Reynolds v. Beneficial Nat. Bank, 98 C 2178.
| Decision Date | 15 April 2003 |
| Docket Number | No. 98 C 2550.,No. 98 C 2178.,98 C 2178.,98 C 2550. |
| Citation | 260 F.Supp.2d 680 |
| Parties | Cheryl REYNOLDS and Nannie Triplett, on behalf of themselves and all others similarly situated, Plaintiffs, v. BENEFICIAL NATIONAL BANK, Beneficial Tax Masters, Inc. and H & R Block, Inc., Defendants. Decarlo Turner, on behalf of herself and all the class of similarly situated borrowers, Plaintiffs, v. Beneficial National Bank and Beneficial Tax Masters, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Marvin Alan Miller, Matthew Eric Van Tine, Jennifer Winter Sprengel, Dominic J. Rizzi, Miller, Faucher and Cafferty, LLP, Chicago, IL, Michael I. Behn, William W. Thomas, Futterman & Howard, Chtd., Chicago, IL, Francine Schwartz, Law Offices of Francine Schwartz, Arlington Heights, IL, for Cheryl Reynolds.
Marvin Alan Miller, Matthew Eric Van Tine, Jennifer Winter Sprengel, Dominic J. Rizzi, Miller, Faucher and Cafferty, LLP, Chicago, IL, Michael I. Behn, William W. Thomas, Futterman & Howard, Chtd., Chicago, IL, Francine Schwartz, Law Offices of Francine Schwartz, Arlington Heights, IL, Howard Brian Prossnitz, Chicago, IL, for Nannie Triplett.
Kevin Michael Forde, Kevin R. Malloy, Kevin M. Forde, Ltd., Chicago, IL, for Marcill Lee.
Kenneth W. Behrend, Behrend & Ernsberger, PC, Pittsburgh, PA, for Donna L. Lonzo.
Charles Daniel Knight, Jennifer Suzanne Oosterbaan, Holland & Knight LLC, Chicago, IL, Scott R. Lassar, Theodore R. Scarborough, Jr., Patricia Michelle Petrowski, Sidley Austin Brown & Wood, Chicago, IL, Burt M. Rublin, Alan S. Kaplinsky, Edward D. Rogers, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, Lawrence W. Schonbrun, Berkeley, CA, James Dominick Adducci, Marshall Lee Blankenship, Adduci, Dorf, Lehner, Mitchell, & Blankenship, P.C., Chicago, IL, Alan J. Spitz, Chicago, IL, for Beneficial Nat. Bank, USA, Beneficial Tax Master, Inc., defendants.
David H. Latham, Law Offices of David H. Latham, Chicago, IL, for H&R Tax Services, Inc., defendant.
James S. Shedden, Lawrence Wiley Schad, Steven J. Tomiello, Michael S. Hilicki, Beeler, Schad & Diamond, P.C., Chicago, IL, Christopher V. Langone, Langone Law Firm, Chicago, IL, for Roy Carbajal.
R. Stephen Griffis, R. Stephen, Griffis, P.C., Birmingham, AL, for Janice Williams.
Charles M. Thompson, Charles M. Thompson and Associates, PC, Birmingham, AL, for Ann Abercrombie.
Lawrence W. Schonbrun, Berkeley, CA, Alan J. Spitz, Chicago, IL, for Pearl Martinez.
Michael B. Hyman, William Henry London, Much, Shelist, Freed, Denenberg, Ament & Rubenstein, P.C., Chicago, IL, Ronald L. Futterman, Futterman & Howard, Chtd., Chicago, IL, Roger W. Kirby, Peter Linden, Kirby Mclnerney & Squire LLP, New York City, Steven E. Angstreich, Michael Coren, Carolyn C. Lindheim, Levy, Angstreich, Finney, Baldante, Rubenstein and Coren PC, Philadelphia, PA, for Lynne Carnegie.
This case is before me on remand from the Seventh Circuit pursuant to local Circuit Rule 36. Reynolds v. Beneficial National Bank, 288 F.3d 277 (7th Cir.2002). In that decision the Seventh Circuit concluded that the circumstances surrounding the settlement of this litigation were suspicious and that it did not have enough information to determine if the settlement was fair. Lawyers for proponents of the settlement and objectors have filed various papers before me and presented argument and witnesses on three days. I decline to approve the settlement.
Two complaints were filed in April, 1998. The first, 98 C 2178, was brought by Joel Zawikowski, Cheryl Reynolds, Debra Barnes, Phyllis Barnes and Nannie Triplett against Beneficial National Bank, Beneficial Tax Masters, Inc., H&R Block, Inc. and various H&R Block subsidiaries. That complaint alleged violations of the federal Truth in Lending Act ("TILA," 15 U.S.C. § 1601, et seq.), state consumer fraud statutes, breaches of contractual and fiduciary duties, and unjust enrichment. On April 28, 1998, DeCarlo Turner filed a separate complaint, No. 98 C 2550, against Beneficial National Bank and Beneficial Tax Masters, Inc., alleging violations of TILA, RICO, 18 U.S.C. § 1961, et seq., and state consumer fraud statutes as well as breach of contract. The Zawikowski plaintiffs were represented by Francine Schwartz, Jennifer Sprengel, Dominic Rizzi, and Marvin Miller at the time the case began. A few weeks later, Howard Prossnitz filed an appearance on behalf of Nannie Triplett. Turner was represented by Daniel Harris. Both complaints were filed as class actions. The Turner class was defined as all persons who obtained Refund Anticipation Loans (defined below) from Beneficial National Bank from January 1, 1994 to the present, with the exception of persons who obtained their loans through Jackson Hewitt (those claims having previously been settled). The Zawikowski class claims were broader, going back to 1987 for certain claims against Beneficial and as to Block from 1996.
In essence, the complaints allege that plaintiffs—who are as a class described in pleadings or opinions in related cases, as persons who are unsophisticated, of limited education, financially strapped, and sometimes elderly—were led to believe they were obtaining a quick income tax refund through defendants' services, while in reality they were signing documents and obtaining a loan (a Refund Anticipation Loan or "RAL") at very high interest rates, without proper timely disclosures. Among the alleged misrepresentations or failures to disclose were the real finance charges they were paying and the fact that their tax preparer in the case of Block was receiving part of that fee.
The history of these cases was summarized in the Seventh Circuit opinion. The defendants moved to dismiss the complaints. In response, in part, plaintiffs voluntarily dismissed all but one of the Block defendants. The remainder of the motion to dismiss the Zawikowski complaint was briefed and granted in part by Judge Zagel in January and February, 1999. Judge Zagel denied defendants' motion to dismiss the Turner complaint in March, 1999. In October, 1999, the plaintiffs and defendants, including Block although it had been dismissed, filed a proposed settlement agreement with the court. That settlement would pay each class member (broadly defined in a new "settlement class") who filed a claim a pro rata share of a $25,000,000 claim fund up to a maximum of $15.00, with any remaining amount to revert to defendants. Judge Zagel required that the cap be raised to $30.00 for claimants who had more than one RAL, and disallowed the reversion. Following hearing, to which there were objections by lawyers representing plaintiffs in actions pending in other jurisdictions whose actions would be extinguished by the settlement, the settlement, as amended, was approved. The Seventh Circuit reversed.
On remand, the proponents of the settlement have vigorously argued for its renewed approval. Initially, I severed two classes that the Seventh Circuit found to be improperly included within the settlement, the Peterson and Carbajal classes, whose claims were different from those alleged by the settlement class but who had been included in the final settlement at the insistence of Block. I also refused to enter a new injunction (the old one had been vacated by the Seventh Circuit) enjoining proceedings in a Texas case, Haese v. H & R Block, Inc., et al., which was set for trial in the fall of 2002. I held a fairness hearing on October 7 and 8 and, at the request of objectors, a further hearing on November 15, 2002. At those hearings, and in legal memoranda, the proponents of the settlement have attempted to show, through purported legal experts (I accepted their opinions as additional briefs but not as expert opinions) and economic experts whose opinions were based on the legal conclusions of the law professor "experts", that the $25,000,000 settlement is quantifiably fair. Objectors have focused on what they say is proof that the class was sold out by unscrupulous counsel, which they say prevents the settlement from being approved regardless of the amount, although they also argue that the cases against these defendants are worth far more than $25,000,000.
It is settled law that a class action settlement cannot be approved, regardless of objective fairness, if the requirements of Fed.R.Civ.P. 23, including adequacy of counsel, are not met. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 621-22, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Reynolds, 288 F.3d at 284. Theoretically, if the settlement is fair, adequacy might be assumed. But as has often been noted, once a settlement is agreed upon, counsel, adequate or not, will, as in this case, argue for the fairness of the settlement. The court, therefore, does not have the benefit of the adversarial argument that should enable it to reach an objective conclusion on the fairness of the settlement. See, e.g., Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348, 1352 (7th Cir.1996) () ("Representative plaintiffs and their lawyers may be imperfect agents of the other class members-may even put one over on the court, in a staged performance."). Objectors may provide some balance but in most cases they are probably reluctant to commit the substantial resources that may be needed, knowing that they may not see reimbursement.
In this case the Seventh Circuit noted that the lawyers' "representation of the class was almost certainly inadequate, an independent reason for disapproving a settlement" (288 F.3d at 284) but nevertheless sent the case back for a further examination of the settlement. Given the requirement of adequacy, noted by the Court, I conclude that it simply did not find it had sufficient information to make a definite determination of adequacy. Both sides have pursued the inquiry on remand.
The Seventh Circuit's tentative conclusion of inadequacy cited a...
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