DRASC, Inc. v. Navistar, Inc. ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-1821
IN THE MATTER OF:
NAVISTAR MAXXFORCE ENGINES MARKETING, SALES
PRACTICES, AND PRODUCTS LIABILITY LITIGATION
APPEAL OF:
DRASC, INC., and S&C TRUCKS OF WINKLEPLECK, LTD.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:14-cv-10318 — Joan B. Gottschall, Judge.
____________________
ARGUED NOVEMBER 2, 2020 — DECIDED MARCH 11, 2021
____________________
Before SYKES, Chief Judge, and EASTERBROOK and WOOD,
Circuit Judges.
EASTERBROOK, Circuit Judge. A class of owners accused
Navistar of selling trucks with defective engines. The suit
was seZled for $135 million, and in June 2019 the district
court gave its preliminary approval. Before the approval
could become final, the court had to notify class members of
their right to opt out, and it needed to consider any substan-
2 No. 20-1821
tive objections by class members who elected to be bound by
the seZlement. Fed. R. Civ. P. 23(e). On August 9, 2019, a
court-approved notice was sent by first-class mail to all class
members describing the claims, the scope of the suit, the
terms of the seZlement, and the option to litigate inde-
pendently. Paragraph 29 of the district court’s order reads:
Class Members who wish to exclude themselves from (i.e., opt
out of) the SeZlement must sent [sic] an [sic] request to opt-out
that: (1) includes the Class Member’s full name, address, and tel-
ephone number; (2) identifies the model, model year, and VIN of
the Class Member’s Class Vehicle(s); (3) explicitly and unambig-
uously state his, her, or its desire to be excluded from the SeZle-
ment Class in In re Navistar MaxxForce Engines Marketing, Sales
Practices and Products Liability Litigation; and (4) be individually
and personally signed by the Class Member. If the Class Member
is an entity and not an individual, the opt-out must be signed by
an officer or director of the entity and include an affidavit that
aZests to that person’s ability to act on behalf of that entity. All
Opt Outs must be submiZed no later than sixty (60) calendar
days after the Notice Date, a total of one hundred and twenty
(120) calendar days from the date of this Order. Class Members
who submit a timely Opt Out will be excluded from the SeZle-
ment, will not receive any benefit, and will not release any
claims. All Class Members who do not Opt Out in accordance
with the terms of this Order, the SeZlement, and the instructions
set forth in the SeZlement and this Order, shall be bound by all
determinations and judgments concerning the SeZlement.
The parallel provision in the instructions sent to class mem-
bers was simpler: “You can file a claim by May 11, 2020, ex-
clude yourself by October 10, 2019, or object to the SeZle-
ment by October 10, 2019.” The instructions included a link
to a website with the full opt-out details and a phone num-
ber to call for people who wanted to get the details orally.
No. 20-1821 3
The court held a fairness hearing on November 13 and
rejected some class members’ objections to the seZlement.
On January 21, 2020, it entered a final judgment implement-
ing the seZlement. That ended the litigation.
Or not. Two members of the class (collectively Drasc) had
sued Navistar in Ohio concerning the engines of Navistar’s
trucks. The federal court declined to enjoin parallel suits in
state court, see Adkins v. Nestlé Purina PetCare Co., 779 F.3d
481 (7th Cir. 2015), so the Ohio case proceeded while the
federal action was pending. After the district court approved
the seZlement, however, Navistar’s lawyers notified Drasc’s
counsel that its suit is barred by the release in the seZlement
and final judgment. Drasc concedes that this is so but main-
tains that it should not be bound. It argues, first, that it never
received notice of the seZlement and need to opt out and,
second, that its effort to continue litigating in Ohio should be
deemed a “reasonable indication” of a desire to opt out.
The district court permiZed Drasc to intervene in order to
present its belated argument for exclusion from the class. Af-
ter receiving evidence, the court made several findings:
• Two first-class letters had been sent to Drasc at its
business addresses.
• Drasc concedes that the envelopes were addressed
properly but says that its files do not contain the let-
ters—and its president says that he does not re-
member receiving them—but mailing is evidence of
receipt, see Hagner v. United States, 285 U.S. 427, 430
(1932), and a disclaimer of memory does not refute
receipt.
4 No. 20-1821
• Drasc had been given an opportunity to provide an
email address to Navistar for notice and had chosen
not to do so. (Class members who provided email
addresses received notice that way in addition to
postal mail.)
• Drasc’s lawyers in the Ohio suit had actual notice of
the settlement. They had sent a letter to Navistar’s
counsel the day after the preliminary hearing on the
settlement (May 30, 2019), showing awareness of the
pending class action. And a settlement demand that
Drasc’s lawyers sent to Navistar on July 26, 2019,
discusses the difference between what Drasc want-
ed in the Ohio case and what it expected to receive
from the class-action settlement.
• Drasc’s lawyers must have known about the need to
opt out. No modern lawyer is unaware of the pro-
cedures for managing class actions. Nonetheless,
Drasc’s lawyers did not do anything to protect its
interest in opting out.
• Because Drasc had actual knowledge (through the
letters and counsel) of the need to opt out, it could
not show excusable neglect that would justify an ex-
tension of the opt-out deadline.
None of these findings is clearly erroneous. Still, Drasc in-
sists that notice by first-class mail is insufficient under the
Due Process Clause of the Fifth Amendment.
That’s a hard line of argument to pursue, given Dusenbery
v. United States, 534 U.S. 161 (2002), which holds that mail (to
the correct address) satisfies the constitutional requirement
that notice be reasonably calculated to give actual
No. 20-1821 5
knowledge. If the Postal Service returns mail unclaimed,
some other form of notice may be necessary. See Jones v.
Flowers, 547 U.S. 220 (2006). But the district judge found that
neither of the leZers sent to Drasc was returned. And the
court’s unchallenged finding that Drasc’s lawyers in Ohio
had actual knowledge of the litigation and its seZlement
eliminates any opportunity for Drasc to argue that mail must
be certified rather than plain-vanilla first-class envelopes. A
lawyer’s knowledge is imputed to the client. Counsel also
could have checked the docket of the class action, which
they knew was pending, and would have found the opt-out
notice. Its language is clear enough to tell even a layperson
that someone who does not opt out will be “bound” by the
seZlement, which releases all claims against Navistar arising
from engines subject to the federal litigation.
A district judge has discretion to permit an untimely opt
out when the delay is excusable. See Burns v. Elrod, 757 F.2d
151, 155 (7th Cir. 1985) (citing Zients v. LaMorte, 459 F.2d 628(2d Cir. 1972)). The district judge did not abuse her discre-
tion in finding Drasc’s delay inexcusable. Counsel’s actual
knowledge of the seZlement is conclusive. The district judge
suspected that Drasc was trying to achieve the benefits of
one-way intervention: to take the greater of the class-action
seZlement or the result in Ohio. That used to be permissible
but has not been allowed since the 1966 amendments to Rule
23. See Premier Electrical Construction Co. v. National Electrical
Contractors Ass’n, Inc., 814 F.2d 358, 362–63 (7th Cir. 1987).
Class members must make an irrevocable choice: take their
share of whatever the class receives, or take the outcome of a
separate suit. To allow both is to provide a litigant with
more than the suit’s actuarial value. (To see this, suppose
that a class member’s claim has a 50% chance of success and
6 No. 20-1821
will produce damages of $10,000. An actuarially fair seZle-
ment through the class, or stand-alone litigation, would be
worth $5,000. But if the litigant can go for broke in a separate
suit, geZing either $0 or $10,000, and fall back on the class
seZlement if it loses, the combined value of those two op-
tions is $7,500.)
Nonetheless, Drasc insists, its continued litigation in
Ohio should have been deemed enough to show that it
wanted to opt out. It asks us to adopt a rule under which any
“reasonable indication” of a desire to exclude oneself from
the class should suffice. This is a possibility that we have
mentioned before but not adopted. See Sanders v. John
Nuveen & Co., Inc., 524 F.2d 1064, 1075 (7th Cir. 1975). We do
not adopt it today, either.
If all a class member had to go on were the language of
Rule 23(c)(2)(B)(v), which provides “that the court will ex-
clude from the class any member who requests exclusion”, a
judge should be flexible about how the “request” is made.
The Rule’s lack of specificity was the genesis of the “reason-
able indication” approach, which stems from an observation
that a treatise made almost 50 years ago, long before district
courts began to enter precise orders such as ¶29.
Wright & Miller stated in 1972 that “considerable flexibil-
ity is desirable in determining what constitutes an effective
expression of a class member’s desire to exclude himself and
any wriZen evidence of it should suffice.” Charles Alan
Wright & Arthur R. Miller, 7A Federal Practice & Procedure
§1787 (1972) (now 7AA Federal Practice & Procedure Civil
§1787 (3d ed.)). The “reasonable indication” language comes
from the Tenth Circuit’s adoption of Wright & Miller’s
standard. In re Four Seasons Securities Laws Litigation, 493 F.2d
No. 20-1821 7
1288, 1291 (10th Cir. 1974) (“A reasonable indication of a de-
sire to opt out ought to be sufficient.”). The Tenth Circuit
held that a district court did not abuse its discretion by find-
ing that a class member effectively opted out in a leZer to the
Trustee for Four Seasons, rather than to the clerk of court as
the notice had directed. The Tenth Circuit quoted and relied
on Wright & Miller: “As the authors of the treatise cited
above indicate, flexibility is desirable in determining what
constitutes an expression of a class member’s desire to ex-
clude himself and any wriZen evidence of it ought to be
sufficient.” Ibid. The Tenth Circuit did not hold that a district
judge must accept an opt-out leZer sent to the wrong person,
only that it could do so.
The Second Circuit picked up the “reasonable indication”
language in Plummer v. Chemical Bank, 668 F.2d 654 (2d Cir.
1982). See also McReynolds v. Richards-Cantave, 588 F.3d 790,
800 (2d Cir. 2009). Plummer observed that “we find nothing
in Rule 23 which requires them to file wriZen reasons for
their exercise of choice. Any reasonable indication of a desire
to opt out should suffice.” 668 F.2d at 657 n.2. And that ob-
servation about Rule 23 is beyond question. Neither Plummer
nor McReynolds asks whether a district court can issue a
more precise direction and insist that it be followed.
That is the end of the trail. No other circuit has adopted
“reasonable indication” as a legal standard, and at least one
circuit—see In re Deepwater Horizon, 819 F.3d 190, 196–98 (5th
Cir. 2016)—has joined Sanders in reserving judgment.
We agree with the Tenth and Second Circuits that, when
a district court has not issued instructions about how to opt
out, the judge is free to accept as adequate any “reasonable
indication” of such a desire. Our problem is different: Must a
8 No. 20-1821
judge who has specified in excruciating detail how opting
out is to be accomplished accept some different means? To
that question the answer must be no.
One reason is that any approach that avoids the need for
a clear choice preserves the option of one-way intervention.
Suppose that Drasc had gone to trial in Ohio, lost, and then
claimed a share of the class-action seZlement, asserting that
its lack of a formal opt-out notice means that it is entitled to
that benefit. The possibility of having things both ways is
foreclosed when courts stick to the rules they have estab-
lished.
Another is that the “reasonable indication” approach
could make class actions difficult if not impossible to admin-
ister. Classes may have thousands, even millions, of mem-
bers. A clear rule established in something like ¶29 can be
implemented mechanically by a claims administrator. A
“reasonable indication” approach, by contrast, could pose
dozens or hundreds of difficult questions for a judge. In re-
sponse to Drasc’s motion the district court took evidence,
made findings, and wrote a 14-page opinion. Imagine that
exercise a dozen or a hundred times over, each with slightly
different facts asserted to show a “reasonable indication”
that someone wanted to do something.
Courts have long resisted that sort of complication. To
begin a lawsuit, someone must file a particular document
(the complaint) in a particular place (the clerk’s office) by a
particular date (the statute of limitations). A “reasonable in-
dication” of a desire to sue won’t suffice. To appeal an ad-
verse decision, the litigant must file a particular document (a
notice of appeal) in a particular place (the clerk’s office) by a
particular time (Fed. R. App. P. 4). A “reasonable indication”
No. 20-1821 9
of a desire to appeal won’t do. There may be questions about
whether a document is a notice of appeal: the answer is yes,
regardless of its caption, if it is filed in court and contains the
information required by Fed. R. App. P. 3. See Smith v. Barry,
502 U.S. 244 (1992). But no judge would treat a leZer from a
litigant to his lawyer, or litigation in state court, as a notice
of appeal in federal court. Similar examples abound.
Think about the problem of interpreting the actions by
Drasc and its lawyers in the Ohio litigation. They served dis-
covery requests and made seZlement proposals that, they
say, Navistar’s lawyers should have understood as a desire
to litigate independently. But Navistar insists that it saw
these things only as the natural consequence of the district
court’s decision not to enjoin pending state suits, which then
had to be pursued or be dismissed for want of prosecution.
Navistar also could have seen the activity in Ohio as evinc-
ing Drasc’s hope to get the higher of two possible remedies:
its share of the class-action seZlement or whatever it could
persuade a jury to award in Ohio. Meanwhile none of the
information from Ohio came to the aZention of the claims
administrator in the class action, which would have treated
Drasc as a class member and cut a check unless something
stopped that process. How is the judge supervising the fed-
eral proceedings supposed to interpret these events? There is
no right way to do so, which implies that the judge is enti-
tled to insist that class members follow the instructions they
have been given and opt out (or not) in the formal way the
district judge told them to use.
Following mechanical rules is the only sure way to han-
dle suits with thousands of class members. This also helps
the judge to know whether to approve the seZlement as a
10 No. 20-1821
substantive maZer. Without knowing who remains in, the
judge could not decide whether $135 million is appropriate
or perhaps should be reduced by opt-outs’ claims, or treated
as inadequate because class members had voted with their
feet to disapprove the resolution. The district judge, having
approved a detailed process in ¶29, was entitled to require
the class members to do what they had been told or bear the
consequences of inaction. This means that Drasc did not opt
out, and its effort to litigate separately in Ohio is barred by
the release in the seZlement.
AFFIRMED