Court Opinion

ID: 4014171
Source: CourtListenerOpinion
Date Created: 2016-07-08 18:01:00.04193+00
Date Added: 2024-06-11T09:25:49.926712
License: Public Domain

In the

      United States Court of Appeals
                      For the Seventh Circuit
                          ____________________  

Nos.  15-­‐‑2164  &  15-­‐‑2256  
IRA  HOLTZMAN,  individually  and  as  representative  of  a  class,  
                            Plaintiff-­‐‑Appellee,  Cross-­‐‑Appellant,  
                                        v.  

GREGORY  P.  TURZA,  
                                    Defendant-­‐‑Appellant,  Cross-­‐‑Appellee.  
                          ____________________  

           Appeals  from  the  United  States  District  Court  for  the  
             Northern  District  of  Illinois,  Eastern  Division.  
             No.  08  C  2014  —  Robert  W.  Gettleman,  Judge.  
                          ____________________  

        ARGUED  JANUARY  11,  2016  —  DECIDED  JULY  8,  2016  
                    ____________________  

    Before  EASTERBROOK,  WILLIAMS,  and  SYKES,  Circuit  Judges.  
    EASTERBROOK,   Circuit   Judge.   Attorney   Gregory   Turza  
tried  to  solicit  business  by  sending  fax  advertisements  to  ac-­‐‑
countants.  Three  years  ago  we  held  that  these  faxes  violated  
the   Telephone   Consumer   Protection   Act   of   1991,   47   U.S.C.  
§227.  Ira  Holtzman,  C.P.A.,  &  Associates,  Ltd.  v.  Turza,  728  F.3d  
682   (7th   Cir.   2013).   The   district   judge   had   ordered   Turza   to  
post  a  fund  of  about  $4.2  million,  stating  that  he  planned  to  
distribute  this  sum  to  the  class  members  and  donate  any  re-­‐‑
2                                                     Nos.  15-­‐‑2164  &  15-­‐‑2256  

mainder   to   a   charity.   We   reversed   that   part   of   the   district  
court’s   order.   We   held   that   “this   action   stems   from   discrete  
injuries   suffered   by   each   recipient   of   the   faxes;   it   does   not  
create   a   common   fund.”   728   F.3d   at   688.   We   remanded   the  
case  to  the  district  court  for  further  proceedings.  
      While   that   appeal   was   pending,   Turza   had   posted   a   su-­‐‑
persedeas  bond.  After  losing  on  the  merits  he  deposited  $4.2  
million  into  the  court’s  registry.  Invoking  the  common-­‐‑fund  
doctrine  of  Boeing  Co.  v.  Van  Gemert,  444  U.S.  472  (1980),  the  
district   judge   decided   that   class   counsel   gets   a   third   of   this  
money   (about   $1.4   million)   as   compensation   for   legal   ser-­‐‑
vices.   The   Act   authorizes   an   award   of   up   to   $500   per   im-­‐‑
proper  fax.  47  U.S.C.  §227(b)(3)(B).  The  district  court  ordered  
two-­‐‑thirds  of  that,  or  $333  per  fax,  sent  to  every  class  mem-­‐‑
ber.   (The   names   and   phone   numbers   of   the   persons   and  
businesses  that  received  the  faxes  are  known;  the  court’s  or-­‐‑
der   does   not   require   class   members   to   submit   requests   for  
payment.)  If  some  class  members  fail  to  cash  their  checks,  or  
if  they  have  moved  and  cannot  be  tracked  down,  then  there  
will  be  a  second  distribution.  The  maximum  paid  out  per  fax  
is   to   be   $500.   If   money   remains   in   the   fund   after   counsel  
have   received   $1.4   million   and   all   members   who   can   be   lo-­‐‑
cated   (and   take   the   payments)   have   received   $500   per   fax,  
the   residue   goes   back   to   Turza.   Both   the   class   and   Turza  
have  appealed  from  these  orders.  
     Turza   contends   that   paying   counsel   based   on   the   total  
value   of   the   fund   is   inappropriate,   and   he’s   right.   Boeing  
holds   that   counsel   are   entitled   to   be   compensated   from   a  
common   fund,   but   our   2013   opinion   held   that   this   is   not   a  
common-­‐‑fund  case.  Class  counsel  maintain  that  our  decision  
is   mistaken,   but   it   is   the   law   of   the   case.   Our   decision   cites  
Nos.  15-­‐‑2164  &  15-­‐‑2256                                                  3  

Boeing;  it  is  not  a  new  development  or  a  controlling  authority  
of   which   we   were   unaware.   We   thought   then,   and   think  
now,   that   suits   under   the   Telephone   Consumer   Protection  
Act   seek   recovery   for   discrete   wrongs   to   the   recipients.   See  
Alyeska  Pipeline  Service  Co.  v.  Wilderness  Society,  421  U.S.  240,  
263–67   &   n.39   (1975)   (explaining   the   difference   between  
common-­‐‑fund   cases   and   class   actions   that   aggregate   indi-­‐‑
vidual   claims);   Snyder   v.   Harris,   394   U.S.   332   (1969)   (same);  
Travelers   Property   Casualty   v.   Good,   689   F.3d   714   (7th   Cir.  
2012)  (same).  Under  our  2013  decision  the  $4.2  million  repre-­‐‑
sents  security  for  payment,  not  a  genuine  common  fund  (see  
Boeing,  444  U.S.  at  479–80  n.5).  
    If  all  class  members  claim  their  awards,  this  will  make  no  
difference.  Under  the  American  Rule  for  the  allocation  of  at-­‐‑
torneys’  fees,  litigants  must  cover  their  own  legal  costs.  (The  
Telephone   Consumer   Protection   Act   is   not   a   fee-­‐‑shifting  
statute.)  So  the  members  of  the  plaintiff  class  must  pay  their  
lawyers,   and   none   of   the   class   members   has   appeared   to  
contend  that  a  third  of  the  recovery  is  an  excessive  fee.  This  
means  that,  of  each  $500  in  damages  for  a  given  fax,  counsel  
are  entitled  to  about  $167,  and  the  fax  recipient  gets  the  rest.  
But   if   a   given   recipient   cannot   be   located,   or   spurns   the  
money,   counsel   are   not   entitled   to   be   paid   for   that   fax.   The  
district   judge   held   that   Turza   gets   the   money   back,   and  
awarding  counsel  $167  per  fax  when  the  class  member  gets  
nothing   would   be   equivalent   to   treating   the   Act   as   a   fee-­‐‑
shifting  statute  and  requiring  Turza  to  pay  the  class’s  attor-­‐‑
neys  just  because  he  lost  the  suit.  
    The   district   judge   ordered   a   second   round   of   distribu-­‐‑
tions,  so  that  a  class  member  could  receive  as  much  as  $500  
per   fax   (if   some   class   members   could   not   be   located   or   did  
4                                                   Nos.  15-­‐‑2164  &  15-­‐‑2256  

not  cash  their  checks).  But  that  second  round  of  distribution  
would  be  inconsistent  with  the  American  Rule  on  the  alloca-­‐‑
tion  of  legal  fees.  The  statute  authorizes  a  maximum  award  
of  $500  per  fax,  out  of  which  counsel  must  be  paid.  Given  the  
district  court’s  conclusion  that  Turza  is  entitled  to  the  return  
of  the  excess  in  the  fund  (which,  to  repeat,  is  only  a  security  
device),  distributing  more  than  $500  per  fax  ($333  to  the  re-­‐‑
cipient  and  $167  to  counsel)  would  either  exceed  the  statuto-­‐‑
ry  cap  or  effectively  shift  the  class’s  legal  fees  to  Turza.  See  
Pearson  v.  NBTY,  Inc.,  772  F.3d  778,  781–82  (7th  Cir.  2014).  
    The  class  protests  the  district  court’s  conclusion  that  any  
residue   goes   back   to   Turza.   It   would   prefer   to   direct   the  
money   to   a   charity,   as   the   district   court   had   announced   be-­‐‑
fore  our  2013  decision.  This  argument  is  of  a  piece  with  the  
class’s  contention  that  the  $4.2  million  represents  a  common  
fund.  Given  our  conclusion  that  the  class  members  have  suf-­‐‑
fered   discrete   rather   than   undifferentiated   losses,   however,  
the   money   represents   security   for   payment   rather   than   a  
common  fund.  And  once  a  debt  has  been  satisfied,  a  security  
interest  is  released.  So  if  X  borrows  from  a  bank  and  pledges  
stock   as   security,   once   X   repays   the   loan   the   stock   is   re-­‐‑
turned;  it  is  not  given  to  charity.  
     We   do   not   mean   to   foreclose   the   possibility   of   a   cy   pres  
distribution   (as   these   charitable   uses   are   called)   in   all   cases  
with   individual   harms.   Our   original   opinion   observes   that  
settlements   sometimes   provide   that   none   of   the   money   will  
be  returned,  and  then  the  judge  must  do  something  with  the  
residue.  If  the  government  does  not  demand  escheat,  a  chari-­‐‑
table  distribution  to  an  organization  that  will  do  some  good  
for   the   class   becomes   attractive.   And   our   2013   decision   did  
not   hold   that   the   absence   of   a   settlement   makes   a   cy   pres  
Nos.  15-­‐‑2164  &  15-­‐‑2256                                                5  

remedy  impossible.  A  district  judge  might  conclude  that  the  
inability  to  track  down  the  current  address  of  a  victim  who  
has  moved  should  not  automatically  benefit  the  wrongdoer.  
But,  for  the  reasons  we  gave  in  2013,  a  judge  is  never  legally  
obliged   to   divert   money   from   the   litigants   to   a   charity.   The  
district  judge’s  decision  that  any  surplus  goes  back  to  Turza  
cannot  be  called  either  a  legal  blunder  or  an  abuse  of  discre-­‐‑
tion.  
       The  judgment  is  affirmed  in  part  (on  the  class’s  appeal)  
and  reversed  in  part  (on  Turza’s  appeal),  and  the  case  is  re-­‐‑
manded  for  the  entry  of  judgment  consistent  with  this  opin-­‐‑
ion.