U.S. THIRD CIRCUIT

Larson v. AT&T Mobility, L.L.C.

TELECOMMUNICATIONS

New Jersey Law Journal

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Larson v. AT&T Mobility, L.L.C., Nos. 10-1285/1477/1486/1587; Third Circuit; opinion by Jordan, U.S.C.J.; filed June 29, 2012. Before Judges McKee, Fuentes and Jordan. On appeal from the District of New Jersey.[Sat below: Judge Linares.] DDS No. 57-8-7038 [62 pp.]

Until late 2008, Sprint Nextel Corporation included an early termination fee (ETF) provision in its cellular telephone contracts that allowed it to charge a set fee to customers who terminated their contracts before the end date stated in the contracts. In this class-action lawsuit, plaintiffs alleged that the ETFs were illegal penalties that violated the Federal Communications Act and state consumer protection laws.

After five months of mediation, the parties agreed to settle for $17.5 million. The settlement provided for four categories of claimants, three of which are relevant here: claimants who paid an ETF, claimants who were charged but did not pay an ETF, and claimants whose claims arose after the notice to the class but before Jan. 2, 2011.

After objectors attacked the adequacy of notice given to potential class members, complaining particularly about Sprint's efforts to produce a class member list for use in providing individual notice to class members, the district court found that the initial notice plan did not comply with Rule 23(c)(2).

Sprint and class counsel submitted a proposed amended notice plan (ANP) that stated it would be unreasonable to search any of Sprint's billing records to identify subclasses of individuals who had been charged an ETF. To support this contention, they submitted a declaration from Sprint's vice president of customer billing services, Scott Rice. He estimated that it would take five to seven months and $100,000 to search records to identify class members who had been charged an ETF between April 2007 and June 2009.

The district court approved the ANP, indicating that, based on the Rice declaration, it would be unreasonable to require Sprint to engage in efforts to individually identify additional class members because the time, cost and effort associated with analyzing various Sprint databases were not reasonable. The court certified the settlement class and approved the settlement.

On appeal, the objectors argue that the court abused its discretion by finding that it would be unreasonable to require Sprint to perform any search of its billing records to provide individual notice to class members who had been charged an ETF and by holding that the class representatives were adequate.

Held: Given the requirements of Rule 23(c) and case law, and in light of the record, the District Court failed to properly exercise its discretion as the guardian of the absent class members when it determined that it would be unreasonable to require any search of Sprint's billing records to provide individual notice to individual class members who had been charged a flat-rate ETF.

Rule 23(c)(2)(B) requires individual notice to all members who can be identified through reasonable effort. Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), discussed what constitutes reasonable effort. It said individual notice to identifiable class members is not a discretionary consideration to be waived in a particular case. Rather, it is an unambiguous requirement of Rule 23. Thus, Eisen stands for the proposition that individual notice must be delivered to class members who can be reasonably identified, and that the costs required to deliver notice should not easily cause a court to permit the less satisfactory substitute of notice by publication.

The Third Circuit says the district court initially found that those subclasses capable of reasonable identification require individual notice. It then did an about-face but did not provide any support for its later determination that Sprint did not need to conduct a search of its billing records to provide individual notice to a larger group of class members. Viewing reasonableness as a function of anticipated results, costs and amount involved, the district court's changed determination, based solely on the Rice declaration, was an errant conclusion of law or an improper application of law to fact. Sprint has acknowledged that the database search outlined in the Rice declaration could identify millions of settlement class members. If only 2 million people were identified through that search, the search would have cost approximately 5 cents per class member identified in 2009. Including the expense of mailing the individual notice, the cost would have been approximately 43 cents per class member. Given the size of the class and the due process rights at stake, these are not troublingly high sums.

Even if the costs had been higher, that would not automatically mean they were unreasonable. Eisen expressly rejected the argument that costs are the primary driver in the judgment on notice.

Further, the court does not see why the efforts detailed in the Rice declaration — a computer program running search queries in certain databases — would be unreasonable and the district court provided no explanation for that conclusion. Although it may be that a search of the billing records to find class members cannot be made with push-button ease, its advantages, based on the admissions made by Sprint, appear likely to bring the effort required within the range of reasonableness.

Because the court has no way of knowing what in the Rice declaration caused the district court to change its mind about the need for a search of the billing records, the individual right of absentee class members to due process under Rule 23(c)(2) may have been violated. The district court needs to do more to fulfill its duty as the guardian of the rights of the absentees to ensure that the parties complied with the individual notice requirement of Rule 23(c)(2).

The court therefore remands to the district court to again assess whether the ANP passes muster under Rule 23(c)(2), on a more complete record and with a fuller explanation.

The court also suggests that on remand, the district court reconsider whether the class representatives can adequately represent all class members since the court did not consider if the class representatives have the ability and incentive to represent the claims of the class vigorously and it is difficult to understand how the class representatives, none of whom were Sprint customers at the time that the settlement was executed, had the interest, much less the incentive, to stop Sprint from enforcing flat-rate ETFs against its current customers.

For appellants: Galleguillos et al. — Scott A. Bursor, of the N.Y. bar (Bursor & Fisher), Nadeem Faruqi, of the N.Y. bar, and Jacob A. Goldberg and Sandra G. Smith, of the Pa. bar (Faruqi & Faruqi); L. Timothy Fisher and Alan R. Plutzik, of the Calif. bar; William J. Pinilis (Pinilis Halpern); and Anthony Vozzolo, of the N.Y. bar; Bramson et al. — Scott A. Bursor, of the N.Y. bar, and Jacob A. Goldberg, of the Pa. bar (Bursor & Fisher), Joshua Davis, of the Calif. bar, Nadeem Faruqi, of the N.Y. bar (Faruqi & Faruqi); Anthony A. Ferrigno, of the Fla. bar; L. Timothy Fisher and Alan R. Plutzik, of the Calif. bar, J. David Franklin, of the Calif. bar, Pamela Gilbert, of the D.C. bar (Cuneo, Gilbert & LaDuca), Jayne A. Goldstein, of the Pa. bar (Shepherd, Finkelman, Miller & Shah), David Pastor, of the Mass. bar, William J. Pinilis (Pinilis Halpern), Marc G. Reich, of the Calif. bar (Reich Radcliffe), David S. Senoff, of the Pa. bar (Caroselli, Beachler, McTiernan & Conboy), and Steven M. Sherman, of the Calif. bar (Sherman Business Law); Bramson et al. — Scott A. Bursor, of the N.Y. bar (Bursor & Fisher), Nadeem Faruqi, of the N.Y. bar, and Sandra G. Smith, of the Pa. bar (Faruqi & Faruqi), L. Timothy Fisher and Alan R. Plutzik, of the Calif. bar, William J. Pinilis (Pinilis Halpern), Steven M. Sherman, of the Calif. bar (Sherman Business Law); Hall — Phillip A. Bock and Robert M. Hatch, of the Ill. bar (Bock & Hatch), Anthony L. Coviello, Robert J. Evola and Bradley M. Lakin, of the Ill. bar (Lakin Chapman). For appellees: Larson et al. — James E. Cecchi and Lindsey H. Taylor (Carella, Byrne, Cecchi, Olstein, Brody & Agnello), Scott A. George, of the Pa. bar (Seeger Weiss); Sprint Nextel Corp. et al. — Andrew B. Joseph, of the Pa. bar (Drinker, Biddle & Reath); and Joseph Boyle, Lauri A. Mazzuchetti and Vincent P. Rao III (Kelley, Drye & Warren).

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