Class Actions — Rule 23(f) — If Damages Are So Huge That Defendants May Be Forced to Settle, Careful Consideration Given to Request to Appeal — Unethical for Plaintiff’s Counsel to Send Class Notice to Defendant to Enlist It as a Class Member

 

Chapman v. Wagener Equities, Inc., 2014 U.S. App. LEXIS 5962 (7th Cir. Mar. 31, 2014):

The defendants in this class action suit under the Telephone Consumer Protection Act, 47 U.S.C. § 227, seek our leave to appeal from the district court's order certifying the class. Fed. R. Civ. P. 23(f). The defendants are a business that manages commercial real estate properties for the properties' owners, and the owner of the business. The suit charges the defendants with having paid a "fax blaster" called Business to Business Solutions to send unsolicited fax advertisements, in violation of the Act's "junk fax" prohibition, 47 U.S.C. § 227(b)(1)(C), to 10,145 persons. They are the members of the class. Class counsel  [*2] is seeking statutory damages, as they would surely eclipse any actual damages if the entire class is determined to have been victimized by the defendants' fax campaign. For then the aggregate statutory damages will be either a little more than $5 million or, if the violation is determined to be willful or knowing, as much as three times greater. § 227(b)(3).

If the expected damages are so great in relation to the defendants' assets that if the class certification order stands, the defendants may well be forced--even if they have a strong case on the merits--to settle, in order to avoid the risk of a catastrophic judgment, we would give careful consideration to the request for leave to appeal the order. Kohen v. Pacific Investment Management Co., 571 F.3d 672, 677-78 (7th Cir. 2009); Blair v. Equifax Check Services, Inc., 181 F.3d 832, 834-35 (7th Cir. 1999). But the defendants haven't told us what their assets are--just that the corporate defendant is "a small family owned business." It is no doubt small in relation to such family-owned businesses as Koch Industries and Walmart, but maybe not so small that a contingent liability of $15 million would force it to settle; it hasn't settled  [*3] yet, and this suit will be celebrating its fifth birthday later this year.

Even if the defendants could prove that they'll be forced to settle unless we reverse the class certification order, they would have to demonstrate a significant probability that the order was erroneous. "However dramatic the effect of the grant or denial of class status in ... inducing the defendant to capitulate, if the ruling is impervious to revision there's no point to an interlocutory appeal." Id. at 835.

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The defendants argue that class counsel should be disqualified from representing the plaintiffs and the class for having acted unethically by sending the defendants a class-action notice. See Creative Montessori Learning Centers v. Ashford Gear, LLC, 662 F.3d 913, 916-18 (7th Cir. 2011). This would have been unethical conduct if the purpose of the notice had been to enlist the defendants in a class action suit as members of the plaintiff class. For that would put them on both sides of the case--thus suing themselves! But actually the notice was of another junk-fax suit, not this one, so there was no ethical violation--and for the further reason that a court order required the sending of that notice to all possible  [*9] class members, which happened to include the defendants in the present case.

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