Vollmer v. Selden, 03-1338.
| Decision Date | 26 November 2003 |
| Docket Number | No. 03-1338.,03-1338. |
| Citation | 350 F.3d 656 |
| Parties | Thomas G. VOLLMER, Peggy R. Pospeshil, Mary Kennah, et al., Plaintiffs-Appellees, and Publishers Clearing House and Campus Subscriptions, Incorporated, Defendants-Appellees, v. Lynde SELDEN, II and Richard H. Rosenthal, Respondents-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
John W. Hoffman (argued), Korein Tillery, Steven A. Katz, Belleville, IL, for Plaintiffs-Appellees.
Rebecca Jackson (argued), Bryan Cave, St. Louis, MO, for Defendants-Appellees.
David Leichtman, Morgan, Lewis & Bockius, Paul A. Levy (argued), Public Citizen New York, NY, Litigation Group, Washington, DC, for Respondents-Appellants.
Before CUDAHY, EASTERBROOK, and RIPPLE, Circuit Judges.
Frederick L. Hawk, represented by his counsel, Lynde Selden II and Richard H. Rosenthal, attempted to intervene in this class action. The district court denied the motion to intervene and sua sponte levied $50,000 in sanctions against Selden and Rosenthal under Federal Rule of Civil Procedure 11 (Rule 11). The district court found that they had failed to properly investigate Mr. Hawk's claims and had filed pleadings on his behalf for the sole purpose of extracting a fee. Selden and Rosenthal appealed the district court's imposition of sanctions and Hawk appealed the denial of intervention. This court affirmed the denial of intervention but vacated the imposition of sanctions, finding that the district court improperly relied on evidence outside of the record and failed to provide a detailed explanation as to why an "extremely large" sua sponte levy of sanctions was appropriate. See Vollmer v. Publishers Clearing House, 248 F.3d 698, 709-12 (7th Cir.2001) (Vollmer I). On remand, the district court reduced the sanctions to $35,000 but provided no additional explanation for the amount and continued to rely on evidence outside of the record. This appeal followed.
As in most sequels, virtually nothing has changed since we last met the characters, precious little of the content is novel and we find ourselves asking "why are we back here?" Unlike most sequels, however, we do not lay the groundwork for a trilogy. For the reasons that follow, we vacate the district court's imposition of Rule 11 sanctions.
We will assume familiarity with our prior opinion in this matter and will repeat only those facts necessary to understand the issues presented in this appeal. See Vollmer I, 248 F.3d at 701-05. On February 3, 1998, Thomas G. Vollmer filed this class action lawsuit against Publishers Clearing House (PCH), alleging violations of Illinois consumer protection laws. The complaint claimed that PCH fraudulently induced customers to purchase magazines by falsely suggesting in its advertising that customers could increase their chances of winning a sweepstakes by making purchases.
After a failed motion to dismiss, the parties entered into a stipulation of settlement, filed with the district court on June 23, 1999. The district court conditionally certified a class for settlement purposes and granted preliminary approval of the settlement. The settlement included remedial undertakings by PCH aimed at addressing the allegations raised in the complaint and also provided monetary relief in the form of refunds for class members who filed a claim during the claim period. Initially the settlement contained a $10 million cap on refunds.
Hawk, a farm equipment salesman from San Diego, California, was a past customer of PCH and had received a notice of settlement in early August 1999. Hawk testified that shortly thereafter, he contacted Selden, his lawyer and an appellant. Hawk knew Selden because Hawk's wife was an administrator in Selden's office. Selden, joined by Rosenthal, contacted class counsel requesting information and access to documents regarding the settlement, ostensibly to determine whether it would be in Hawk's best interest to opt out of the settlement class. These requests were denied by class counsel.
As a result, on September 13, 1999, Hawk filed a "Petition to Intervene for Limited Purposes of Viewing Document Depository," claiming that intervention was appropriate under Rule 24(a) (intervention of right) and Rule 24(b) (permissive intervention). The petition noted that "[b]efore Intervenor accepts the proffered settlement ... [he] wants to view the document depository defendant has made available to class counsel." Both class counsel and the defendants opposed the motion, asserting that Selden and Rosenthal were "professional objectors" or "claim jumpers" who filed such claims often in the past, usually without merit.
On October 4, 1999, Hawk filed "Intervenor's Motion to Intervene" in which he sought to intervene for all purposes. At that point, the district court seemed inclined to believe that Hawk meant to intervene to represent others in the action.
AARP (formerly known as the American Association of Retired Persons), along with more than twenty attorneys general of various states and other individuals who had a separate class action currently pending against PCH, also sought to intervene. One month after Hawk sought to intervene, when it became clear that claims would exceed the $10 million cap, PCH agreed to pay all approved claims in full.
At a hearing held regarding the motions to intervene, Hawk testified that he believed $10 million was insufficient and would provide only pennies on the dollar. However, Hawk also testified that he did not know what his losses were or what he would claim; he enjoyed the magazines he ordered; he may have entered the sweepstakes as many as twelve times without purchasing a magazine; he was totally unaware of the injunctive relief portion of the settlement; and he did not know what his basis was for asking to represent other individuals in the lawsuit. Moreover, Hawk did not recall ever reading the "Motion to Intervene" filed on his behalf.
The district court denied Hawk's motion to intervene and sua sponte ordered that Selden and Rosenthal show cause why they had not violated Rule 11(b) and should not be sanctioned. On February 25, 2000, the district court held a hearing on Selden and Rosenthal's objection to the imposition of Rule 11 sanctions. The district court imposed $50,000 in sanctions against Selden and Rosenthal, stating that Hawk's lack of a "passing understanding" about the nature of the settlement showed that he was put forth to cause delay and increase the cost of litigation so that his lawyers could extract a fee. The district court judge also asserted that it had "made it the court's business to find out all I can" about the attorneys' legal practice and that "I haven't been able to find anyone anywhere that say these are recognized class counsel." The district court concluded that Selden and Rosenthal were "not real class action lawyers" but instead that "they follow people around the country,... and then they stick their nose in [a case] and they extract money." The district court used the amount of attorney's fees necessary to defend against the intervention as a "marker" in determining the amount of the sanctions and also said that the amount was necessary to deter such conduct, given the huge fees available in class action litigation. See Vollmer I, 248 F.3d at 705.
On appeal, in an opinion by Judge Ripple, we affirmed the district court's denial of the motion to intervene but reversed and remanded to address concerns about the sanctions. This court found, in relevant part, that it was improper for the district court to rely on evidence not in the record and the "extremely large" sanctions required a detailed explanation by the district court—not merely "cursory" reasoning. Id. at 710-11.
On remand, the district court issued a new order to show cause why sanctions should not be imposed. The appellants provided a written response and also spoke at a hearing on the imposition of such sanctions. In an order dated January 15, 2003, the district court re-imposed sanctions. While the new order omitted the previous language suggesting that the district court had considered facts not within the record, it nonetheless stated that it "conducted its own research into other class action litigation involving Selden and Rosenthal." App. at 559. Additionally, the district court reduced the sanctions to $35,000 but provided no additional explanation for the amount. Instead, the district court judge stated, "we'll see how that fares." App. at 553. This appeal followed.
Rule 11 provides that, if an attorney presents a motion to a court for "any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," monetary sanctions may be imposed. Fed.R.Civ.P. 11(b)(1) & (c); Vollmer I, 248 F.3d at 709. The district court found that Selden and Rosenthal encouraged Hawk to intervene for such purposes, solely to enable themselves to receive a fee as part of this litigation. As a result, the court, on its own initiative, imposed monetary sanctions under Rule 11(c)(1)(B), requiring Selden and Rosenthal to pay $35,000 to the district court. We review all aspects of the district court's decision to impose Rule 11 sanctions for abuse of discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Vollmer I, 248 F.3d at 709.
We begin our analysis by noting that a judge can sanction a litigant for filing a frivolous suit or claim regardless of the motives for such filing. See Reed v. The Great Lakes Co., Inc., 330 F.3d 931, 936 (7th Cir.2003). In this case, however, the judge never made a finding that Hawk's intervention was frivolous. App. at 559-60. Such a finding of frivolousness would have been inappropriate here in light of the fact that (a) AARP, along with a large number of attorneys general, also sought to intervene and their claims were not found frivolous;...
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