Mirfasihi v. Fleet Mortg. Corp.

• Decision Date: 29 January 2004
• Docket Number: No. 03-1069.,03-1069.
• Citation: 356 F.3d 781
• Parties: Mav MIRFASIHI, individually and on behalf of all others similarly situated, Plaintiff-Appellee, v. FLEET MORTGAGE CORPORATION, Defendant-Appellee. Appeal of: Angela Perry and Michael E. Green, Objectors-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 781

356 F.3d 781

Mav MIRFASIHI, individually and on behalf of all others similarly situated, Plaintiff-Appellee, v. FLEET MORTGAGE CORPORATION, Defendant-Appellee.

Appeal of: Angela Perry and Michael E. Green, Objectors-Appellants.

No. 03-1069.

United States Court of Appeals, Seventh Circuit.

Argued September 5, 2003.

Decided January 29, 2004.

Jon W. Borderud, Prongay & Borderud, Los Angeles, CA, Oren Giskan, Giskan & Solotaroff, New York, NY, for Plaintiff-Appellee.

Christina M. Tchen, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, Gary DiBianco, Skadden, Arps, Slate, Meagher & Flom, Washington, DC, for Defendant-Appellee.

James Shedden, Beeler, Schad & Diamond, Chicago, IL, John P. Zavez, Atkins, Kelston & Zavez, Boston, MA, for Objector-Appellant.

Before BAUER, POSNER, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

Class members have appealed, challenging the class-action settlement approved by the district judge. The judge ordered the challengers to post a $3.15 million appeal bond on the ground that if the settlement were delayed Fleet would lose the ability to pay the amounts that it had agreed to pay in the settlement. There was no basis for this concern, and we vacated the bond.

The suit was brought on behalf of approximately 1.6 million persons whose home mortgages were owned by Fleet Mortgage Corporation. It charges that without their permission Fleet transmitted information about their financial needs that it had obtained from their mortgage papers to telemarketing companies which then, in conjunction with Fleet, used that information and deceptive practices to sell those customers financial services they didn't want. The unauthorized transmission of the information to the marketers is alleged to have violated the federal Fair Credit Reporting Act along with state consumer protection laws plus state common law protections against invasion of privacy, while the use of the information to trick people into buying from the telemarketers is alleged to have violated both the federal Telemarketing and Consumer Fraud and Abuse Prevention Act and state consumer protection laws. There are thus two plaintiff classes, a "pure" information-sharing class of 1.4 million customers of Fleet whose financial information Fleet transmitted to the telemarketers but who did not buy anything from them, and a telemarketing class (technically a subclass, but nothing turns on that refinement) consisting of 190,000 class members who were victims of the telemarketers. As far as we can determine, no lawyer represents only members of the pure information-sharing class.

As is common, the suit was filed after a variety of smaller class action and individual suits, testing the legal waters as it were, had been filed against Fleet complaining of the practices that we have outlined. The hope doubtless shared by class counsel and Fleet alike was that a settlement approved by the judge in this comprehensive class action would lead the judge to enjoin the other suits, Williams v. General Electric Capital Auto Lease, Inc., 159 F.3d 266, 275 (7th Cir.1998); In re VMS Securities Litigation, 103 F.3d 1317, 1325-26 (7th Cir.1996); Flanagan v. Arnaiz, 143 F.3d 540, 545-46 (9th Cir.1998); In re Agent Orange Product Liability Litigation, 996 F.2d 1425, 1432 (2d Cir.1993), thus bringing the dispute between Fleet and its 1.6 million customers to a definitive end except for litigation instituted by class members who decided to opt out of the settlement. Even without an injunction, the issuance of a judgment based on the settlement would unless vacated extinguish further litigation by those bound by the judgment by operation of res judicata. But as the citations indicate, injunctions against other litigation are occasionally issued to terminate parallel litigation more quickly and securely than would be the case if the defendant had to interpose a res judicata defense in separate suits.

A settlement was negotiated that the judge approved and this appeal challenges. The challenge focuses on the fact that one of the classes, namely the pure information-sharing class, received absolutely nothing, while surrendering all its members' claims against Fleet. Of course, if their claims were worthless (more precisely, worth too little to justify a distribution — a qualification that we elaborate on below), they lost nothing. But the district judge did not find that their claims were worthless, and it would be surprising if they were. The allegedly unauthorized transmittal of information to the telemarketers may have violated state consumer protection statutes that authorize the victims of the violation to obtain damages; it may also have infringed state common law protections of privacy, including financial privacy. Fleet's "privacy policy" assures its consumers that Fleet "share[s] the minimum amount of information necessary for that company [i.e., the company with which it is sharing the information] to offer its product or service," and this statement, which if false as alleged may well be fraudulent, might support a claim under state consumer protection or privacy law. Such a claim would not be a sure bet, but colorable legal claims are not worthless merely because they may not prevail at trial. A colorable claim may have considerable settlement value (and not merely nuisance settlement value) because the defendant may no more want to assume a nontrivial risk of losing than the plaintiff does.

The members of the telemarketing class received something in the settlement. Fleet agreed to disgorge the profits of its allegedly unlawful conduct. These profits, it appears, had actually come from the members of the information class, but because the total profits were only $243,000, so that the per capita recovery for the 1.4 million members of the class would amount to less than 20 cents, the settlement transferred the profits to the telemarketing class. Fleet further agreed to set aside $2.4 million (roughly 10 times the profits) for payments ranging from $10 to a maximum of $135 per transaction with a telemarketing class member, depending on the character of his transaction with the telemarketers. The part of the $2.4 million that is not claimed will revert to Fleet, and it is likely to be a large part because many people won't bother to do the paperwork necessary to obtain $10, or even a somewhat larger amount. In re Mexico Money Transfer Litigation, 267 F.3d 743, 748 (7th Cir.2001); Martin H. Redish, "Class Actions and the Democratic Difficulty: Rethinking the Intersection of Private Litigation and Public Goals," 2003 U. Chi. Legal Forum 71, 103-04; Gail Hillebrand & Daniel Torrence, "Claims Procedures in Large Consumer Class Actions and Equitable Distribution of Benefits," 28 Santa Clara L.Rev. 747, 751-53 (1988). The district judge has approved a handsome fee for the class lawyers, $750,000, despite the meagerness of the relief agreed to in the settlement.

Fleet, joined by the class counsel, argues that the members of the pure information-sharing class didn't really receive nothing in exchange for giving up their claims; they received the emotional satisfaction of knowing that Fleet had been forced to give up its profits. That is a preposterous argument. Supposing that each of the 1.4 million members of the information-sharing class could expect a damages award of, say, $25, the total damages of the class would be $35 million. The idea that a rational fiduciary would surrender a claim worth $35 million in exchange for the satisfaction of knowing that his wrongdoer had been forced to pay $243,000 to members of another class staggers the imagination.

The lawyer for plaintiff Mirfasihi, a representative of the information-sharing class who for his service as representative will receive $250 if the settlement is approved even though the settlement is worth nothing to the people he supposedly is representing, tells us that although the information-sharing class did not obtain a "formal" injunction against Fleet's unlawful sharing of personal financial information, it obtained injunctive relief "in effect" because several months after this suit was filed Fleet sold its mortgage business. But at argument the lawyer repeatedly disclaimed any suggestion that the suit had induced the sale. According to press reports, Fleet sold because "it wasn't thrilled with the mortgage business, which operates in a cutthroat market and offers narrow profit margins." John Hechinger & Nikhil Deogun, "Washington Mutual Nears a Deal to Buy Loan Unit of FleetBoston," Wall St. J., p. B8, Apr. 2, 2001. Nor would the sale as such provide any prospective relief to the information-sharing class, since the buyer is free to continue the same practices that the seller engaged in. No retrospective relief, no prospective relief, and no "emotional balm" relief.

Fleet and the class counsel contend that the information-sharing class obtained a "cy pres" remedy. The reference is to the trust doctrine that if the funds in a charitable trust can no longer be devoted to the purpose for which the trust was created, they may be diverted to a related purpose; and so the March of Dimes Foundation was permitted to reorient its activities from combating polio to combating other childhood diseases when the polio vaccine was developed. The doctrine, or rather something parading under its name, has been applied in class action cases, In re Mexico Money Transfer Litigation, supra, 267 F.3d at 748-49; Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1305 (9th Cir.1990); 4 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 11:20 (4th ed.2002), but for a reason unrelated to the reason for the trust doctrine. That doctrine is based on the idea that the settlor would have preferred a modest alteration in the terms of the trust to having the corpus revert to his residuary legatees. So there is an...