FYI: 7th Cir Affirms Award of Over $600k in Class Notice Costs to TCPA Plaintiffs

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's order allocating class notice costs in the amount of $602,838 to the defendant in a putative class action alleging violations of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(B) (TCPA).

 

In so ruling, the Court held that, although putative class plaintiffs must initially bear the cost of notice to the class, and these costs should usually not be shifted to the defendant if they are "substantial", the trial court here awarded the costs to the plaintiffs only after it granted summary judgment in favor of plaintiffs. 

 

A copy of the opinion is available at:  Link to Opinion

 

Several named plaintiffs ("Plaintiffs") brought a putative class action lawsuit against a travel company (defendant) alleging that the defendant violated the TCPA by calling class members using prerecorded voice messages without their consent. The Plaintiffs alleged that the defendant contracted with an Indian based company to call millions of Americans to offer them a free cruise. Plaintiffs alleged the defendant would pay the Indian based company a fee for every customer who contacted the defendant based on the sales call.

 

Under Federal Rule of Civil Procedure 23(b)(3), Plaintiffs initially moved to certify a nationwide class of people who had received calls from the company based in India. The trial court granted in part and denied in part the motion and certified a class of Illinois resident but not a nationwide class due to lack of jurisdiction over the travel company under the recently decided opinion in Bristol-Myers Squibb Co. v. Superior Court of California, No. 21-2653 3 582 U.S. 255 (2017). Based on this ruling Plaintiffs used two (2) third-party service providers to identify and send notice to the 28,239 Illinois class members. Plaintiffs covered that cost.

 

The parties both moved for summary judgment against each other. The trial court granted Plaintiffs' motion on the TCPA claim. The court also determined that travel company's TCPA violations were committed willfully or knowingly and this finding permitted an award of actual to treble damages under 47 U.S.C. § 227(b)(3)(C).

 

Based on the recently decided case of Mussat v. IQVIA, Inc., holding that "the principles announced in Bristol-Myers do not apply to the case of a nationwide class action filed in federal court under a federal statute." 953 F.3d 441, 443 (7th Cir. 2020) the trial court reconsidered the nationwide class issue. Ultimately the trial court granted Plaintiff's motion to amend, certified a nationwide class, and entered summary judgment in favor of the nationwide class for the same reasons it had entered summary judgment in favor of the Illinois class.

 

The trial court noted that it had some discretion to shift notice costs to the defendant. The trial court sought briefing from the parties on this issue. Plaintiffs proposed that the parties use the same method that they had employed to identify and send notice to the Illinois class members. Plaintiffs submitted documentation from third-party service providers estimating that the total cost of identifying and sending notice to the new members would be $602,838. 

 

The travel company did not oppose Plaintiffs' plan, but it argued that cost-shifting was not appropriate. Relying on the case of Oppenheimer and Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), the defendant argued it was not responsible for the notice costs because the costs were not nominal but substantial. The trial court disagreed and ordered the travel company to bear the costs of providing notice to the nationwide class because the defendant's liability was already established through the summary judgment order.

 

The defendant travel company appealed, and although this was not a final order the Supreme Court of the Unites States' ruling in Eisen established that an order allocating the cost of class to a defendant is an immediately appealable collateral order. See Eisen, 417 U.S. at 171–72.

 

On appeal, the Seventh Circuit agreed that the trial court had discretion to allocate the notice costs to the defendant, and therefore examined the trial court's ruling under an abuse of discretion standard.

 

In general, the rule regarding notice costs "requires the plaintiff to initially bear the cost of notice to the class," Eisen, 417 U.S. at 178, because Plaintiffs "seek to maintain the suit as a class action and to represent other members of his class." Oppenheimer, 437 U.S. at 356. The Supreme Court of the United States has noted that lower courts should not stray too far from this basic principle. Id. at 359.

 

Under the guidelines in the Oppenheimer case, the test should be whether the expense is "substantial," in which case it should be borne by the representative plaintiff. Id. at 359. But if "the task ordered is one that the defendant must perform in any event in the ordinary course of its business," then "it may be appropriate to leave the cost where it falls." Id. In addition, Oppenheimer noted only that it would be unfair to shift costs to the defendant based solely on "[a] bare allegation of wrongdoing," similar to what a plaintiff may initially aver in a complaint. Id. at 363.

 

However, the Seventh Circuit noted that the Plaintiffs in this case were already awarded summary judgment and noted the similarities between this case and the case of Hunt v. Imperial Merchant Services., Inc., 560 F.3d 1137 (9th Cir. 2009). In Hunt,  the trial court certified a plaintiff class, granted partial summary judgment for the class, and then ordered the defendant to pay the costs of notifying the class members. Hunt further cited other district court opinions where courts have placed notice costs on the class action defendant once the defendant's liability has been established.

 

Although this is not a bright line rule, the Seventh Circuit ruled that it meant the trial court had discretion once liability was established through the summary judgment order to tax the notice costs to the defendants.

 

Accordingly, the Seventh Circuit agreed that the trial court may elect to shift the cost of class notice to the defendant. Because the trial court ruled on liability and exercised its discretion by shifting notice costs to the travel company, the Appellate Court found no abuse of discretion with the trial court's decision.  Accordingly, the trial court's order allocating notice costs to the defendant was affirmed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Holds Chapter 13 Trustee Not Entitled to Compensation When Case Dismissed Prior to Confirmation

The U.S. Court of Appeals for the Ninth Circuit recently reversed a contrary trial court ruling, and joined with the U.S. Court of Appeals for the Tenth Circuit in holding that a Chapter 13 trustee is not entitled to a percentage fee of plan payments as compensation for her work in a Chapter 13 case when the case is dismissed prior to confirmation.

 

A copy of the opinion is available at:  Link to Opinion

 

In this case, two debtors filed a Chapter 13 bankruptcy plan. The plan provided that the fees of the standing trustee would be "governed and paid as provided by 28 U.S.C. § 586." Consistent with 11 U.S.C. § 1326(a)(1), the debtors began making payments to the trustee according to the proposed plan, and the trustee collected a percentage fee from each payment as compensation. Before the plan was confirmed, however, the debtors voluntarily dismissed their case.

 

After the debtors dismissed their case, they filed a "motion to disgorge fees," arguing that the trustee was obligated to return to them any fees she had collected because 11 U.S.C. § 1326(a) requires fees to be refunded if a plan is not confirmed. The bankruptcy court agreed with the debtors and ordered the trustee to return the fees. The trial court reversed, and the debtors timely appealed.

 

The parties both argued that a proper interpretation of the word "collect" in 28 U.S.C. § 586(e)(2) controlled the appeal. The relevant language reads: "[the trustee] shall collect such percentage fee from all payments received by such individual under plans . . . for which such individual serves as standing trustee." 28 U.S.C. § 586(e)(2).

 

The Ninth Circuit determined that the best approach to interpret "collect" was proposed by amicus National Consumer Bankruptcy Rights Center and National Association of Consumer Bankruptcy Attorneys (NCBRC), which was to read 28 U.S.C. § 586 and 11 U.S.C. § 1326 together. See In re W. States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 716, 731 (9th Cir. 2013). Specifically, NCBRC contended that the phrase "payments . . . under plans" in Section 586, when read in the larger context of the Bankruptcy Code, refers only to payments under confirmed plans, rendering the provision irrelevant to the pre-confirmation period. NCBRC suggested that to the extent this case implicated pre-confirmation payments, the place to look was instead Sections 1326(a) and (b).

 

The Ninth Circuit noted that, unlike Section 586, which refers to "payments . . . under plans," Section 1326(a)(1)(A) refers to payments "proposed by the plan." Accordingly, prior to confirmation, the Court held that a trustee does not "collect" or "collect and hold" fees under Section 586, but instead "retains" payments "proposed by the plan" pursuant to Section 1326(a)(2). See § 1326(a)(2). If a plan is not confirmed, Section 1326(a) requires return of "any such payments" to the debtor, after deducting amounts previously paid and due and owing to creditors. Id. If a plan is confirmed, the trustee is to distribute payments in accordance with the plan. Id. §1326(a)(2).

 

Furthermore, the Ninth Circuit determined that plan confirmation triggers one last and important provision, Section 1326(b). If a plan is confirmed—and only if a plan is confirmed—does 1326(b) require that the trustee "be paid" her percentage fee "[b]efore or at the time of each payment to creditors under the plan." Because payments are made "to creditors under the plan" only once a plan is confirmed, id. § 1326(a)(2), the Court reasoned that Section 1326(b) indicates that a standing trustee can be paid her percentage fee only after confirmation. The Court also noted that Section 1326(b) cross-references Section 586, which provides the source of and the amount (but not the timing) of trustee fees.

 

Thus, the Ninth Circuit concluded that the plain text of Section 1326(b) unambiguously shows that it is the specific provision governing when a trustee "shall be paid": "before or at the time of each payment to creditors under the plan," which necessarily means post-confirmation of a plan. Section 1326(a) only governs disposition of "payments . . . proposed by the plan," and Section 586 only provides that when a trustee does collect her fee pursuant to 1326(b), she does so by "collect[ing]" her fee "from all payments received" under confirmed plans. See 28 US.C. § 586(e)(2)).

 

The Ninth Circuit also decided that the amendment history of these provisions supports the debtors and NCBRC's interpretation. The Court reasoned that Congress has had numerous opportunities to add language explicitly permitting a trustee to receive her fees even if a plan is not confirmed. In the Court's view, Congress' failure to do so strongly evidences its intent not to require payment of trustee fees when a plan is not confirmed. See Guerrero-Lasprilla v. Barr, 140 S. Ct. 1062, 1071–72 (2020).

 

Accordingly, the Ninth Circuit reversed the trial court's decision and held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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