Dechert v. Cadle Co., 03-2217.

• Decision Date: 24 June 2003
• Docket Number: No. 03-2217.,03-2217.
• Citation: 333 F.3d 801
• Parties: Edward P. DECHERT, individually as trustee of the estate in bankruptcy of Judy A. Oyler, and on behalf of all others similarly situated to her, Plaintiff-Appellee, v. The CADLE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

333 F.3d 801

Edward P. DECHERT, individually as trustee of the estate in bankruptcy of Judy A. Oyler, and on behalf of all others similarly situated to her, Plaintiff-Appellee, v. The CADLE COMPANY, Defendant-Appellant.

No. 03-2217.

United States Court of Appeals, Seventh Circuit.

Submitted May 27, 2003.

Decided June 24, 2003.

David J. Philipps (submitted a brief), Gomolinski & Philipps, Hickory Hills, IL, for plaintiff-appellee.

Carol A. Nemeth (submitted a brief), White & Raub, Indianapolis, IN, for defendant-appellant.

Before BAUER, POSNER, and COFFEY, Circuit Judges.

POSNER, Circuit Judge.

We accepted the defendant's appeal under Fed.R.Civ.P. 23(f) from the certification of this suit as a class action in order to determine whether, as the district judge held, a trustee in bankruptcy is, in general and in this case, a proper class representative — whether, that is, he is a member of the class who, as named plaintiff, "will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). There are no appellate cases on the question, although our decision in Morlan, quoted below, bears on it; a district court has held that a trustee in bankruptcy cannot be a proper class representative, King v. Sharp, 63 F.R.D. 60, 64-65 (N.D.Tex. 1974); and several other cases remark the danger of a conflict of interest if a bankruptcy trustee is allowed to be class representative. Ernst & Ernst v. U.S. District Court, 457 F.2d 1399 (5th Cir.1972) (per curiam); Maddox & Starbuck, Ltd. v. British Airways, 97 F.R.D. 395, 397 n. 2 (S.D.N.Y.1983); In re Plywood Anti-Trust Litigation, 76 F.R.D. 570, 579 (E.D.La. 1976); In re Ball, 201 B.R. 204, 208-09 (Bankr.N.D.Ill.1996).

The suit at hand was filed by Judy Oyler under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, and alleges that she had received a dunning letter from Cadle Company (the defendant), a collection agency, that violated the Act because it failed to state the amount that Cadle was seeking to collect from her and had other deficiencies as well. She sued on behalf not only of herself but also of all other persons — at least 30 in number, and possibly 68 — who had received the identical form letter from Cadle. She sought for herself statutory damages (a maximum of $1,000), costs, and attorneys' fees. 15 U.S.C. § 1692k. If the case is certified as a class action, the other members of the class will be entitled to total damages of either $500,000, or 1 percent of the defendant's net worth — whichever is less. 15 U.S.C. § 1692k(2)(B). Cadle's net worth is somewhere between $350,000 and $800,000, so that the additional damages to which the class would be entitled if the suit were successful would be between $3,500 and $8,000.

Shortly before filing the suit, however, Oyler had declared bankruptcy under Chapter 7 of the Bankruptcy Code, and when the trustee discovered this he had himself substituted for her as the plaintiff in her suit. He then asked the district court to certify the suit as a class action, with him as the only named plaintiff and therefore as the only class representative. The district court did so, precipitating this appeal.

In Morlan v. Universal Guaranty Life Ins. Co., 298 F.3d 609, 619 (7th Cir.2002), we noted the infrequency of class actions in which a trustee in bankruptcy is the named plaintiff: "What trustee in bankruptcy would think it worthwhile to insert himself in the place of the named plaintiff? We are not surprised to find very few cases in which trustees in bankruptcy have done so. The named plaintiff in a class action usually has only a small stake in the action, and while the stakes for the class as a whole may be large, very few of the benefits of settling the class action or prosecuting it to judgment would be received by the trustee (which is to say the creditors), since he would just be the named plaintiff's surrogate. Most of the benefits would go to the other members of the class and to the lawyers for the class, so that the trustee, as class representative yet having fiduciary obligations exclusively to the estate in bankruptcy, would have a potential conflict of interest" (citations omitted). The problems we noted in Morlan are present in this case. Oyler's trustee has a fiduciary obligation to Oyler's unsecured creditors, and they will derive no benefit from so much of any judgment or settlement in the class action as enures to the benefit of the other members of the class.

Granted, a class representative always has a conflict of interest of sorts, because he has an individual as well as a representative interest in the outcome of the case. In the usual class-action case, in which the class representative's stake is so small that as a practical matter the lawyer for the class completely controls the litigation, there is a danger remarked in numerous cases that the lawyer will negotiate a settlement with the defendant that gives the lawyer a large fee but the class a meager recovery. See, e.g., Reynolds v. Beneficial National Bank, 288 F.3d 277 (7th Cir.2002). But that is just to say that agents, being self-interested, cannot be trusted always to be faithful to their principals. This problem, which economists discuss under the rubric of "agency costs," lies behind the law's imposing on agents strict, enforceable duties of care and loyalty toward their principals, and behind such specific...