Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : GVC Ltd. Law Firm

 PUFFER v. ALLSTATE INSURANCE CO. (March 27, 2012)

Katherine Puffer worked at Allstate Insurance Company for over 25 years. She was terminated in 2003 as part of a reduction in force. She filed a charge with the EEOC and later a complaint in federal court alleging gender discrimination and retaliation. Her complaint alleged three claims: a) a class claim that Allstate had a "policy or practice" of discriminating against a class of female managerial employees because of their gender, b) a class claim that Allstate paid a class of women lower wages for the same work as men, and c) individual claims of retaliation and Equal Pay Act violations. The first class claim was alleged under both "differential treatment" and "disparate impact" Title VII theories. Magistrate Judge Schenkier (N.D. Ill.) denied class certification. He focused almost exclusively on the differential treatment theory, relegating the disparate impact theory to a footnote. He found that the class failed to satisfy either the commonality or typicality requirement and also concluded that Puffer failed to show that certification was proper under Rule 23 (b)(2) or (b)(3). In doing so, he discounted plaintiff's expert's statistical analysis because it was contrary to the then-recently decided Ledbetter case. Puffer again sought certification after the President signed the Ledbetter Act. The memorandum focused exclusively on a "pattern-or-practice" claim even though she used the term "disparate impact" in her motion. Magistrate Judge Schenkier again denied her motion. Puffer settled her individual claims and several putative class members moved to intervene and appeal.

In their opinion, Seventh Circuit Judges Flaum and Tinder and District Judge Shadid affirmed. The Court noted that, in light of the Supreme Court's decision in Dukes, the plaintiffs did not appeal from the denial of certification for the pattern-or-practice count. They appeal only the Title VII disparate impact claim. The Court explained some differences. A disparate impact claim does not require proof of intentional discrimination. Rather, it focuses on facially neutral treatment that has a more burdensome impact on one group than other. A pattern-or-practice claim, on the other hand, is a claim based on intentional discrimination. Here, the Court concluded that the intervenors stand in the same shoes as the plaintiff and the plaintiff failed to present a disparate impact theory in the district court. The Court cited numerous instances where plaintiff focused her argument on a pattern-or-practice case and not a disparate impact case, including the fact that she did not cite any disparate impact cases in her class certification memorandum. The fact that she mentioned, on a few occasions, that she was alleging both is not enough to avoid waiver. Given that the intentional discrimination claim was the only one adequately argued and the only one decided by the court, it is the only one preserved for appeal – and it was not appealed. The disparate impact claim has been waived.

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HOWLAND v. FIRST AMERICAN TITLE INSURANCE COMPANY (March 6, 2012)

First American Title Insurance Company sells title insurance in connection with the sale of property. It sells the insurance directly to consumers or through title agents, often the attorneys representing the consumers in the transaction. When First American sells directly, its own attorneys examine the title documents to determine if title is insurable. When First American sells through a title agent, First American provides a search package to the attorney containing raw data and a summary sheet that lists essential information and potential issues. The title agent can make any changes to the summary sheet based on her own examination. In 2007, Janice Howland substituted as plaintiff in a class action already filed against First American alleging that its payments to attorneys acting as title agents constituted illegal kickbacks in a violation of the Real Estate Settlement Procedures Act as well as the Illinois Consumer Fraud Act. Howland sought class certification on behalf of a class of people who paid for a title insurance policy from First American when First American paid full compensation to an attorney acting as a title agent and when the attorney made no changes to the summary sheet. Judge Guzman (N.D. Ill.) denied class certification. Although Howland later settled her individual claim, she and an intervening plaintiff appeal.

In their opinion, Seventh Circuit Judges Sykes and Tinder and District Judge DeGuilio affirmed. RESPA’s Section 8 prohibits kickbacks for business referrals as well as splitting any portion of the fee other than for services actually performed. However, it specifically allows payment to title agents for services actually performed. A title agent who is also the attorney for one of the parties to the transaction may not receive compensation unless she performs “core” title agent services. An implementing regulation further provides that a title agent may not receive compensation if the title insurance company performs the “core” services. An attorney who provides some core services may receive a reduced payment. The Court noted that Section 8 cases are generally not suitable for class treatment because of the need for individual analysis of the services performed and the payment received in each case. The Court noted an Eleventh Circuit case that was certified as a class. In that case, however, the class alleged that the agent performed no service at all. Here, the class only alleged, through the class definition, that the attorney made no changes to the summary sheet. The Court rejected the notion that limiting the class to situations where the attorney made no changes to the summary sheet was the equivalent of an allegation that the attorney performed no services at all. Without an allegation that the attorneys for the class members performed no services, individual analyses of each transactions is required and class certification is inappropriate.

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MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. (January 24, 2012)

A class of African-American brokers filed suit against Merrill Lynch, alleging race discrimination pursuant to Title VII and § 1981. At issue are two company policies. The company's teaming policy allows brokers in an office to work as part of the team, sharing clients and applying complementary skill sets. The account distribution policy dictates that a departing broker's customer accounts are transferred, at least in part, based on the other brokers' revenue and client histories. The class argued that these policies had a disparate impact on African-American brokers. Judge Gettleman (N.D. Ill) denied class certification in August 2010. He denied an amended request in September 2011. The class appeals.

In their opinion, Seventh Circuit Judges Posner, Wood, and Hamilton reversed. The Court first considered the timeliness of the appeal. Rule 23(f) permits an appeal of a denial of class certification but requires that it be brought within 14 days. If the 2011 motion was simply a motion for reconsideration of the earlier denial, then the appeal is not timely. On the other hand, the mere failure to appeal one interlocutory order does not forfeit the right to appeal a later one. The Court found significant the fact that a 23(f) appeal is discretionary, thus eliminating the danger in a party abusing its appeal rights. Here, the plaintiffs' renewed motion for class certification followed soon after the Supreme Court decided Wal-Mart, a significant development in the law in this field. Given that landscape, plaintiffs' motion was more than a simple request for reconsideration. The Court concluded that the appeal was timely. On the merits, the Court found the case different enough from Wal-Mart to reverse. Wal-Mart concluded that an employment discrimination class action was not proper when the alleged discrimination was carried out by local managers, exercising the discretion given to them by the organization. Here, it is not alleged discrimination by local managers that is at issue. It is the culture created by the company policies that allow the brokers to form teams. If those policies resulted in racial discrimination unjustified by business necessity, they violate Title VII. The impact of those policies is best determined by classwide cases, even though individual claims could not be resolved without separate trials.

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JAMIE S. v. MILWAUKEE PUBLIC SCHOOLS (February 3, 2012)

The Individuals with Disabilities Education Act imposes on participating states a rather complicated and individualized scheme of substantive and procedural requirements in order to ensure that disabled students receive a free public education. For example, it requires the state to identify and evaluate children who may need special education and to develop an individual plan for the services provided to each child. There are many procedural safeguards included within the substantive requirements. Wisconsin is a participating state and must comply with IDEA. The Wisconsin Department of Public Instruction is responsible for IDEA compliance and has various enforcement mechanisms if a school district within the state is non-compliant. A group of disabled children brought a class action against the Department and the Milwaukee Public Schools in 2001. Eventually, the district court certified a class of students "who are, have been or will be either denied or delayed" participation in the process. After a bench trial on liability, the court found that the defendants violated IDEA. Over MPS' objections, the Department then settled with the class by agreeing to order MPS to meet certain deadlines. After the remedial phase of the trial, the district court ordered a court-monitored remedial scheme. MPS appealed that order, also seeking review of the court's earlier orders on class certification, liability, and the Department settlement. The class did not cross-appeal but did appeal from two orders entered a few months later concerning the independent monitor and class notice.

In their opinion, Seventh Circuit Judges Flaum, Rovner (concurring in part and dissenting in part), and Sykes dismissed the plaintiffs' appeal and, on MPS' appeal, vacated and remanded. The Court first addressed both parties' jurisdictional challenges. Under section 1292(a)(1), an order granting a mandatory injunction is appealable. An interlocutory order fits within the exception only if it effectively grants the relief sought and affects a party's ability to obtain relief by a later appeal. The Court rejected the class' argument that MPS' appeal was premature. Although the district court had not finalized its view on the independent monitor or class notice, the Court concluded that the remedial order gave relief to the plaintiffs and substantially affected MPS' rights. The Court therefore concluded that it was a mandatory injunction and appealable. The Court also exercised pendant appellate jurisdiction over the district court's earlier orders because they were "sufficiently intertwined" with the remedial order to permit review. The Court turned to the class' appeal and concluded that the appeal from the later order was an attempt to seek review of the earlier order. The class missed the deadline to appeal the remedial order -- it cannot obtain review simply by appealing a later order. The Court turned to certification issues. It concluded that the class certification order was flawed in that: a) the class definition was indefinite in that it included class members who remained unidentified and had no process to ascertain class membership, b) the class did not satisfy the commonality requirement in that the class never identified a common factual or legal question, and c) the class did not meet the requirements for an injunction class under Rule 23(b)(2) because it did not call for class-wide injunctive relief. Having vacated the injunction, the Court also vacated the liability and remedial orders. Finally, with respect to the Department's settlement, the Court concluded that the Department did not have the authority to do what it promised to do in the settlement agreement. The district court, therefore, abused its discretion in approving the settlement.

Judge Rovner wrote separately, concurring in part and dissenting in part. She took issue with the majority's comments regarding the feasibility of a class at all under the circumstances. Her opinion made two basic points: 1) that systemic IDEA violations should be cognizable, whether as illegal policies or widespread practices, and 2) that the inability to identify the class members until the remedial phase of litigation should not preclude certification. With respect to that second point, she cited the McDonald case, a challenge to United Air Lines' rule prohibiting its flight attendants from being married. In the litigation, many of the actual class members were not identified until the remedial phase, when they were allowed to prove individual entitlement in adversarial hearings.

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ROSS v. RBS CITIZENS, N.A. (January 27, 2012)

Charter One operates over 100 banks in Illinois. Each bank has a branch manager and assistant branch manager. The banks also have other employees, such as tellers and personal bankers. Charter One classifies its tellers and personal bankers as non-exempt (i.e., entitled to overtime) and its managers and assistant managers as exempt (i.e., not entitled to overtime). Synthia Ross and James Kapsa worked for Charter One as a teller and assistant branch manager, respectively. Ross and Kapsa brought a class action against Charter One pursuant to the Fair Labor Standards Act and the Illinois Minimum Wage Law. The suit alleged that Charter One had an informal policy of denying properly earned overtime pay and that it misclassified the assistant branch manager position as exempt. Judge Lefkow (N.D. Ill.) certified two Rule 23(b)(3) classes for the Illinois claim -- a class of non-exempt employees and a class of assistant branch managers. Charter One appealed the certification order.

In their opinion, Circuit Judges Kanne and Evans (who, as a result of his death, took no part in the decision) and District Judge Clevert affirmed. At the time of the appeal, the only issue raised by Charter One was whether the certification order complied with Rule 23(c)(1)(B). But the Supreme Court decided Dukes shortly after the oral argument so the Court asked for further briefing on whether the class satisfied the Dukes commonality requirement. Rule 23(c)(1)(B) requires that a class certification order define the class, the class claims, and the issues or defenses. The rule was added to the federal rules relatively recently and his not been the subject of much of appellate court consideration. The Court found the Third Circuit's discussion in Wachtel persuasive. Wachtel stated that the rule requires a comprehensive and specific definition of the class claims and issues and defenses, as well as a definition of the class itself. Therefore, the Court held that the certification order (or an accompanying opinion) must contain a class definition and a complete list of the claims and issues and defenses. Applying that test to the district court's order, the Court found that the class definition was sufficiently precise in that it included all current or former hourly employees, or those who worked as assistant branch managers, within the appropriate time period. The Court also concluded that the statement of claims and issues was adequate. The district court listed the claims that will be litigated at the class level. The Court rejected Charter One's argument that several issues were omitted. Those "issues" were merely trial strategy questions. Having found the certification sufficiently precise, the Court turned to the commonality requirement. It concluded that the class met the commonality requirement, even after Dukes. In Dukes, the Supreme Court reversed the certification of a class of 1.5 million current and former Wal-Mart employees. It concluded that the class could not show that the millions of employment decisions were proof of a general discrimination policy. The Court found several distinctions between Dukes and Charter One. First, the Charter One class is orders of magnitude smaller than the Dukes. Second, the Dukes class had to show discriminatory motive while the Charter One class need not. Third, Dukes focused on the managers' significant discretion while the Charter One class alleges a single company policy. The Court found the commonality requirement is satisfied.

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MESSNER v. NORTHSHORE UNIVERSITY HEALTHSYSTEM (January 13, 2012)

Northshore University HealthSystem merged with Highland Park Hospital in 2000. In 2004, the FTC challenged the merger as a violation of the Clayton Act. An ALJ agreed and ordered Northshore to divest Highland Park. The FTC affirmed on the merits but reversed on the remedy. Instead of requiring a divestment, it ordered the two hospitals to use separate negotiating teams for their contracts. Steven Messner filed a class-action lawsuit in 2008 against Northshore, alleging monopolization, attempted monopolization, and a violation of the Clayton Act. In support of their motion for class certification, plaintiffs relied on Dr. Dranove. Dranove proposed to use the "difference in differences" method of estimating the antitrust impact on the class. The method compares Northshore's price changes to a control group both before and after the merger. Northshore argued that there was no class-wide antitrust impact and that, in fact, there were class members who were not affected by the alleged price increases at all. Judge Lefkow (N.D. Ill.) denied class certification on the grounds that the individual questions regarding the antitrust impact predominated over common questions. Messner appeals.

In their opinion, Seventh Circuit Judges Sykes, Tinder, and Hamilton vacated and remanded. A Rule 23(b)(3) class must satisfy, in addition to the standard certification requirements, that common questions of law and fact predominate over individual questions. The class raises two issues on appeal. First, they allege error when the district court failed to decide the admissibility of defendant’s expert report. Instead of conducting a Daubert analysis, the court indicated that the class could raise any shortcoming’s it thought the report presented and the court would give the report the weight it deserved. The Court disagreed. A district court should make an explicit Daubert finding when an expert report is critical to class certification, as it was here. The Court rejected Northshore's argument that the American Honda rule should only apply when a district court grants certification, not when it denies it. The class also alleges that the district court erred in applying the predominance test. The predominance test is not a rigid, mechanical test. It is satisfied when common questions make up the bulk of the case and can be resolved for all class members at one time. It does not require the absence of an individual question. Here, the elements of the underlying claim are that Northshore violated the Clayton Act and that the members of the class suffered injury. It is clear that common questions predominate with respect to the first element, the violation. Dr. Dranove contended that he could use common evidence and a common methodology to prove the antitrust impact on the class members, even when that impact was not necessarily the same for each member. The district court's requirement that the impact be the same for each class member was error. The Court also concluded that Dranove did not concede that uniform price increases were necessary for his analysis. Finally, the Court rejected Northshore's argument that the class could not be certified because it contained class members who were not or could not be harmed. The fact that some class members were not harmed and may not prevail on the merits is not a reason for denial of class certification. Of course, if a class contains a number of members who could not have been harmed, the class may have been defined too broadly. The Court rejected the argument that this class was defined too broadly but invited the district court to revisit the issue if additional discovery so indicated.

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CREATIVE MONTESSORI LEARNING CENTERS v. ASHFORD GEAR LLC (November 22, 2011)

Lawyers from a firm that specializes in bringing class-action suits under the Telephone Consumer Protection Act obtained information about advertising faxes from a fax broadcaster, in return for a promise of confidentiality. The information they obtained revealed that Ashford Gear had sent almost 15,000 advertising faxes. The Creative Montessori Learning Center was (or may not have been) one of the recipients. The firm communicated with the Center, indicating that a class action already existed. The Center became the named plaintiff in a suit filed by the firm. Plaintiffs sought class certification. Defendants opposed certification on the grounds that the lawyers' misconduct (in breaching their confidentiality promise and in misrepresenting to the Center the status of the action) demonstrated that the lawyers would not adequately represent the class. Judge Gettleman (N.D. Ill.) agreed that there had been misconduct but concluded that the misconduct was a subject for bar authorities and certified the class. Ashford Gear sought permission for leave to appeal from the class certification.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Posner vacated and remanded. The Court, as it has on several occasions recently, commented on the dangers of class actions, particularly in situations with statutes like the Telephone Consumer Protection Act. The Act provides for $500 in statutory damages for the recipient of an unsolicited fax advertisement (trebled if willful or knowing). But, in bringing it as a class action, counsel has turned it into a case worth over $11 million. The Court also emphasized the need for trustworthy class lawyers, given the incentives for class lawyers and defendants' lawyers to recommend settlements that reward the class lawyers at the clients' expense. Here, lawyers for the class have already exhibited their lack of integrity. Although the district court recognized that fact, it concluded that "only the most egregious misconduct" by class counsel was grounds for denial of class certification. The Court noted that that was an erroneous standard. Instead, any misconduct that casts serious doubts on class counsels’ loyalty is grounds for denial of certification. The Court remanded for a reevaluation of whether class counsel will adequately represent the class, given the misconduct.

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WILLIAMS v. ROHN AND HAAS PENSION PLAN (September 2, 2011)

In 2002, Gary Williams filed a class action against the Rohm and Haas Pension Plan, alleging that his lump-sum distribution should include cost-of-living adjustments. The district court granted summary judgment to the class. The Seventh Circuit affirmed and remanded for a damages calculation. On remand, the Plan took the position that class members who took early retirement were entitled to no damages. The parties reached a settlement before the issue was adjudicated. One group of class members objected to the settlement on the ground that it discriminated against early retirees, who (they maintained) should have been given separate counsel. The group also objected to the amount of fees awarded. Another objector claimed that the settlement released his unrelated claims and that he should have been allowed to opt out. Judge Barker (S.D. Ind.) approved the settlement. The objectors appeal.

In their opinion, Seventh Circuit Judges Bauer, Kanne, and Evans (who, as a result of his death, took no part in the decision) affirmed. First, the Court affirmed the district court's fairness finding with respect to the early retirees. The Court noted that the early retirees received $60 million as part of the settlement on a claim that rested on unsettled law. The district court had already heard arguments on the issue and was well positioned to assess the settlement's fairness. Her decision was not clearly erroneous. Likewise, her decision not to create a separately represented subclass was not an abuse of discretion. With respect to the individual objector, the Court concluded that the settlement only released pension plan related claims. The district court did not abuse its discretion in denying his opt out. Finally, with respect to the fee award, the Court stated that, given the district court's application of the correct methodology and intimate familiarity with the litigation, it did not abuse its discretion in the fee award.

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KASALO v. HARRIS & HARRIS, LTD. (August 26, 2011)

Mariana Kasalo brought suit under the Fair Debt Collection Practices Act against Harris & Harris. Her attorney included two class accounts in her complaint. Harris & Harris admitted that it violated the Act with respect to Kasalo, but denied that its normal practices violated the Act. The parties informed the district court judge that they intended to settle the individual claim. Although the court expressed skepticism with respect to the class claims, he allowed some discovery. Over the following months, status hearings were held, Kasalo's attorney abandoned two class theories but developed a third, and the attorney missed due dates and failed to inform the court of his intentions. When Kasalo's attorney showed up late for a May 2010 status hearing, Judge Guzmán (N.D. Ill.) dismissed the case for want of prosecution. When he showed up minutes later, the court instructed him to file a motion for reconsideration explaining why he had not been more diligent in prosecuting the case. The court later denied that motion. Kasalo appeals.

In their opinion, Seventh Circuit Judges Rovner, Wood, and Evans (who, as a result of his death, took no part in the decision) reversed and remanded. A dismissal for want of prosecution is an extremely harsh remedy and should only be used when, considering all the circumstances, less serious sanctions are unsatisfactory. The factors include the frequency of plaintiff's shortcomings, whether the shortcomings are attributal to the plaintiff or her lawyer, any prejudice, the impact on the court, and the merits of the suit. The Court noted that most of the factors weigh against an outright dismissal. Courts should consider less serious sanctions and normally should provide a warning to a party before dismissal. Here, the district court did neither. In fact, the Court specifically noted the presence of a much more appropriate remedy. The district court could have denied class certification and allowed the parties to settle the individual claim. The plaintiff then could have sought review of the class certification denial.

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CLEARY v. PHILIP MORRIS INC. (August 25, 2011)

A class-action complaint brought against Philip Morris in 1998, and later amended, sought disgorgement of profits under an unjust enrichment theory, alleging that Philip Morris concealed facts about the dangers of cigarettes in its marketing and advertising. The complaint alleged three classes: an "addiction" class consisting of Illinois residents who purchased cigarettes between 1953 in 1965, a "youth marketing" class consisting of Illinois residents who first purchased cigarettes as minors, and a "lights" class consisting of Illinois residents who purchased Marlboro Lights. The class plaintiffs withdrew the "lights" class allegations because of another similar pending case. That "lights" case was ultimately unsuccessful in Illinois state court but a 2008 United States Supreme Court case breathed new life into the theory. The class plaintiffs therefore amended their complaint again, reinserting a "lights" class claim. The amended complaint added as defendants other companies who manufactured light cigarettes, including Lorillard Tobacco Company, and also added allegations regarding other brands of light cigarettes manufactured by Philip Morris. Lorillard removed the case to federal court under the Class Action Fairness Act. The district court rejected plaintiffs request to remand on the grounds that the new "lights" claim did not relate back to the original complaint, then dismissed Lorillard on statute of limitations grounds, and then again rejected a request to remand on the ground that Lorillard, the reason for the removal, was no longer a defendant. Later, the district court dismissed as time-barred all claims against the other non-Philip Morris defendants and limited the claims against Phillip Morris to the original Marlboro Lights claims. Ultimately, Judge Kennelly (N.D. Ill.) dismissed the unjust enrichment claims as a matter of law. The class appeals.

In their opinion, Seventh Circuit Judges Cudahy, Manion, and Hamilton affirmed. Before turning to the merits of the unjust enrichment claim, the Court briefly addressed the district court's refusal to remand after the Lorillard dismissal and its limitation of the "lights" claim to Marlboro Lights. With respect to the former, the Court stated that jurisdiction under CAFA is determined at the time of removal. Therefore, Lorillard's dismissal after removal did not affect the court's jurisdiction. With respect to the latter, the Court noted that an amendment relates back to an earlier complaint only when it arises out of the same occurrence. Here, the expansion of the allegations to include other Phillip Morris light cigarette brands would add additional class members and encompass numerous additional transactions. The additional allegations, therefore, do not arise out of the same occurrence and do not relate back. Turning to the unjust enrichment allegations, the Court recognized some tension in Illinois law as to whether unjust enrichment is an independent cause of action or must be tied to a separate claim. It ultimately decided that it did not have to resolve the tension, given its conclusion that the class allegations did not state a cause of action. An unjust enrichment claim must allege defendant's unjust retention of a benefit to the plaintiffs detriment and that the retention was unjust. The only detriment plaintiffs allege, however, is a violation of their right to be informed of the actual dangers and risks inherent in cigarettes. Under plaintiffs' theory, the class would include consumers for whom that alleged violation was not a detriment -- the consumers who would have acted no differently had they known the truth. Without any allegations of harm or that they would have acted differently, the class allegations cannot support a claim of unjust enrichment.

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IN RE: AQUA DOTS PRODUCTS LIABILITY LITIGATION (August 17, 2011)

Aqua Dots are small, colored beads that can be fused into different shapes when sprayed with water. Moose Enterprises contracted with a Chinese company to produce the beads. The Chinese company substituted a toxic chemical for a specified one. As a result, some children became sick. Spin Master, Aqua Dots’ distributor, recalled the product once it learned of the problem. The recall notice advised parents to keep the toy away from children and to contact either Spin Master or the retailer (stores like Wal-Mart and Target) for a replacement or exchange. Although the notice did not mention a refund, both Spin Master and the retailers generally honored refund requests. Over 3 million of the toys were removed from the distribution channel before sale and approximately 600,000 of the 1 million or so that were sold were returned. Notwithstanding the recall notice and the returns, a group of plaintiffs whose children were not harmed and who did not ask for a refund brought suits. The suit sought full refunds and punitive damages and were based on the Consumer Products Safety Act as well as express and implied warranties and state consumer protection statutes. The Judicial Panel on Multidistrict Litigation transferred a number of suits to the Northern District of Illinois for consolidated pre-trial proceedings. Judge Coar (N.D. Ill.) denied class certification. He concluded that the plaintiffs would be better off following the recall procedure than pursuing litigation. Therefore, the class action was not a superior method of "adjudicating the controversy" as required by Rule 23(b)(3). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court first rejected the defendants' argument that plaintiffs lacked standing because there were no injuries. Conceding that there were no physical injuries, the Court nonetheless pointed out that the plaintiffs suffered a financial injury because they paid more for the beads than they should have. On the merits, the Court did not take issue with the district court's conclusion that a class action would be an ineffective way to resolve this dispute. It did take issue, however, with the district court's flagrant departure from Rule 23 in order to achieve its desired result. Rule 23 requires that a class action be a superior method of "adjudication." The Advisory Committee's notes to the rule illustrate that the drafters used adjudication in the legal sense. A recall is not an adjudication and the district court was wrong in considering it so. The Court reached the same result as the district court, however, by relying on Rule 23(a)(4) and Rule 23(b)(3)(D). The former requires a class representative that will "fairly and adequately" look after the class' interests. The Court concluded that a class representative who is willing to incur significant legal fees and notice fees in order to obtain a result already available to the class is not an adequate representative. The latter requires a district court to consider the difficulties in managing the class action. Here, the punitive damages claim rests on state law, which may differ from state to state. In addition, with no purchaser records, notice costs might exceed the price of the beads. The district court did not err in denying class certification.

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PREMIUM PLUS PARTNERS v. GOLDMAN, SACHS & CO. (August 5, 2011)

On October 31, 2001, a Goldman Sachs employee provided its traders with certain information about 30-year government bonds that had not yet been made public. The traders bought futures contracts for the 30-year bonds and made a lot of money when the bonds’ price rose significantly. Unfortunately, their abnormal trading practices led to an SEC investigation. The SEC filed a civil complaint in September 2003. In March of 2004, Premium Plus Partners brought a class action on behalf of traders who had short positions in the bonds on October 31, no matter when they sold. Judge Der-Yeghiayan (N.D. Ill.) denied class certification. George Tomlinson, an individual investor who held a short position on October 31, then filed suit along with four other individual investors. Judge Bucklo (N.D. Ill.) dismissed the complaint on the pleadings, concluding that the two year statute of limitations had run before the class action had been filed (during which it would have been suspended). Meanwhile, in the Premium case, Goldman Sachs made an offer of judgment for the full amount of Premium's damages plus interest. Premium accepted the offer but also wanted to continue with the suit in order to certify a class and spread its costs among other class members. The court entered judgment on the Rule 68 offer and rejected Premium's proposed plan. Tomlinson then sought to intervene as class representative. The court denied that motion. Premium appeals the order denying class certification, Tomlinson appeals the order denying his motion to intervene, and Tomlinson also appeals the order dismissing his individual suit.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Sykes and Tinder affirmed with a modification. The Court first addressed the individual Tomlinson appeal. On the statute of limitations question, the Court assumed that the Merck federal securities fraud rule applies to a commodities fraud case because it was more favorable to Tomlinson than the understanding of the statute under the Commodity Exchange Act. Under Merck, the statute does not begin to run until the plaintiff discovers (or could have discovered) the essential facts of the violation, including scienter. Tomlinson admits that he was aware of his injury on October 31 and learned soon thereafter that Goldman Sachs had traded on nonpublic information. The central question, then, is whether Tomlinson could have discovered that Goldman Sachs acted with scienter. The Court concluded that all the facts regarding the transactions were in the public domain well before April of 2002. The fact that Goldman Sachs denied it and that the SEC did not file until late 2003 is of no moment. The district court did not err in dismissing the individual Tomlinson suit. The Court's decision on that appeal made their analysis of Tomlinson's intervention appeal rather simple. Since he has filed and lost his individual suit, he is not even a member of a potential class, much less an effective representative of the class. The Court turned to Premium's appeal. It noted that Premium had two options: a) it could have rejected the Rule 68 offer and continued with the case, or b) it could have accepted the Rule 68 offer and keep the case alive long enough for a viable class representative to intervene and pursue the class allegations. It cannotdo what it wants to do -- continue to push ahead with the case as class representative in the hopes of spreading some of its costs and increasing its net recovery. Finally, the Court did find an error in the district court's computation of interest. The court should have calculated a compound, rather than simple, interest. The Court remanded for a recalculation. 

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MORRISON v. YTB INTERNATIONAL, INC. (July 27, 2011)

YourTravelBiz.com (also known as YTB International) is based in Illinois and operates a business in which its customers purchase the right to act as a travel agent and sell travel services to the public. A number of its customers brought suit against YTB. They brought the suit as a class action on behalf of all of YTB’s customers and invoked jurisdiction under the Class Action Fairness Act. The class alleged that YTB's business practices violated the Illinois Consumer Fraud Act's prohibition on pyramid schemes. The Act prohibits businesses in which a customer's income is based primarily on inducing others to participate rather than on the amount of goods or services sold. Judge Murphy (S.D. Ill.) dismissed the complaint. First, he ruled that YTB's transactions with the non-Illinois class members were not covered by the Act. Second, he ruled that he should decline to exercise CAFA jurisdiction over the remaining intrastate claims under § 1332(d)(4). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Flaum and Rovner vacated and remanded. The Court rejected the district court's rationale for dismissing the case. CAFA jurisdiction is examined at the time of the filing of the complaint. Here, the plaintiffs proposed a nationwide class that met the CAFA jurisdictional requirements. Although the district court labeled its dismissal of the non-Illinois plaintiffs as one based on standing, it was wrong. The ruling that the Illinois Act does not cover transactions with out-of-state plaintiffs is a ruling on the merits, not a jurisdictional one. Notwithstanding the district court's error, the Court concluded that it also had to resolve the Illinois Consumer Fraud Act question. It likened § 1332(d)(4) to abstention, a concept under which a federal court has jurisdiction but declines to exercise it. If non-resident plaintiffs are covered by the Act, the claim is predominately interstate and a federal court should resolve the entire claim. Whether the non-resident plaintiffs are covered by the Act is governed by the Illinois Supreme Court's decision in Avery. There, the court concluded that the Act applies if "the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." The Court found the factors here quite balanced: YTB's only office was in Illinois, it included an Illinois choice of law clause in its contracts, and it conducted training sessions in Illinois -- but the class members come from many different states, the class members' losses incurred in different states, and some states may not prohibit pyramid schemes. On balance, the Court concluded that the factors, although they may not compel application of Illinois law, they certainly did not defeat its application. The complaint therefore must survive a motion to dismiss.

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ABM SECURITY SERVICES v. DAVIS (June 16, 2011)

ABM Security Services’ employees filed a class action against the company in Illinois state court. The complaint alleged that ABM violated the Illinois Minimum Wage Law by not compensating its employees for time worked before and after their shifts. ABM filed a notice of removal in which it calculated the amount in controversy to be in excess of $10 million. It reached that amount by multiplying minutes per day of alleged unpaid time by number of employees by average wage. It then added the 2% statutory penalty. It also noted that that number could increase by $1.5 million if overtime calculations were used. Judge Shadur N.D. Ill.) asked ABM to recalculate the number, excluding employees who opted into a California class-action. ABM filed an amended notice with calculations of approximately $5.2 million (straight time) and $7.8 million (overtime). The court asked for still additional information and instructed ABM to exclude vacation and sick days. ABM's new number was approximately $5.2 million. The court again disagreed, particularly with the penalty calculation. It did its own calculation and came up with a number approximately $5,000 short of the $5 million amount in controversy requirement. Additionally, the court concluded that class counsel could not have done $5,000 worth of legal work to make up that deficit. He remanded the case to state court. ABM petitions for permission to appeal.

In their opinion, Judges Bauer, Kanne, and Sykes granted the petition, reversed, and remanded. The Court stated the standard -- once the removing party offers a plausible explanation for reaching the $5 million threshold, the case should remain in federal court unless that recovery amount is legally impossible. Here, the Court found that ABM's calculations were reasonable and also found its interpretation of the statutory penalty reasonable. The district court did not establish that the recovery was legally impossible. It should not have remanded. Alternatively, the Court also criticized the district court's conclusion that attorneys’ fees incurred by plaintiffs up to the time of removal could not bridge the $5,000 gap.

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SAWYER v. ATLAS HEATING AND SHEET-METAL WORKS (May 26, 2011)

On May 18, 2009, Park Bank filed a state-court class action against Atlas Heating and Sheet-Metal Works. It alleged that Atlas' December 9, 2005 unsolicited facsimile violated the Telephone Consumer Protection Act. In March of 2010, after the Act's four-year statute of limitations had run, Park Bank voluntarily dismissed its claim. Isaac Sawyer, another facsimile recipient, was unsuccessful in his attempts to intervene in the suit. Sawyer filed his own class action on March 19. Atlas removed the case to federal court and moved to dismiss on statute of limitations grounds or to at least limit the action to an individual one. Judge Adelman (E.D. Wis.) denied the motion on the ground that the limitations period was tolled while the Park Bank suit was pending. Atlas appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed. The Court noted that the Supreme Court, in American Pipe, held that the filing of a class action tolls the statute of limitations as to all persons who would have been class members. Atlas contends that American Pipe does not control because: a) the first suit was voluntarily dismissed, b) the first suit was filed in state court, and c) the first class was never certified. The Court rejected each of these attempts to distinguish American Pipe. The statute of limitations was tolled and Sawyer's complaint is timely. The Court next addressed whether Sawyer was limited to an individual complaint instead of a class action. The district court had identified a conflict among the circuits on that question. The Court found no conflict. The cases Atlas identified presented not questions related to tolling, but questions related to the preclusive effect of a Rule 23 decision in the earlier case. If, for example, the court in the first case denies certification on numerosity grounds, that ruling would be binding on the later-filed action and preclude class certification. On the other hand, a denial because the class representative was inadequate would not bind other class members from pursuing certification. Here, Park Bank dismissed its complaint before the first court even ruled on certification. Sawyer is free to pursue class certification in his case.

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IN RE: MOTOROLA SECURITIES LITIGATION (May 4, 2011) 

Motorola created the Motorola 401(k) Profit-Sharing Plan for the benefit of its current and former employees. It is a defined contribution retirement plan. The Plan Administrator is the Profit-Sharing Committee, a committee appointed by the Motorola's Board of Directors. Plan participants decide how much to invest and where to invest among available funds. One of the available funds is a Motorola Stock Fund. Participants who invest in the stock fund do not acquired title to Motorola stock, but rather own a pro-rata share in the Fund. The Fund's assets are almost entirely Motorola stock. A number of plaintiffs initiated a class-action securities fraud case against Motorola in 2003 relating to its relationship with a Turkish wireless provider. The class was defined as including all persons "who purchased publicly traded Motorola, Inc. common stock" and specifically excluded any Motorola "affiliate." The parties settled the litigation for $190 million. The Plan submitted a claim for a share of the settlement. Judge Pallmeyer (N.D. Ill.) denied the claim on two grounds: first, Plan participants were not purchasers of "publicly traded" stock and second, the Plan was a Motorola "affiliate." The Plan intervened and appeals.

In their opinion, Circuit Judges Evans and Sykes and District Judge Simon affirmed. The Court disagreed with the district court on its "publicly traded" rationale. The district court found that the Plan was not a class member because plan participants did not purchase publicly traded stock. But it is the Plan that is the claimant here, and the Plan regularly purchased publicly traded Motorola stock. The Court agreed with the district court, however, on the "affiliate" issue, although not for the identical reason. The district court concluded that the Plan was an affiliate applying an ordinary usage definition of affiliate and concluding that the Plan and Motorola were closely associated. The Court chose to apply a securities law definition of affiliate. Under that definition, an affiliate is one who controls, is controlled by, or is under common control with another. Control is defined as the power to manage or direct. Motorola controlled the Profit-Sharing Committee and the Committee had general operational control of the Plan. The Court concluded that the Plan was excluded from the class as an affiliate under the class definition.

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BLOMBERG v. SERVICE CORPORATION INTERNATIONAL (April 14, 2011)

Employees of Service Corporation International brought a class action in Illinois state court against their employer, alleging that it failed to properly compensate them for hours worked, in violation of the Illinois Wage Payment and Collection Act and the Illinois Minimum Wage Law. SCI removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). Judge Coleman (N.D. Ill.) remanded the case to state court on the grounds that SCI failed to establish the $5 million minimum amount in controversy required by CAFA. SCI petitions for permission to appeal.

In their opinion, Judges Posner, Wood, and Hamilton granted the petition and reversed and remanded. When one party challenges CAFA’s amount in controversy requirement, the other party must establish that fact by a preponderance of the evidence. The Court appreciated the difficulty a party has in establishing that fact when the plaintiff controls many of the facts and reveals little information about the scope of its claim. Here, SCI did provide some support for this jurisdictional fact. It cited deposition testimony in a similar case against it in another state regarding the number of allegedly unpaid hours. If the Illinois class members had similar allegedly unpaid hours, the threshold would be met. It also cited a Virginia case against it by significantly fewer class members wherein the class itself asserted CAFA jurisdiction. The Court found this evidence plausible and sufficient to support SCI's good faith estimate of the amount in controversy requirement. Unless it is legally impossible for them to recover $5 million, which the plaintiffs have not even argued, removal was appropriate.
 

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BACK DOCTORS LTD. V. METROPOLITAN PROPERTY AND CASUALTY INSURANCE CO. (April 1, 2011)

Back Doctors Ltd., a medical service provider, believed that Metropolitan Property and Casualty Insurance Co. used software that resulted in medical providers being underpaid for their services. Back Doctors filed suit in Illinois state court, on behalf of a class, alleging that Metropolitan breached its contracts with its insurers and violated the Illinois Consumer Fraud and Deceptive Business Practices Act. The suit asks for $2.9 million in damages. Metropolitan removed the case to federal court pursuant to the Class Action Fairness Act. Back Doctors moved to remand on the ground that their $2.9 million demand did not meet CAFA’s $5 million amount in controversy requirement. Judge Reagan (S.D. Ill.) agreed, stating that removal is disfavored and that Metropolitan had not demonstrated a "reasonable probability" that the $5 million threshold had been met. Metropolitan petitioned to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans granted the petition, vacated the remand order, and remanded. The Court first noted that the Supreme Court, in St. Paul Mercury, established the “amount in controversy” test in 1938 -- the threshold is met unless plaintiff cannot possibly recover the jurisdictional minimum. The Court then recited some of the history of the Circuit’s "reasonable probability" test in reference to the amount in controversy. It arose in 1993 in Shaw in reference to a plaintiff's burden to prove jurisdictional facts by a preponderance of the evidence. But the amount in controversy is not a jurisdictional fact, like where a company is incorporated or headquartered. After several years of misapplication, the Court tried to clarify the phrase in 2005 in Brill. When that failed, the Court eliminated the phrase entirely in 2006 in Sadowski. The Court even circulated the Sadowski opinion pursuant to Circuit Rule 40(e) so that it had the effect of an en banc decision. Unfortunately, there is obviously still some confusion. Having established the correct test, the Court asked whether a $5 million recovery was possible. It concluded that it was because of the possibility of punitive damages. Back Doctors, although it has not specifically asked for punitive damages, may still recover them. They have not disavowed them, they have cited no Illinois case disallowing punitive damage coverage when it is not pleaded, and they have a fiduciary duty to other class members to maximize the class recovery. The Court added that Illinois does have a procedure whereby a plaintiff can cap its relief. Back Doctors has not taking advantage of the procedure. Since a $5 million recovery is possible, removal was appropriate.

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RANDALL v. ROLLS-ROYCE CORP. (March 30, 2011)

Rolls-Royce Corporation sets its employee compensation in three stages. First, it sets up compensation categories with broad pay ranges into which it assigns classes of employees it thinks are of equal value to the company. Second, within each compensation category, it creates narrower pay ranges for each job based on market conditions. Third, the company authorizes supervisors to adjust compensation individually. Female employees of one of the Rolls-Royce's Indiana facilities brought a class action pursuant to the Equal Pay Act and Title VII, alleging that Rolls-Royce engaged in sex discrimination by paying male employees more than female employees and by denying female employees promotions. Judge Barker (S.D. Ind.) denied class certification and granted summary judgment to Rolls-Royce. Plaintiffs appeal.

In their opinion, Judges Posner, Flaum, and Sykes affirmed. The Court noted that the average male employee compensation was approximately 5% higher than female employee compensation in the same compensation categories throughout the complaint period. But is that differential the result of sex discrimination, which would violate Title VII? The company's expert testified that the differential disappeared when adjustments were made for differences in the jobs performed. The plaintiff's expert failed to rebut this testimony. Plaintiffs’ Title VII base pay claim must therefore fail. Their Equal Pay Act claim also fails. Although that claim does not require proof of discrimination, the Court concluded that the district court was correct in finding that the plaintiffs failed to meet the statutory comparator requirement. The named plaintiffs' promotion claims also fail. Again, the company's expert corrected the data to account for male employees with the same title but substantially different responsibilities and found that females are, in fact, much more likely to be promoted that males. Again, plaintiffs failed to rebut the testimony. The Court also affirmed the district court's denial of class certification. It concluded that the named plaintiffs were not adequate class representatives because their promotion claims were weaker than many other class members and because they had a conflict of interest. They are supervisors and have some control over the compensation of both male and female employees. In reaching its conclusion, the Court rejected plaintiffs' attempt to style its action as a Rule 23(b)(2) claim (under which they might avoid the adequacy issues). The request for monetary relief and the need for individual calculations and hearings make the case inappropriate for Rule 23(b)(2) treatment.

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CE DESIGN LIMITED v. KING ARCHITECTURAL METALS (March 18, 2011)

CE Design is a small engineering firm near Chicago. It has a website where it posts its fax number and says "Contact Us." It also publishes its fax number in an online building industry directory. The directory requires a that its users allow all other directory users to communicate with it by fax or e-mail. King Architectural Metals is one of those other directory users. In 2009, King conducted a fax marketing campaign. It faxed over 50,000 advertisements, two of which went to CE Design. Design brought suit on behalf of a class pursuant to the Telephone Consumer Protection Act. Judge Bucklo (N.D. Ill.) certified a class of persons who received the fax without having given express permission. King petitions for permission to appeal from that certification.

In their opinion, Judges Posner, Manion, and Hamilton granted the petition, vacated the class certification, and remanded. The Act forbids unsolicited fax advertisements. An unsolicited advertisement is one sent without "express invitation or permission." Whether the "Contacts Us" language and the directory publication constitutes an unsolicited advertisement is a question that neither the statute, the case law, nor agency interpretations answer. Design's president testified at his deposition that he did not know that directory publication granted permission to others to communicate with Design by fax. Rule 23 requires that the class representative’s claim be typical of all claims and that the class representative will "fairly and adequately" represent the class. The Court stated that a plaintiff is not an appropriate class representative if it is subject to a defense that other class members are not subject to -- its claim is no longer typical. Likewise, a class representative should not have credibility problems. Here, the district court expressed doubts about the president's truthfulness but dismissed it as a immaterial. Questions about his credibility and the presence of a potential defense based on the expressed consent given through the directory detract from Design's ability to adequately represent the class. The Court remanded for reconsideration of the identity of the class representative. The Court emphasized that it was not questioning the viability of the class action itself.

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KARTMAN v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY (February 14, 2011)

In early 2006, a severe hailstorm hit the Indianapolis, Indiana area, causing extensive property damage. Almost 50,000 area residents filed insurance claims under homeowners insurance policies with State Farm Fire and Casualty Company. State Farm adjusted and paid over $263 million on hose claims. The following year, however, several State Farm policyholders filed suit for breach of contract, bad faith denial of benefits, and unjust enrichment. The suit was brought as a class action and alleged that State Farm underpaid claims and failed to use a uniform standard for evaluating the hail damage. The class sought damages and an injunction ordering State Farm to reinspect the roofs under a uniform standard. Judge Lawrence (S.D. Ind.) refused to certify a Rule 23(b)(3) damages class because of the need for individual underpayment determinations. He did certify, however, a Rule 23(b)(2) class to address whether the class was entitled to an injunction requiring the uniform reinspections. State Farm sought interlocutory review of the certification order.

In their opinion, Judges Cudahy, Wood, and Sykes granted the petition of review, reversed, and remanded with instructions to decertify the class. The Court’s problem with the district court's approach was a basic one – what are the claims? An insurance policy is a contract. For its part, the insurer agrees to pay for covered losses. It does not agree to use a particular standard in evaluating any alleged damage. An insurance policy also implicates tort law as a result of the bad faith denial of benefits claim. But again, tort law does not consider the failure to use a uniform standard a breach of a duty of good faith. Neither contract law nor tort law imposed a separate duty on State Farm to use a particular method to evaluate an insured's loss. The district court’s treatment of the uniform standard claim as a separate claim was error. Having clarified the claims, the Court turned to Rule 23. Rule 23(b)(2) requires that class-wide injunctive relief be both appropriate with respect to the class as a whole and final. The Court found both requirements absent here. First, with respect to appropriate, the Court noted that the class could not even satisfy the most basic of equitable relief requirements -- irreparable harm. Whatever their loss, it can be adequately satisfied with damages. The balance of hardships is also inequitable. The cost of compliance would be enormous, with little benefit. The Court also found that the injunction would be an administrative challenge and impractical. Second, the injunction did not meet the Rule 23 finality requirement. The plaintiffs are not seeking uniform roof inspections as their final remedy. Even in their view, the inspections are merely stepping stones to further proceedings on liability. The injunction does not meet the Rule 23(b)(2) requirements -- the class should not have been certified.

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SPANO v. THE BOEING COMPANY (January 21, 2011)

Like most American companies, the Boeing Company and the International Paper Company offered their employees participation in defined-contribution benefit plans. Members in each of the plans brought suit against each company and the plans. The allegations in each of the suits were quite similar. They claimed that the plans breached their fiduciary duties by a) paying excessive fees and expenses, b) choosing to include imprudent investment options in the plans, and c) concealing information from plan participants. Chief Judge Herndon (S.D. Ill.) certified a class in each case under Rule 23(b)(1). Each class definition included all persons who are, were, or ever will be participants or beneficiaries of the plan. Boeing and IP sought review.

In their opinion, Judges Bauer, Wood, and Tinder granted the request for review, vacated each certification order, and remanded. The Court noted that the case was brought under § 502(a)(2) of ERISA, which allows a participant to bring a civil action for relief under § 409, which in turn makes a fiduciary personally liable for a breach of fiduciary duty. In 1985, the Supreme Court held, in Russell, that a fiduciary in a defined-benefit plan context was not personally liable to a participant for damages. In a defined-benefit plan, assets are held in trust and the plan is administered by a fiduciary. Obligating a fiduciary to restore funds to the plan is sufficient to make the plan whole. In 2008, the Supreme Court had an occasion to apply that principle to a defined-contribution plan in LaRue. LaRue alleged a breach by a fiduciary that affected his account only and sought restoration of that amount to his account. Relying principally on the differences between defined-benefit and defined-contribution plans, the Supreme Court held that § 502(a) does authorize recovery for breaches of fiduciary duty that impair only the assets in a particular participant's account. But LaRue was an individual claim. The consolidated appeals involve class claims. The Court had to distinguish between an individual injury and an injury that should be considered a plan injury -- only a complaint about the latter is appropriately treated as a class. The Court turned to Rule 23. In order to proceed as a class, a claim must meet all of the elements of Rule 23(a) and fit into one of the 23(b) categories. For class certification purposes, a district court should not take the facts as alleged but, rather, make any required factual determinations. If the court finds that the claims meet the Rule 23 requirements, it issues an order in which it certifies and defines the class. The class definition is a very important aspect of the order, affecting both the litigation's scope and its res judicata effect. With those principles in mind, the Court turned first to the Boeing case. Although the Court found that the class met the numerosity and commonality requirements of Rule 23(a), it concluded that it did not meet the typicality and adequacy of representation requirements. Given the breadth of the class definition and the specific objections to two of the several investment options included in the plan, it is possible that many plan participants never owned shares in the targeted funds. Because the plaintiffs could potentially correct the Rule 23(a) problems by redefining the class, the Court also addressed Rule 23(b). The Court mentioned the Supreme Court’s cautionary remarks in Ortiz regarding the use of mandatory (b)(1) classes. Again, using the class definition certified, the Court concluded that the class could not meet the (b)(1)(A) or (b)(1)(B) requirements. The class was simply too diverse to for the Court to conclude that the class members had an identity of interest or that there was a risk of incompatible standards of conduct. Turning to the IP class, the Court found some of the same problems. It addressed the theories of relief (misrepresentation, imprudent investment, and excessive fees) individually. Under the misrepresentation theory, the Court concluded that it was not clear that the class representative's claims were typical of those of the group. With respect to the imprudent investment theory, the Court concluded (like in the Boeing class) that the allegation that some funds were imprudent while others were not, in conjunction with the diversity of the class, made the claim inappropriate for class treatment. Finally, with respect to the excessive fee theory, it appears that some fees were plan specific while others were fund specific. Given the class members’ different decisions regarding specific fund investments, this theory is also not appropriate for class treatment. The Court again emphasized that its decision was based on the definition provided by the district court and that it was not holding that an appropriate class could not be defined.

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IN RE: TRANS UNION CORP. PRIVACY LITIGATION (January 14, 2011)

A number of Fair Credit Reporting Act class actions against Trans Union were consolidated in the Northern District of Illinois. Lawyers for some of the plaintiffs ("MDL Counsel") agreed with Trans Union in 2006 to settle the case for $40 million (including $20 million cash). Dawn Wheelahan was counsel for another set of plaintiffs. She and counsel for yet a third set of plaintiffs ("Texas Counsel") opposed the settlement and persuaded the district court to reverse its earlier approval of the settlement. A few years later, the case settled for $110 million (including $75 million cash). The settlement agreement capped lawyers' fees at $18.75 million (17% of the settlement amount), which the lawyers asked for. Judge Gettleman (N.D. Ill.) reduced the fees to $10.83 million but then referred the matter to a special master and approved the special master's recommendation of a $13 million award, allocated 63% to MDL counsel, 22% to Wheelahan, and 15% to Texas counsel. Wheelahan appeals.

In their opinion, Judges Posner, Kanne, and Wood modified and remanded. The Court noted that the special master relied on four things in quantifying the amount of his recommended award: a) an academic study that found an average fee award of 17.6-19.5% in settlements between $79-$190 million, b) a group of securities cases (that have higher discovery costs and therefore should allow for higher fees) from which he extrapolated a fee award of 3.8-23.2% in a settlement this size, c) the fact that the settlement contained $35 million in non-cash value (which he viewed as having less value than cash and on which he awarded only a 5% fee), and d) the risk of losing. The Court found that the special master erred in at least three ways. He did not resolve the wide range of fees in the securities cases or quantify a reduction for the reduced cost of discovery. His reduction of the fee award for the non-cash component of the settlement was arbitrary and unwarranted. His analysis of the risk of losing was weak and inconclusive. The Court noted that simply eliminating the discount on the non-cash value brought the fee award back up to $16.5 million. But it ultimately concluded, because of the combination of errors, that the master’s rationale for reducing the $18.75 million originally requested was not persuasive. Turning to the allocation recommendation, the Court stated that the special master gave MDL Counsel full credit for the $40 million component and 50% credit for the additional $70 million component. The master also noted that MDL Counsel's investment in the case was valued at 4.3 times Wheelahan's investment. The Court noted that this ratio is considerably higher than the fee recommendation and ultimately concluded that the special master's allocation recommendations were appropriate. Against the backdrop of an appropriate allocation but an unsupported reduction in total award, the Court turned to Wheelahan's request. It concluded (applying “rough justice”) that she was entitled to her allocation recommended by the master (22%) but that she was entitled to that percentage of the amount originally requested. Therefore, the Court ordered that she be awarded an additional $1.425 million.

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The "Stainless Steel Dryer That Wasn't" Saga Continues

The Seventh Circuit Court of Appeals has issued three opinions in Thorogood v. Sears, Roebuck and Company, an action brought on behalf of a class allegedly harmed because Sears marketed a "stainless steel" clothes dryer that was not 100% stainless steel. It reversed the district court's certification order (opinion and intheiropinion), it affirmed the dismissal of the case as moot after Sears made an offer of judgment that exceeded the plaintiff's possible individual damages (opinion and intheiropinion), and it recently reversed and remanded to the district court for the entry of an injunction under the All Writs Act barring the continued prosecution of a mirror class action in California (opinion and intheiropinion). In its All Writs opinion, the panel made some fairly strong comments about potential for abuse in class actions, including a characterization of counsels' tactics as "close to settlement extortion." Class counsel took exception to several of the panel's remarks in its petition for rehearing and for rehearing en banc, at one point characterizing the panel as the "Simon Cowell of the Circuits.” The panel voted to deny the petition, and no judge requested a vote on rehearing en banc. But the "over the top" accusations in the petition prompted a six page response from the panel instead of the more typical one-liner. The panel stood quite firm on the merits, pointed out the many instances where class counsel actually ignored the points made in the opinion, and repeated and expanded upon the potentials for abuse inherent in class action litigation. The bottom line is that the Seventh Circuit believes the stainless steel dryer class action litigation is a classic example of class action abuse. Only time will tell if class counsel accepts the message.

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THOROGOOD v. SEARS, ROEBUCK AND CO. (November 2, 2010)

For the third time in two years, the Seventh Circuit has an occasion to decide an appeal in this failed attempt at a class action. Steve Thorogood filed a class action on behalf of residents of 28 states and the District of Columbia. He alleged that Sears' advertising and representations regarding the stainless steel content of a dryer drum constituted a violation of consumer protection laws. The Court reversed the district court's class certification order (the opinion and intheiropinion). It concluded that there were no common issues of fact and that the case was a particularly poor case for class certification. On remand, Sears made a $20,000 offer of judgment on Thorogood's individual claim. Because that amount exceeded Thorogood's maximum recovery, the district court dismissed the case as moot. The Court affirmed, rejecting Thorogood's argument that he was entitled to substantial attorneys' fees (the opinion and intheiropinion). Undaunted, Thorogood's counsel continued his "quixotic . . . quest" and filed an almost identical class-action suit in California. The California district court ruled that the case was barred by collateral estoppel. After plaintiffs alleged additional facts in an amended complaint, however, the court reversed its ruling and allowed the case to proceed with discovery. Sears returned to the Illinois district court and sought to enjoin the continued prosecution of the California case. Judge Leinenweber (N.D. Ill.) denied the motion, concluding that the availability of a collateral estoppel defense was adequate relief. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded. The Court first noted that the district court had jurisdiction notwithstanding the fact that the original case was no longer pending. Sears' motion was brought pursuant to the All Writs Act, which authorizes a federal court to issue commands that are necessary to effectuate prior decisions of the court. The Court turned its attention to the merits, which required it to determine whether the district court abused its discretion. Ordinarily, a collateral estoppel defense would amount to an adequate remedy at law and preclude injunctive relief under the All Writs Act. The Court concluded, however, that several factors in the case militated otherwise: the near frivolous nature of the complaint itself, its poor fit as a class action, the difficulty in structuring proper relief, counsel's stated intention to circumvent the district court's order, counsel's position that California consumer protection law is different when his earlier position in the Illinois case was that all class members were governed by the same law, the potential for abuse in class proceedings, the cost of pretrial discovery, and California counsel's "threat to turn the screws" if the case did not settle. The district court apparently did not take these considerations into account and may have believed that the mere availability of the collateral estoppel defense precluded relief. Although conceding that the California court's order deserved respect, the Court mentioned that the California court misunderstood the case and was not going to revisit certification until after discovery. In addition, its orders were not appealable. Sears is therefore without an adequate remedy at law and the district court abused its discretion in denying the injunction. The Court left the details of the injunction to the district court but made several comments nonetheless: the lawyers and all of the original class members should be subject to the injunction, the injunction should not prohibit individual claims, the additional named defendant in the California suit is entitled to no relief, no unnamed class member should be punished with contempt until served with a copy of the injunction, and the injunction should not prohibit class actions with materially different allegations. Finally, the Court noted that the Supreme Court recently granted certiorari in a case regarding a federal court's power to enjoin a state court proceeding. In consideration of that fact, the Court directed that the injunction should encompass state court proceedings but should specifically allow for a modification in consideration of the ultimate decision in the case. 

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GATES v. CITY OF CHICAGO (September 27, 2010)

Chicago police arrested Luster Nelson in February of 2004 on a narcotics charge -- and seized the $59 in cash that he had on his person at the time. Chicago police arrested Elton Gates in January of 2003 on a non-narcotics charge -- and seized the $113 in cash that he had on his person at the time. Gates and Nelson were each given a property inventory receipt that included instructions for the return of their property. Gates ultimately pled guilty and unsuccessfully sought the return of his $113. The charges against Nelson were dismissed. He also was unsuccessful in his attempt to retrieve his $59. Gates and Nelson brought a class action suit against the City and various individuals. They alleged due process violations in that the City: seized their property and kept it without instituting a forfeiture proceeding, misrepresented when their property would be available, kept their property after the conclusion of criminal proceedings, and maintained a policy designed to delay the return of property. They sought the return of their cash, damages, and attorney's fees. They also included state law claims for conversion, replevin, and unjust enrichment, among others. Shortly after they filed suit, the City sent each a check in the full amount of his alleged property loss and offered to pay interest. The plaintiffs returned the checks. The court certified two classes of individuals (one for narcotics arrestees, one for non-narcotics arrestees) who had had property taken from them during a particular period, whose criminal cases had been resolved, and who had not been able to recover their property. The Seventh Circuit affirmed the class certification. Judge Castillo (N.D. Ill.), on remand, granted summary judgment to the City on the federal claims, refused to certify a class on the state restitution claims, and dismissed those claims as moot. The plaintiffs appeal.

In their opinion, Judges Kanne, Rovner, and Wood affirmed in part and vacated and remanded in part. The Court first turned to the sufficiency of the notice. It looked to the Supreme Court decisions in West Covina and Memphis Light for guidance. In West Covina, the Supreme Court upheld a notice that did not give many specifics about the procedure for obtaining the return of one's property but the procedures were generally available in public sources. Conversely, in Memphis Light, the Supreme Court held that a public utility must give its customers notice of its internal procedure for resolving billing disputes because the procedure was not otherwise publicly available. Here, part of the procedure for property recovery is contained in Illinois statutes and is publicly available. However, the record shows that the police also use internal procedures that are not described in generally available documents. The Court concluded that the notice provided to the plaintiffs did not satisfy Memphis Light and violated due process. The Court referred to the City's instructions as a "model of misdirection" and concluded that summary judgment for the City was premature. The narcotics arrestee class also challenges the additional notice that is sent to the home of narcotics arrestees. Their position is that the City should check the sheriff's website to determine if the arrestee is incarcerated, either before sending the notice or at least upon return of an undelivered notice. A notice, under due process, must be reasonably calculated to inform interested parties. Generally, a notice mailed to the interested party's residence is sufficient -- unless, of course, there is reason to know it would be ineffective. The Court concluded that summary judgment for the City was premature with respect to the narcotics notice. The extra notice to narcotics arrestees is not just a notice -- it is a document required to recover property. The record is not clear regarding the burden on the City to check the website, either for all notices or for those returned undelivered. The City failed to meet its burden that the mailing of the notice meets the Mullane standard.

The Court moved to the consideration of the adequacy of the procedures themselves. Again, the Court concluded that summary judgment for the City was error. First, it identified a number of factual disputes regarding the actual procedure. Second, it discussed a series of Second Circuit cases (McLendon, Butler, and Alexandre) to clarify the difference between having procedures for the return of property and having remedies if the procedures fail. A post-deprivation remedy is not a defense to a § 1983 action if the deprivation is a result of established procedures. Here, the arrestees were apparently required to obtain an arresting officer's signature on a form, and the officer could refuse arbitrarily. This does not comply with due process requirements – and cannot be corrected with a simple post-deprivation remedy. As an aside, the Court noted that the significant amount of money and number of arrestees unable to reclaim their property are indications that the policy is suspect. Finally, the Court affirmed the district court's dismissal of the restitution claims. Those claims sought nothing more than a return of the plaintiff's property. The City's tender of the full amount of the claim is sufficient to make the plaintiff whole.

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SCHLEICHER v. WENDT (August 20, 2010)

Conseco was a large financial services company traded on the New York Stock Exchange. It filed for bankruptcy in 2002 and successfully reorganized. This securities-fraud claim was filed against Conseco managers who are alleged to have made false statements prior to the bankruptcy. Then-District Judge Hamilton (S.D. Ind.) certified a class. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner affirmed. The Court began by noting that securities-fraud claims are regularly litigated as class actions. Common questions generally include falsehood, intent, causation, and materiality. Individual questions, such as an individual investor's extent of loss, can frequently be addressed mechanically. Prior to 1988, defendants fought class certification by focusing on the reliance element. But the Supreme Court that year, in Basic, concluded that the stock price conveys the same public information to each investor if the stock is frequently traded in an efficient market. The Basic doctrine, called fraud on the market, replaced the reliance element. Here, the defendants argued that the fraud on the market doctrine does not apply because, notwithstanding the alleged false statements, Conseco's stock was falling during the relevant period. The Court found that fact to be irrelevant and concluded that the case met the Basic requirements. The Court also rejected defendants’ arguments that certification was improper because the class included short sellers and because the court failed to determine falsity and materiality. On the former, the Court noted that both long and short sellers are affected by news related to the value of a stock. The fact that short sellers may not realize a loss as a result of a false statement affects computation of damages, not the propriety of a class. On the latter, the Court stated that falsity and materiality are elements to be decide on the merits – not at the class certification stage. In doing so, it specifically expressed its disagreement with the Fifth Circuit’s decision in Oscar Private Equity that reads Basic to allow a tightening of class certification requirements. Congress has spoken on the issue in the Private Securities Litigation Reform Act and the Securities Litigation Uniform Standards Act. The Court declined to legislate other changes.

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 SIEGEL v. SHELL OIL CO. (July 30, 2010)

Michael Siegel is a retail gasoline consumer. He brought a class action against several major oil companies. The complaint alleged that the oil companies violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA") and were unjustly enriched as a result of their concerted effort to reduce the supply of gasoline, thereby increasing its price. Judge St. Eve (N.D. Ill.) denied class certification and entered summary judgment for the defendants. Siegel appeals.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Griesbach affirmed. The Court noted that an Illinois claim for unfair conduct under the ICFA requires both a substantial injury that could not reasonably have been avoided and that the injury be the proximate result of defendants' conduct. Addressing first the class certification issue, the Court concluded that the district court did not abuse its discretion in finding that common issues of fact did not predominate over individual issues. For example, each class member's gasoline purchasing habits would have to be determined in order to establish causation. On the merits, the Court concluded that Siegel's own testimony precluded a finding of proximate causation. He testified that he could and did purchase gasoline from other oil companies, that he continued to purchase gasoline from the defendant oil companies, and that many factors were relevant to his buying decisions. Finally, an unjust enrichment claim is not a stand-alone claim. Here, Siegel’s claim rests on his allegation of unfair conduct. Having rejected the ICFA claim, the Court rejected the unjust enrichment claim as well.

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PORTIS v. CITY OF CHICAGO (July 23, 2010)

The City of Chicago arrests thousands of individuals each year for crimes punishable only by monetary fines. These crimes include disorderly conduct, peddling, and minor traffic offenses, among others. The police procedure after such arrests is to confirm the identity of the individual, the existence of probable cause, and that the individual is not wanted for a more serious offense. At that point in the process, an individual is entitled to be released on a personal-recognizance bond. All that remains is the bond’s processing and approval and the return of any personal belongings that were taken upon the arrest. The individual is then released. A number of persons who were subjected to this process brought a class action against the City. They allege that if the period of time between the entitlement to release and the actual release exceeds two hours, the confinement is unreasonable and in violation of the Fourth Amendment. Judge Gettleman (N.D. Ill.) agreed and certified the question for appeal. The City appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans accepted the appeal -- and reversed and remanded. The Court compared the district court's ruling with the Supreme Court's decision in McLaughlin. In that case, the Supreme Court adopted a 48-hour test for the reasonableness of the period between arrest and presentation to a magistrate. That test differed in two ways from the district court's test: first, it looked at the entire process between arrest and presentation rather than one phase of the process -- and second, the 48-hour test was a presumption rather than a bright line rule. McLaughlin specifically rejected the adoption of arbitrary bright lines by courts -- only a legislature should venture there. The reasonableness of a detention should be decided as a whole -- not with relation to its component parts -- and should be decided individually -- not as a class. So not only did the Court find error in the lower court's decision on the merits, it also directed the district court to decertify the class. The named plaintiffs may still proceed individually with their claims that their detention was unreasonable.

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PELLA CORP. v. SALTZMAN (May 20, 2010)

Pella Corp. is in the business of manufacturing and selling home windows. It has sold in excess of 6 million "ProLine" casement windows. When a wood rotting problem arose, Pella set up a customer service program to compensate affected purchasers. A group of those purchasers brought a class action. The suit alleges that Pella committed consumer fraud when it failed to disclose the alleged design defect and the problems it was causing. Judge Zagel (N.D. Ill.) certified seven classes: a) a nationwide Rule 23(b)(2) class of persons who own structures containing the casement windows that have not been replaced, and b) six statewide Rule 23(b)(3) classes of persons whose windows have already been replaced because of the defect. The court refused to certify causation, damages, and statute of limitations issues. Pella petitioned for leave to appeal.

In their opinion, Judges Posner, Williams, and Tinder granted the petition and affirmed. The Court agreed that consumer fraud actions frequently present problems when treated as class actions. That does not, however, equal a general rule that they can never be so treated. Here, the principal issue is whether there is a single design defect in the window that leads to wood rot. The Court concluded that the district court was well within its discretion in deciding that the issue is best resolved in a class context. The problems inherent in treating consumer fraud cases in a class context are not present in this case. The issues are not complex, the central questions are all the same, and the class members must prove causation and damages on an individual basis.

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AMERICAN HONDA MOTOR CO. V. ALLEN (April 7, 2010)

American Honda Motor Co. ("Honda") manufactures motorcycles. One such motorcycle, the Gold Wing GL1800, is the subject of a class action lawsuit. The plaintiffs, purchasers of the GL1800, allege that the motorcycle has a design defect. The defect, they allege, results in excessive shaking of the steering assembly. The plaintiffs moved for class certification. They relied on a report prepared by Mark Ezra for support for their allegation of the predominance of common issues. In his report, Ezra had developed a standard for the dissipation of steering oscillation in motorcycles. He tested one GL 1800 and concluded that it did not meet this standard. Honda argued that the report did not meet the Daubert standard. The district court expressed its concern that the standard was not supported by empirical evidence and was not generally accepted by the engineering community and that his sample size of one was inadequate. Nevertheless, it refused to strike the report and granted the motion for class certification. Honda petitioned for leave to appeal.

In their opinion, Judges Posner, Evans, and Tinder granted the petition, vacated the denial of the motion to strike and the order certifying a class, and remanded. The Court acknowledged that it had not yet considered the specific question of whether a Daubert challenge must be resolved prior to class certification. It has, however, held that a district court must make all legal and factual determinations necessary to ensure that class requirements are met. The Court thus held that a district court must conclusively resolve challenges to an expert report if the report is critical to class certification. Here, the district court started the correct analysis but never actually decided the question. Instead, it simply decided not to exclude the entire report at what it referred to as the "early stage of the proceedings." The district court abused its discretion in doing so. In fact, the Court went on to conclude that the Ezra report should have been excluded under a Daubert analysis. Applying the Daubert factors, the Court noted the lack of evidence that the standard has been generally accepted or that any tests have been performed to support it. The Court also stated that the sample size of one would rarely be sufficient to extrapolate its results to an entire fleet of motorcycles. Without the report, the plaintiffs cannot meet the predomination requirement of class certification.

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WRIGHTSELL v. COOK COUNTY (March 31, 2010)

Lance Wrightsell is a former prisoner of the Cook County Jail. He brought an action against the County pursuant to § 1983. He alleged that the County's practice of making only one dentist available to the 10,000 inmates of the jail constituted cruel and unusual punishment in violation of the Eighth Amendment to the Constitution. After the district court denied his request for class certification, he agreed to an offer of judgment of $10,000 and renounced his right to appeal. John Smentek, another former inmate, also had a class action pending in the district court -- against the same defendant, alleging the same constitutional violation, and represented by the same attorney. Wrightsell, notwithstanding his renunciation, appeals the district court's denial of class certification. Smentek petitions for leave to intervene in the appeal.

In their opinion, Judges Posner, Wood, and Tinder denied the petition to intervene and dismissed the appeal. The Court addressed some of the complexities involved in class actions and appeals -- for example, the distinction between the named plaintiff as plaintiff and as class representative and the distinction between voluntary and involuntary settlements. Here, the named plaintiff, after denial of class certification, settled his individual claim and waived his right to appeal as class representative. The Court noted competing policy considerations but concluded that Wrightsell resigned his representative status when he waived his right to appeal. Thus, his appeal should be dismissed. The fact that Wrightsell settled, however, does not affect the rights of the other potential class members, including Smentek. But a potential class member who wishes to appeal the denial of class certification must first seek to intervene in the district court and must do so within the time period for filing a notice of appeal. Smentek did not -- his petition to intervene should be denied.

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FIRST BANK v. DJL PROPERTIES (March 24, 2010)

First Bank filed two lawsuits against DJL Properties in state court. In both cases, DJL filed class-action counterclaims. First Bank removed both cases to federal court, pursuant to the provisions of the Class Action Fairness Act. Both district court judges to whom the cases were assigned remanded. First Bank sought leave to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams granted the petitions for leave to appeal but affirmed the district courts. The Court stated that the law is settled, possibly for over 150 years, that a state court plaintiff cannot remove the case to federal court, even if that plaintiff becomes a counter-defendant. The 4th and 9th Circuits have applied that long-standing general rule to the Class Action Fairness Act. The Court agreed. The Act specifically refers to the general removal sections of the statute where "defendant" is limited to a defendant, it uses the phrase "any defendant," and it uses a word that has a long-established meaning. The Court specifically noted the value in giving words used by Congress their standard meaning. Congress could have easily expanded the removal rights in the Act to counter-defendants. It did not. 

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THOROGOOD v. SEARS, ROEBUCK & CO. (February 12, 2010)

Stephen Thorogood filed a state court class-action on behalf of the purchasers of stainless steel dryers in multiple states. He alleged that the defendant’s representation that the dryers were made of stainless steel violated the consumer protection acts of those states. The defendant removed the case to federal court under the Class Action Fairness Act (CAFA). Although the district court certified a class, the Seventh Circuit reversed and ordered the class decertified (intheiropinion.com post). The Court thought the case was not only a weak candidate for class certification, but also flimsy on its own merits. On remand, the defendant made an offer of judgment, inclusive of attorneys fees, of $20,000. Finding that that offer exceeded plaintiff's maximum recovery under state law of $3,000 and therefore the amount in controversy, the district court dismissed the case as moot. Thorogood appeals.

In their opinion, Judges Posner, Kanne, and Evans affirmed. The Court first rejected plaintiff's argument that the case should have been remanded upon class decertification, relying upon its decision in Cunningham Charter (intheiropinion.com post) just three weeks earlier. Then, the Court rejected the plaintiff's argument that the case was not moot because of his entitlement to significant attorneys’ fees. First, an award of fees for value conferred beyond the relief obtained must generally be relief ordered by the court. Second, the court was within its discretion in deciding that no fees were warranted. Finally, the Court noted that most of the fees were incurred pursuing the failed class action, not the $3,000 individual action.

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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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