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Machesney v. Lar-Bev of Howell, Inc.

United States District Court, E.D. Michigan, Southern Division

June 6, 2017

Shari Machesney, Plaintiff,
Lar-Bev of Howell, Inc., et al., Defendants.


          Sean F. Cox Sean F. Cox United States District Judge

         This is one of three TCPA cases that this Court has certified as a class action. This particular case is currently before the Court on an “Agreed Motion for Preliminary Approval Of Class Action Settlement And Notice To The Class” (D.E. No. 139), filed by Plaintiff's Class Counsel. The motion states that Plaintiff's Counsel and Defense Counsel have agreed to settle the case, and this motion asks the Court to grant the motion and issue a proposed “Preliminary Approval Order.” The motion is unopposed. It is this Court's role, however, to carefully scrutinize the proposed settlement to determine if it is fair, reasonable, and adequate. This Court shall DENY THE MOTION WITHOUT PREJUDICE because, as explained below, there are several aspects of the proposed settlement that give this Court concern that the settlement is not in the best interests of the class.


         This case is one of the trio of very similar TCPA cases that were assigned to this Court around the same time. This case is another “in a string of ‘junk fax' cases” under the TCPA “that involves a fax-broadcasting company named Business to Business Solutions (B2B).” Bridging Communities Inc. v. Top Flite Financial Inc., 843 F.3d 1119, 1121 (6th Cir. 2016).

         In Bridging Communities, Inc., the Sixth Circuit explained the kinds of damages that are available under the TCPA:

“The TCPA prohibits the use of “any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement, ” unless the sender and recipient have “an established business relationship, ” the recipient voluntarily made its fax number available, and the unsolicited fax contains a notice meeting certain statutory and regulatory requirements. 47 U.S.C. § 227(b)(1)(C), (b)(2)(D); 47 C.F.R. § 64.1200(a)(4). The statute provides a private right of action permitting plaintiffs to enjoin a violation of the TCPA and/or to recover either actual money lost from the violation or $500 per violation, whichever is greater. See 47 U.S.C. § 227(b)(3). Damages may be trebled if a court finds that a violation was willful or knowing. See id.

Id. at 1121-22. This is one of many “junk fax” cases under the TCPA that involves Caroline Abraham and her fax-broadcasting company, B2B. As to the backdrop of these cases, the Sixth Circuit has explained:

We have explained in prior cases that Caroline Abraham operated B2B as a fax advertising company that catered to small businesses. See, e.g., Imhoff Inv., L.L.C. v. Alfoccino, Inc., 792 F.3d 627, 629-30 (6th Cir. 2015). As one district court put it, for TCPA purposes, “Abraham functioned as a modern-day ‘typhoid mary[.]' ” Avio, Inc. v. Alfoccino, Inc., 311 F.R.D. 434, 437 (E.D. Mich. 2015) (quoting APB Associates, Inc. v. Bronco's Saloon, Inc., 297 F.R.D. 302, 305 (E.D. Mich. 2013)). B2B purchased a list of fax numbers from a company called InfoUSA, Inc. See Id. For a fee, B2B faxed clients' advertisements to hundreds of numbers from that list, a practice known as “fax-blasting.” Id. B2B's records show that it successfully sent thousands of faxes on behalf of its clients. See Imhoff Inv., L.L.C., 702 F.3d at 629. “Abraham [has] testified that she believed it was legal to send fax advertising to companies that had an established business relationship with the sender and mistakenly thought the companies on the InfoUSA list met that standard. Abraham did not call the businesses on her fax lists to seek consent to send them fax advertisements.” Id.

Id. at 1122.

         This Court initially denied class certification in this case because, among other things, this Court concluded that there was not an ascertainable class because only persons or entities who owned the fax machines had statutory standing to bring a claim. (See D.E. No. 64). In discussing statutory standing, this Court addressed an uncertainty that some other courts had addressed in terms of who can bring a TCPA claim after an unsolicited fax is sent. That is, this Court believed it was unclear what is meant by a person “who was sent” a fax advertisement (i.e., does that include the person who owns the fax machine, the person who opened the account or paid the bill for the telephone line the fax machine used to receive signals, a person to whom the fax advertisement was addressed, persons who happened to pick up the fax, or all of the above?). After examining the legislative history, this Court concluded that only the owners of the fax machine had statutory standing to assert a claim under the TCPA. At the time of the Court's decision, there was a lack of Sixth Circuit authority on the TCPA.

         In an Opinion & Order issued on April 7, 2016, in light of several TCPA decisions that had been issued by the Sixth Circuit following this Court's denial of class certification, this Court ultimately certified this action as a class action. This Court certified the following class:

All persons or entities who were sent one or more faxes on November 28, 2005, November 30, 2005, February 14, 2006, or February 15, 2006, offering “KFC Catering Prices, ” including “200 HOT WINGS” for $79.99 and a variety of “KFC's FAMOUS SIDE DISHES, ” and identifying and [sic] a “Complaint Hotline” number of (718) 645-2021 Ext. 232 or (718) 360-1330 ext. 232.

(D.E. No. 101 at Pg ID 1900). This Court further ordered as follows:

IT IS FURTHER ORDERED that, pursuant to Fed.R.Civ.P. 23(g), Jason J. Thompson of Sommers Schwartz, P.C. and Phillip Bock of Bock & Hatch, LLC are APPOINTED AS CLASS COUNSEL.
IT IS FURTHER ORDERED that, within sixty (60) days of the date of this Opinion & Order, Class Counsel shall file a proposed class notification form which complies with Fed.R.Civ.P. 23(c), together with a statement describing the method by which the notice will be provided to class members and a list of persons or entities to whom the notice will be sent.

(Id. at Pg ID 1900-01).

         Within the body of the Opinion & Order, this Court declined to appoint Brian Wanca or his firm as class counsel in this action. (Id. at Pg ID 1891 n.5). The Court appointed Jason Thompson of Sommers Schwartz and Phillip Bock of Bock & Hatch as class counsel, but expressly advised class counsel that they should be aware that any claim for attorney's fees would be closely scrutinized. (Id. at n.6) (emphasis added).

         The Court further noted its concern that the named plaintiffs in these three actions had agreed not to contest a one-third contingency attorney fee, but noted that other persons in the classes would be able to oppose requested attorney fees they deem excessive, and that the Court would also have a role in terms of approving any requested attorney fees. (Id. at Pg ID 1891).

         On June 29, 2016, this Court granted a motion for order approving class notice and setting a date for opt outs. (D.E. No. 106). That notice advised the recipient: “You are receiving this Notice because you are a member of the Class (defined above).” (D.E. No. 104-1 at Pg ID 1918) (emphasis added). The Class Certification Notice was sent to each of the fax numbers that Plaintiff identified through discovery as having been sent a fax by Defendants. In addition, for those faxes that were not successfully received by Class members after three (3) attempts, the notice was sent to them by U.S. Mail. Class members had until August 15, 2016, to opt out.

         The docket reflects that approximately 20 class members, consisting of both individuals and entities, opted out. (See D.E. Nos. 107-130).

         On March 6, 2017, Plaintiff filed an “Agreed Motion for Preliminary Approval of Class Action Settlement and Notice to the Class.” (D.E. No. 139).

         The motion asserts that “[b]ased upon discovery and computer analysis of fax transmission records, Plaintiff determined that 15, 365 of Defendant's form advertisements were successfully sent to 9, 479 persons in Michigan who did not opt out of the certified class.” (D.E. No. 139 at Pg ID 2137).

         Under the proposed settlement, Defendants, by and through their insurer Argonaut, has agreed to make available a total of $7, 682, 500.00 for the Settlement Fund.

         From the Settlement Fund, Plaintiffs' Counsel would receive an attorney fee award equal to one-third of the entire settlement fund - more than 2.5 million dollars - plus unspecified “out-of-pocket expenses.” Administrative costs would also be paid from the Settlement Fund. Named Plaintiff Shari Machesney would get $15, 000. The remaining money would be used to pay claims to the class members.

         Each class member would get a cash payment of the lesser of $500 per fax sent to them or a “pro rata share” of the Settlement Fund after all the other payments have been made.

         In addition, under the parties' agreement, “[a]ny money left in the Settlement Fund after payments to claiming class members, to the Class Representative, and to the Class Counsel would revert to and be kept by Argonaut.” (D.E. No. 139 at Pg ID 2139).

         The parties' settlement agreement, which is attached to the motion, contains the following “clear sailing”[1] provision:

10. Incentive Award, Attorneys' Fees, and Expenses. Plaintiff shall be paid an Incentive Award from the Settlement Amount of Fifteen Thousand Dollars ($15, 000.00) for representing the Settlement Class, subject to the Court's approval. In addition, Class Counsel shall be paid Two Million Five Hundred Sixty Thousand Eight Hundred Thirty-Three Dollars and Thirty-Three Cents ($2, 560, 833.33) (one third of the Settlement Amount) as attorneys' fees from the Settlement Amount plus their reasonable out-of-pocket Attorneys' Expenses, subject to the Court's approval. Defendants will not object to a request for these amounts, nor will Defendants appeal any award of these amounts. The awarded amounts will be set forth in the Final Judgment and shall be paid from the Settlement Fund in accordance with paragraph 12 below.

(D.E. No. 139-1 at Pg ID 2168-69) (Emphasis added).


         Rule 23(e) provides that the claims of a certified class “may be settled, voluntarily dismissed, or compromised only with the court's approval.” Fed.R.Civ.P. 23(e).[2]

         “A district court must find a settlement to be ‘fair, reasonable, and adequate' for it be approved.” Pelzer v. Vassalle, 655 F. App'x 352, 359 (6th Cir. 2016) (citing UAW v. General Motors Corp., 497 F.3d 615, 631 (6th Cir. 2007)). A district court ultimately “considers seven factors in making this finding: (1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and their representatives; (6) the reaction of absent class members; and (7) the public interest.” Id.

         As Plaintiff's Counsel note in their pending motion, a district court's review is usually a two-step process, with the first step to hold a preliminary fairness hearing, prior to notifying the class members about the proposed settlement. (D.E. No. 139 at Pg ID 2141). The purpose of the preliminary hearing is for the Court to determine whether the proposed settlement is “within the range of possible approval.” (Id. at Pg ID 2142). If the district court finds that the proposed class action settlement is within the range of possible approval, the Court should grant “preliminary approval” and authorize the parties to notify the class members about the settlement. (Id.).

         For the reasons set forth below, this Court finds that the proposed settlement suffers from several apparent defects, and is not within the range of possible approval at this time.

         I. Complexity, Expense And Duration Of Litigation, Amount Of Discovery Engaged In By The Parties, And Likelihood Of Success On The Merits

         Because the Court is just at the first stage of the two-step process, it need not consider all of the above seven factors at this time. But some of the factors include: the complexity, expense and likely duration of the litigation; the amount of discovery engaged in by the parties; and the likelihood of success on the merits.

         This case is very unusual in that it is one of many incredibly similar cases, litigated by the same Plaintiff's Counsel, that involves the very same claims and defenses, and even the same factual issues. This is one of many “junk fax” cases under the TCPA that involves Caroline Abraham and her fax-broadcasting company, B2B. As in all of these “B2B Junk Fax” cases, Abraham sent a fax ad that advertised defendants' products and/or services. Abraham, B2B's sole employee, never obtained from the fax recipients permission to send the ads.

         Unfortunately for the businesses that Abraham offered her services to, “[t]he TCPA is essentially a strict liability statute” which imposes liability upon senders of unsolicited faxes. Alea v. London Ltd. v. American Home Sys., Inc., 638 F.3d 768, 776 (11th Cir. 2011). In addition, the recipient ...

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