CE Design Ltd. v. King Supply Co.
| Decision Date | 20 July 2012 |
| Docket Number | No. 09 C 2057,09 C 2057 |
| Parties | CE DESIGN LTD., PALDO SIGN AND DISPLAY CO., and ADDISON AUTOMATICS, INC., Illinois corporations, Individually and as the representatives of a Class of similarly situated persons, Plaintiffs, v. KING SUPPLY COMPANY, LLC d/b/a KING ARCHITECTURAL METALS, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER2
On January 6, 2012, Valley Forge Insurance Company ("Valley Forge"), National Fire Insurance Company of Hartford ("National Fire") and Continental Casualty Company ("Continental"), hereinafter the "Insurers," filed a motion to intervene in this case, pursuant to Federal Rule of Civil Procedure 24, and to stay further proceedings pending resolution of certain litigation pending in state court (doc. # 154). For the reasons set forth below, the Insurers' motion to intervene is denied.
On February 26, 2009, CE Design Ltd. ("CE Design") filed a class action suit in the Circuit Court of Cook County, Illinois, alleging, inter alia, that defendant, King Supply Company, LLCd/b/a King Architectural Metals ("King"), violated the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, et seq., by sending unsolicited faxes to plaintiffs on or about January 30 and February 8, 2009, and by transmitting the same or similar unsolicited faxes to many other persons. The original complaint also alleged a violation of the Illinois common law of conversion and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. King removed this suit to federal court on April 2, 2009 (doc. # 1).
Prior to suit, on March 20, 2008, Valley Forge issued a general, commercial liability policy to King, effective from March 20, 2008 to March 20, 2009 ("Valley Forge Policy"); on March 20, 2009, National Fire issued a similar policy to King, effective from March 20, 2009 to March 20, 2010 ("National Fire Policy"). In addition, Continental issued a commercial umbrella policy to King in effect for consecutive annual periods covering March 20, 2008 to March 20, 2010 ("Continental Policy"). Collectively, these three policies will be referred to as the "Policies." We will not delve into the details of the Policies, as those details are not material to the resolution of the pending motion.
The underlying lawsuit was filed approximately one month before the termination of the Valley Forge Policy. After King removed the case to federal court, it tendered this action to the Insurers for defense and indemnification. The Insurers denied coverage to King by correspondence dated April 30, 2009 . While the letter invited King to produce additional information and to advise the Insurers if an "amended complaint is filed or other conditions change," the letter stated without qualification that the Insurers' analysis denying coverage "is dispositive" (Id. at 20).
The case thereafter was actively litigated by plaintiffs and King. On August 10, 2009, the district court granted King's motion to dismiss the state law claims (doc. # 25). On December 13, 2010, the district court granted plaintiffs' initial motion for class certification (doc. ## 91-92). Pursuant to Federal Rule of Civil Procedure 23(f), King sought an interlocutory review of the class certification order. The Seventh Circuit accepted interlocutory review, and on March 25, 2011, issued a published opinion vacating the class certification decision and remanding the case for further proceedings consistent with its order. CE Design, Ltd. v. King Architectural Metals, Inc., 637 F.3d 721 (7th Cir. 2011).
In its decision, the Seventh Circuit did not question the district court's ruling that the case met the elements required for class certification under Rules 23(a)(l)-(2) and (b)(3) of Federal Rule of Civil Procedure 23. CE Design, 637 F.3d at 724. However, the appeals court expressed reservations as to whether CE Design's claim was typical of those of other potential class members and whether CE could serve as an adequate class representative. Id. at 724-727. The court of appeals left those questions open and, on remand, advised the district court to re-examine evidence in the record regarding the adequacy of CE Design to act as the class representative. Id. at 727-728. The Seventh Circuit further stated that even if CE Design was not an adequate class representative, that would not necessarily sound the death knell for class certification, because other class representatives might step forth and/or certification of subclasses might be appropriate. Id. at 728. We note that the Seventh Circuit opinion garnered significant national publicity within the legal community. See William B. Rubenstein, 1 Newberg on Class Action § 3:68 (5th ed. 2012); 7A Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, & Richard L. Marcus, Federal Practice and Procedure §§ 1764, 1766 (3d ed. 2012). See also Joshua H. Threadcraft, A Multi-million DollarCottage Industry Likely Coming To A Court Near You, 53 No. 9 DRI For Def. 72 (Sept. 2011); Joshua P. Davis & Eric L. Cramer, A Questionable New Standard for Class Certification in Antitrust Cases, 26 Antitrust 1, at 31 (Fall 2011); Maxwell M. Blecher & Joel R. Bennett, Preparation and Trial of Federal Class Actions, 21 Am. Jur. Trials 625, at § 7 (2012); Nick Vizy, Advertising Law Update, 292 Commercial Law Advisor NL2 (2012).
In light of the Seventh Circuit's comments, on March 25, 2011, the district court gave plaintiffs leave to add new plaintiffs to the case (doc. # 95). On April 25, 2011, the plaintiffs responded by filing a first amended complaint naming Paldo Sign and Display Company ("Paldo") and Addison Automatics, Inc. ("Addison") as two additional class representatives (doc. # 100). On March 25, 2011, the district court also referred the case to this Court for a settlement conference (doc. # 96). By an order dated Aprill6, 2011, the Court set a schedule for conducting a settlement conference (doc. # 98).
The first settlement conference was held with the Court on May 2, 2011 (doc. # 102). Due to the significant progress made by the parties toward settlement, the Court met with the parties five additional times over the course of the next two months: on May 12, 2011 (doc. # 104), June 14, 2011 (doc. # 107), June 23, 2011 (doc. # 108), June 30,2011 (doc. # 112), and July 12, 2011 (doc. # 114 (plaintiffs' counsel did not appear at this status hearing)). The orders of June 23 and June 30 reflected that the parties were working on finalizing a term sheet. The July 12 order stated that the parties had agreed to a term sheet and were preparing a written settlement agreement. On July 28, 2011, the parties executed joint consents to have this Court hear all proceedings and enter a finaljudgment in the case (doc. # 115), and on that date the case was reassigned to this Court for that purpose (doc. # 118).
On July 28, 2011, this Court set a date for a preliminary approval hearing of a class action settlement for August 17, 2011 (doc. #117). By subsequent orders dated August 17 (doc. # 120) and September 8, 2011 (doc. # 121), the preliminary approval hearing date was reset, ultimately to September 28, 2011. On September 27, 2011, plaintiffs filed a motion for approval of a class action settlement, which attached a copy of the settlement agreement (doc. # 129).
On September 28, 2011, the Court conducted a hearing and gave preliminary approval of the class action settlement agreement and authorized notice to be sent to the settlement class (doc. #130). The Court granted the motion with modifications and set the matter for a final approval hearing on January 13, 2012 (Id.). The Court's preliminary approval order was entered into the public record on September 30, 2011 (doc. # 132).3
In its preliminary approval order, the Court certified a settlement class defined as:
All persons who were sent any telephone facsimile message during the period January 1, 2009 to May 31, 2009 from King Architectural Metals but who did not directly request that King Architectural Metals send the specific facsimile they received.
. That settlement class includes approximately 143,000 persons to whom King sent 669,000 unsolicited advertisements by facsimile (Id. at 2).
The parties' settlement provided for the entry of a consent judgment against King in the total amount of $20 million . Under the TCP A, on a finding of liability, a plaintiff is entitled to recover $500.00 in statutory damages for each violationof 47 U.S.C. § 227(b)(3)(B), and up to $1,500.00 if the violation is willful (Id. at § 227(b)(3)). Based on the transmission of facsimiles to 143,000 persons, in this case King faced an excess of $71 million in potential damages even without regard to willfulness, and assuming that violations were counted by the number of persons receiving facsimiles and not the total number of 669,000 facsimiles that were sent.4 The $20 million settlement figure represented a substantial discount of that potential damages exposure.
Because King had demonstrated that its ability to pay any judgment was extremely limited, plaintiffs agreed to seek recovery of only $200,000.00 of the settlement amount from King (Settlement Agreement at 7, ¶ 7).5 In exchange for a covenant not to execute the remainder of the consent judgment against King ($19.8 million), King assigned its claims and rights against the Insurers under the Policies to the plaintiffs. Thus, plaintiffs shouldered the risk of collecting the remainder of the judgment only from the proceeds of King's Insurers, which plaintiffs knew would require them to "pursue an action and attempt to recover the Judgement against" the Insurers (Id. at 10, ¶ 10). Plaintiffs accepted that responsibility and that risk, fully knowing that the Insurers had "denied coverage and refused to...
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