Legal News Headlines

 
Copyright 2008 Dolan Media Newswires

 July 7, 2008

SECTION: NEWS

LENGTH: 1518 words

BYLINE: Julia Reischel

BODY: 

After six years of litigation, the attorneys in a contentious class action lawsuit over "junk" faxes reached a $1.8 million settlement last month - reportedly the largest telemarketing settlement in Massachusetts to date - with the plaintiffs' lawyers now searching for thousands of fax recipients who are entitled to up to $1,500 each.

Framingham-based consumer attorney Matthew P. McCue, who filed the case in 2002, says he never expected his efforts to enforce the federal Telephone Consumer Protection Act on unsolicited fax advertisements to evolve into such a complex legal battle.

"We took a statute that had never been enforced in Massachusetts before, and we had a lot of creative issues come up," he explains.

Challenges to the class action suit included issues of statutory interpretation, class certification, jurisdiction, free speech and insurance technicalities.

Then-Business Litigation Session Judge Allan van Gestel largely rejected those challenges, with the exception of a claim by the defendant's insurers that they should not have to pay their client's damages. Only when that issue went before the Supreme Judicial Court, which found against the insurers, did the parties agree to settle.

"This is a good example of how private attorneys can help enforce consumer law where the government doesn't have the resources, or perhaps the motivation, to do it," McCue says. "This is a victory for consumers. "

But defense attorney Robert L. Ciociola of Litchfield Cavo in Lynnfield says the settlement may be less impressive than it sounds.

"It really does depend on who shows up," Ciociola says. "Thirty thousand people may come [forward]. We don't know how many people are going to respond to this recovery. "

Two cases

According to the court documents, a New Jersey estate auction business called Metropolitan Antiques sent out approximately 360,000 unsolicited faxes between 2001 and 2003, advertising estate sales to doctors, accountants and lawyers in Massachusetts. Among the attorneys who received the faxes was Evan Fray-Witzer of Boston.

In December 2002, McCue and Boston attorney Edward A. Broderick filed a complaint on behalf of Fray-Witzer, claiming Metropolitan Antiques had violated the TCPA, which prohibits telemarketing via unsolicited faxes and allows for penalties of $500 to $1,500 per violation.

In the course of litigation, the case split into two: a dispute over the alleged TCPA violations and a battle over how Metropolitan would pay for those violations.

In the long and complex litigation over the application of the TCPA, van Gestel denied a series of motions defending the junk faxes on grounds that ranged from international commerce to the exercise of free speech.

However, the dispute over the nearly bankrupt defendant's ability to pay for the damages and fees involved in the suit went all the way to the SJC.  

"The merits of the class action were very strong," McCue says. "Really, the only problem with the case was that the defendant didn't have any assets. "

"My [client] is a small businessman," Ciociola explains. "He probably could never have funded anything remotely near the settlement number. "

And under the TCPA, Metropolitan was liable for much more - up to $1,500 for each of 360,000 faxes sent, for a total of $540 million.

Insurance coverage triggered

Because Metropolitan Antiques had almost no money of its own, the burden of paying for its violations of the federal law fell on its insurance agencies.

Faced with such an astronomical sum, Terra Nova Insurance Co. and Royal & SunAlliance USA did their best to prove that they were not required to indemnify Metropolitan for violating the TCPA.

Terra Nova, in turn, sued Fray-Witzer, the class representative, in an attempt to disclaim insurance coverage, while Royal brokered a behind-the-scenes deal with Metropolitan that promised it $100,000 if it didn't pursue a coverage claim.

After van Gestel found that the insurers did not have a duty to indemnify Metropolitan, McCue and Broderick, faced with the possibility that the defendant would not be able to pay either the class or the attorneys' fees, appealed to the SJC.  

"It was a tough one," Broderick notes of the appeal. "It was interesting and not entirely settled law by any stretch. "

"At the time, it was a very hotly contested issue nationwide," McCue recalls. "It was really challenging because it was hard to figure out which way our court would go, [since] many respected courts had gone with the insurance companies on these issues. "

In 2007, the SJC found that the insurance coverage was triggered.

The lawyers who represented the insurers, John P. Graceffa and Michael F. Aylward, both of Morrison Mahoney in Boston, declined to comment on the case. But Ciociola says that the ruling was not a carte blanche order for the two insurers to underwrite junk-fax damages.

"The SJC said, 'If this comes to pass, you have a duty to defend,'" he says. "The question of whether the court would require the insurers to pay money to the class is still an open question, because the duty to defend was broader than the duty to indemnify. "

McCue disagrees with that interpretation.

"No, they said that you have to defend and indemnify," he says. "If a judgment was entered, they have to pay, period. "

'Keeping it real'

In the wake of the SJC decision, the parties in the case - including the insurance companies - began to move toward mediation.  

"I think what really gave us the leverage was the SJC ruling in our favor," McCue says. "Everything changed in the case after we won insurance from the SJC. "

Ciociola concurs. "Obviously, that changed the dynamic of available funds and things like that, and it actually settled fairly quickly after that. "

During what Ciociola characterizes as a "long and involved" 10-hour mediation, the parties hammered out a settlement proposal in which Metropolitan Antiques, with help from its insurers, would place $1.8 million in a settlement fund, from which payments to the class and the attorneys would be made. The preliminary agreement will be finalized in October.

While McCue declines to disclose the amount he and Broderick were seeking going into the negotiations, the $1.8 million figure falls far short of the hundreds of millions of dollars that they might have won in court.

"When you do the math, the potential exposure to the defendant is astronomical," McCue says. "But you have to temper that with keeping it real. The dependent does not have that money. Getting a judgment is fabulous, but if you can't actually get the judgment to translate into payment for the class members, then it's not worth the piece of paper it's printed on. "

Cash for consumers

The settlement agreement stipulates that there will be a website, www.metrojunkfaxsettlement.com, where potential class members can instantly determine whether they are entitled to any money. (Ironically, because the members of the class are known to the lawyers only by their fax numbers, the notice of the settlement will have to be sent to them by unsolicited fax.) Class members can receive their money simply by filling out a form.

"They don't have to submit a DNA sample [or] show phone records," McCue says. "They just have to be able to say under oath that that was their fax number at a particular time. It's real cash money to consumers. " 

McCue and Broderick are seeking a third of the settlement amount in contingency fees, which, they say, is not an extravagant sum for six years of work.  

"We are pretty much getting paid our hourly rate," McCue notes. "No one here is going to Tahiti. " 

They anticipate that approximately $1 million will be left to pay the class after costs are subtracted. But if they are successful in finding many of the hundreds of thousands of class members, the size of the payout could drop to only a few dollars per claimant.  

"Obviously, the parties all felt that this was the best they could do," Ciociola says. "The jurisdictions have been split on the application of the junk-fax law, and some of the arguments we advanced here in Massachusetts that did not succeed have succeeded in other jurisdictions. I don't think that the issue has ever been presented to the SJC, and it was obviously one that we felt was still alive in this case. It made [the settlement figure] lower. "

Asked whether the case is a victory for consumers, Ciociola is dubious.

"I don't think it's a particularly significant case in terms of long-term effects," he says. "Really, I think the only definitive issue is that in such cases, there's probably a duty to defend by the insurance carriers. Yes, decisions were made at the trial court level, but none of those issues that we intended to take up on appeal were resolved at the appellate court level. I think Massachusetts is still a book to be written if another [junk-fax] case comes up here. "

But McCue has a different view.

"If you look at it claim by claim, it might not look like a lot," McCue says of the settlement. "But if you look at it from a macro perspective, if 30,000 people get $30 each, I think that's a fabulous result. "                                              

LOAD-DATE: July 7, 2008