We’ve already posted a couple of times about the Thorogood v. Sears, Roebuck & Co. case. Last week we put up a short post on the case. Before that, we contrasted Thorogood with some class certification opinions by Judge Posner that we disliked. The Thorogood case concerns washing machines, not drugs or devices, but the case gave Judge Posner the opportunity to say a load of things about class actions that we’ll likely be citing a lot over the next few years. The latest iteration is especially splendid, full of writing that is clean and well-starched.
Plaintiffs filed a purported class action on behalf of a half million purchasers scattered across 28 states plus the District of Columbia. The claim was that Sears falsely advertised that the drums in Kenmore washers were made entirely of stainless steel. Because part of the drum was actually not stainless steel, so the allegations went, clothes might acquire rust stains. Slip op. at 5. Moreover, calculation of actual damages would vary from consumer to consumer. Id. at 7. In short, individual, not common, issues predominated. That was the result of Appeal Number 1: no class.
After decertification, Sears made an offer of judgment for Thorogood’s suit in the amount of $20,000. That offer seems fairly generous, given that the maximum damage recovery under Tennessee law was $3,000. The $20,000 included a little something for attorney fees. But the district judge held that plaintiffs’ attorneys did not deserve any attorney fees and dismissed the case. Plaintiff’s attorneys appealed, claiming they had racked up $246,000 in attorney fees. The Seventh Circuit held that the claim for attorney fees was “beyond weak” because plaintiff had brought “a threadbare, idiosyncratic claim worth at most $3,000” and the effort to escalate it into a nationwide class had been “a flop.” Slip op. at 8-9. Sears shouldn’t have to subsidize such a flop and had merely offered to pay nuisance value. That was the result of Appeal Number 2: no attorney fees.
Did plaintiff’s counsel fold up? They did not. Rather, they were “nothing if not determined, indeed pugnacious.” Id. at 9. They filed another class action in California alleging the same misrepresentation about the stainless steel washers. Id. That case ended up in N.D. Cal. This might be a gross generalization, but N.D. Cal. and the Ninth Circuit are probably a wee bit more plaintiff-friendly than N.D. Ill. and the Seventh Circuit.
We’re just saying.
And now an interlude of indignation. Isn’t it bad enough that mass tort plaintiffs counsel have the advantage of choosing pretty much everything about their case? They get to choose their plaintiff (though it is remarkable how often they blow it, occasionally putting up a plaintiff who is a former jailbird who never was injured or had every other risk factor under the Sun or didn’t even use the product). They get to choose the defendants (so as to skirt around federal diversity jurisdiction). They get to choose the forum (e.g., Madison County or some other Judicial Hellhole). When it comes to bellwether trials, they get to dismiss their weaker cases. Thorogood is a particularly pernicious example because plaintiffs’ counsel, after making some bad choices, insisted on a do-over. No class in the Seventh Circuit? Fine, we’ll try again in California.
That’s not just unfair, it’s maddening. Sears didn’t take this lying down. It filed an action back in N.D. Ill. under the All Writs Act, 28 USC 1651(a). That must have seemed like a long shot. It’s not as if the All Writs Act gets used everyday. Truth be told, it reeks of desperation. It’s like filing a King’s Bench Petition in Pennsylvania. When you start mentioning any King besides Elvis, you’re probably in trouble.
Sears was right to be desperate. The California court initially did the right thing and held that the Seventh Circuit ruling collaterally estopped the California class action. Plaintiffs’ counsel then amended their complaint “to allege additional facts in an effort to show that he had a different case, perhaps one more amenable to class action treatment.” Slip op. at 11. The California district judge reversed his earlier ruling, certified the class, and plaintiffs counsel issued “bulky discovery requests.” Id. at 11-12. Plaintiffs’ counsel also sent a settlement letter to Sears (reproduced in full by Judge Posner at the end of the opinion) basically saying that the California ruling placed Sears in the soup, that discovery would involve “Plaintiff’s counsel delving into the full extent of Defendant’s alleged wrongdoing” to establish a right to punitive damages. Id. at 27. The letter also says Sears had better settle now, because “[a]s we progress through the various significant stages of this litigation, the cost of settlement will necessarily increase.” Id. at 28. Presumably that last point is true not because the case would get stronger, but because plaintiff’s counsel would want to recover more costs and punish the defendant for not settling earlier. It’s like when pushy salespeople tell you that you’d better buy now, because the deal will likely get worse. It’s a dirty business. We doubt that any washing machine could rinse it clean.
The N.D. Ill. court did not smile upon Sears’s motion under the All Writs Act. It ruled that Sears’s proper recourse was to argue collateral estoppel to the California. Frankly, that’s what we’d expect most courts to do. It’s rare for a judge to interfere with another judge’s case — comity and all that. After the N.D. Ill. judge said thanks-but-no-thanks to the All Writs Act, there was only one place to go.
Now we’re up to Appeal Number 3 in the Seventh Circuit. The issue was “whether the district judge abused his discretion in ruling that a plea of collateral estoppel in the California litigation would give Sears adequate relief from the consequences of the refusal of Thorogood’s lawyer — who found someone (Murray) willing to be the nominal plaintiff in a copycat suit in California — to accept defeat.” Slip op. at 3-4. Judge Posner rules that the district judge did abuse his discretion, and that he should have enjoined plaintiffs and plaintiffs’ counsel from filing “all class actions challenging representations, in Sears’ existing advertising, labeling, and other marketing that the stainless steel drums in Kenmore dryers are made of stainless steel.” Id. at 23. It is an exhilarating ruling, both in result and in each analytical step along the way.
The All Writs Act authorizes a federal court to issue “all writs necessary or appropriate in aid of [its] jurisdiction and agreeable to all the usages and principles of law.” 28 USC 1651(a). It has been interpreted to empower courts to issue orders necessary to “prevent frustration of orders it has previously issued.” Slip op. at 2. That seems to fit here because the California class action would clearly constitute such “frustration.” Further, “[a]buse of litigation is a conventional ground for the issuance of an injunction under the All Writs Act.” Id. at 20.
Judge Posner makes no bones about his belief that plaintiffs have engaged in litigation abuse. Plaintiffs’ counsel contended that the California class action was different because it involves California law. But when plaintiffs’ counsel was trying to get the nationwide class certified in Illinois, he contended that all class members “will need to prove the same standards for every jurisdiction.” Id. at 10. Oops. Posner remembered that. Posner also remembered that the merits of the underlying action were “slight” (id. at 16), that plaintiffs’ theory was “quixotic” (id. at 4), and that the claims were a “confabulation” (id. at 6).
Well, one might ask, if the case is so weak, won’t it crumble under the weight of its own frivolity? No, because once it is treated as a class action it enables plaintiffs’ counsel to engage in “settlement extortion.” Id. at 12. Posner has written about this concept before, notably in In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1299-1300 (7th Cir. 1995). But the Thorogood opinion is an especially nice distillation of his concerns about the the problems of asymmetry in class actions. Plaintiffs’ counsel in class actions end up caring as much about their fees as their clients. At the same time, class action clients are in no position to supervise their attorneys. Slip op. at 12. This scenario invites collusion between the lawyers. Id. at 13. Plaintiffs’ counsel get their fees, the defendant gets off relatively cheap, but the plaintiffs get a pittance and are hung out to dry.
Putting aside the specter of collusion, class actions introduce profound distortions into litigation, where the merits of the case become almost wholly irrelevant. Aggregation means that “trial becomes a roll of the dice” with unacceptably high risks for the defendant. Id. at 14. “The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under pressure to settle even if the merits of the case are slight.” Id.
Another asymmetry arrives in the form of discovery. Just as the plaintiffs’ counsel threatened in his letter to Sears, plaintiffs can launch “extravagant,” one-sided discovery. “In most class action suits… there is far more evidence that plaintiffs may be able to discover in defendants’ records (including emails, the vast and ever-expanding volume of which has made the cost of discovery soar) than vice versa.” Id. Thus, it is not surprising that after plaintiffs’ counsel persuaded the California court to certify the class, he issued his “threat to turn the screws on Sears.” Id. at 17.
It’s a big deal for the Seventh Circuit to shut down a case in N.D. Cal. Judge Posner pays “respectful attention” to the ruling by the district judge in California certifying the class — even though it’s wrong, wrong, wrong. Id. at 18. Why not wait for the Ninth Circuit to do the right thing and reverse? (Yes, we’re stifling a giggle even as we write that.) Even assuming the Ninth Circuit would eventually step in, in the meantime Sears would suffer “irreparable harm” because the denial of the collateral estoppel defense is an unappealable interlocutory order and there is a real danger that Sears would either have to yield to settlement extortion to avoid “being drowned in the discovery bog.” Id.
And so Judge Posner holds that plaintiffs’ game of whack-a-mole must cease. He orders that further such class actions be enjoined. To the extent that the injunction pertains to state, as opposed to federal, courts, there’s an issue relating to application of the Anti-Injunction Act, 28 USC 2283, as well as the Supreme Court’s grant of certiorari in Smith v. Bayer. Fine, says Posner, issue the injunction anyway, with a right to modification depending on what the Supreme Court eventually does in the Smith case. Slip op. at 24.
We get kidded a lot about our repeated mash notes to Judge Posner. (Since the case is called Thorogood, and since we’re fans of George Thorogood and the Delaware Destroyers, we were tempted to call this post “Who Do You Love.”) That’s actually a tad unfair, inasmuch as we have occasionally differed with Posner opinions. But at least Posner decides things. It’s amazing how many judges hate doing that. Isn’t “deciding things” near the top of the job description for judges? We deal every day with judges who try to bully the parties into agreeing so that the judge won’t have to decide anything. “You’d better work something out, because you’ll both be way unhappier with anything I end up deciding.” Really? Why? Because the decision will be so utterly crazy? Or because the decision will be less about the law and more about an exercise in docket management where the parties are made so miserable that they are forced to settle? Judge Posner recognizes that settlement isn’t always better. In fact, it’s often the product of illegitimate leverage and is bereft of justice. Thorogood part 3 is a brave and brilliant decision. And that’s not just spin.