September 2016Volume 104Number 9Page 12

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The incredible shrinking junk-fax case

In Holtzman II, the seventh circuit ruled that a lawyer who owed up to $4.2 million for sending 8,430 "junk" faxes would only have to pay recipients who actually claimed their $500 award.

Although faxes are starting to go the way of the dinosaur, they are at the heart of a series of seventh circuit rulings that upheld a multimillion dollar penalty against a Chicago lawyer but then effectively limited both the penalty's impact and the availability of fees to the plaintiffs' attorneys.

The opinions are related to a 2008 case filed in the U.S. District Court for the Northern District of Illinois known as Holtzman v. Turza. Gregory Turza, a Chicago attorney, was sued under the federal Telephone Consumer Protection Act ("TCPA"), which prohibits, among other things, the sending of unsolicited "junk" faxes.

Anyone who has had a fax line has probably seen the types of faxes that the TCPA prohibits - for example, faxes promising great deals on bulk paper or t-shirts. The TCPA imposes harsh penalties for violations of the Act. A single junk fax triggers $500 in statutory damages, up to $1,500 per fax when a court awards treble damages.

In Holtzman, Turza faxed newsletters that included an advertisement for his services to 200 accountants - about 8,430 faxes in total. TCPA damages can pile up quickly - Turza was ordered to pay the sum of $4.2 million in damages.

He appealed, contending that his faxes were informational in nature and not advertising. The seventh circuit was not convinced. In Holtzman I, Judge Frank Easterbrook found that although the newsletters were 75 percent mundane and 25 percent advertising, the non-advertising portion could not change the essential function of the remaining quarter. Holtzman I, 728 F.3d 682, 686-87 (7th Cir. 2013).

After disposing of the question of liability, the court turned to the damages award. The original order granting the $4.2 million award had stated that the remainder of the funds (if any after paying claimants) would be donated to the Legal Assistance Foundation of Metropolitan Chicago. The seventh circuit determined that this was inappropriate. It noted that the lawsuit was not a common fund case, but one that arose from individual injuries. Judge Easterbrook explained that "[c]haritable distribution of remainders in class actions originated when courts had to deal with non-reverter clauses in common-fund settlements." Id. at 689. The court expressed doubt that Turza would be able to fund the entirety of the award, suggesting that it would only be necessary to determine what to do with residual funds if he paid more than enough to satisfy all claims submitted by the class members.

The remedial order was vacated and remanded back to the trial court with instructions to enter an order requiring Turza to remit funds to either the court's registry or a third-party administrator. The court further suggested that it might be necessary to reconsider the amount awarded to the named plaintiff and attorney compensation.

Holtzman II: no penalty or attorney fees unless class member claims award

While Holtzman I was pending, Turza deposited $4.2 million into the court's registry. The trial court awarded class counsel $1.4 million in attorney's fees. Turza appealed the fee award, arguing that paying counsel based on the fund's total value was inappropriate.

The Holtzman II court agreed, stating that the case was not a common-fund case because "suits under the Telephone Consumer Protection Act seek recovery for discrete wrongs to the recipients." Holtzman v. Turza, 2016 U.S.App LEXIS 12594, at *2-3 (7th Cir. 2016). Turza's $4.2 million deposit was considered "security for payment, not a genuine common fund." Id. at *3.

The TCPA is not a fee-shifting statute like other consumer protection statutes such as the Fair Debt Collection Practices Act. The Holtzman II court held that the class members must pay their own attorney's fees, setting plaintiffs' counsel's fees at $167 per fax, or one-third of the $500 per fax awarded by the district court. However, those fees were only to be awarded when a class member claimed the funds. "[A]warding 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 attorneys just because he lost the suit." Id. at *3-4.

The class members also appealed the district court's ruling that any remaining money in the fund be returned to Turza. They maintained, as they did in 2013, that any remaining funds should be donated to charity. The Holtzman II court did not change course from its 2013 ruling. "Given our conclusion that the class members have suffered discrete rather than undifferentiated losses, however, the money represents security for payment rather than a common fund." Id. at *4-5.

The Holtzman II court was careful to specify that its holding did not mean that distributions to the government or charity were not possible in a class action with individual harms. However, it did specify that the district court's decision to order that any remaining funds go back to Turza "cannot be called either a legal blunder or an abuse of discretion." Id. at *5-6.

Matthew Hector
Matthew Hector is a senior associate at Woerthwein & Miller.

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