In re At & T Mobility Wireless Data Serv. Sales Tax Litig..

789 F.Supp.2d 935

79 Fed.R.Serv.3d 1008

In re AT & T MOBILITY WIRELESS DATA SERVICES SALES TAX LITIGATION.

No. MDL 2147.No. 10 C 2278.

United States District Court, N.D. Illinois, Eastern Division.

June 2, 2011.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge:

This consolidated class action arises from numerous cases brought against AT & T Mobility, L.L.C. (“AT & T”), for its collection of certain state and local taxes in alleged violation of the Internet Tax Freedom Act (“ITFA”). The U.S. Judicial Panel on Multidistrict Litigation (“the JPML”) centralized twenty-eight actions against AT & T pursuant to 28 U.S.C. § 1408 in this Court. (R. 1.) On June 24, 2010, Plaintiffs filed their Consolidated Master Class Action Complaint. (R. 48.) On August 11, 2010, the Court granted in large part the parties' joint motion for class certification, preliminary approval of class settlement, approval of notice, and appointment of notice administrator.¹ (R. 96.) Since then, the parties have filed memoranda in support of their motion for final approval of the class-action settlement, and a number of objectors (as well as certain states) have filed briefs in opposition to the Settlement Agreement (“the Agreement” or “the Settlement”). The Court held a fairness hearing on March 10, 2011, and allowed further time for amici to file briefs. (R. 169.)

Having studied the Agreement and the relevant briefing, the Court grants the motion for final approval of the Settlement (R. 154), finding that it is fair, reasonable, and adequate. The Court will address in a separate order Class Counsel's motion for approval of attorneys' fees, costs and expenses, and for approval of incentive awards for class representatives (R. 124).

BACKGROUND

I. The History of the Litigation

The ITFA provides that no state shall impose taxes on Internet access, or multiple or discriminatory taxes on electronic commerce, beginning November 1, 2003, and ending November 1, 2014. 47 U.S.C. § 151 (1998) (as amended). AT & T remitted a variety of sales and use taxes to certain state and local taxing authorities, which led numerous plaintiffs, who contended that the ITFA forbade such taxes, to bring suit. (R. 156 at 15.) AT & T subsequently moved under 28 U.S.C. § 1407 to transfer those actions for consolidated proceedings. (R. 1 at 1.) On April 7, 2010, the JPML transferred the cases to this Court, but declined to transfer the single case of Johnson v. AT & T, No. 4:09–CV–4014. ( Id. at 3–7.) Plaintiffs in the Wiand action pending in the Eastern District of Michigan and the Johnson action pending in the Southern District of Texas opposed inclusion of their actions in centralized proceedings. ( Id. at 1.)

The JPML carefully considered certain Plaintiffs' arguments that the application of the ITFA will vary from state to state and that centralization could have the negative effect of allowing AT & T later to argue against class certification based on the distinct tax rules of each state. (R. 1 at 2.) Nevertheless, the panel concluded that “the benefits of centralization are significant,” and thus found that the relevant actions met the requirements of 28 U.S.C. § 1407. The JPML determined, however, that the Johnson action was sufficiently distinct to warrant exclusion from the centralized proceedings. ( Id.)

On June 24, 2010, AT & T and 57 plaintiffs in the consolidated actions filed a joint motion for an order certifying the proposed class and subclasses for settlement purposes, preliminarily approving the settlement agreement, approving the notice plan, ordering the dissemination of notice as set out in the Settlement Agreement, and appointing Analysis Research Planning Corporation (“ARPC”) as the Notice and Settlement Administrator. (R. 49.) On August 11, 2010, the Court granted the joint motion for class certification, preliminary approval of class settlement, approval of notice, and appointment of notice administrator, but reserved judgment on whether to appoint ARPC as settlement administrator. (R. 96.)

In preliminarily approving the Settlement Agreement, the Court weighed the strength of Plaintiffs' case against that of AT & T. (R. 97 at 20–24.) It observed that Plaintiffs' action faces “significant hurdles,” but noted that AT & T had agreed for the purpose of the proposed settlement not to argue that (1) Plaintiffs must arbitrate their claims; (2) the Court cannot certify the proposed class; (3) Plaintiffs lack standing; (4) the ITFA does not preempt the relevant taxes; and (5) the voluntary-payment doctrine bars Plaintiffs' claims. ( Id. at 21.) The Court further observed the relevance of discounting to present value, which means that, even if the Plaintiffs were ultimately to prevail in the future, a dollar then would not be equivalent to a dollar now. ( Id. at 21–22.) This constituted a benefit to the Proposed Settlement, which would provide immediate benefits. ( Id. at 22.) In addition, the Court noted AT & T's agreement that it would stop collecting taxes on Internet-access services within 30 days of the Court's preliminary approval. ( Id.)

Further benefits to class members as a result of the Agreement involved AT & T's creation of an escrow account and coordination of tax refunds and credits without requiring class members to submit any claim forms. ( Id.) Within 90 days of preliminary approval of the Settlement Agreement, AT & T had to begin filing refund and credit applications. ( Id.) The Court also observed the creation of state-specific subclass accounts, which would facilitate recovery in light of different states' distinct procedures for allowing refunds. ( Id. at 22–23.) In addition, AT & T agreed to waive its opposition to class certification and to pay the cost of notifying the class. (Id. at 23.) The Court concluded its discussion of the relative strengths of the parties' cases by observing:

Movants have represented that hundreds of millions of dollars are at issue in this action, but they have not provided a more-definite figure of how much is at issue or exactly how much Plaintiffs can expect to recover. That is not problematic at this stage, however, because it appears that Plaintiffs would receive a high percentage of what is at issue—whatever that dollar value may be—under the Proposed Settlement Agreement. As such, this factor favors preliminary approval.

( Id. at 24.)

The likely complexity, length, and expense of litigation favored granting preliminary approval of the Settlement because AT & T's service agreements contain mandatory arbitration clauses. ( Id. at 25–26.) In relying on the opinion of AT & T's counsel and the Interim Settlement Class Counsel, the Court deemed it relevant that “class counsel will only be paid from state-specific escrow accounts if those accounts are funded through refunds or credits from the taxing jurisdictions, and they have agreed to seek fees that are no greater than the lesser of ten percent of the aggregate value of the settlement or twenty-five percent of the aggregate value of the class damages actually recovered.” ( Id. at 26–27.)

Although formal discovery had not taken place, that fact alone did not preclude approval of the Settlement in light of the significant amount of informal discovery that the parties had conducted. ( Id. at 27.) The Court emphasized the unique circumstances of the case, in that Defendant acted as a pass-through to taxing authorities, but stressed that it “will require additional information, including detailed financial information, before giving final approval.” ( Id. at 28.)

The proposed notice satisfied Rule 23. The notice plan entailed AT & T's sending both a message with each customer's monthly bill and a text message to its current customers. ( Id. at 30.) Former customers would receive notice via email, if they had provided the same to AT & T, or by U.S. Mail otherwise. ( Id.) In addition, AT & T agreed to publish a notice twice in the USA Today newspaper. ( Id.) The details contained in the various forms of notice met the requirements of Rule 23. ( Id. at 30–33.)

II. The Settlement Agreement

The Court briefly summarizes the more important provisions of the Settlement Agreement, which acknowledges Plaintiffs' allegation that AT & T charged Internet Taxes to its customers in violation of the ITFA and/or various state statutes and common-law doctrines, thus rendering AT & T liable for damages, but makes clear that AT & T views these allegations as incorrect and denies all liability. (R. 50–3 at 13.)

The Agreement defines the relevant class as follows:

All persons or entities who are or were customers of AT & T Mobility and who were charged Internet Taxes on bills issued from November 1, 2005 through [the final date on which AT & T Mobility issues bills to customers prior to implementing the billing system changes pursuant to Section 8.1].

Excluded from the Settlement Class are: (i) AT & T Mobility, any entity in which AT & T Mobility has a controlling interest or which has a controlling interest in AT & T Mobility, and AT & T Mobility's legal representatives, predecessors, successors and assigns; (ii) governmental entities; (iii) AT & T Mobility's employees, officers, directors, agents and representatives; and (iv) the Court presiding over any motion to approve this Settlement Agreement.

(R. 50–3 at 14–15.) The Court certified this Class on August 11, 2010. ² (R. 97 at 34.) The Court further certified District of Columbia, Puerto Rico, and forty-five state-specific subclasses for:

All persons or entities who are or were customers of AT & T Mobility and who were charged Internet Taxes in [STATE] on bills issued from November 1, 2005 through the final date on which AT & T Mobility issues bills to customers prior to implementing the billing system changes pursuant to Section 8.1 of the Settlement Agreement. Excluded from the [State] Settlement Class are: (i) AT & T Mobility, any entity in which AT & T Mobility has a controlling interest or...