That's a bit of overkill.
With a supply voltage of 7.5 @ .7 amps, the LM317 will be dissipating:
WD = 0.7 x (7.5 - 3.8 - 1.25), or about 1.7 watts. Let's call it 2 to be safe
They recommend a maximum TJ of 125°C for an LM317, but let's keep it cool and on the safe side at 85°C to factor in junction to case RT. And we'll put ambient at 25°C, again to be safe. Then we have:
RT= (85 - 25) / 2, or about 30°C/W should do nicely.