,656.39 for Collection Call Subclass Member claims, $50,000 to the Consumer Federation of America, approximately $6,152,929.51 for settlement administration expenses, $7,500 for incentive awards to five class representatives, and $7,257,914.10 for court-approved attorney fees and costs.