Vollmer v. SeldenVollmer v. Selden
Rebecca Jackson (argued), Bryan Cave, St. Louis, MO, for Defendants-Appellees.
David Leichtman, Morgan, Lewis & Bockius, Paul A. Levy (argued), Public Citizen New York, NY, Litigation Group, Washington, DC, for Respondents-Appеllants.
Before CUDAHY, EASTERBROOK, and RIPPLE, Circuit Judges.
CUDAHY, Circuit Judge.
1 Frederick L. Hawk, represented by his counsel, Lynde Selden II and Richard H. Rosenthal, attempted to intervene in this class action. The district court denied the motion to intervene and sua sponte levied $50,000 in sanctions against Selden and Rosenthal under
2 As in most sequels, virtually nothing has changed since we last met the characters, precious little of the content is novel and we find ourselves asking “why are we back here?” Unlike most sequels, however, we do not lay the groundwork for a trilogy. For the reasons that follow, we vacate the district court‘s imposition of
BACKGROUND
3 We will assume familiarity with our prior opinion in this matter and will repeat оnly those facts necessary to understand the issues presented in this appeal. See Vollmer I, 248 F.3d at 701-05. On February 3, 1998, Thomas G. Vollmer filed this class action lawsuit against Publishers Clearing House (PCH), alleging violations of Illinois consumer protection laws. The complaint claimed that PCH fraudulently induced customers to purchase magazines by falsely suggesting in its advertising that customers could increase their chances of winning a sweepstakes by making purchases.
4 After a failed motion to dismiss, the parties entered into a stipulation of settlement, filed with the district court on June 23, 1999. The district court conditionally certified a class for settlement purposes and granted preliminary approval of the settlement. The settlement included remedial undertakings by PCH aimed at addressing the allegations raised in the complaint and also provided monetary relief in the form of refunds for class members who filed a claim during the claim period. Initially, the settlement containеd a $10 million cap on refunds.
5 Hawk, a farm equipment salesman from San Diego, California, was a past customer of PCH and had received a notice of settlement in early August 1999. Hawk testified that shortly thereafter, he contacted Selden, his lawyer and an appellant. Hawk knew Selden because Hawk‘s wife was an administrator in Selden‘s office. Selden, joined by Rosenthal, contacted class counsel requesting information and access to documents rеgarding the settlement, ostensibly to determine whether it would be in Hawk‘s best interest to opt out of the settlement class. These requests were denied by class counsel.
6 As a result, on September 13, 1999, Hawk filed a “Petition to Intervene for Limited Purposes of Viewing Document Depository,” claiming that intervention was appropriate under
7 On October 4, 1999, Hawk filed “Intervenor‘s Motion to Intervene” in which he sought to intervene for all purposes. At that point, the district court seemed inclined to believe that Hawk meant to intervene to represent others in the action.
8 AARP (formerly known as the American Association of Retired Persons), along with more than twenty attorneys general of various states and other individuals who had a separate class action currently pending against PCH, also sought to intervene. One month after Hawk sought to intervene, when it became clear that claims would exceed the $10 million cap, PCH agreed to pay all approved claims in full.
9 At a hearing held regarding the motions to intervene, Hawk testified that he believed $10 million was insufficient and would provide only pennies on the dollar. However, Hawk also testified that he did not know what his losses were or what he would claim; he enjoyed the magazines he ordered; he may have entered the sweepstakes as many as twelve times without purchasing a magazine; he was totally unaware of the injunctive relief portion of the settlement; and he did not know what his basis was for asking to represent other individuals in the lawsuit. Moreover, Hawk did not recall ever reading the “Motion to Intervene” filed on his behalf.
11 On appeal, in an opinion by Judge Ripple, we affirmed the district court‘s denial of the motion to intervene but reversed and remanded to address concerns about the sanctions. This court found, in relevant part, that it was improper for the district court to rely on evidence not in the record and the “extremely large” sanctions required a detailed explanation by the district court—not merely “cursory” reasoning. Id. at 710-11.
12 On remand, the district court issued a new order to show cause why sanctions should not be imposed. The appellants provided a written response and also spoke at a hearing on the imposition of such sanctions. In an order dated January 15, 2003, the district court re-imposed sanctions. While the new order omitted the previous language suggesting that the district court had considered facts not within the record, it nonetheless stated that it “conducted its own research into other class actiоn litigation involving Selden and Rosenthal.” App. at 559. Additionally, the district court reduced the sanctions to $35,000 but provided no additional explanation for the amount. Instead, the district court judge stated, “we‘ll see how that fares.” App. at 553. This appeal followed.
II
DISCUSSION
13
15 The district court found that Selden and Rosenthal‘s improper purpose was seeking to intervеne “solely to extort a fee for themselves.” App. at 599. Certainly, it is not improper to file a non-frivolous claim in the hope of getting paid. If it were, every motion for attorney‘s fees would result in sanctions. There are two ways, however, in which an intervenor might get paid. An intervenor might get paid by raising the value of a class action settlement and receiving a percentage of the increase in value or a fixed-payment for having improved the settlement; on the other hand, he might intervene and cause expensive delay in the hope of getting paid to go away. The former purpose for intervening would be entirely proper, while the latter would not.
16 While the parties to a class action start out in an adversarial posture, once they reach the settlement stage, incentives have shifted and there is the danger of collusion. See In re General Motors Corp., 55 F.3d 768, 778 (3d Cir.1995) (noting that class actions can become a vehiclе for collusive settlements); see also Deborah R. Hensler et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain, 27 (RAND Institute for Civil Justice, 2000) (same). Class counsel, for instance, might settle claims for significantly less than they are worth, not because they think it is in the class‘s best interest, but instead because they are satisfied with the fees they will take away. See Rand v. Monsanto Co., 926 F.2d 596, 599 (7th Cir.1991) (“[T]he representative and counsel may be tempted to sell out the class for benefits to themselves.“).
17 Intervenors counteract any inherent objectionable tendеncies by reintroducing an adversarial relationship into the settlement process and thereby improving the chances that a claim will be settled for its fair value. See, e.g., Crawford v. Equifax Payment Services, Inc., 201 F.3d 877, 882 (7th Cir.2000) (reversing an order approving settlement based on an intervenor‘s appeal); General Motors, 55 F.3d at 803 (“[W]here there is an absence of objectors, courts lack the independently-derived information about the merits to oppose proposed settlements.“). Intervenors have the potential to play this important role even in the numerous valid class actions where each plaintiff is seeking to be compensated only by a few dollars. Cf. Crabill v. Trans Union, L.L.C., 259 F.3d 662, 665 (7th Cir.2001) (“[T]he core function of [the class action] is to enable the litigation of claims too small to warrant the costs of prosecuting a separate suit for each claim.“); Rand, 926 F.2d at 599 (“Class actions assemble small claims—usually too small to be worth litigating separately, but repaying the effort in the aggregate.“). The slightnеss of individual recovery does not make the counsel‘s purpose invalid nor his role as objector less vital. Thus, it would have been proper for Selden and Rosenthal to file a non-frivolous objection with the purposes of increasing the value of the settlement and thereby deriving a fee.
19 Therefore, we must determine whether there is sufficient evidence in the record to show that Selden and Rosenthal intervened for the purpose of getting paid to go away. We find that there is not. The district court relied on (a) Hawk‘s testimony, which it found demonstrated a lack of familiarity with basic components of the settlement, as well as (b) the fact that Selden and Rosenthal have sought to intervene in a number of nationwide class actions. See App. at 559.
A. Hawk‘s Testimony
20 Let us assume for the moment that Hawk knew nothing at all about the settlement in which he was intervening and in fact thought he was appearing in court on October 4, 1999 to contest a traffic ticket. What would that teach us about Selden and Rоsenthal‘s purpose for seeking intervention? Certainly, we could infer that whatever Selden and Rosenthal‘s purpose was in seeking intervention, it was their own and was not attributable to Hawk. However, it would be improper to infer from this evidence alone that Selden and Rosenthal‘s purpose was extortion. Selden and Rosenthal may have been legitimately concerned that the settlement was inadequate and initiated the intervention for that reason. Evеn if they were not, they may have been motivated to improve the settlement for the class and to thereby recover a fee, which, as discussed supra, is not improper if the objection is non-frivolous.
21 Although it involves an award of attorney‘s fees rather than
In the first set, the [district] court recited those facts which supported dismissal of both Jack‘s and Shirley‘s derivative actions: Jack did not own stock in the corporation at the time the derivative suit was filed and Shirley had not read the complaint, had no personal knowledge of the facts surrounding the allegations made in the complaint, and “displayed an obvious unwillingness to learn about the suit by not acquiring more than a rudimentary understanding of the case.” (citation omitted) The second set of findings relates to appellants’ motive for bringing the suit: the Rothenbergs brought the derivative actions as “leverage” to enhance their personal claims.
22 Id. (emphasis added). The Eleventh Circuit vacated the district court‘s award, holding that in determining the propriety of the bad faith fee award, the inquiry should focus primarily on the conduct and mоtive of a party (the second set of findings) rather than on what it called the “validity of the case” (the first set of findings). Id. (citations omitted). The Eleventh Circuit, found, in essence, that Shirley‘s complete lack of familiarity with the details of the suit was of minimal relevance in determining whether she brought the suit for an improper purpose.
B. History of Intervening
24 The district court‘s only other given explanation for its holding that Selden and Rosenthal intervened “solely to extort a fee for themselves” was its finding that “[t]hese attorneys have seemingly made intervening in nationwide class actions a routine practice.” App. at 599. The district court apparently based this finding on four cases, which it cited in its order. See In re Synthroid Marketing Litig., 201 F.Supp.2d 861 (N.D.Ill.2002); French v. Selden, 59 F.Supp.2d 1152 (D.Kan.1999); In re The Prudential Ins. Co. of Am. Sales Practices Litig., 962 F.Supp. 450 (D.N.J. 1997); White, III v. General Motors Corp., 718 So.2d 480 (La.Ct.App.1998).
25 Even assuming that Selden and Rosenthal have routinely engaged in a practice of intervening, this finding teaches us little about the propriety of their motives for intervening in this case. Eaсh of these past interventions may have been made out of concern for the class members or at least with the intention of increasing the value of the settlement. In fact, with the exception of the case at bar, none of Selden and Rosenthal‘s interventions have ever been found to be frivolous or motivated by an improper purpose.
26 In a recent case, this court reviewed a district court‘s sua sponte award of $1,000 in
27 Although the district court cited no other evidence supporting its finding of an improper motive, we have considered the record in its entirety and see no other basis upon which to support the proposition that either Selden or Rosenthal sought to intervene in order to get paid to go away or for other improper purposes. At oral argument, class counsel suggested that the improper purpose could be inferred from the fact that Selden and Rosenthal ultimately declined to intervene. We find this fact to be of little relevance as well. By the time Selden and Rosenthal declined to intervene, there were numerous good reasons for them to do so, including the amount of time and effort they had already expended, and the fact that other capable objectors had emerged. In sum, we find no evidence in the record supporting the finding that Selden and Rosenthal intervened solely to extort a fee, and the imposition of sanctions was therefore an abuse of discretion.
29 Finally, we reiterate that even if we had found sanctions to be appropriate in this case, absent extraordinary circumstances not shown here, sua sponte sanctions are generally limited to several thousand dollars. See, e.g., In re Bagdade, 334 F.3d 568, 571-72 (7th Cir.2003) (imposing a $1,000 sua sponte sanction); Powers v. Duckworth, No. 90-2492, 1995 WL 496751, at *3 (7th Cir.1995) (upholding $500 sua sponte sanctions); Burda v. M. Ecker Co., 2 F.3d 769, 776 (7th Cir.1993) (reducing sua sponte sanction from $2,500 to $1,000). Given the resources already devoted to this issue and the potential additional costs of litigating it further, we would decline to remand. See Kotsilieris, 966 F.2d at 1188 n. 2 (declining to remand sanctions in a case where the court found it would not be worth the expenditure of further resources).
CONCLUSION
30 For the foregoing reasons, we VACATE the imposition of
31 RIPPLE, Circuit Judge, concurring in the judgment.
32 In my view, the district court could have sustained
33 Having afforded the district court a second opportunity to ground the award of sanctions on a specific and appropriate basis, I do not think that we need to give it a third chance. See Kotsilieris v. Chalmers, 966 F.2d 1181, 1188 n. 2 (7th Cir.1992). Accordingly, I join the judgment of the court.