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11th Circuit Rebukes Attorney Conduct in “Reverse Auction” Class Action Settlement

The Eleventh Circuit recently reversed a trial court’s denial of a motion to intervene in a Telephone Consumer Protection Act (TCPA) case, in an opinion that addressed legal and potential ethical issues related to “reverse auction” settlements in class actions.  Relying in part on unflattering emails exchanged between class counsel attorneys, the Eleventh Circuit found that the class counsel may not have adequately represented members of a settlement class because the record appeared to show counsel was “motivated by a desire to grab attorney’s fees instead of a desire to secure the best possible settlement for the class.”

In Technology Training Associates v. Buccaneers Limited Partnership, the court addressed a situation seen often in large class actions—dueling class counsel jockeying to represent and settle on behalf of the same or overlapping classes.  The underlying facts of the case involved TCPA claims for allegedly unlawful fax solicitations advertising Tampa Bay Buccaneer tickets.  After three years of litigation, the parties were at an impasse concerning settlement.  Then the case took an interesting turn.

One of the attorneys representing the TCPA class left his firm and began working for another rival class action firm that also specialized in TCPA cases.  Shortly after arriving at the new firm, the attorney discussed the possibility of finding a new lead plaintiff and settling directly with the defendant.  In emails quoted by the Eleventh Circuit, the attorney revealed to a partner at the new firm that the original class counsel “want[ed] to set a record” by extracting more than $75 million from the Buccaneer defendants.  The attorney then emailed several other lawyers at the new firm: “Hmm. . . holding out for a record settlement . . . . We could find a plaintiff and approach the defendant about settling? Lol.”  It appears that the new firm did just that—about two months later they filed an unopposed motion for approval of a settlement in which the class would receive $19.5 million in damages, with up to 25% of that settlement going to the new firm.

The original class action firm filed a motion to intervene, alleging the settlement was a “reverse auction,” in which the defendant picks out a “plaintiff with weaker claims and weaker counsel in an effort to negotiate a more favorable settlement.”  The district court denied the motion, but the Eleventh Circuit reversed and remanded the decision.  Analyzing the motion under Federal Rule of Civil Procedure 24(a)(2)’s four prong intervention standard, the court focused on the new firm’s adequacy of representation, finding that “the record appears to show that the [new firm] deliberately underbid the movants in an effort to collect attorney’s fees while doing a fraction of the work that the [original firm].”

The opinion serves as a reminder that proposed class action settlements face heightened scrutiny from the judiciary, which includes scrutiny of the interests and conduct of the attorneys involved.  Also, as is always the case, one should also be mindful of comments made in email concerning actual or potential litigation.  What may seem like a joke or harmless comment at the time, could eventually find its way in a published judicial opinion.

The Eleventh Circuit’s opinion is available here.