Ce Design Ltd. v. King Architectural Metals Inc.

• Citation: 637 F.3d 721
• Decision Date: 18 March 2011
• Docket Number: No. 10–8050.,10–8050.
• Parties: CE DESIGN LIMITED, on its own behalf and that of a class, Plaintiff–Respondent–Appellee,v.KING ARCHITECTURAL METALS, INC., Defendant–Petitioner–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

637 F.3d 721

79 Fed.R.Serv.3d 244

CE DESIGN LIMITED, on its own behalf and that of a class, Plaintiff–Respondent–Appellee,

v.KING ARCHITECTURAL METALS, INC., Defendant–Petitioner–Appellant.

No. 10–8050.

United States Court of Appeals, Seventh Circuit.

Submitted Jan. 18, 2011.Decided March 18, 2011.

Anthony J. Anscombe, Attorney, Sedgwick, Detert, Moran & Arnold LLP, Chicago, IL, for Defendant–Petitioner–Appellant.James M. Smith, Attorney, Bock & Hatch, Chicago, IL, for Plaintiff–Respondent–Appellee.Before POSNER, MANION, and HAMILTON, Circuit Judges.POSNER, Circuit Judge.

We have decided to grant the defendant's petition to be allowed to appeal from the district judge's certification of a class, in this suit under the Telephone Consumer Protection Act (as amended by the Junk Fax Prevention Act of 2005), 47 U.S.C. § 227. See Fed.R.Civ.P. 23(f). The petition presents a sufficiently novel and important issue concerning class action practice to justify our allowing the appeal. And because the petition and the response are adequate substitutes for briefs and there is a voluminous record, compiled in the district court, to assist us in our consideration of the appeal, we shall not delay the litigation further by requesting additional briefing.

Review of a decision to certify a class is deferential, Ervin v. OS Restaurant Services, Inc., 632 F.3d 971, 976 (7th Cir.2011), but “deferential” doesn't mean “abject.” Parker v. Astrue, 597 F.3d 920, 921 (7th Cir.2010). A class “may only be certified if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.” General Telephone Co. v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982) (emphasis added); see also, e.g., In re Schering Plough Corp. ERISA Litigation, 589 F.3d 585, 595–96 (3d Cir.2009). Certification as a class action can coerce a defendant into settling on highly disadvantageous terms regardless of the merits of the suit. 1998 Advisory Committee Notes to Fed.R.Civ.P. 23(f) (“an order granting certification ... may force a defendant to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability”); Blair v. Equifax Check Services, Inc., 181 F.3d 832, 834 (7th Cir.1999) (“a grant of class status can put considerable pressure on the defendant to settle, even when the plaintiff's probability of success on the merits is slight”); Hartford Accident & Indemnity Co. v. Beaver, 466 F.3d 1289, 1294 (11th Cir.2006); In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124, 145 (2d Cir.2001). This is a useful reminder in the present case because, as we'll see, the Telephone Consumer Protection Act makes violators strictly liable for cumulatively very heavy statutory penalties.

The need for rigorous analysis of a motion to certify a class is for the protection not of defendants alone but of the class members as well, especially given our court's recent movement toward allowing a prospective class only one real chance for the class to be certified; for we have directed district courts that have denied certification to enjoin efforts in other jurisdictions to certify essentially the same classes. Thorogood v. Sears, Roebuck & Co., 624 F.3d 842, 850–52 (7th Cir.2010). Denial of certification may be as heavy a blow to the class as grant of certification is to the defendant.

So far as relates to this case, the Telephone Consumer Protection Act forbids “unsolicited” fax advertisements. 47 U.S.C. § 227(b)(2)(C). Such advertisements (“junk faxes,” as they are called) consume the recipient's paper and ink without his consent and are thus a source of irritation that has given rise to the statutory prohibition. Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 639 (4th Cir.2005); Missouri ex rel. Nixon v. American Blast Fax, Inc., 323 F.3d 649, 654–55 (8th Cir.2003); Destination Ventures, Ltd. v. FCC, 46 F.3d 54, 56 (9th Cir.1995). CE Design—a small civil engineering firm in the Chicago area that, unusually for a business firm, is an avid class-action plaintiff—has filed at least 150 class action suits under the Telephone Consumer Protection Act, according to its president, John J. Pezl. Every time CE receives what it considers an unsolicited fax advertisement, Pezl sends it to the class action firm with which he works (and which represents CE in other matters as well).

It seems odd that a business firm would want to bring junk-fax suits, and especially odd that a civil engineering firm would want to sue a manufacturer of metal building components (King Architectural Metals, the defendant) for advertising its building components to the firm. Civil engineers advise their customers on such products and thus are indirect customers of companies like King. And it's not as if King inundated CE with faxed ads; there were only two, each of only one page. But CE's business model combines selling civil engineering services with filing class action junk-fax suits, and it's not unlawful to be a professional class action plaintiff. Murray v. GMAC Mortgage Corp., 434 F.3d 948, 954 (7th Cir.2006). Indeed, an experienced plaintiff in such an action may be able to ensure that class counsel act as faithful agents of the class. Id. That is a common problem in class action litigation because often no member of the class has a significant financial stake—which may be the very reason that the suit is being brought as a class action.

What is a matter for concern is that Pezl, who has been deposed in (so far as he can recall) 20 of his company's suits, has engendered doubts about his truthfulness. CE Design v. Beaty Construction, Inc., No. 07 C 3340, 2009 WL 192481, at *6, *7 n. 3 (N.D.Ill. Jan. 26, 2009). He did so in the present suit. Although the district judge remarked that what she euphemistically called a “discrepancy” in Pezl's deposition was “immaterial” to the issue of certification, it was immaterial just to the view she took of it; Pezl couldn't have known what that view would be when he testified to having been unaware that by giving CE's fax number to the Blue Book (of which more shortly) he had expressly authorized the other subscribers, who include King, to “communicate” with CE by fax. The accuracy of that testimony is, as we shall see, an important issue in deciding whether he is a proper representative of the class; the district judge missed its importance.

During a period of about a month in 2009, King faxed some 500,000 ads; it was its first fax marketing campaign (and, we're guessing, its last). The certified class includes those recipients who had not given express permission to receive faxed advertisements, unless they had been King's customers or had an established business relationship with it. CE contends that the vast majority of the faxes do not fall within any exception created by the Act. If that is true, then because statutory damages are $500 per violation, 47 U.S.C. § 227(b)(3)(B)—and can be trebled if the court finds that the violation was willful or knowing, § 227(b)(3)(C)—King is facing a very large potential liability. (Some statutes, such as the Fair Debt Collection Practices Act and the Truth in Lending Act, cap damages, 15 U.S.C. §§ 1640(a)(2)(B), 1692k(a)(2)(B)(ii). The Telephone Consumer Protection Act does not.) That is relevant, as explained earlier, to the need for a rigorous analysis of whether to certify a class.

King makes a number of arguments against certification, but only those relating to the linked issues of the typicality of CE's claim (see Fed.R.Civ.P. 23(a)(3); Harper v. Sheriff of Cook County, 581 F.3d 511, 513 (7th Cir.2009); Muro v. Target Corp., 580 F.3d 485, 492 (7th Cir.2009)), and the adequacy of CE's representation of the class, have sufficient merit to warrant discussion.

A class is disserved if its representative's claim is not typical of the claims of the class members, for then if his claim fails, though claims of other class members may be valid, the suit will at the least be delayed by the scramble to find a new class representative. Alternatively, a class representative's atypical claim may prevail on grounds unavailable to the other class members, leaving them in the lurch.

In many cases, including this one, the requirement of typicality merges with the further requirement that the class representative “will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a)(4); see J.H. Cohn & Co. v. American Appraisal Associates, Inc., 628 F.2d 994, 999 (7th Cir.1980). In light of the statement in Wagner v. NutraSweet Co., 95 F.3d 527, 534 (7th Cir.1996), that “typicality under Rule 23(a)(3) should be determined with reference to the company's actions, not with respect to particularized defenses it might have against certain class members,” we'll focus our analysis on adequacy. CE cannot be an adequate representative of the class of unconsenting recipients of King Architectural Metals' faxes if it is subject to a defense that couldn't be sustained against other class members, as in Koos v. First National Bank of Peoria, 496 F.2d 1162, 1164–65 (7th Cir.1974), or if Pezl is not credible on the key question of whether CE invited or permitted the faxed advertisements about which it now complains. (If it did, its claim fails.) But it is important to distinguish between adequacy of representation and the merits of the suit. The merits are not before the appellate court when the court is reviewing the district court's certification of the class. Schleicher v. Wendt, 618 F.3d 679, 686–88 (7th Cir.2010); Murray v. GMAC Mortgage Corp., supra, 434 F.3d at 954. The only question we can consider is whether, however meritorious the suit itself may be, the claim of the class representative may be subject to a defense (that of consent to be faxed ads) that makes it an inappropriate representative of the class because other class members may not be subject to the...