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Litigation News | 2025

Fee Award Is a No Go in GoDaddy Class Action Settlement

James Michael Miller

Summary

  • Rush against time in TCPA class action settlement leads to errors.
  • The plaintiffs in the underlying case alleged that GoDaddy used a prohibited automatic telephone dialing system to make calls or texts to class members.
Fee Award Is a No Go in GoDaddy Class Action Settlement
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A federal court has held that a class action settlement was a coupon settlement under the Class Action Fairness Act (CAFA), 28 U.S.C. § 1712, despite terms that class members had an option to receive a cash payment. ABA Litigation Section leaders caution this may stymie future class action settlements.

Hedging Their Bets

In Drazen v. Pinto, the plaintiffs brought claims in the U.S. District Court for the Southern District of Alabama against GoDaddy under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. Section 227. The plaintiffs alleged that GoDaddy used a prohibited automatic telephone dialing system (ATDS) to make calls or texts to class members. An ATDS is capable of storing, producing, and auto-dialing telephone numbers using a random or sequential generator. GoDaddy’s defense was that the system it used did not employ a random or sequential generator.

The stakes were high. GoDaddy’s potential exposure was over $600 million based on the estimated 1.26 million class members and a minimum of $500 in statutory damages per class member. However, if GoDaddy won on the definition of an ATDS, the claims would be worthless.

A Rush to Settle

Class counsel and GoDaddy reached a settlement where class members could choose between a $150 voucher or $35 cash. They also agreed to attorney fees of $10.5 million based on an assumption that a million class members (80 percent) would claim the cash with GoDaddy paying $35 million. The district court preliminarily approved the settlement, attorney fees, and class notice.

While notice was being distributed, the Supreme Court granted certiorari in Facebook, Inc. v. Duguid to resolve a conflict among circuits on whether equipment that can store and automatically dial telephone numbers constitutes an ATDS even if it does not use a random or sequential number generator—the same determinative issue in the GoDaddy case. Class notice was not supplemented.

Aware of the pending Facebook case, class counsel quickly persuaded the district court to enter final judgment approving settlement and attorney fees just after the time for class members to file claims had expired. Members effectively had only seven days to object. Final judgment was entered just three months before Facebook was decided—where the Court held in a manner that would have vindicated GoDaddy’s defense. In the end, less than 2 percent of class members filed claims with roughly half choosing the cash option.

One class member objected, arguing the attorney fees were excessive and that the heightened scrutiny for coupon settlements under CAFA should have been used. The member appealed.

CAFA Applies Despite Cash Option

On appeal, the U.S. Court of Appeals for the Eleventh Circuit reversed the attorney fee award, holding that the district court abused its discretion by allowing attorney fees to be calculated as a percentage of the possible relief available to class members. Further, the court found that the “voucher” was a coupon under CAFA and that the settlement was a coupon settlement despite there being a cash option. Eschewing legislative history, the court relied on a more literal interpretation of a coupon largely based in its contemporary dictionary definition and held that a coupon is something that may be “exchanged for one or more goods or services” or a discount on the same. The court found that the language of CAFA anticipates that coupon settlements will not always be made up entirely of coupons but may include other forms of relief like cash options.

The Eleventh Circuit remanded with directions that attorney fees “for coupon settlements under CAFA may be based on the value of the coupons that are redeemed, the lodestar method, or a combination of both.” The court suggested that a district court may abuse its discretion if it fails to consider the redemption rate of coupons.

Litigation Section Leaders Agree But Predict Trouble Ahead

“It all goes back to the ex parte order approving the settlement and fees before the deadline for objections had expired,” explains Ian H. Fisher, Chicago, IL, Litigation Section Council member and past Co-Chair of the Section’s Class Action & Derivative Suits Committee. “That infected the entire process. Even under exigent circumstances, notice and the rights of absent class members must be respected. Ironically, the full opinion would have resulted in getting nothing from the settlement based on the subsequent Facebook case, which rendered the claims worthless. The limited concurrence by the other two circuit judges preserved the settlement while reversing the fee award,” Fisher concludes.

“This is an example of the old adage, ‘bad facts make bad law,’ but I agree with the court’s limited decision on attorney fees,” states Jeffrey J. Greenbaum, Newark, NJ, past Co-Chair of the Section’s Class Actions & Derivative Suits Committee. “The circuit court was troubled with basing a $7 million fee award on a maximum exposure of $35 million despite a low claims rate where over 98 percent of the class gets nothing.  As it turned out, the actual maximum payout was less than $2.5 million assuming all vouchers are redeemed,” he adds.

“My concern is that the court’s ruling may delay the determination of attorney fees in coupon settlements until all coupons are redeemed or until there is expert testimony on an expected redemption rate, and that may impede prompt and creative settlements,” cautions Greenbaum.

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