In Their Opinion : Seventh Circuit Court of Appeals Commentary : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

IN RE: SPRINT NEXTEL (January 28, 2010)

Sprint Nextel, a Kansas corporation, was sued in Kansas state court for allegedly conspiring with its competitors to impose artificially high prices for text messaging. The suit was brought as a class action on behalf of "all Kansas residents" who purchased the relevant services from Sprint Nextel or any of its competitors and a) who had a Kansas cell phone number and b) who received their cell phone bill at a Kansas address. Sprint Nextel removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded the case to the Kansas state court under CAFA's home-state exception. Sprint Nextel petitioned for leave to appeal.

In their opinion, Judges Flaum, Evans, and Sykes granted the petition to appeal, vacated the order, and remanded. Under the home-state exception in CAFA, a district court must decline jurisdiction if both the defendant and two-thirds of the proposed class members "in the aggregate" are citizens of the state in which the action was originally filed. The Court first addressed Sprint Nextel’s argument that the "in the aggregate" language meant that two-thirds of proposed class members in this suit and in suits with similar allegations (of which there are many) must be Kansas citizens. Relying on the inclusion of identical language in a separate section under which Sprint Nextel's argument makes no sense, the Court joined the First Circuit in rejecting that interpretation. Instead, the Court concluded, the language simply refers to the possibility of multiple subclasses. The Court next reviewed the district court's conclusion that the plaintiffs' careful definition of the class left "little doubt" that two-thirds of the class members were Kansas citizens. The Court noted the plaintiffs had the burden to establish they were entitled to remand under the home-state exception. Yet they actually presented no evidence. The Court agreed with the district court’s “sensible guesswork” in concluding that the class met the two-thirds threshold through the use of Kansas cell phone numbers and mailing addresses in the definition of the class. Nevertheless, the Court concluded that it should not draw such conclusions without actual evidence and vacated the order of remand. It suggested the plaintiffs could present statistical evidence based on a representative sampling of potential class members or it could even limit the class to Kansas citizens (instead of residents) by definition.

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BERGQUIST v. MANN BRACKEN, LLP (January 26, 2010)

Sandra Bergquist owed money to the bank that issued her a credit card. The bank retained the law firm of Mann Bracken to collect the debt. The firm arbitrated the dispute before the National Arbitration Forum, as provided in the credit card agreement. The bank prevailed at the arbitration and a state court entered judgment enforcing the arbitration award. Bergquist was suspicious of the connection between Mann Bracken and the National Arbitration Forum. She asked the state court to set aside its judgment enforcing the award. It did so and dismissed the case with prejudice. She also filed a class-action on behalf of all persons who were pursued by Mann Bracken and had their claims arbitrated before the National Arbitration Forum. The defendants removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded, concluding that the Rooker-Feldman doctrine precluded federal jurisdiction of the claim. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner vacated and remanded. The Court first rejected the argument that CAFA trumps Rooker-Feldman. Although CAFA expands federal jurisdiction with respect to class actions, it does not change the Rooker-Feldman limitation on collateral attacks of state court decisions. The Court concluded, however, that the Rooker-Feldman doctrine had no application in the case. First, although the district court recognized the inapplicability of the doctrine to Bergquist's individual claim (because the state case had been dismissed with prejudice), it nevertheless remanded because Bergquist sought relief on behalf of others who had lost in state court. The Court found this to be error. The district court was not allowed to remand the entire case because some portion of it did not belong in federal court. A federal court must exercise the jurisdiction that does exist. Second, it was not apparent to the Court that any claim need be remanded. The Court identified three possible subclasses: those who won in state court, those who lost in state court, and those who neither won nor lost. The class can be defined to eliminate those who lost in state court, the only persons in the class with a Rooker-Feldman problem. The Court remanded for a determination of whether the jurisdictional requirements were met under that revised class definition.

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CUNNINGHAM CHARTER CORP. v. LEARJET (January 22, 2010)

Cunningham Charter Corp. brought a breach of warranty and products liability class action against Learjet in state court. Learjet removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After the district court denied class certification for failure to satisfy the requirements of Rule 23, it remanded the case to state court. The district court concluded that the denial of certification deprived the court of federal jurisdiction under CAFA. Learjet sought leave to appeal.

In their opinion, Judges Posner, Coffey, and Flaum granted leave to appeal and reversed and remanded. CAFA, said the Court, grants federal jurisdiction to certain class actions. A class action is defined as "any civil action filed under rule 23." The statute also specifically provides that it applies before or after a class is certified. Based on these and other provisions of CAFA, as well as the principles that jurisdiction is determined at the time of filing and is generally not affected by later developments, the Court concluded that CAFA jurisdiction does not depend on class certification.
 

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MUSCH v. DOMTAR INDUSTRIES (November 25, 2009)

Alan Musch is an hourly maintenance employee at one of Domtar's paper mills in Wisconsin. Because he is regularly exposed to hazardous chemicals during a shift, he must shower and change his clothes before leaving the mill. He is not compensated for that time. He brings an action on behalf of himself and the other maintenance employees under the Fair Labor Standards Act and Wisconsin state law for overtime compensation. The court entered summary judgment for Domtar. The class appeals.

In their opinion, Judges Bauer, Kanne and Evans affirmed. The FLSA does require an employer to pay its employees for all their work. Although an employer is generally not required to compensate an employee for activities (such as cleaning up) at the end of the workday, compensation may be required if the activity is an integral part of the employment. The Court agreed with the district court's findings that the class failed to establish that chemical exposure was so pervasive that cleanup was required at the end of each day. The Court also noted that Domtar had a policy requiring maintenance employees to shower and change clothes whenever they were exposed to hazardous chemicals, even if not at the end of their shift. The Court concluded that the activities were non-compensable.

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IN RE: SAFECO INSURANCE CO. (October 22, 2009)

Safeco Insurance Co. of America ("SICA") and Safeco Insurance Co. Of Illinois ("SICI") are subsidiaries of Safeco Corp. and provide automobile insurance. Although SICI adjusts its own claims only, SICA adjusts its claims and the claims of several other companies owned by Safeco. In 2005, Dr. F. Ryan Bemis, a chiropractor, filed a class action in Illinois state court against SICI and SICA. The complaint included causes of action based on breach of contract, consumer fraud statutes and unjust enrichment. It alleged a scheme by SICA and SICI to reduce medical payments coverage through its use of particular audit software. The Class Action Fairness Act of 2005 (“CAFA”) became effective seven days after the complaint was filed. Bemis later dismissed the statutory and unjust enrichment counts and amended the breach of contract count. In 2009, the state court granted class certification to a class consisting of all persons insured by Safeco insurance companies in 14 different states who had their claims adjusted by the specific software in question. Safeco removed the case to federal court, asserting that the class definition amounted to the commencement of a new action for CAFA purposes. The district court remanded, concluding that the class definition related back to the original complaint. Safeco sought leave to appeal.

In their opinion, Judges Ripple, Manion and Kanne granted leave to appeal and affirmed the judgment. The Court agreed with the district court that federal jurisdiction would have existed under CAFA. The Act is not retroactive, however, and the action was filed before its effective date. Therefore, stated the Court, removal under CAFA is proper only if the class certification amounted to the commencement of a new action. The central question in a relation-back analysis is whether the original pleading provided adequate notice of the class' claims. Although SICA continued to add affiliates to its roster of those for whom it processed claims after the complaint was filed, the Court concluded that the class definition related back to the filing of the complaint. The gravamen of the complaint was the use of the particular claims-processing software by SICA. The original complaint put the defendants on notice that any claim adjusted with that software was within the scope of the complaint. 

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HARPER v. SHERIFF OF COOK COUNTY (September 8, 2009)

Robert Harper was arrested on September 29, 2005. The next afternoon, a judge found probable cause, set bond and remanded him to the custody of the sheriff. Apparently, Harper's wife was at the probable cause hearing and was willing and able to post a cash bond. She eventually posted it a few hours later but Harper was not released from custody until hours after that. During that time, he was in the custody of the sheriff undergoing pre-release processing. Harper brought an action against the Sheriff, alleging that the pre-release procedures are unconstitutional. The district court granted Harper's motion for class certification, although it found his class definition too broad and asked for a redefinition. The Sheriff appeals.

In their opinion, Judges Bauer, Sykes and Tinder vacated and remanded. The Court first clarified that it had jurisdiction, notwithstanding the lower court's request for a redefinition of the class. The open definition was of no consequence since the court certified the class. Before it addressed class certification, the Court first had to decipher the crux of the complaint. It noted that Harper complained of specific intake procedures as well as the general practice of holding detainees after bond had been posted. Relying specifically on representations at oral argument, the court focused on the latter of these two issues -- the post-bond detention. On the merits of that argument, however, the Court concluded that the reasonableness of the detention would depend on the specific facts and circumstances of each individual case. The Court cited a number of factors: time of day, number of detainees, collateral events, etc. The Court also addressed Harper's equal protection claim that persons with money or influence can avoid the detention. Without addressing the merits, the Court concluded that this claim, too, was not appropriate for class disposition.

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MURO v. TARGET CORP. (August 31, 2009)

Christine Muro held a Target "Guest Card" for a few years. In late 1999, she paid off the balance and requested that her account be closed. In 2004, Target sent her an unsolicited Visa Card. Muro never used, or even activated, the card. She brought an action under §§ 1637 and 1642 of the Truth in Lending Act (“TILA”). With respect to § 1642, which prohibits the unsolicited issuance of a credit card, the court denied class certification. It concluded that Muro's claims were not typical of the claims of most of the proposed class (because most of the class members had an open “Guest Card” account) and that she had failed to establish numerosity with respect to the claims for which her claims were typical. Muro settled her individual § 1642 claim, reserving the right to appeal the denial of class certification. The court granted summary judgment to Target and denied class certification on the § 1637 claims. Muro appeals.

In their opinion, Judges Ripple, Rovner and Evans affirmed. With respect to § 1642, the Court noted that the narrow issue was whether a named plaintiff in a putative class action could settle her individual claim and still appeal an adverse decision on class certification. Referring to the Supreme Court's decisions in Geraghty and Roper, the Court stated that a plaintiff has to have a personal stake in the adjudication of the certification issue to maintain an appeal. The Court recognized a difference of opinion among courts as to whether a mere reservation of a right to appeal is sufficient interest to maintain an appeal. Upon reflection, the Court concluded that a voluntary settlement by a putative class plaintiff strips the plaintiffs of any personal interest in the litigation sufficient to support an appeal. Here, although Muro accepted the settlement with a reservation of her right to appeal, she retains no stake in the litigation and no right to appeal. As an aside, the Court indicated its agreement with the district court on the merits of its denial of class certification. With respect to § 1637, which requires certain disclosures before "opening" an account, the Court also agreed with the lower court. The issue on the § 1637 claim was when an account is "opened." The TILA is silent but the Federal Reserve Board regulations require the disclosures before the first transaction. Concurring with the regulation's approach, the Court noted that Muro had never activated or used her card. She had no § 1637 claim.

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HERSHEY v. PACIFIC INVESTMENT MANAGEMENT CO. (JULY 7, 2009)

A number of investors sold 10-year U.S. Treasury notes short and, between May 9 and June 30, 2005, bought futures contracts in settlement of their obligations. These investors brought a class action against Pacific Investment Management Co. (PIMCO), alleging that PIMCO violated the Commodity Exchange Act by cornering the market in certain Treasury notes. The class alleges that PIMCO increased its ownership of the notes to the point where it created a monopoly price, resulting in losses to the class of more than $600 million. PIMCO challenged the class definition. It pointed out that many class members did not lose money because of the net effects of multiple trades. The district court certified the class. PIMCO appeals.

In their opinion, Judges Posner, Evans and Tinder affirmed. The Court rejected PIMCO's argument that a district court had to determine which class members suffered damages before certifying a class. The standing requirement is satisfied as long as one member of the class has a plausible damage claim. The fact that a class member ultimately is shown to have not been injured does not preclude class certification. The Court cautioned, however, that a class should not be certified if it appears that many class members have suffered no injury. Although the Court did not believe that to be the case, it invited PIMCO, on remand, to find out through a random sample of depositions. The Court also rejected PIMCO's argument that a conflict of interest existed among class members because they purchased the notes at different times. The conflict was only hypothetical and may never materialize.

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MARSHALL v. H&R BLOCK TAX SERVICES, INC. (April 30, 2009)

Suit was filed in state court against a defendant class of companies. The defendant class consisted of H&R Block Tax Services, Inc. ("TSI") and its affiliates or franchisees. The suit, brought on behalf of a plaintiff class, alleged violations of the Illinois Consumer Fraud Act. The state court certified the defendant class and originally three plaintiff classes, including people in all 50 states and the District of Columbia. On TSI's motion, the court decertified the defendant class but refused to decertify the plaintiff class, although it did narrow it to residents of only 13 states. TSI removed the case pursuant to the Class Action Fairness Act (CAFA), on the theory that the decertification of the defendant class occurred after CAFA’s effective date and increased TSI’s potential liability. The district court remanded the case to state court. TSI requested leave to appeal, which the Court granted.

In their opinion, Chief Judge Easterbrook and Judges Posner and Tinder reversed. A case that was filed before the effective date of CAFA may still become removable if a court's ruling after its effective date increases a defendant's potential liability and does not "relate back" to the original claim. The Court first explored whether the decertification increased TSI's potential liability. On the pleadings, the Court concluded that TSI's potential liability may well have increased. Before decertification, it was not liable for the unlawful acts of all class members simply because it was a corporate affiliate, or because it was a class representative. Similarly, although the original complaint alleged joint and several liability, the complaint included three other defendants. The Court could not determine whether the plaintiffs sought to hold TSI liable for all the affiliates. The Court concluded that the plaintiffs may well be attempting to hold TSI liable for the acts of all the affiliates after decertification, which would appear to increase TSI's liability. With respect to whether the change "relates back" to the original complaint, the Court looked to whether the original complaint provided sufficient notice of the scope of the claim such that the defendant should not be surprised by the increased scope. Relying on its own conclusion that TSI's original liability was significantly less than it was facing after the ruling, the Court concluded that it did not relate back.

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KURZ v. FIDELITY MANAGEMENT & RESEARCH CO. (February 23, 2009)

Kurz and Heinzl both invested in portfolios managed by Fidelity Management & Research Co. (“Fidelity”). Apparently, some Fidelity employees placed trades with Jeffries & Co. in return for kickbacks from Jeffries. The SEC initiated a proceeding under the Investment Company Act and the Investment Advisors Act. Fidelity and the SEC entered into a consent decree. Kurz and Heinzl thereafter filed a class-action suit in state court, alleging that the employees’ conduct resulted in a breach of contract by Fidelity. Fidelity removed to federal court on the basis that their failure to disclose the employees’ misconduct was a securities law issue. The district court denied Kurz’ motion to remand and entered judgment for Fidelity. Kurz appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall affirmed. The Court referred to the Securities Litigation Uniform Standards Act of 1998 (the “Act”). The Act generally bars class actions based on state law which allege an omission of a material fact “in connection with the purchase or sale of a covered security. The Court noted that there are exceptions to the bar (like a derivative action) but Kurz did not invoke any exception. Instead, his position was that the claim was a contract claim -- not one for a misrepresentation or omission. The Court agreed that a true action for breach of contract would not be barred by the Act but concluded that Kurz could not maintain an action for breach of contract. The principal reason for his inability to do so was the complete absence of any promise made by Fidelity to Kurz.

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ARMSTRONG v. LASALLE NATIONAL BANK (January 13, 2009)

A number of lawsuits were initiated in several different federal district courts by participants in Amsted Industries, Inc.’s (“Amsted”) Employee Stock Ownership Plan (“ESOP”). The complaints allege violations of ERISA, breach of contract, breach of fiduciary duty and conversion. The Judicial Panel on Multidistrict Litigation (“Panel”) consolidated the cases for pretrial proceedings in the Northern District of Illinois. That court ordered the cases consolidated into two groups – retiree claims and non-retiree claims. The non-retirees added LaSalle Bank as a defendant. All the claims eventually were resolved except the non-retiree claims against LaSalle. The non-retiree plaintiffs and LaSalle participated in pretrial proceedings, including the setting of a trial date. A few weeks before the pretrial order was due, the plaintiffs moved to remand their claims. LaSalle objected. The court granted the remand, reluctantly and with some consternation. It also certified two questions under 28 U.S.C. § 1292(b): a) whether filing an amended complaint agreeing to jurisdiction and venue and adding a defendant that can only be sued in the transferee court constitutes consent to trial in the transferee court, and b) whether waiver of a right to remand under § 1407 requires evidence of a “deliberate relinquishment of a known right.” LaSalle appeals.

In their opinion, Judges Ripple, Rovner and Tinder affirmed. The Court began with the statute. Section 1407(a) provides that cases transferred and consolidated by the Panel “shall be remanded” to the transferor court after pretrial proceedings, unless otherwise terminated. The Court mentioned the Supreme Court’s emphasis on the plain meaning of the statute in Lexecon vs. Milberg Weiss, in which the Supreme Court struck down the practice of district courts transferring a case to itself. The analysis did not stop with Lexecon, however. The Court recognized that § 1407(a) is a venue statute. Since a party can consent to venue and waive its right to remand, the Court addressed waiver. The Court found no authority on the proper standard to apply in a § 1407(a) waiver context. It found its jurisprudence on the waiver of a right to arbitrate instructive. In Halim v. Great Gatsby’s Auction Gallery, the Court held that the standard to determine waiver of the right to arbitration is whether, under all the circumstances, the party alleged to have waived has acted inconsistently with that right. The focus should be on the party’s actions as a whole, not any one action. The Court suggested that the standard for a § 1407(a) waiver should be higher than for a right to arbitrate, noting the statutory source of the remand right as well as the mandatory language. The Court did not actually decide the issue since it concluded that LaSalle could not even get over the “acted inconsistently” hurdle. On the merits of the waiver, the Court stated that only two actions of the plaintiffs were cited as supporting a waiver – its statement in the consolidated complaint that venue was proper in the transferor court and its participation in pretrial proceedings in which trial dates were set. Neither, in the Court’s view, amounted to a waiver. With respect to the venue statement, the Court noted that the consolidated complaint was filed at the request of the court and that venue, in fact, was proper in that court. Nothing about the statement was inconsistent with a desire for a remand. With respect to the plaintiffs’ participation in pretrial proceedings in which trial dates were set, the Court admitted that much aggravation could have been avoided had the plaintiffs made their intentions more clear. However, the conduct was not inconsistent with a desire for a remand.

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KATZ v. GERARDI (January 5, 2009)

Jack Katz brought this action on behalf of a class of persons who contributed real property to a real estate investment trust (“REIT”). In exchange, they received an interest in the REIT. The REIT merged into a new entity in 2007. The interest-holders were offered either cash or an interest in the new entity. Katz took the cash but filed suit in state court, alleging that the offer violated the terms of their original agreement with the REIT. He based the action on the Securities Act of 1933 ( “’33 Act”). Defendants removed the suit to federal court under the Class Action Fairness Act of 2005 (“CAFA”). The district court concluded that removal was not allowed by the ’33 Act. The defendants petition for appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes granted the petition and vacated and remanded the decision of the district court. The Court first addressed whether Katz’ action was even one under the ’33 Act. The ’33 Act applies only to purchasers of securities – Katz and the class members are sellers of securities. The Court was inclined to believe that Katz was styling his claim as one under the ’33 Act in order to prevent removal. The district court had acknowledged the same issue. It decided that the weakness of the pleading went to the merits, not to whether it was removable. The Court recognized the difficulty in distinguishing between a claim designed to defeat federal jurisdiction and one, though ultimately unsuccessful, is properly pleaded. Ultimately, the Court decided to accept the pleading as one under the ’33 Act and address the conflict between the laws.

The ’33 Act provides that actions brought under the statute in state court are not removable except in particular circumstances. CAFA allows for removal of class actions if certain criteria are met – which admittedly are met here. The Court noted the canons of construction that apply when statutes are in conflict – an older statute yields to a newer and a less specific yields to a more specific. But the Court concluded that it did not have to apply those canons. The statutes, in fact, are not incompatible. The very language of CAFA provides the answer. The broad removal authority granted by CAFA is modified by the almost identical lists of exceptions in §1332(d)(9) and §1453(d). The Court concluded that class actions brought under the ‘33 Act are removable unless one of the §1453(d) exceptions applies. Katz relied on one of the exceptions – claims that relate to rights and duties relating to any security. The Court noted an inconsistency between Katz’ attempts to fit his claim into the exception while still relying on the ‘33 Act. Nevertheless, the Court decided the best course was to remand to determine whether the claim fit within the exception.

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MIRFASIHI v. FLEET MORTGAGE (December 30, 2008)

This suit was originally brought years ago on behalf of 1.6 million people whose mortgages were owned by Fleet Mortgage Corporation (“Fleet”). The allegations of the class action complaint are that Fleet shared personal information from the class members’ mortgage files with telemarketers, in violation of the Fair Credit Reporting Act (“FCRA”) and various state laws. The class was divided into a very large class of persons whose information was shared but who purchased nothing as a result (the “non-purchasers”) and a small (~190,000) class of people who did make purchases (the “purchasers”). The court certified the class and approved a settlement in 2002. The settlement provided nothing to the non-purchasers. The Seventh Circuit reversed and remanded, at the request of two intervening objectors. On remand, the court again approved a settlement. Again, the non-purchasers received no direct benefit. The court concluded that their claims were of no value. Fleet was required, in addition to the payment to the purchasers, to make a payment of at least $243,000 to organizations concerned with consumer privacy issues. The Seventh Circuit again reversed on the grounds that the court’s valuation of the non-purchasers’ claims was inadequate. On remand, the court conducted a more thorough survey of the state consumer protection laws and, once again, concluded that the non-purchasers’ claims had no value. The court awarded class counsel $750,000 and objectors’ counsel $18,750 in fees. The objectors appeal.

In their opinion, Judges Bauer, Posner and Williams affirmed. The Court first noted that no member of the non-purchasers class suffered actual harm. Although nineteen states and the District of Columbia allow individual (not class) actions with statutory penalties ranging from $25-$10,000, the parties failed to identify one person who would bring such an action. Although the Court noted that the state law limitations on class actions may not be binding in federal court, it held that the objectors waived any right to raise that issue. The Court also held that the objectors forfeited any claim that FCRA provided a statutory penalty remedy for the non-purchasers, adding, however, that such a claim would be frivolous. Concluding that the non-purchasers’ claims were indeed worthless, the Court approved the $243,000 settlement.

The Court used objectors’ counsel’s request for additional fees to again express its frustration with the inherent conflicts in class actions. (For another recent expression of Judge Posner's frustration, see his opinion in Thorogood here and my summary here.) One of those conflicts resulted in objectors’ counsel exaggerating the value of the non-purchasers’ claims in order to be entitled to an award of fees. Here, objectors’ counsel asked that the $750,00 awarded to class counsel instead be awarded to him. The Court conceded that objectors do frequently assist the class action settlement process, but an award of fees must be balanced by their degree of success. Here, the objectors extended the litigation by years. They improved to some degree the value of the purchasers’ settlement but did not do much to improve the settlement for the non-purchasers. They did not participate constructively in the litigation – in fact, they conducted themselves irresponsibly. The Court approved as “barely justified” the fee awarded below.

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SEEGER v. AFNI, INC. (December 8, 2008)

AFNI is a debt collector. Cingular is (or was) a cellular telephone service provider. Cingular contracts with individuals to provide telephone service. It typically includes in its contracts a provision that its customer is obligated to pay the fees of a collection agency and other costs Cingular incurs in enforcing its rights under the contracts. In 2004-05, Cingular sold some delinquent customer accounts to AFNI. AFNI sent collection letters to plaintiff Seeger and others. The letters stated that the recipient was responsible for collection fees. In 2005, Seeger and other plaintiffs filed suit. They alleged that AFNI’s actions violated the Fair Debt Collection Practices Act (“FDCPA”) and the Wisconsin Consumer Act (“WCA”). The district court certified a class and granted summary judgment to the class. It held that AFNI’s action violated both the FDCPA and WCA because the owner of a debt is not allowed to impose a collection fee for its own benefit (as opposed to that it pays a third-party collector). AFNI appeals.

In their opinion, Judges Bauer, Cudahy and Wood affirmed. The Court agreed that AFNI could prevail if the fee was allowed either by the contract or by Wisconsin law. It turned first to the law. Wisconsin does permit recovery of losses that are the natural and probable result of a breach of contract. The Court noted, however, that the record was silent on the issue of AFNI’s cost of debt collection and could not support a characterization of the fee as a form of allowable damages. Turning to the contracts, the Court agreed with the court below that the contracts allowed Cingular only to collect fees it “incurred” in collecting a debt. The way the parties structured their arrangement, neither Cingular nor AFNI “incurred” any collection fees. Finally, the Court addressed AFNI’s argument that it was entitled to the bona fide defense in the FDCPA. The Court identified a growing split in the circuits on the issue of whether the bona fide defense applies to mistakes of law. It did not express an opinion on that issue, however. Rather. it decided that AFNI did not maintain reasonable procedures to prevent the error, which is an element of the defense.

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MARRS v. MOTOROLA, INC. (November 7, 2008)

Michael Marrs sued Motorola, Inc. and several of its benefit plans (“Motorola”), alleging violations of ERISA. The parties stipulated to class action certification. Marrs served as the class representative. The district court granted summary judgment to Motorola. Marrs appealed. Marrs moves for leave to correct his notice of appeal.

In their opinion, Judges Cudahy, Posner, and Flaum denied Marrs’ motion. Marrs’ original notice was in his name only. It did not mention other claimants or the class. In fact, it did not indicate that he is appealing in any capacity other than individually. Marrs moved to amend his notice to indicate that he is appealing on behalf of the class. The Court began with Rule 3(c) of the Federal Rules of Appellate Procedure. That rule provides that a notice of appeal in a class action is sufficient if it names one person who is qualified to bring the appeal. It also provides that an appeal should not be dismissed for failure to name a party “whose intent to appeal is otherwise clear from the notice.” The Court cited its decision in Murphy v. Keystone Steel & Wire Co. for the further proposition that the notice of appeal by a class representative must indicate the he is appealing in his representative capacity. One of the reasons the Court limited the appeal in Murphy to the named plaintiffs was the inclusion on the notice of another party who was not a class member. The Court also looked to its decision in Clay v. Fort Wayne Community Schools. In Clay, there were two separate classes. The Court held that the appeal in the name of one class did not support review of the claims of the other. Neither case involved a single class as the only plaintiff. Nevertheless, the Court found the differences “too slight” to warrant a different result.

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THOROGOOD V. SEARS, ROEBUCK & CO.  (October 28, 2008)

Steve Thorogood bought a dryer at Sears, Roebuck & Co. (“Sears”). Sears’ point-of-sale literature stated that the drum inside the dryer was made of stainless steel. In fact, part of Sears’ dryer drum was made of a coated, non-stainless steel. Thorogood filed a class action on behalf of himself and other purchasers of the dryer in 28 states and the District of Columbia. He alleged that he thought that the entire drum was made of stainless steel, that the non-stainless part rusted and stained his clothes, and that Sears’ advertising was deceptive. Thorogood based his claim on the Tennessee Consumer Protection Act. The district court certified the class. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded for decertification. The panel started by observing some of the benefits of the class action procedure, as well as some of its downsides. One particular downside of some class actions, according to the Court, is the undermining of federalism. Thorogood’s case presented a good example. Thorogood was attempting to litigate 500,000 claims of residents of 29 jurisdictions in one federal court. These claims would be “wrested from the control” of those jurisdictions and their laws. The Court was troubled that certain procedural rules that govern the relief to which those 500,000 claimants would be entitled would be ignored. Specifically, for example, Tennessee’s consumer protection act does not allow a class action in state court. Although the Court recognized that the Tennessee rule did not prevent the class action from proceeding under federal law, the expansion of available relief did trouble the Court. The Court’s concerns led it to approach the class action aspect of the case with caution.

The Court found the case to be a particularly poor candidate for class action treatment. Not only did common issues of fact not predominate over individual issues of fact, the Court stated that there were no common issues of fact. Thorogood’s concerns about rust were “idiosyncratic.” The Court doubted that any of the other 500,000 claimants believed as he did. Each class member would have to individually establish, at a hearing, his or her: a) understanding of the meaning of the stainless steel advertising, b) reliance on the advertising’s meaning that the stainless steel drum would prevent rust stains, and c) damages. Since there was no common, single understanding of the advertising, the class should not have been certified. The Court did note a certain difficulty in determining individual relief as well. That difficulty could have been managed through an aggregate class relief approach, had the case been otherwise suitable for class treatment.  

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ANDREWS v. CHEVY CHASE BANK (September 24, 2008)

The Andrews refinanced their home through Chevy Chase Bank in 2004. They knew a great deal about mortgages, having taken out many for both residential and investment properties. For their 2004 mortgage, they chose a unique and flexible loan that allowed them to vary their monthly payment based on their cash flow. Chevy Chase provided preliminary disclosures, truth-in-lending disclosures at closing, and an adjustable rate rider. The Andrews believed that the minimum monthly payment and interest rate were fixed for a term of five years. In fact, the minimum monthly payment was fixed but the lender adjusted the interest rate each month. The Andrews filed a class action against Chevy Chase Bank, alleging that its disclosures were confusing, misleading, and violations of the Truth in Lending Act (“TILA”). They sought statutory damages, rescission, and attorneys’ fees. The district court granted summary judgment to the Andrews on their rescission and fees claims and denied their claim for statutory damages. The court also granted class certification under FRCP 23(b)(2) and declared that all class members would have the ability to rescind. Chevy Chase appeals.

In their opinion, Judges Manion, Evans (dissenting), and Sykes reversed. The majority noted that TILA allows class actions in a damages action but whether a class can be certified in a TILA rescission action is a matter of first impression in the Seventh Circuit. The First and Fifth Circuits and the California Supreme Court have each held that it cannot. The Court first examined the rescission remedy in TILA. Unlike a statutory or actual-damages remedy, rescission requires the unwinding of a particular transaction and imposes duties on the creditor and debtor in working out the logistics of the rescission. These variations, in the Court’s view, make rescission a poor candidate for class action procedures. The panel distinguished the Supreme Court’s Yamasaki decision, which held that class relief is appropriate “[i]n the absence of a direct expression by Congress” otherwise. The Court focused on the distinction between the jurisdictional statute in Yamasaki and the private rescission process written into the TILA. The majority conceded that the presence of a cap in class action suits seeking damages, and not suits seeking rescission, can support either argument. It can be read to just mean that Congress intended no cap in rescission suits, but the majority thinks that interpretation “strains credulity” and opts instead for the explanation that Congress did not provide a class action vehicle for the rescission remedy. The majority considered and rejected the Andrews’ other arguments.

In dissent, Judge Evans first stated that the statute is unambiguous and does not present a legal bar to a rescission class action, relying on Yamasaki. He added that, even if ambiguous, the statute should be construed consistent with and supported by the language and purpose of the statute. Thus, TILA should favor the victims of the ills sought to be controlled by its terms. Judge Evans also addressed the individual nature of the unwinding process relied on by the majority. He noted that a particular class may not meet the requirements of Rule 26, but whether it does depends on Rule 26, not the TILA.
  

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