In Technology Training Associates, Inc. v. Buccaneers Limited Partnership, No. 17-11710 (October 26, 2017), the Eleventh Circuit axed an approved class action settlement due to plaintiffs’ counsel’s apparent “desire to grab attorney’s fees” at the expense of “the best possible settlement for the class.” This case is a strong reminder that when defendants agree to a class action settlement they must take special care in ensure the settlement avoids even the appearance of being a “sweet heart” deal.
In 2013, Cin-Q Automobiles and Medical & Chiropractic Clinic, Inc. (the “movants”) filed a class action on behalf of a putative class against the NFL franchise Tampa Bay Buccaneers alleging that the franchise violated the Telephone Consumer Protection Act by sending unsolicited faxes to more than 180,000 recipients. The movants were represented in that case by the law firm Anderson + Wanca. After the settlement negotiations stalled in the movants’ case, a lawyer from Anderson + Wanca left to join another firm, Bock Hatch. It was later discovered that several Bock Hatch attorneys, including the former Anderson + Wanca attorney, took part in emails discussing the possibility of undercutting the movants’ case by filing their own class action using a different named plaintiff.
In 2016, Technology Training Associates, Inc. and Larry Schwanke (the “plaintiffs”), represented by Bock Hatch, filed a class action complaint on behalf of the same class and alleging the same violations of law. Two days later, the plaintiffs and the Buccaneers reached a $19.5 million settlement that included a waiver of the Buccaneers’ statute of limitations defense against these two plaintiffs. The movants moved to intervene in this case to disrupt the settlement. The district court denied the motion to intervene and approved the settlement.
The Eleventh Circuit held that the settlement approval should be reversed and motion to intervene granted. The Court emphasized that the motion to intervene should be granted because the movants’ interest was not adequately represented by the existing parties to the suit. While the Court noted that the plaintiffs and the movants were generally pursuing the same objective—vindicating the rights of those harmed by the Buccaneers TCPA violations—the emails sent by plaintiffs’ counsel clearly indicated an ulterior motive to undercut the movants’ negotiating position and secure a settlement (and attorneys’ fees for themselves) quickly. Further, the movants’ interests were not adequately represented because the plaintiffs had a greater incentive to settle and secure the waiver of the statute of limitations defense from Buccaneers. Although it had not been conclusively determined that Buccaneers could have successfully asserted this defense, the dispute regarding the defense existed, which gave the plaintiffs a clear incentive to obtain a settlement with the waiver.
The facts of this case are somewhat unusual in that plaintiffs’ counsel had what appears to be a clear conflict of interest. Nonetheless, it could have a significant impact on future class action settlements. Objectors may seek discovery regarding the relationship between plaintiffs’ counsel and the defendant, and judges may be more probing and skeptical regarding the arm’s length nature of the transaction. It is also worth noting that the substantial size of the settlement (approximately $20 million) did not impact the Eleventh Circuit’s fairness determination. Accordingly, defendants should be careful to document the arm’s length nature of any settlement and take special care to avoid the appearance of impropriety. They may also want to question or investigate the bona fides of plaintiff’s counsel. Otherwise, substantial efforts in support of the settlement may be for naught if it is later overturned on appeal.