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Million-Dollar Settlement of Billion-Dollar Claim Found Reasonable in Light of Due Process Problems Posed By Disproportionate Damages

Another court has observed that a billion-dollar aggregate liability under the TCPA likely would violate due process, adopting the Eighth Circuit’s reasoning that such a “shockingly large amount” of statutory damages would be “so severe and oppressive as to be wholly disproportionate[] to the offense and obviously unreasonable.”

In Larson v. Harman-Mgmt. Corp., No. 1:16-cv-00219-DAD-SKO, 2019 WL 7038399 (E.D. Cal. Dec. 20, 2019),  the Eastern District of California preliminarily approved a settlement proposal that represents less than 0.1% of potential statutory damages. Like the Eighth Circuit decision that we discussed previously, both courts observed that several uncertainties exist as to whether the plaintiffs can succeed in proving certain legal issues, such as whether consent was provided and whether an ATDS was used.

The Larson case exposed the defendants to TCPA liability for allegedly sending 13.5 million text messages without prior express consent as part of a marketing program called the “A&W Text Club.” After extensive discovery and motion practice, the parties proposed a settlement that would have the defendants deposit $4 million into a settlement fund that in turn distributes $2.4 million to class members who submit a timely, valid claim.

The court preliminarily approved the proposed settlement, observing that its terms demonstrated “substantive fairness and adequacy.” As a preliminary matter, it found, “[i]t is well-settled law that a cash settlement amounting to only a fraction of the potential recovery does not per se render the settlement inadequate or unfair.” Concerned that calculating damages based on $500 per message under 47 U.S.C. § 227(b)(3)(B) would violate the Due Process Clause, it agreed that the conduct of the defendant (sending over 13.5 million messages) was not persistent or severely harmful to the 232,602 recipients to warrant the billion-dollar judgment.

While $4 million represents less than 0.1% of the theoretical aggregate damages, “the value of the settlement is intertwined with the risks of litigation.” Here, in addition to the uncertainty about whether the “A&T Text Club” program uses an ATDS, “several risks are present, including . . . whether the plaintiff can maintain the action as a class action, . . . and whether the plaintiff’s theories of individual and vicarious liability can succeed.” The proposed settlement amount was found to strike the appropriate balance as it would likely result in each class member receiving $52 to $210 for each message if 5% to 20% of the class submit timely claims.

Although the case was only at the preliminary approval stage, this decision again illustrates that at least some courts recognize the due process problem posed by disproportionate aggregate damages and do not reject settlements simply because they provide some fraction of the theoretical aggregate damages available under a given statute.

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About this Author

Bradley Andreozzi, Litigation Attorney, Complex, Drinker Biddle Law Firm, Chicago
Partner

Bradley J. Andreozzi represents clients in complex high-stakes civil litigation, including class action trials and appeals. Brad has represented clients in virtually every federal appellate court, including the Supreme Court, and in many trial courts throughout the country.

Brad defends clients in class actions under various federal and state consumer protection laws, including the Telephone Consumer Protection Act (TCPA), the Fair and Accurate Credit Transaction Act (FACTA) and many state false advertising statutes. His...

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Associate

Qiusi Y. Newcom assists clients with navigating emerging issues and regulatory compliance in telecommunications laws and international trade laws. She is an associate with the Telecommunications Team and the Customs and International Trade Team.

Prior to joining Drinker Biddle, Qiusi was an associate with a boutique employment law firm where she handled labor and employment matters before federal courts and federal agencies, including the Equal Employment Opportunity Commission. Qiusi also gained valuable litigation experience through public interest work involving personal injury and criminal matters. During law school, Qiusi was a member of and published an article in the Federal Communications Law Journal. Qiusi is fluent in Mandarin Chinese.

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