7th Circuit Enjoins Relitigation of Denial of Class Certification
Judge Posner recently issued a whopper of a decision holding that a district court abused its discretion in not enjoining the relitigation of the denial of class certification in other courts throughout the country. See Thorogood v. Sears, Roebuck & Co., No. 10-2407, Slip op. (7th Cir. Nov. 2, 2010).
The procedural history of the case is somewhat tortured. Steven Thorogood and his lawyer, Clinton Krislov, sued Sears in state court. The case was removed to the Northern District of Illinois and was a putative class action, alleging that the defendant had committed consumer fraud by marketing a clothes dryer as having a stainless steel drum when, in fact, there was a part of the drum that was ceramic-coated mild steel. Thorogood's case was a "diminished value" case; it did not allege that the class experienced any rust getting on their clothes or other damage to person or property. Rather, the dryer purportedly wasn't worth as much as what the purchasers allegedly thought they were purchasing. The trial court had certified the class, but the Seventh Circuit then reversed, holding that "[i]t was well-nigh inconceivable that the other members of the class had the same understanding of Sears's advertising as Thorogood claimed to have." Id. at 5. As such, the court held that the issues of fraud and damages presented individual questions of fact, making the class fail the predominance requirement. The Thorogood case then went down to the district court and back up to the Seventh Circuit on another issue before it was dismissed for good.
The same lawyer, Mr. Krislov, filed a copycat case in California on behalf of a new plaintiff, Martin Murray. This suit was a putative class action brought on behalf of California residents. The trial court initially had held the suit was barred by collateral estoppel, but it allowed Murray to amend his complaint. After amendment, the court held that the case was different enough from the Illinois action that it could proceed to discovery.
Sears had moved in the Northern District of Illinois for an injunction preventing Mr. Krislov and any putative member of the Thorogood class from relitigating the issue of class certification in another court. The District Court refused, reasoning that Sears could use the collateral estoppel defense in any suit brought by members of the failed Thorogood class.
The Seventh Circuit reversed. It found jurisdiction in the All Writs Act, which authorizes a federal court to issue all writs necessary in aid of its jurisdiction. Id. at 3.
Judge Posner clearly thought very little of the underlying class action. He called Thorogood's claim a "confabulation" (id. at 6), and said "[t]he merit of Murray's case, like Thorogood's, of which it is a close copy, is slight." Moreover, he labelled lawyer Krislov's tactics of filing a new California class action and then pressing expansive discovery "something close to settlement extortion." Id. at 12.
Judge Posner's opinion does a fine job of setting out the irreparable harm to the defendant, explaining the overwhelming pressure to settle that is generated by the multiple filings of even patently bogus class action, given the costs of discovery and the all-or-nothing nature of a class action trial. See id. at 12-14. He even cites fellow blogger Andrew Trask's new book when acknowledging that one rarely-admitted purpose of discovery is to make the opponent spend money. Id. at 15. He concluded that "Sears's action under the All Writs Act is its only means . . . of avoiding being drowned in the discovery bog." Id. at 18.
The court concludes that absent class members are bound by collateral estoppel on the denial of class certification, which was based on there being too many individual issues such that predominance could not be satisfied. Id. at 20. Sears thus was entitled to an injunction against lawyer Krislov and the members of Thorogood's putative class from bringing class actions on the same claims. Id. at 22-23. The injunction could not, however, prevent individual suits. Moreover, the court directed:
The injunction should state that no unnamed class member can be punished for contempt until and unless a copy of the injunction is served on him; should cover all class action suits challenging representations, in Sears' existing advertising, labeling and other marketing that hte stainless steel drums in Kenmore dryers are made of stainless steel; and should not forbid class action suits challenging representations materially different from those in Thorogood's and Murray's cases, or representation concerning a dryer that contains a different amount of stainless steel.
Id. at 23.
This decision clearly implicates issues that are before the U.S. Supreme Court in Smith v. Bayer Corp. But this is a strong articulation of why injunctive relief should be available to prevent abuse of the class action tool to coerce a defendant to settle claims where it already has won the issue of class certification.
