LYNNE A. CARNEGIE, оn behalf of herself and all others similarly situated v. HOUSEHOLD INTERNATIONAL, INC., et al.
Nos. 04-8008, 04-8009
United States Court of Appeals For the Seventh Circuit
SUBMITTED MAY 15, 2004—DECIDED JULY 16, 2004
Petitions for Permission to Appeal an Order Granting Class Certification. No. 98 C 2178—Elaine E. Bucklo, Judge.
POSNER, Circuit Judge. We have consolidated for decision petitions, by two groups of defendants in a consumer-finance class action litigation, for leave to appeal an order by the district court certifying a plaintiff class.
The litigation arose out of refund anticipation loans made jointly by the defendants, who for simplicity we‘ll refer to as “the bank” and “the tax preparer.” When the tax preрarer files a refund claim with the Internal Revenue Service on behalf of one of its customers, the customer can expect to receive the refund within a few weeks unless the IRS decides to investigate the return. Even a few weeks is too long for the most necessitous taxpayers, and so the bank will lend the customer the amount of the refund for the period between the filing of the clаim and the receipt of the
Beginning in 1990 a number of class-action suits were brought against the defendants on behalf of a total of 17 million refund-anticipation borrowers, charging violations of various state and federal laws, including RICO. The basic claim is that the defendants lead the borrowers to believe that the tax preparer is their fiduciary, much as if they had hired a lawyer or an acсountant to prepare their income tax returns, as affluent people do, whereas, unbeknownst to them, the tax preparer is engaged in self-dealing. This conduct is alleged to constitute a scheme to defraud in violation of the federal mail- and wire-fraud statutes. Violations of those statutes are “predicate offenses” that can form the basis of a RICO charge.
In 1999 the named plaintiff in one of the suits entered into a settlement agreement with the bank and the tax preparer. This was to be a “global” settlement: the members of all the classes would divide up a $25 million fund put up by the defendants in exchange for the release of all claims arising out of the RALs. The district judge approved the settlement and enjoined (with one exception) the other RAL class actions, Zawikowski v. Beneficial National Bank, No. 98 C 2178, 2000 WL 1051879 (N.D. Ill. July 28, 2000), but we reversed, Reynolds v. Beneficial National Bank, 288 F.3d 277 (7th Cir. 2002), on the ground that the district judge had failed to scrutinize the fairness of the settlement adequately. We were concerned that the settlement might have been the product of collusion between the defendants, eager to
The district judge to whom the case was reassigned on remand concluded that the settlеment had indeed been unfair and disapproved it. 260 F. Supp. 2d 680 (N.D. Ill. 2003). There was no appeal. The proceedings continued in the district court, with both the named plaintiff and the class counsel replaced. Although no class had formally been certified in the earlier proceedings, rather than require the new plaintiff to move for certification the judge asked the defendants for their objections to certification, and they responded. She agreed with some of the objections, rejected others, and, in effect, certified the same class that had been contemplated by the rejected settlement, which is to say all RAL borrowers (with a few exceptions) whose claims weren‘t barred by the statute of limitations. But she limited the certification to prosecution of just the RICO claim, plus one breach of contract claim involving the law of only one state.
The defendants object mainly to the procedure the judge employed and to the brevity with which she pronounced the class manageable despite its vast size. In the previous round of this protracted litigation the defendants had urged the district court to accept the giant class as aрpropriate for a global settlement, had prevailed in their urging, and so are now precluded by the doctrine of judicial estoppel, see, e.g., New Hampshire v. Maine, 532 U.S. 742 (2001), from challenging its adequacy, at least as a settlement class (the significance of this qualification will appear in due course). It is true that we reversed the district court‘s approval of the settlement, but a reversal neеd not affect the application of judicial estoppel. In re Cassidy, 892 F.2d 637, 641 (7th Cir. 1990); Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 398-99 (5th Cir. 2003); U.S. Philips Corp. v. Sears Roebuck & Co., 55 F.3d 592, 597 (Fed. Cir. 1995); cf. 18B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4477 (2d ed. 2002). The reason lies in the purpose of the doctrine. The canonical statement of that purpose is that it is “to protect the integrity of the judicial process.” E.g., New Hampshire v. Maine, supra, 532 U.S. at 749-50; United States v. Christian, 342 F.3d 744, 747 (7th Cir. 2003). But we have been a little more precise. We have said that “a party who prevails on one ground in a lawsuit cannot turn around and in anоther lawsuit repudiate the ground. If repudiation were permitted, the incentive to commit perjury and engage in other litigation fraud would be greater. A party envisaging a succession of suits in which a change in position would be advantageous would have an incentive to falsify the evidence in one of the cases, since it would be difficult otherwise to maintain inconsistent positions.” McNamara v. City of Chicago, 138 F.3d 1219, 1225 (7th Cir. 1998) (citаtions omitted). In other words, “the purpose of the doctrine . . . is to reduce fraud in the legal process by forcing a modicum of consistency on a repeating litigant.” Ladd v. ITT Corp., 148 F.3d 753, 756 (7th Cir. 1998); see also Bethesda Lutheran Homes & Services, Inc. v. Born, 238 F.3d 853, 858 (7th Cir. 2001).
The antifraud policy that animates the doctrine is fully engaged when a party obtains a judgment on a ground that it later repudiates, even if his opponent, the loser in that first case, is able, obviously at some expensе to itself but also placing a demand on judicial resources, to get the judgment reversed. Anyway the defendants benefited from the temporary approval of the settlement, which they used to enjoin other RAL litigation against them; and having reaped a benefit from their pertinacious defense of the class treatment of the case for purposes of settlement they cannоt now be permitted to seek a further benefit from reversing their position.
The defendants are correct, however, that a class might be suitable for settlement but not for litigation. The class might be unmanageable if the case were actually tried yet manageable as a settlement class because the settlement might eliminate all the thorny issues that the court would have to resolve if the parties fought out the case. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 620 (1997). But although the district judge might have said more about manageability, the defendants have said nothing against it except that there are millions of class members. That is no argument at all. The more claimants there are, the morе likely a class action is to yield substantial economies in litigation. It would hardly be an improvement to have in lieu of this single class action 17 million suits each seeking damages of $15 to $30. The rejected settlement capped damages at these amounts for single and multiple RALs respectively, and while the amounts may be too low they are indicative of the modest stakes of the individual class members. The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30. But a class action has to be unwieldy indeed before it can be pronounced an inferior alternative—no matter how massive the fraud or other wrongdoing that will go unpunished if class treatment is denied—to no litigation at all.
The defendants argue that by requiring them to present their objections to class certification rather than requiring the plaintiff to move for certificatiоn, the district judge improperly altered the burden of proof on the question whether the class should be certified. Not so. Although the plaintiff class had not formally been certified in the earlier proceedings, that was indeed a formal defect—a technical oversight that was surprising but from a practical standpoint inconsequential. The case had been settled as a class аction, notices had been sent, objections had been considered and rejected—all on the assumption that a class had been certified. This was de facto certification, albeit of a settlement class only, and that was enough, we think, to empower Judge Bucklo, in the exercise of her discretion to manage litigation before her in an efficient and expeditious manner, to require the defendants to list their objections to the certification of a litigation class, especially since she was explicit that the burden of persuasion on the validity of the objections would remain on the plaintiffs. They carried the burden easily. Remember that the defendants themselves had argued that the class was appropriate for settlement purposes. That did not cоnclude the question whether it was appropriate for litigation if the settlement fell through, as
The defendants argue that the named plaintiff has not been shown to be an adequate representative of the class, but the district judge thought otherwise on sufficient grounds. The defendants also argue that class certification is barred by collateral estoppel, and this argument requires a fuller discussion.
In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 333 F.3d 763 (7th Cir. 2003), holds that a judicial finding that a class should not be certified is, at least in some circumstances, entitled to collateral estoppel effect—and in Buford v. H&R Block, Inc., 168 F.R.D. 340 (S.D. Ga. 1996), aff‘d, 117 F.3d 1433 (11th Cir. 1997) (per curiam), a federal district judge refused to certify a nationwide class action charging, just as in this case, that our defendants’ practices with respect to RALs violated RICO. The judge recognized that the question whether RICO was violated was separate from the question whether the targets of the violation had been injured by the violation.
The judge in Buford thought, however, that the issue of violation would be swamped by issues concerning whether the borrowers had been deceived—had relied on the fraud, and thus had been injured, whether directly, as in American Chiropractic Ass‘n, Inc. v. Trigon Healthcare Inc., 367 F.3d 212, 233 (4th Cir. 2004); Bank of China v. NBM LLC, 359 F.3d 171, 178 (2d Cir. 2004); Byrne v. Nezhat, 261 F.3d 1075, 1109-10 (11th Cir. 2001), and Summit Properties Inc. v. Hoechst Celanese Corp., 214 F.3d 556 (5th Cir. 2000), or perhaps, as in Systems Management, Inc. v. Loiselle, 303 F.3d 100, 104 (1st Cir. 2002), indirectly. Those issues would have to be resolved separately for each class member. In deciding that therefore the case was inappropriate for class treatment, the judge was applying the presumption against class action certification in RICO cases that has been articulated by the Fifth Circuit in Sandwich Chef of Texas, Inc. v. Reliance Nat‘l Indemnity Ins. Co., 319 F.3d 205, 219 (5th Cir. 2003). We are dubious about such а presumption. The question whether RICO was violated can be separated from the question whether particular intended victims were injured, and thus can—or so a district court could determine without being thought to have abused its discretion—be resolved in a single proceeding with the issue of injury parceled out to satellite proceedings, as is frequently done in class action tort litigation, see, e.g., Exxon Co. v. Sofec, Inc., 54 F.3d 570, 575-76 (9th Cir. 1995); In re Bendectin Litigation, 857 F.2d 290, 308-13 (6th Cir. 1988), of which the RAL class litigation is a species.
The adequacy of the judge‘s reasoning in Buford is not important, however, if, as the defendants contend, his ruling
The defendants tell us that anything that makes it easier for a settlement class to molt into a litigation class will discourage the settlement of class actions. They say that defendants have settled class actions “in the past secure in the knowledge that if the settlement agreement should unravel, they would be restored to the pre-certification position and remain free to defend against any future effort to certify a class for litigation purposes.” But the defendants in this case were perfectly free to defend against certification; they just didn‘t put up a persuasive defense.
We are mindful that no district judge has as yet explicitly addressed whether the other criteria for class certification, besides adequacy of representation of the class, have been met in this case. Those criteria are whether “(1) the class is so numerous that joinder оf all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class.”
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of Appeals for the Seventh Circuit
USCA-02-C-0072—7-16-04