376 F.3d 656 (7th Cir. 2004), 04-8008, Carnegie v. Household Intern., Inc.

Docket Nº:04-8008, 04-8009.
Citation:376 F.3d 656
Party Name:Lynne A. CARNEGIE, on behalf of herself and all others similarly situated, Plaintiff-Appellee, v. HOUSEHOLD INTERNATIONAL, INC., et al., Defendants-Appellants.
Case Date:July 16, 2004
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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376 F.3d 656 (7th Cir. 2004)

Lynne A. CARNEGIE, on behalf of herself and all others similarly situated, Plaintiff-Appellee,


HOUSEHOLD INTERNATIONAL, INC., et al., Defendants-Appellants.

Nos. 04-8008, 04-8009.

United States Court of Appeals, Seventh Circuit

July 16, 2004

Submitted May 15, 2004.

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[Copyrighted Material Omitted]

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Scott R. Lassar (submitted), Sidley Austin Brown & Wood, Anton R. Valukas, Jenner & Block, Chicago, IL, for Petitioners.

Ronald L. Futterman, Futterman & Howard, Chicago, IL, for Respondent.

Before CUDAHY, POSNER, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

We have consolidated for decision petitions, filed 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. Fed.R.Civ.P. 23(f) authorizes us to entertain such interlocutory appeals. The rule does not state criteria for the exercise of this discretionary authority. But the case law teaches that the more novel the issue presented by the appeal and so the less likely that the district court's resolution of it will stand, the more important the resolution of the issue is either to the particular litigation or to the general development of class action law, and the more likely the prompt resolution of the issue is to expedite the litigation and prevent a coercive settlement, the stronger the case for allowing the appeal. E.g., In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1016 (7th Cir. 2002); Blair v. Equifax Check Services, Inc., 181 F.3d 832, 834-35 (7th Cir. 1999); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 164 (3d Cir. 2001); Prado-Steiman v. Bush, 221 F.3d 1266, 1278 (11th Cir. 2000); Waste Management Holdings, Inc. v. Mowbray, 208 F.3d 288, 294 (1st Cir. 2000). The issues that the petitions ask us to consider, in the setting of a class of millions, concern, first, the procedures and criteria for converting a settlement class into a litigation class when having initially been approved the settlement is later disapproved, and, second, the bearing of the doctrine of judicial estoppel on class action litigation. These are novel issues whose prompt resolution is important to the development of the law of class actions as well as to the resolution of the present case. The petitions to appeal are therefore granted. The merits of the appeals have been fully briefed and we can therefore proceed to decide them without requiring further briefing.

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 preparer files a refund claim with the Internal Revenue Service on behalf of

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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 claim and the receipt of the refund. The annual interest rate on such a "refund anticipation loan" (RAL) will often exceed 100 percent. Although the bank is the lender, the tax preparer arranges the loan. It is contended that the customer is told neither that the bank pays the tax preparer a fee for having generated the loan nor that the tax preparer receives an ownership interest in the loan.

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 accountant 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 minimize their liability, and the class lawyers, eager to maximize their fees.

The district judge to whom the case was reassigned on remand concluded that the settlement 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 appropriate for a global settlement, had prevailed in their urging, and so are now precluded by the doctrine of judicial estoppel, see, e.g.,

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New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808, 149 L.Ed.2d 968 (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 need 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, 121 S.Ct. 1808; 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 another 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) (citations 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 expense to itself but also placing a demand on...

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