Holtzman v. Turza: Unclaimed Fax Damages Go Back to the Defendant, Not to Charity or Class Counsel

Judge Easterbrook wrote for the panel.

Background

The defendant attorney sent fax advertising to accountants. In 2013, the Seventh Circuit held those faxes violated the TCPA and reversed the district court's plan to treat a roughly $4.2 million deposit as a fund whose remainder would go to charity. Ira Holtzman, C.P.A., & Associates, Ltd. v. Turza, 728 F.3d 682 (7th Cir. 2013). The action, the court said, "does not create a common fund."

After losing on the merits, the defendant deposited $4.2 million into the court's registry. On remand, the district court:

• awarded class counsel one third of the entire deposit, about $1.4 million, under the common fund doctrine;
• ordered $333 per fax paid to each class member, whose names and numbers were known;
• planned a second distribution, up to $500 per fax, for money left after uncashed checks; and
• ordered any remaining residue returned to the defendant.

Both sides appealed.

Fees Cannot Be Measured by the Whole Deposit

The court agreed with the defendant that paying counsel based on the full deposit was inappropriate. Its 2013 holding was law of the case, and the deposit was security for individual claims.

Under the American Rule, litigants pay their own lawyers, and the TCPA is not a fee shifting statute. Class members therefore owe counsel a share of what they actually recover. Each $500 fax award, counsel would receive about $167 and the recipient the balance. But if a recipient cannot be found or declines payment, counsel is not entitled to a fee for that fax. Charging the defendant $167 for a fax for which no class member is paid would effectively turn the TCPA into a fee shifting statute.

No Second Distribution Above the Statutory Amount

The second round of distributions was also inconsistent with these principles. The statute authorizes $500 per fax, from which counsel must be paid. Given the ruling that excess money returns to the defendant, paying more than $333 to the recipient plus $167 to counsel would either exceed the statutory amount or shift the class's legal fees to the defendant.

Residue Returns to the Defendant

The class argued the residue should go to charity through a cy pres distribution. The court rejected that argument as a repackaging of the common fund theory. Once a debt is satisfied, security is released.

The court did not rule out cy pres in every individual harm case. Settlements sometimes provide that no money returns to the defendant, and a judge might conclude that an inability to locate a class member should not automatically benefit the defendant. But a judge is "never legally obliged to divert money from the litigants to a charity," and returning the surplus here was neither a legal error nor an abuse of discretion.

Takeaways

• Litigated judgments differ from settlements. Absent an agreement, TCPA damages are individual awards, not a common fund.
• Fees follow actual recoveries. Class counsel's share is tied to amounts class members receive.

Affirmed in part, reversed in part, remanded.

Read the full Seventh Circuit opinion.