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The Seventh Circuit stepped in to reduce some rather handsome lawyer fees sought by class action attorneys, and the move could make class action litigation that much less enticing to practicing attorneys. The issue gets to the heart of whether or not attorney fees should be based off a percentage of the final pot, or based on the amount actually collected by those plaintiffs who opted-in.
It's bad news for class action lawyers who are looking for their pot of gold at the end of the class action rainbow, as many lawyers see this cinching of the belt as a new trend.
The case is old and involves the unsolicited biweekly faxes an attorney sent to accountants all around the Chicago metropolitan area. One of those accountants, Ira Holtzman, sued the defendant Gregory Turza under the Telephone Consumer Protection Act as the faxes did not include an opt-out provision, similar to those found in email solicitations.
Mr. Turza sent out a lot of unsolicited, non-compliant faxes. The final damages amount worked out to be $4.2 million at $500 per fax. The terms required qualified class members to collect their damages, or else their funds would end up in the pockets of the plaintiffs' lawyers. A federal judge had calculated the attorneys' fees to be one third of that $4.2 million, or $1.4 million.
But the Seventh Circuit stepped in to reduce these rather handsome fees. "If a given recipient cannot be located, or spurns the money, counsel are not entitled to be paid for that fax," it wrote in its opinion. "Awarding counsel $167 per fax when the class members 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."
Jay Edelson, an attorney who practices out of Chicago, describes a "real shift" over the last five years in courts' willingness to abide large payouts to firms -- especially in class-action suits. This is something that litigators will have to take into account when considering class action suits on behalf of their clients.
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