Reliable Money Order, Inc. v. McKnight Sales Co.

• Decision Date: 09 January 2013
• Docket Number: No. 12–2599.,12–2599.
• Parties: RELIABLE MONEY ORDER, INC., individually and as the representative of a class of similarly-situated persons, Plaintiff–Appellee, v. McKNIGHT SALES CO., INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

704 F.3d 489

RELIABLE MONEY ORDER, INC., individually and as the representative of a class of similarly-situated persons, Plaintiff–Appellee,

v.McKNIGHT SALES CO., INC., Defendant–Appellant.

No. 12–2599.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 27, 2012.

Decided Jan. 9, 2013.

Phillip A. Bock (argued), Attorney, Bock & Hatch, Chicago, IL, Brian J. Wanca, Attorney, Anderson & Wanca, Rolling Meadows, IL, for Plaintiff–Appellee.

Molly A. Arranz, Michael L. Resis, Eric Samore (argued), Attorneys, SmithAmundsen LLC, Chicago, IL, for Defendant–Appellant.

Before FLAUM and TINDER, Circuit Judges, and THARP, District Judge. ^*

FLAUM, Circuit Judge.

At oral argument, plaintiff's counsel acknowledged that he did not expect an opinion that extolled certain actions of co-counsel. In that assumption, he was correct: while investigating the claims in this case, counsel with the firm of Anderson + Wancaengaged in conduct which gives this Court serious pause. Because of this alleged misconduct, defendant asks us to reverse the district court's class certification order appointing Anderson + Wanca as class counsel. Suffice it to say, while we neither approve of nor condone the actions of Anderson + Wanca attorneys when investigating the claims in this suit, we nevertheless do not conclude that counsels' questionable performance in the investigative stage of this case prevents class certification. For the reasons below, we affirm.

I. Background

A. Factual Background

Anderson + Wanca and Bock & Hatch are two Chicago-area law firms that specialize in representing plaintiffs in class action lawsuits under the Telephone Consumer Protection Act as amended by the Junk Fax Prevention Act of 2005 (the “Act”). The Act authorizes $500 in statutory damages for faxing an unsolicited advertisement. 47 U.S.C. § 227(b)(1)(C), (b)(3). This award triples upon a showing of willfulness, and each transmission is a separate violation. Id.; see also Creative Montessori Learning Ctrs. v. Ashford Gear, LLC, 662 F.3d 913, 914 (7th Cir.2011) [hereinafter Ashford Gear II ]. Because plaintiffs may enforce the statute via class action and because a single advertisement is often faxed to hundreds—if not thousands—of phone numbers, suits under the Act present lucrative opportunities for plaintiffs' firms. This appeal involves one firm's response to these financial incentives and its attorneys' conduct in identifying potential new cases under the Act.

1. Caroline Abraham, Business–to–Business Solutions, and the Original Four Cases

Caroline Abraham and her company Business–to–Business Solutions (“B2B”) sit at the center of this lawsuit and scores of others. B2B contracted with businesses to send advertisements via facsimile. Advertisers would pay a fee, and B2B would send the ad to hundreds of fax numbers purchased from InfoUSA, Inc. (a practice known as “fax-blasting”). Abraham, B2B's sole employee, never obtained from the fax recipients permission to send them the advertisements.

B2B attracted the attention of Anderson + Wanca during its investigation of four other putative class action lawsuits (the “Four Cases”) brought under the Act. Class certification in those cases, however, initially presented challenges—the plaintiffs lacked proof of an identifiable class because they could not identify the recipients of the advertisements. E.g., G.M. Sign, Inc. v. Finish Thompson, Inc., No. 07 C 5953 (N.D.Ill. Dec. 9, 2008) (Dkt. No. 43) (order denying class certification for lack of an identifiable class). Anderson + Wanca knew, though, that the defendants in the Four Cases had contracted with B2B to fax the offending advertisements. Unsurprisingly, Caroline Abraham's B2B records became the focus of discovery.

After she initially denied having any fax lists, Ms. Abraham later admitted to finding fax records from B2B. Her adult son, Joel Abraham, had found “some old back-up disks” in a “box somewhere in his room.” (Joel lived with Caroline.) The Abrahams also located a hard drive with fax broadcasting data, and Joel Abraham converted the data into a Microsoft Excel spreadsheet. Caroline Abraham then produced these spreadsheets in discovery, listing only the recipients of the advertisements commissioned by the specific defendants in the Four Cases. Plaintiffs' counsel thus had their proof of an identifiable class and certification followed. E.g., G.M. Sign, Inc. v. Finish Thompson, Inc., No. 07 C 5953, 2009 WL 2581324 (N.D.Ill. Aug. 20, 2009) (Dkt. Nos. 78, 79).

Flush with success, Anderson + Wanca recognized that the B2B hard drives and fax lists likely contained a treasure trove of potential clients for putative class action lawsuits. So, despite having all information necessary to certify the classes in the Four Cases, Anderson + Wanca continued pushing Caroline Abraham to disclose all B2B fax transmission data. Ryan Kelly, an attorney at Anderson + Wanca, met with Caroline Abraham and asked her for the actual back-up disks and hard drive. He told her that “nobody would look at anything on these media not related” to the Four Cases. Indeed, Kelly even emailed Ms. Abraham a copy of the protective order filed in one of the Four Cases, explaining that it “will prevent [Kelly] from disclosing any of the back-up disks or hard drive to any third-party.” To receive those protections, however, the producing party had to stamp documents confidential or notify plaintiff's counsel of their confidential nature at the time of production. Ms. Abraham continued to resist.¹

Ultimately, plaintiff's counsel subpoenaed Joel Abraham to testify at a deposition. The subpoena also ordered Mr. Abraham to produce, at the time of his deposition, the back-up disks and hard drive. Appearing at the deposition with attorney Eric Ruben, Joel Abraham produced the materials. Neither he nor Ruben, who had read the protective order, asserted confidentiality. Even so, Anderson + Wanca later instructed defense counsel to “treat the DVD produced by Joel Abraham as confidential pursuant to the protective order[.]” CE Design Ltd. v. Cy's Crabhouse North, Inc., No. 07 C 5456, 2010 WL 2365162, at *6 (N.D.Ill. June 11, 2010) [hereinafter Cy's Crabhouse I ].

The back-up disks and hard drive revealed not only the recipients of fax advertisements sent by the defendants in the Four Cases but the names of other B2B clients as well.

2. Armed with Data from B2B's Electronic Files, Plaintiff's Counsel Files Scores of Putative Class Actions Under the Telephone Consumer Protection Act

The B2B files provided a treasure trove of potential new clients for Anderson + Wanca, revealing the names of other potential defendants who contracted with B2B to send unsolicited fax advertising and listing the recipients of that advertising.

Hoping to tap that reserve of potential litigants, Anderson + Wanca began sending out solicitation letters to the recipients of B2B's fax-blasting. The letter in this case, addressed to Fast & Friendly Grocery, reads, in part: ²

My law firm pursues class action lawsuits against companies that send junk faxes in Illinois and elsewhere.

* * *

During our investigation, we have determined that you are likely to be a class member in one or more cases we are pursuing. You might not remember receiving the junk faxes, but if the lawsuit were successful, you would receive compensation (from $500 to $1,500) for each junk fax sent to you.

We would like to discuss this issue with you. Please call me at [phone number] or send an email to [email address].

The letter was stamped “advertising material” at the bottom but was not registered with the Wisconsin Office of Lawyer Regulation, as required by state law. SeeWis. Sup.Ct. R. 20:7.3(c).³ Plaintiff's counsel subsequently destroyed their records identifying the recipients of these letters, explaining to the magistrate judge in Ashford Gear that they did “not possess and did not retain a list of the names and addresses of the persons who were sent” these letters.

Upon receipt of this letter, Fast & Friendly Grocery forwarded it to Reliable Money Order, who contacted Anderson + Wanca and became the named plaintiff in this case. Reliable Money Order rents space from Fast & Friendly and possessed the only fax machine on the property. Reliable Money Order was not the only new client netted from the solicitation letters: Anderson + Wanca attorneys have filed over one hundred putative class actions under the Act, all rooted in data recovered from the B2B disks and hard drive.

3. Anderson + Wanca Sends Eric Ruben a $5,000 Check

In August 2009, Anthony Wanca, a partner with Anderson + Wanca, sent Ruben a $5,000 check, made payable to Eric Ruben, in a Ramada Inn envelope. The envelope contained no cover letter but the check beared a notation simply reading “document retrieval.” Ruben voided the check and returned it. Plaintiff's counsel had previously compensated Ms. Abraham for expenses arising from the depositions and document production but these earlier payments never neared $5,000.

B. Procedural Background

Upon learning of Anderson + Wanca's promises of confidentiality to Ms. Abraham, defendants in the lawsuits arising from the B2B data (many of whom are represented by defense counsel in this case) began challenging the propriety of class certification on grounds that misconduct by Anderson + Wanca attorneys disqualified the firm as adequate class counsel. SeeFed.R.Civ.P. 23(g)(1)(B). Defendants, including McKnight, have generally raised three instances of misconduct that, they argue, require denial of class certification. First, they argue that Anderson + Wanca breached a promise of confidentiality by using the B2B data to identify targets of additional lawsuits. Second, they argue that Anderson + Wanca sent misleading solicitation letters. Finally, they challenge the $5,000 check as improper witness compensation intended to influence the content of testimony.

Several district courts have addressed these allegations so we provide...