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

IN RE: TRANS UNION CORPORATION PRIVACY LITIGATION (December 27, 2011)

Over a decade ago, a number of class actions were filed against Trans Union Corp. for violating the Fair Credit Reporting Act. The cases were consolidated and eventually settled for $75 million. Judge Gettleman (N.D. Ill.) entered an order that allowed Trans Union to be reimbursed from the $75 million fund for the settlement of, and the attorneys fees for, a separate Texas state court case. Class counsel appealed, asserting that they should get a portion of the Texas lawyers' fees because they are the ones that created the large fund. The Texas lawyers are not parties in the district court proceedings and have not sought intervention in the district court. Instead, they filed a motion in the Seventh Circuit asking not for intervention but to be added to the appellate docket as an appellee.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Wood granted the motion and added the Texas lawyers as parties to the appeal. The Court viewed the Texas lawyers' position with some skepticism. It believed that they wanted to be heard on appeal so they can defend the district court's decision to let Trans Union pay it out of the $75 million fund. On the other hand, they do not want to be parties and be subject to the district court's scrutiny of its contingent fee agreement or an order of the district court to return some of the fees received. The Texas lawyers clearly have a right that is at risk on this appeal. They therefore have a right to be a party. But, as a party, the district court will have the opportunity -- indeed, the obligation -- to make inquiry into the reasonableness of fees.

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CITY OF CHICAGO v. FEDERAL EMERGENCY MANAGEMENT AGENCY (October 17, 2011)

The airlines that use O'Hare and Midway Airports have Use Agreements with the City of Chicago that define the rights of the parties. Pursuant to the Agreement, the City estimates its operating and maintenance expenses each year for the upcoming year. Each airline is obligated to pay its proportionate share of these expenses, based on its projected landings. At the end of each year, the City compares its actual costs to its projected costs and either collects additional funds from the airlines or refunds any excess money. The City only projects for ordinary snow removal expenses. In 1999 and 2000, the City spent approximately $8 million in extraordinary snow removal costs. The Federal Emergency Management Agency picked up almost $6 million of that amount pursuant to federal law. FEMA's generosity, however, was short-lived. Relying on another provision of federal law that requires recipients of federal assistance to repay the United States if the assistance duplicates other benefits available, FEMA asked the City to return the funds. It took the position that the federal assistance duplicated the funds available to the city under the Use Agreements. The City brought suit against FEMA under the Administrative Procedure Act on the ground that the duplicate benefits provision relied on applies only to available insurance proceeds. But, as alternative protection, the City stipulated that the airlines were responsible for the snow removal costs under the Use Agreements. The airlines moved to intervene either as a matter of right or permissively in order to argue the position that the Use Agreements are limited to ordinary snow removal expenses. Judge Norgle (N.D. Ill.) denied the motions. The airlines appeal.

In their opinion, Seventh Circuit Judges Cudahy, Posner, and Williams reversed. The Court discussed at length, without deciding its applicability, intervention as a matter of right under Rule 24(a). It declined to decide that issue because it decided that the airlines should have been permitted to intervene permissively under Rule 24(b). Permissive intervention is about economies of litigation and is allowed when a party has a claim or defense sharing a common question of law or fact and when the intervention would not unnecessarily delay or prejudice the underlying adjudication. The Court concluded that the intervention might cause some delay and require some limited additional discovery. On the other hand, it might eliminate the need for subsequent litigation between the airlines and the City. The Court concluded that there was no basis to deny permissive intervention.

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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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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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BOND v. UTRERAS (November 10, 2009)

Diane Bond filed a § 1983 action against the City of Chicago and several police officers in 2004. The parties settled. The court entered an agreed order of dismissal on March 23, 2007. About a week earlier, however, journalist Jamie Kalven filed a petition to intervene. Kalven sought to modify a protective order in the case and to obtain access to documents produced during discovery. The City opposed access -- Bond did not substantively respond to the petition. The court granted the motion to intervene and rescinded the protective order. The City appeals.

In their opinion, Judges Kanne, Sykes and Tinder (concurring) vacated and remanded. Although the Court recognized its earlier decisions allowing permissive intervention to challenge a protective order, it emphasized that those cases involved ongoing litigation or access to records in the court file. Here, neither of those conditions is present. The case was over and none of the records sought were ever filed with the court. Therefore, stated the Court, the lower court should have addressed Kalven’s standing. Standing requires that an actual controversy exist at all stages of the proceeding. The Court noted that the circuit had never addressed the relationship between Article III standing and the rule for permissive intervention. This is not a typical permissive intervention case -- where the party seeks to come into an ongoing case on the side of one of the parties. Specifically not addressing whether standing is required for permissive intervention in an ongoing case, the Court concluded that independent standing was required to intervene in a case to challenge a protective order after the case was dismissed. The Court then rejected Kalven's standing on both right to discovery and First Amendment grounds. The Court based the former on the fact that none of the discovery sought had been filed with the court. The general right of public access to court documents is not implicated. The latter was based on the fact that the parties in the litigation stipulated to the protective order. No one placed any limitation on another's speech. Finally, the Court rejected any notion that the revocation of the protective order was within the lower court's inherent power.

Judge Tinder concurred in the result. He got there differently, however. Judge Tinder believed that Kalven had standing based on the public's general right of access to judicial proceedings. He concluded, however, given the timing of the request and the lack of a sufficient showing of abuse with respect to the protective order, that the district court erred on the merits.

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FLYING J, INC. v. VAN HOLLEN (August 20, 2009)

A Wisconsin statute prohibits a gasoline retailer from selling its product below cost plus a defined markup. The statute contains both state and private remedies of both an injunctive and damages nature. Flying J is such a gasoline retailer. It sued the state, seeking to enjoin enforcement of the statute on the grounds that it was preempted by the Sherman Act. The district court granted the injunction. During the time period for taking an appeal, the state decided not to appeal. An association of gasoline retailers asked the district court for leave to intervene both as of right under Rule 24(a)(2) and as permissive under Rule 24(b)(1)(B). The court denied the intervention on the grounds that it was untimely and that the association's members lacked the requisite interest. The association appeals.

In their opinion, Judges Posner, Ripple and Kanne vacated. Intervention pursuant to Rule 24(a)(2) requires both that the party have an interest in the action and be within the class of persons the law is intended to protect. Here, the members of the association are the direct beneficiaries of the statute and would be directly harmed by the invalidation of the statute. The court concluded that this interest was sufficient for intervention. The Court also concluded that the association's motion was not untimely. Since their interest was simply to prosecute the appeal that the state decided to forgo, it is indeed timely. The Court did consider somewhat problematic the Rule 24(a)(2) requirement that a disposition of the action would impair the association's ability to protect its interests. The district court's injunction would not prevent one of the association's members from bringing a private action for damages or for an injunction -- although it would be a substantial inconvenience. Instead of resolving that issue, the Court turned to the request for permissive intervention. Permissive intervention does not contain the same impairment requirement. Relying on its earlier analysis of the association's interest and the timeliness of its request, combined with its conclusion that Flying J would not be prejudiced, the Court concluded that permissive intervention should be allowed. Instead of remanding to the district court, the Court treated the intervener as the appellant and ordered briefing.

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