The U.S. Court of Appeals for the Eleventh Circuit recently rejected a class action settlement based on a number of errors in approving the settlement in the district court. [See Drazen v. GoDaddy.com, LLC, 101 F.4th 1223 (11th Cir. 2024)].
Background
In the underlying case, the plaintiffs alleged that GoDaddy.com, LLC (GoDaddy) violated the Telephone Consumer Protection Act (TCPA) by using an automatic telephone dialing system (ATDS) to make calls or send text messages to their phones or the phones of the putative class members.
The parties engaged in settlement talks and ultimately negotiated a settlement whereby GoDaddy would provide up to $35 million to pay class members’ claims and up to $10.5 million to their attorneys. Under Rule 23, a court must approve a class action settlement. The district court ultimately approved the settlement agreement, certified the class, granted class counsel’s motion for attorneys' fees, and entered final judgment.
Interestingly, during the pendency of this matter, the U.S. Supreme Court was considering the principal issue in the case—the scope of the definition of ATDS, i.e., whether the systems that GoDaddy used came under the definition of an ATDS under the TCPA. Indeed, the U.S. Supreme Court granted certiorari in Facebook, Inc. v. Duguid, the case that considered the principal issue, on the same day that the settlement administrator emailed notice of the GoDaddy settlement to the class. Indeed, the district court heard class counsel’s motion for final approval of the settlement six days after the Supreme Court heard argument in Facebook.
The Decision
With this background, the Eleventh Circuit considered whether the district court abused its discretion in approving the settlement agreement, certifying the class, granting class counsel’s motion for attorney’s fees, and entering the final judgment. In its 123-page order, the Eleventh Circuit determined that the district court had abused its discretion in several ways. Among other reasons, the court determined that the notice of the proposed settlement the district court ordered failed to inform the absent class members of the “claims, issues, or defenses” in the plaintiffs’ cases as required by Rule 23. Specifically, the notice did not even mention the Facebook case as having a possible impact on the claims or defenses.
Significantly, the Eleventh Circuit expressed its position that class counsel contributed to the district court’s abuse of discretion. The court recognized that class counsel realized that if the proceedings in their cases were stayed pending the decision in Facebook, there was a possibility that the case would not be decided in plaintiffs’ favor and attorneys' fees would not be forthcoming. It also determined that, to avoid that scenario, class counsel would have to persuade the district court to approve the settlement agreement and grant their motion for attorneys' fees before the Facebook case was decided. The court contended that class counsel, as officers of the court, should have reminded the district court that Rule 23 required that the notice of settlement sent out to the class members inform them about the Facebook case. Separately, the court determined that the district court overlooked evidence that the settlement agreement was the product of collusion, including in the inadequate relief provided to the class relative to what class counsel and GoDaddy received.
This case serves as one of the most recent examples of the level of scrutiny applied to class action settlements, including the court’s role, as a fiduciary, to take steps to ensure that the settlement is noncollusive in nature.
This article originally appeared on Freeman Mathis & Gary LLP.
About the Author:
Matthew N. Foree is senior counsel at Freeman Mathis & Gary LLP. mforee@fmglaw.com