Third Circuit vacates settlement agreement over Sprint fees

By Jessica M. Karmasek | Jul 13, 2012


PHILADELPHIA (Legal Newsline) - A federal appeals court, in a ruling last month, vacated an order by a district court certifying a class and approving a settlement agreement in a case over a cell phone service provider's early termination fees.

In its June 29 opinion remanding the case, the U.S. Court of Appeals for the Third Circuit ruled that the U.S. District Court for the District of New Jersey did not "adequately protect the rights of absent class members."

Until late 2008, defendant Sprint Nextel Corporation included a flat-rate early termination fee, or ETF, provision in its cell phone contracts. The provision allowed it to charge a set fee to customers who terminated their contracts before the end date stated in the contract.

Because many consumers believed that flat-rate ETFs were illegal penalties, numerous class action lawsuits were brought against various cell phone service providers who charged the fees, including Sprint.

In this case, the plaintiffs entered into negotiations with Sprint and, after five months of mediation, the parties decided to settle for $17.5 million, pursuant to the terms of their agreement.

Over objections lodged by several class members, the district court certified the settlement class and approved the agreement.

Objectors Lina Galleguillos, Antranick Harrentsian and Michael Moore, along with Jessica Hall, appealed.

On appeal, they argue that the district 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 a flat-rate ETF.

They also assert that the court abused its discretion by holding that the class representatives were adequate.

In its discussion, the Third Circuit mostly focused on the first issue, of which it sided with the objectors.

"Given the size of the class and the due process rights at stake, these are not troublingly high sums," Circuit Judge Kent A. Jordan wrote of the cost of notifying a possible 4.2 million class members at 2.5 cents each.

The Third Circuit also shot down Sprint's argument that performing such a search of its records would be a "cumbersome process."

"If the efforts detailed in the Rice Declaration, whereby a computer program would have to run search queries in certain databases, would identify 4.2 million class members, we fail to see why running those search inquiries is unreasonable, and no explanation for that conclusion was provided by the district court," Jordan wrote.

The court noted that the effort required "seems less significant" than those in past cases.

"While it may be that a search of the billing records to find class members who have been charged flat-rate ETFs 'cannot be made with push-button ease,' 'its advantages,' based on the admissions made by Sprint itself, appear likely to 'bring the effort required within the range of reasonableness,'" Jordan wrote in the 62-page ruling.

The judge continued, "Because we have 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."

It is a judicial duty to act as the "guardian of absent class members," the Third Circuit noted, remanding the case to the district court.

"Given Sprint's concession that a billing records search could result in identifying millions of class members who were charged a flat-rate ETF -- individuals who are in the sweet spot of the proposed class -- we are not sure how it can be said that it is unreasonable for Sprint to search any of its billing records, but we leave that determination to the district court, to be made on a more complete record and with a fuller explanation," Jordan explained.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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