In the latest decision in a long-running saga in Drazen v. Pinto, the Eleventh Circuit Court of Appeals tackled several issues regarding a proposed class settlement agreement.

As we previously reported and discussed, Drazen involved three consolidated class actions against GoDaddy.com LLC, alleging that the company violated the Telephone Consumer Protection Act by sending unwanted text messages and calls through a prohibited automatic telephone dialing system (ATDS).

The parties negotiated a settlement agreement where GoDaddy would provide up to $35 million to pay class members’ claims and up to $10.5 million to class counsel in attorneys’ fees. The plaintiffs moved the district court to certify a Rule 23(b)(3) class for settlement purposes, to preliminarily approve the negotiated settlement agreement, and to approve the draft notice of proposed settlement to class members. The district court granted preliminary approval of the settlement and directed that notice of the proposed settlement be given to the class.

While the notice was being distributed to the class, the U.S. Supreme Court granted certiorari in Facebook Inc. v. Duguid, which took up the same principal issue in the plaintiffs’ consolidated actions: whether the definition of ATDS included equipment used by GoDaddy that did not involve a random or sequential number generator. The Eleventh Circuit stated that in order to circumvent any impact the Facebook decision might have on the settlement, class counsel persuaded the district court to enter a final judgment approving the settlement and grant their attorneys’ fees motion before the U.S. Supreme Court decided Facebook.

The district court granted class counsel’s motion over the objection of Juan Pinto, who argued (1) the district court prematurely ruled on attorneys’ fees before the deadline for objections, and (2) the fees awarded were far in excess of what class members would receive, making the settlement unfair, unreasonable, and inadequate and meaning the district court had breached its fiduciary duty.

The Eleventh Circuit concluded that the district court abused its discretion in approving the proposed settlement agreement, certifying the class, and granting class counsel’s motion for attorneys’ fees.

First, the district court failed to consider the 2018 amendments to Rule 23(e)(2), particularly Rule 23(e)(2)(A)-(D), when determining whether the settlement was fair, reasonable, and adequate. The district court additionally overlooked indications of collusion in the agreement, such as the overbroad release provision and inadequate relief provided to the class in comparison to what GoDaddy and class counsel would receive.

Second, the class notice failed to inform the absent class members of the “claims, issues, or defenses,” as required by Rule 23(c)(2)(B)(iii). While Pinto did not raise this argument on appeal, the Eleventh Circuit found that the issue needed to be addressed in the interest of justice. The court adopted the interpretation of Rule 23(c)(2)(B)(iii) that “or” is conjunctive rather than disjunctive and that it is meant to provide absent class members with more, not less, information to allow an informed decision regarding whether to opt out of the class. The notice approved by the district court was sparse and failed to reveal the total amount each class member could receive, the total number of class members, or the total of GoDaddy’s liability exposure. The Eleventh Circuit found that the district court also neglected its fiduciary duty to inform absent class members regarding the dispositive issue in the case that would be decided in Facebook.

Third, the district court erred in calculating attorneys’ fees in several ways. The district court failed to give absent class members advance notice of class counsel’s fee motion, which disregarded the manifest intent of Rule 23(h). The settlement was characterized by the district court as a common fund settlement when it was a claims-made settlement, and the erroneous finding of fact was an abuse of discretion. Lastly, the district court declined to apply CAFA-mandated scrutiny and procedures, which was an error as the settlement allowed the class members to choose a cash award instead of a voucher, bringing it under CAFA provisions.

Ultimately, the judgment was vacated, as well as the order granting fees, and remanded to the district court for further proceedings.