Equifax Check Serv v. Blair ( 1999 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-8006
Beverly Blair and Letressa Wilbon, on behalf
of themselves and a class of others similarly
situated,
Plaintiffs-Respondents,
v.
Equifax Check Services, Inc.,
Defendant-Petitioner.
On Petition for Leave to Appeal from the
United States District Court for the
Northern District of Illinois, Eastern Division.
No. 97 C 8913--Paul E. Plunkett, Judge.
Argued May 20, 1999--Decided June 22, 1999
Before Posner, Chief Judge, and Easterbrook and
Rovner, Circuit Judges.
Easterbrook, Circuit Judge. In 1992, at the
suggestion of the Federal Courts Study Committee,
Congress authorized the Supreme Court to issue
rules that expand the set of allowable
interlocutory appeals. 28 U.S.C. sec.1292(e). An
earlier grant of jurisdictional rulemaking power-
-28 U.S.C. sec.2072(c), which permits the Court
to "define when a ruling of a district court is
final for the purposes of appeal under section
1291"--had gone unused, in part because it
invites the question whether a particular rule
truly "defines" or instead expands appellate
jurisdiction. Section 1292(e) expressly
authorizes expansions. So far, it has been
employed once. Last year the Supreme Court
promulgated Fed. R. Civ. P. 23(f), which reads:
A court of appeals may in its discretion permit
an appeal from an order of a district court
granting or denying class action certification
under this rule if application is made to it
within ten days after entry of the order. An
appeal does not stay proceedings in the district
court unless the district judge or the court of
appeals so orders.
This rule became effective on December 1, 1998,
and we have for consideration the first
application filed in this circuit (and, so far as
we can tell, the nation) under the new rule. A
motions panel directed the parties to file briefs
discussing the standard the court should employ
to decide whether to accept appeals under this
rule.
The Committee Note accompanying Rule 23(f)
remarks: "The court of appeals is given
unfettered discretion whether to permit the
appeal, akin to the discretion exercised by the
Supreme Court in acting on a petition for
certiorari. . . . Permission to appeal may be
granted or denied on the basis of any
consideration that the court of appeals finds
persuasive." (The parties call this an "Advisory
Committee Note," following old usage, but its
title was changed more than a decade ago to
"Committee Note." It speaks not only for the
responsible advisory committee but also for the
Standing Committee on Rules of Practice and
Procedure, which coordinates and superintends the
several bodies of federal rules.) Although Rule
10 of the Supreme Court’s Rules identifies some
of the considerations that inform the grant of
certiorari, they are "neither controlling nor
fully measuring the Court’s discretion". Likewise
it would be a mistake for us to draw up a list
that determines how the power under Rule 23(f)
will be exercised. Neither a bright-line approach
nor a catalog of factors would serve well--
especially at the outset, when courts necessarily
must experiment with the new class of appeals.
Instead of inventing standards, we keep in mind
the reasons Rule 23(f) came into being. These are
three. For some cases the denial of class status
sounds the death knell of the litigation, because
the representative plaintiff’s claim is too small
to justify the expense of litigation. Coopers &
Lybrand v. Livesay, 437 U.S. 463 (1978), held
that an order declining to certify a class is not
appealable, even if that decision dooms the suit
as a practical matter. Rule 23(f) gives appellate
courts discretion to entertain appeals in "death
knell" cases--though we must be wary lest the
mind hear a bell that is not tolling. Many class
suits are prosecuted by law firms with portfolios
of litigation, and these attorneys act as
champions for the class even if the
representative plaintiff would find it
uneconomical to carry on with the case. E.g.,
Rand v. Monsanto Co., 926 F.2d 596 (7th Cir.
1991). These law firms may carry on in the hope
of prevailing for a single plaintiff and then
winning class certification (and the reward of
larger fees) on appeal, extending the victory to
the whole class. A companion appeal, briefed in
tandem with this one, presented just such a case.
After class certification was denied, the
plaintiff sought permission to appeal under Rule
23(f); although the remaining plaintiff has only
a small stake, counsel pursued the case in the
district court while we decided whether to
entertain the appeal, and before the subject
could be argued here the district judge granted
summary judgment for the defendant. That
plaintiff now has appealed on the merits and will
seek to revive the class to boot. Many other
cases proceed similarly; Coopers & Lybrand did
not wipe out the small-stakes class action. But
when denial of class status seems likely to be
fatal, and when the plaintiff has a solid
argument in opposition to the district court’s
decision, then a favorable exercise of appellate
discretion is indicated.
Second, just as a denial of class status can
doom the plaintiff, so a grant of class status
can put considerable pressure on the defendant to
settle, even when the plaintiff’s probability of
success on the merits is slight. Many corporate
executives are unwilling to bet their company
that they are in the right in big-stakes
litigation, and a grant of class status can
propel the stakes of a case into the
stratosphere. In re Rhone-Poulenc Rorer Inc., 51
F.3d 1293 (7th Cir. 1995), observes not only that
class actions can have this effect on risk-averse
corporate executives (and corporate counsel) but
also that some plaintiffs or even some district
judges may be tempted to use the class device to
wring settlements from defendants whose legal
positions are justified but unpopular. Empirical
studies of securities class actions imply that
this is common. Janet Cooper Alexander, Do the
Merits Matter? A Study of Settlements in
Securities Class Actions, 43 Stan. L. Rev. 497
(1991); Reinier Kraakman, Hyun Park & Steven
Shavell, When are Shareholder Suits in
Shareholder Interests?, 82 Geo. L.J. 1733 (1994);
Roberta Romano, The Shareholder Suit: Litigation
Without Foundation?, 7 J.L. Econ. & Org. 55
(1991). Class certifications also have induced
judges to remake some substantive doctrine in
order to render the litigation manageable. See
Hal S. Scott, The Impact of Class Actions on Rule
10b-5, 38 U. Chi. L. Rev. 337 (1971). This
interaction of procedure with the merits
justifies an earlier appellate look. By the end
of the case it will be too late--if indeed the
case has an ending that is subject to appellate
review.
So, in a mirror image of the death-knell
situation, when the stakes are large and the risk
of a settlement or other disposition that does
not reflect the merits of the claim is
substantial, an appeal under Rule 23(f) is in
order. Again the appellant must demonstrate that
the district court’s ruling on class
certification is questionable--and must do this
taking into account the discretion the district
judge possesses in implementing Rule 23, and the
correspondingly deferential standard of appellate
review. However dramatic the effect of the grant
or denial of class status in undercutting the
plaintiff’s claim or inducing the defendant to
capitulate, if the ruling is impervious to
revision there’s no point to an interlocutory
appeal.
Third, an appeal may facilitate the development
of the law. Because a large proportion of class
actions settles or is resolved in a way that
overtakes procedural matters, some fundamental
issues about class actions are poorly developed.
Recent proposals to amend Rule 23 were designed
in part to clear up some of these questions.
Instead, the Advisory Committee and the Standing
Committee elected to wait, anticipating that
appeals under Rule 23(f) would resolve some
questions and illuminate others. When an
appellant can establish that such an issue is
presented, Rule 23(f) permits the court of
appeals to intervene. When the justification for
interlocutory review is contributing to
development of the law, it is less important to
show that the district judge’s decision is shaky.
Law may develop through affirmances as well as
through reversals. Some questions have not
received appellate treatment because they are
trivial; these are poor candidates for the use of
Rule 23(f). But the more fundamental the question
and the greater the likelihood that it will
escape effective disposition at the end of the
case, the more appropriate is an appeal under
Rule 23(f). More than this it is impossible to
say.
Judges have been stingy in accepting
interlocutory appeals by certification under 28
U.S.C. sec.1292(b), because that procedure
interrupts the progress of a case and prolongs
its disposition. That bogey is a principal reason
why interlocutory appeals are so disfavored in
the federal system. Disputes about class
certification cannot be divorced from the merits-
-indeed, one of the fundamental unanswered
questions is whether judges should be influenced
by their tentative view of the merits when
deciding whether to certify a class--and so this
argument against interlocutory appeals carries
some weight under Rule 23(f). But it has less
weight than under sec.1292(b), because Rule 23(f)
is drafted to avoid delay. Filing a request for
permission to appeal does not stop the litigation
unless the district court or the court of appeals
issues a stay-- and a stay would depend on a
demonstration that the probability of error in
the class certification decision is high enough
that the costs of pressing ahead in the district
court exceed the costs of waiting. (This is the
same kind of question that a court asks when
deciding whether to issue a preliminary
injunction or a stay of an administrative
decision. See Illinois Bell Telephone Co. v.
WorldCom Technologies, Inc., 157 F.3d 500 (7th
Cir. 1998); American Hospital Supply Corp. v.
Hospital Products Ltd., 780 F.2d 589, 593-94 (7th
Cir. 1986).) We did not stay either of the two
cases in which permission to appeal was sought;
both continued in the district court and, as we
related above, one already has been decided on
the merits. Because stays will be infrequent,
interlocutory appeals under Rule 23(f) should not
unduly retard the pace of litigation.
So much for abstractions; what of this case?
Equifax Check Services, which supplies a check-
verification service to merchants, also attempts
to collect fees imposed on dishonored checks.
After we held that checks create "debts" within
the meaning of the Fair Debt Collection Practices
Act, 15 U.S.C. sec.sec. 1692-1692o, see Bass v.
Stolper, Koritzinsky, Brewster & Neider, S.C.,
111 F.3d 1322 (7th Cir. 1997), many of Equifax’s
practices came under challenge. Until recently
Equifax used a letter implying that it would
refuse to verify checks written by anyone who had
not paid all outstanding checks. Beverly Blair
and Letressa Wilbon filed suits contending that
this letter violated sec.1692g of the Act because
it did not adequately inform the recipients that
they had 30 days within which to demand that
Equifax obtain a verification of the debt from
the merchant. Blair sought to represent a class
of shoppers at Champs, and Wilbon a class of
persons who had shopped at T.J. Maxx. The suits
were consolidated and, after it became apparent
that Equifax had sent the same letter to every
person situated similarly to the plaintiffs, the
district judge certified the case as a class
action under Fed. R. Civ. P. 23(b)(3), defining
the class as: "all Illinois residents (i) who
were sent a demand letter by [Equifax] on or
after a date one year prior to the filing of this
action, (ii) in the form represented by Exhibit
A . . ., (iii) in connection with an attempt to
collect a check written to Champs or TJ Maxx for
personal, family, or household purposes, where
(iv) the letter was not returned by the Postal
Service." 1999 U.S. Dist. Lexis 2536 *21-22 (N.D.
Ill. 1999). The court also certified a subclass
of persons who received a particular follow-up
letter less than 30 days after Equifax sent the
first. Because plaintiffs sought only statutory
penalties, the difficulties of proving individual
loss did not block class treatment. Cf. Keele v.
Wexler, 149 F.3d 589 (7th Cir. 1998). Equifax all
but concedes that class certification was proper
if the case is viewed in isolation, but it
insists that what happened in another case
requires a different outcome.
Several class actions against Equifax are
pending in the Northern District of Illinois. On
the same day Judge Plunkett certified the class
in Blair, the plaintiffs in Crawford v. Equifax
Check Services, Inc., No. 97 C 4240, which is
pending before Magistrate Judge Schenkier,
reached a settlement with Equifax. The class
certified in Crawford is a superset of the class
certified in Blair, and Equifax contends that as
a result the terms of the Crawford settlement
control here. A peculiar settlement it is.
Equifax agreed to change the letters it sends in
the future. Crawford personally receives $2,000.
Members of the Crawford class get no relief for
the letters sent to them, though Equifax agreed
to donate $5,500 to Northwestern Law School’s
Legal Aid Clinic and (natch) the lawyers for the
class receive fees for their work. According to
the settlement, none of the class members will
receive individual notice, and none will be
offered the opportunity to opt out. The theory
behind this is that the class was certified under
Fed. R. Civ. P. 23(b)(2), even though it began as
an action seeking damages. Finally, the
settlement provides that all class members’
claims for compensatory or statutory damages pass
through the litigation unaffected and may be
asserted elsewhere--but only in individual suits.
The settlement forbids prosecution of any other
case as a class action. It is this final feature
of the Crawford settlement that Equifax contends
should have led Judge Plunkett to decertify the
Blair-Wilbon class. Maintaining Blair as a class
action creates at least a possibility of
inconsistent outcomes.
Judge Plunkett was not amused. He was piqued at
Equifax’s failure to ask the district court to
consolidate Crawford with Blair, if indeed one
comprises the other. He also concluded that the
settlement in Crawford could not affect another
pending suit. Because he deemed the Crawford
settlement irrelevant, Judge Plunkett denied
Equifax’s motion for reconsideration of the class
certification. This is the order Equifax wants to
appeal under Rule 23(f). Before turning to that
appeal, however, we need to describe additional
proceedings before Magistrate Judge Schenkier.
Attorneys representing Blair and Wilbon were
invited to a settlement conference in Crawford
and there learned--for the first time, they say-
-that the Crawford class includes the Blair
class. Counsel opposed the Crawford settlement as
inadequate but did not persuade either Magistrate
Judge Schenkier or Crawford’s lawyers. Blair and
Wilbon then sought to intervene in Crawford so
that they would be able to appeal from final
approval of the settlement, if their objections
at the hearing under Rule 23(e) should be
rejected. Magistrate Judge Schenkier denied the
motion to intervene, concluding that counsel
should have found out about the overlap and acted
earlier. That decision is the subject of a
separate appeal.
According to Blair and Wilbon, Equifax’s request
for leave to appeal from Judge Plunkett’s
decision is untimely. Rule 23(f) permits an
application to be made "within ten days after
entry of the order." Judge Plunkett certified the
class on February 25, 1999, but Equifax did not
file its Rule 23(f) application until March 22.
Plaintiffs insist that an order denying
reconsideration is not the kind of "order" to
which Rule 23(f) refers. Only the order "granting
or denying class action certification under this
rule" is subject to appeal, and on this view
Equifax waited too long.
Fed. R. App. 4(a)(4) provides that a timely
motion for reconsideration suspends the finality
of a judgment and thus extends the time for
appeal until after the district court has acted
on the motion, but this does not assist Equifax
because it deals only with final decisions. For
example, Rule 4(a)(4)(A)(iv) says that a motion
"to alter or amend the judgment under Rule 59"
(emphasis added) tolls the time for appeal. An
order certifying or declining to certify a class
is not a "judgment," and the other subsections of
Rule 4(a)(4) likewise refer to the kind of
motions that follow entry of a final decision.
Perhaps Rule 4(a)(4) could be read (rewritten?)
so that "judgment" comes to mean "any order from
which an appeal lies," but this linguistic
exercise is unnecessary. Rule 4(a)(4) just
restates an accepted rule of practice: federal
courts long have held that a motion for
reconsideration tolls the time for appeal,
provided that the motion is made within the time
for appeal. United States v. Dieter, 429 U.S. 6
(1976); United States v. Healy, 376 U.S. 75
(1964); In re X-Cel, Inc., 823 F.2d 192 (7th Cir.
1987). The practice is independent of Rule
4(a)(4), or any other rule.
Healy, for example, holds that a motion by a
criminal prosecutor asking the district court to
reconsider an order dismissing the indictment
suspends the time for appeal, even though Fed. R.
App. P. 4(b)(3), the parallel to Rule 4(a)(4) for
criminal cases, gives this effect only to motions
by the "defendant." In re X-Cel similarly holds
that post-decision motions in bankruptcy cases
defer the time for appeal from the bankruptcy
judge to the district judge. Dieter concluded
that "the wisdom of giving district courts the
opportunity promptly to correct their own alleged
errors" (429 U.S. at 8) is all the justification
needed for this practice. District judges should
have no less opportunity to reconsider their
orders before appeals under Rule 23(f). Thus we
hold that a motion for reconsideration filed
within ten days of "an order of a district court
granting or denying class action certification"
defers the time for appeal until after the
district judge has disposed of the motion.
Moreover, because Rule 23(f) is part of the civil
rules, the ten-day period does not include
weekends or holidays. Fed. R. Civ. P. 6(a).
Equifax therefore had until March 11 to seek
reconsideration (it filed the motion on March 8),
and because the district court reaffirmed its
order on March 11 Equifax had until March 25 to
seek permission to appeal (it applied on March
22). Equifax took each step in time, so the
appeal is within our jurisdiction--if we choose
to accept it.
We do accept it. This situation fits our third
category of appropriate interlocutory appeals.
Equifax contends that it is entitled to be rid of
multiple overlapping class actions. Questions
concerning the relation among multiple suits may
evade review at the end of the case, for by then
the issue will be the relation among (potentially
inconsistent) judgments, and not the management
of pending litigation. That neither side can
point to any precedent in support of its position
implies that this is one of the issues that has
evaded appellate resolution, and the issue is
important enough to justify review now.
Because both sides favored us with their view
of the merits of the appeal, as well as the
question whether we should entertain it, we can
bring matters to a swift conclusion. That the
issue has evaded appellate resolution does not
imply that it is difficult. Far from it. Judge
Plunkett is plainly right--though not altogether
for the reason he gave. We do not see any reason
in principle why the disposition of the Crawford
litigation cannot be conclusive on the plaintiffs
in Blair. All members of the class certified in
Blair also are members of the class certified in
Crawford; a judgment binding on members of the
Crawford class therefore will bind all members of
the Blair class. See Tice v. American Airlines,
Inc., 162 F.3d 966 (7th Cir. 1998). If the
judgment binds them not to pursue class actions,
then the class in Blair must be decertified. But
it does not yet have this effect, and the
district judge was not required to jump the gun
just to avoid all possibility of inconsistent
outcomes.
Parallel cases often seek the same relief.
There’s nothing peculiar about class actions.
Sometimes the same plaintiff will file in two
courts; sometimes different plaintiffs will seek
equivalent relief in the same court. Our
situation has a little of each, since Blair,
Wilbon, and Crawford are not the same person, but
they are in the same class. No mechanical rule
governs the handling of overlapping cases. Judges
sometimes stay proceedings in the more recently
filed case to allow the first to proceed;
sometimes a stay permits the more comprehensive
of the actions to go forward. Cf. Colorado River
Water Conservation District v. United States, 424
U.S. 800 (1976). But the judge hearing the
second-filed case may conclude that it is a
superior vehicle and may press forward. When the
cases proceed in parallel, the first to reach
judgment controls the other, through claim
preclusion (res judicata). Davis v. Chicago, 53
F.3d 801 (7th Cir. 1995); Rogers v. Desiderio, 58
F.3d 299 (7th Cir. 1995). Crawford has yet to
produce a final and binding decision, however, so
Judge Plunkett was entitled to proceed with Blair
in the interim.
On occasion it will be so clear that the first-
filed suit is the superior vehicle that it would
be an abuse of discretion for the court in the
second-filed suit to press forward. This is not
such a case, however. Crawford is far from
decision on the merits; it has seen negotiation,
not combat. It is not clear that Crawford’s
settlement will beat Blair to finality even if
Blair is fully litigated. As we have recounted,
Blair and Wilbon have tried to intervene in
Crawford, and they have appealed from the order
denying that motion. We anticipate that they will
appeal again from any order giving final approval
to the Crawford settlement after the Rule 23(e)
hearing. The latter appeal will of course be
contingent on success in the intervention appeal,
because only parties may appeal from an order
settling a class action. See Felzen v. Andreas,
134 F.3d 873 (7th Cir. 1998), affirmed by an
equally divided Court under the name California
Public Employees’ Retirement System v. Felzen,
119 S. Ct. 720 (1999). But if Blair and Wilbon
persuade us that Magistrate Judge Schenkier erred
in excluding them from Crawford, or if some other
class member intervenes and appeals from approval
of the settlement, then this court will have to
address the propriety of that disposition.
Approval cannot be called a foregone conclusion.
Crawford was settled for a pittance, plus
attorneys’ fees. Some cases settle for tiny sums
because they have little chance of success; maybe
Crawford is such a case. (We have resisted all
temptation to peek at its merits.) But if the
class in Crawford has such a weak position, why
were the debtors’ rights to compensatory and
statutory damages preserved? If damages are at
issue, how can Rule 23(b)(2) be used to avoid
opt-outs and notice? If damages claims survive,
what’s wrong with pursuing them in a separate
class action? We have never heard of a class
action being settled on terms that amount to:
"For $7,500 plus attorneys fees, the class is
disestablished." When the individual claims are
small, class actions are most useful. Perhaps
Equifax found a plaintiff (or lawyer) willing to
sell out the class--a possibility that we
discussed most recently in Greisz v. Household
Bank, No. 98-3635 (7th Cir. May 7, 1999)--and
then tried to use Crawford as a way to thwart
parallel actions where the class had more
vigorous champions. Then again, perhaps the deal
in Crawford was the best the class could obtain.
We do not prejudge that issue. Enough questions
have been raised, however, to show that Judge
Plunkett was entitled to keep the Blair class in
place until final decision in Crawford.
When overlapping suits are filed in separate
courts, stays (or, rarely, transfers) are the
best means of coordination. But both Crawford and
Blair were filed in the Northern District of
Illinois. By far the best means of avoiding
wasteful overlap when related suits are pending
in the same court is to consolidate all before a
single judge. Rules of the Northern District
permit just such a process. At oral argument we
asked the parties why this had not been done.
Plaintiffs’ counsel replied that until shortly
before they attended the settlement conference in
Crawford they believed that the classes did not
overlap. Counsel say that they were shocked to
learn that Crawford is much the larger case and
that the Blair class is its subset. Lawyers
representing Equifax say that Blair’s lawyers
knew this all along or should have deduced it,
and Magistrate Judge Schenkier agreed. We can’t
tell who is right, but surely Equifax knew from
the get-go the relative sizes of, and relations
among, the different class actions pending
against it. Equifax could not plausibly explain
at oral argument why it had not asked the
district court to transfer all related actions to
a single judge for decision. It is still not too
late for the district court to accomplish this--
although Magistrate Judge Schenkier will drop out
of the picture if either case is transferred.
Unanimous consent of the parties is required for
a magistrate judge to enter final decision in a
civil case, see 28 U.S.C. sec.636(c), and it is
obvious that Blair and Wilbon won’t consent to
that procedure. But both Crawford and Blair
easily could be handled by the same district
judge-- whether Judge Plunkett, to whom Blair is
assigned, or Judge Andersen, to whom Crawford was
initially assigned, does not matter for this
purpose.
No matter what the district court does, we will
do our own part to consolidate and expedite
decision. Crawford is a related case for purposes
of our Operating Procedure 6(b), so that any
appeal in Crawford, and any further appeal in
Blair, will come to this panel. For today, it is
enough to hold that, until Crawford reaches final
judgment, Judge Plunkett does not abuse his
discretion by handling Blair as a class action.
Affirmed