In the
United States Court of Appeals
For the Seventh Circuit
No. 11-8020
C REATIVE M ONTESSORI L EARNING C ENTERS,
on its own behalf and that of a class,
Plaintiff-Respondent,
v.
A SHFORD G EAR LLC,
Defendant-Petitioner.
Petition for Permission to Appeal from the
United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09 C 3963—Robert W. Gettleman, Judge.
S UBMITTED S EPTEMBER 9, 2011—D ECIDED N OVEMBER 22, 2011
Before E ASTERBROOK, Chief Judge, and C UDAHY and
P OSNER, Circuit Judges.
P OSNER, Circuit Judge. The defendant has asked us
for permission to appeal from the district judge’s certi-
fication of a class in a suit under the Telephone Con-
sumer Protection Act (as amended by the Junk Fax Pre-
vention Act of 2005), 47 U.S.C. § 227. See Fed. R. Civ.
2 No. 11-8020
P. 23(f). The Act imposes, on anyone who sends an unsolic-
ited fax advertisement, statutory damages of $500 per
fax, which can be trebled if the court finds that the viola-
tion was willful or knowing. 47 U.S.C. §§ 227(b)(1)(C),
(b)(3). Such “junk faxes” consume the recipient’s
paper and ink without his consent and are thus a source
of justified though usually minor irritation to recipients
not interested in the advertised product or service.
Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407
F.3d 631, 639 (4th Cir. 2005). The named plaintiff in
this case is complaining about two one-page faxes that,
as we’ll see, it may never even have received. Anyway,
the statute, with its draconian penalties for multiple
faxes, is what it is.
The plaintiff hasn’t responded to the petition for leave
to appeal even though the petition presents issues of
class action practice that deserve our consideration. The
petition presents two questions. The first is whether “only
the most egregious misconduct” by the law firm repre-
senting the class “could ever arguably justify denial of
class status”—the unattainable standard that the
district judge invoked to reject the firm’s misconduct as
a ground for denying class certification. The second
question, which bears more directly on the specifics of
this case, is whether the judge gave proper weight to
the firm’s misleading statements and the risk that the
firm is in this case purely for itself and not for the bene-
fits that the suit if successful might confer on the class.
The resolution of these issues cannot feasibly be post-
poned to an appeal from a final judgment, as there is
No. 11-8020 3
unlikely to be an effectively appealable judgment. Class
actions, unless dismissed at an early stage, are typically
settled rather than litigated to judgment. The settlement
must be approved by the district court, and objectors
can appeal the settlement to the court of appeals, but
it is unlikely that the particular issue raised in
this petition to appeal would be raised in an appeal from
approval of a settlement.
Certification as a class action can “coerce the
defendant into settling on highly disadvantageous terms,
regardless of the merits of the suit,” and in this case is
“highly likely to because of the magnitude of the
potential damages.” 1998 Committee Notes to Fed. R.
Civ. P. 23(f); see also CE Design Ltd. v. King Architectural
Metals, Inc., 637 F.3d 721, 723 (7th Cir. 2011). As explained
in Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675
(7th Cir. 2001) (citation omitted), “the class certification
turns a $200,000 dispute (the amount that Szabo claims
as damages) into a $200 million dispute. Such a claim
puts a bet-your-company decision to Bridgeport’s man-
agers and may induce a substantial settlement even if
the customers’ position is weak. This is a prime occasion
for the use of Rule 23(f), not only because of the pressure
that class certification places on the defendant but also
because the ensuing settlement prevents resolution of the
underlying issues. Accepting an appeal in a big-stakes
case is especially appropriate when the district court’s
decision is problematic, as it is here.” See also West v.
Prudential Securities, Inc., 282 F.3d 935, 937 (7th Cir. 2002)
(“the effect of a class certification in inducing settlement
to curtail the risk of large awards provides a powerful
4 No. 11-8020
reason to take an interlocutory appeal”); Blair v. Equifax
Check Services, Inc., 181 F.3d 832, 834 (7th Cir. 1999) (“this
interaction of procedure with the merits justifies an
earlier appellate look. By the end of the case it will be
too late—if indeed the case has an ending that is subject to
appellate review”); In re New Motor Vehicles Canadian
Export Antitrust Litigation, 522 F.3d 6, 8 (1st Cir. 2008);
Prado-Steiman ex rel. Prado v. Bush, 221 F.3d 1266, 1274-75
(11th Cir. 2000); Janet Cooper Alexander, “Do the Merits
Matter? A Study of Settlements in Securities Class Ac-
tions,” 43 Stan. L. Rev. 497 (1991).
These observations are pertinent to the present case
because the Telephone Consumer Protection Act
imposes potentially very heavy penalties on its viola-
tors—many of whom, quite possibly including tiny Ash-
ford Gear, have never heard of this obscure statute. The
only difference between Szabo v. Bridgeport Machines, Inc.,
supra, and this case is that while in Szabo class certifica-
tion turned a $200,000 dispute (the amount that Szabo
claimed as damages) into a $200 million dispute—a
thousandfold increase—this case turns a dispute of at
most $3,000 (the maximum statutory penalty for the
two unsolicited fax advertisements allegedly, though, as
we’ll note, probably not, received by the plaintiff) into
an $11.11 million suit (assuming no trebling)—an
almost four-thousand-fold increase—against a home-
furnishings wholesaler in California that has three em-
ployees and annual sales of half a million dollars.
w w w . p o w e r p r o f i l e s .c o m / p r o f i l e / 0 0 0 0 5 1 5 0 1 3 1 2 5 4 /
ASHFORD+GEAR,+LLC-GARDENA-CA-(310)+327-4670
(visited Nov. 17, 2011); Dun & Bradstreet Market Identifi-
ers, “Ashford Gear LLC” (2011) (available on Westlaw).
No. 11-8020 5
A class may be certified only if “the trial court is satis-
fied, after a rigorous analysis, that the prerequisites of
Rule 23(a) have been satisfied.” Wal-Mart Stores, Inc. v.
Dukes, 131 S. Ct. 2541, 2551 (2011), quoting General Tele-
phone Co. v. Falcon, 457 U.S. 147, 161 (1982) (emphasis
added); see also, e.g., CE Design Ltd. v. King Architectural
Metals, Inc., supra, 637 F.3d at 723; In re Schering Plough
Corp. ERISA Litigation, 589 F.3d 585, 595-96 (3d Cir.
2009). A rigorous analysis was not conducted.
Class counsel, mainly lawyers from the law firm of
Bock & Hatch, the class counsel in the CE Design case
(a Telephone Consumer Protection Act case in which
we ordered the class decertified), specialize in bringing
class action suits under the Act. The class certified in
this case consists of 14,574 persons, who are alleged
to have received a total of 22,222 unsolicited faxed ad-
vertisements from the defendant.
The lawyers learned about these faxes not from a recipi-
ent, but from a fax broadcaster (Caroline Abraham,
who conducts her business under the name B2B)—a
company that faxes advertisements as an agent of the
advertiser. The lawyers asked her for transmission
reports of faxes that she had sent and information on
how to communicate with the intended recipients, but
promised not to disclose any of this material to a third
party. On the basis of this assurance of confidentiality
she turned over material that evidenced (or so it is al-
leged) faxes of advertisements that Ashford Gear had
sent to the 14,574 persons constituting the class. One of
the recipients was the Creative Montessori Learning
6 No. 11-8020
Center, a private school. www.creativemontessori.com/
about_us.html (visited Nov. 17, 2011). The lawyers
notified Creative Montessori that “during our investiga-
tion, we have determined that you are likely to be a
member of the class. You might not remember receiving
the junk faxes, but if the lawsuit is successful, you would
receive compensation (up to $1,500) for each junk fax
sent. We would like to discuss this issue with you.
Please call me [telephone number].” Which it seems
Creative Montessori did—though actually it seems that
the junk faxes supposedly sent to Creative Montessori
were images from Abraham’s computer of advertise-
ments that never had been sent. Nevertheless Creative
Montessori became the named plaintiff and (therefore)
class representative.
This class action suit is one of more than 50 similar
class action suits based on information from Abraham’s
records concerning firms that used her faxing services
and the recipients of the faxes.
The defendant urged the district court to deny class
certification, arguing that class counsel’s misconduct
showed that counsel would not adequately represent
the class. The district judge found that there had
indeed been misconduct by the lawyers. The misconduct
had taken two forms: obtaining material from Abraham’s
files on the basis of a promise of confidentiality that
concealed the purpose of obtaining the material, a
purpose inconsistent with maintaining confidentiality
and likely to destroy Abraham’s business; and implying
in the letter to Creative Montessori that there already
No. 11-8020 7
was a certified class to which the school belonged. (This
second allegation would constitute misconduct not
because the lawyers communicated with a potential class
action plaintiff personally, but because the communica-
tion was misleading.) But the judge ruled that the
proper sanction for these wrongful acts was discipline
by the bar authorities, and that the acts cast no shadow
on the adequacy of class counsel to represent the class.
But class counsel have demonstrated a lack of integrity
that casts serious doubt on their trustworthiness as repre-
sentatives of the class. Fed. R. Civ. P. 23(a)(4), (g). There
is no basis for confidence that they would prosecute
the case in the interest of the class, of which they are the
fiduciaries, Culver v. City of Milwaukee, 277 F.3d 908, 913
(7th Cir. 2002); In re Pharmaceutical Industry Average Whole-
sale Price Litigation, 588 F.3d 24, 36 n. 12 (1st Cir. 2009);
Rodriguez v. West Publishing Corp., 563 F.3d 948, 968
(9th Cir. 2009); Sondel v. Northwest Airlines, Inc., 56 F.3d
934, 938 (8th Cir. 1995), rather than just in their interest
as lawyers who if successful will obtain a share of any
judgment or settlement as compensation for their efforts.
Class counsel owe a fiduciary obligation of particular
significance to their clients when the class members are
consumers, who ordinarily lack both the monetary stake
and the sophistication in legal and commercial matters
that would motivate and enable them to monitor the
efforts of class counsel on their behalf. Culver v. City of
Milwaukee, supra, 277 F.3d at 913; In re Cendant Corp.
Securities Litigation, 404 F.3d 173, 186-87 (3d Cir. 2005);
Samuel Issacharoff, “Governance and Legitimacy in the
8 No. 11-8020
Law of Class Actions,” 1999 S. Ct. Rev. 337, 371-72; Jona-
than R. Macey & Geoffrey P. Miller, “The Plaintiffs’ Attor-
ney’s Role in Class Action and Derivative Litigation:
Economic Analysis and Recommendations for Reform,”
58 U. Chi. L. Rev. 1, 19-20 (1991). That is why settlements
of class actions require approval by the district court,
Fed. R. Civ. P. 23(e); Reynolds v. Beneficial National Bank,
288 F.3d 277, 279-80 (7th Cir. 2002); In re Cendent Corp.
Litigation, 264 F.3d 201, 282 (3d Cir. 2001); United States v.
City of Miami, 614 F.2d 1322, 1330-31 (5th Cir. 1980), while
settlements of suits that are not class actions do not,
with a few exceptions, such as shareholder derivative
suits (which resemble class actions). The court takes
the place, as monitor of counsel, of the nominal clients.
That is a difficult role for a court to play—accustomed
as judges in our system are to playing the role of arbiter
of an adversary proceeding rather than imitating a
Continental-style investigating magistrate—when faced
with an alliance of the supposed adversaries (unless
there is an objector). Alleghany Corp. v. Kirby, 333 F.2d
327, 347 (2d Cir. 1964) (Friendly, J., dissenting); Edward
Brunet, “Class Action Objectors: Extortionist Free Riders
or Fairness Guarantors,” 2003 U. Chi. Legal Forum 403, 405-
06; Samuel Issacharoff, “Class Action Conflicts,” 30 U.C.
Davis L. Rev. 805, 829 (1997); John C. Coffee, Jr., “Under-
standing the Plaintiff’s Attorney: The Implications of
Economic Theory for Private Enforcement of Law through
Class and Derivative Actions,” 86 Colum. L. Rev. 669, 714
(1986). As Professor Coffee put it in another article, “the
trial court’s approval is a weak reed on which to rely
once the adversaries have linked arms and approached
No. 11-8020 9
the court in a solid phalanx seeking its approval.” Coffee,
“The Unfaithful Champion: The Plaintiff as Monitor
in Shareholder Litigation,” 48 Law & Contemp. Probs. 5, 26-
27 (Summer 1985).
We and other courts have often remarked the incentive
of class counsel, in complicity with the defendant’s coun-
sel, to sell out the class by agreeing with the defendant
to recommend that the judge approve a settlement in-
volving a meager recovery for the class but generous
compensation for the lawyers—the deal that promotes
the self-interest of both class counsel and the defendant
and is therefore optimal from the standpoint of their
private interests. Reynolds v. Beneficial National Bank,
supra, 288 F.3d at 279; Culver v. City of Milwaukee, supra,
277 F.3d at 910; Greisz v. Household Bank (Illinois), N.A., 176
F.3d 1012, 1013 (7th Cir. 1999); Duhaime v. John Hancock
Mutual Life Ins. Co., 183 F.3d 1, 7 (1st Cir. 1999); In re
General Motors Corp. Pick-Up Truck Fuel Tank Products
Liability Litigation, 55 F.3d 768, 805 (3d Cir. 1995); Plummer
v. Chemical Bank, 668 F.2d 654, 658 (2d Cir. 1982). When
class counsel have demonstrated a lack of integrity, a
court can have no confidence that they will act as con-
scientious fiduciaries of the class. 7A Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice and Procedure § 1769.1, pp. 468-69 (3d ed. 2005); see,
e.g., Wagner v. Lehman Bros. Kuhn Loeb Inc., 646 F. Supp.
643, 661-62 (N.D. Ill. 1986); Stavrides v. Mellon National
Bank & Trust Co., 60 F.R.D. 634, 637 (W.D. Pa. 1973); see
also Kirkpatrick v. J.C. Bradford & Co., 827 F.2d 718, 726
(11th Cir. 1987); cf. Howard v. Ray’s LLC, No. 1:08-cv-627-
RLY-MJD, 2011 WL 4625735, at *5 (S.D. Ind. Sept. 30, 2011).
10 No. 11-8020
To suggest as the district court did that “only the
most egregious misconduct” by class counsel should
require denial of class certification on grounds of lack
of adequate representation was bad enough. To rule that
only the most egregious misconduct “could ever arguably
justify denial of class status,” as the court went on to
hold, would if taken literally condone, and by condoning
invite, unethical conduct. Misconduct by class counsel
that creates a serious doubt that counsel will represent
the class loyally requires denial of class certification. See
Culver v. City of Milwaukee, supra, 277 F.3d at 913.
It is true that the language we quoted from the district
judge comes originally from one of our own opin-
ions—Halverson v. Convenient Food Mart, Inc., 458 F.2d 927,
932 (7th Cir. 1972). But it was a throwaway line in
that opinion. The court had already decided that class
counsel had committed only a “slight,” and in fact harm-
less, breach of ethics. Id. at 931. It cited with apparent
approval two district court decisions that had “denied
class status to plaintiffs whose attorneys were guilty of
misconduct,” noting that the misconduct had been “seri-
ous.” Id. at 931-32, citing Taub v. Glickman, No. 67 Civ. 3447,
1970 WL 210, at *2-3 (S.D.N.Y. Dec. 1, 1970); Korn v.
Franchard Corp., No. 67 Civ. 3445, 1970 WL 3481, at *3
(S.D.N.Y. Oct. 22, 1970), though adding that “there were
other circumstances pointing to denial of class status,”
id. at 932, and noting noncommittally that “in Kronenberg
v. Hotel Governor Clinton, Inc., 281 F. Supp. 622 (S.D.N.Y.
1968), where the misconduct was serious, the court took
a liberal view of Rule 23,” 458 F.3d at 921, and refused to
revoke its certification of the class represented by the
No. 11-8020 11
lawyers who had engaged in the misconduct. A serious
or, equivalently, a “major” ethical violation, Busby v.
JRHBW Realty, Inc., 513 F.3d 1314, 1324 (11th Cir. 2008),
should place on class counsel a heavy burden
of showing that they are adequate representatives of
the class.
Moreover, Halverson dates from an era before
concerns with the adequacy of representation by class
counsel had become acute, despite Judge Friendly’s
prescient dissent in Alleghany Corp. v. Kirby, supra, warning
of the problem. In response to growing concerns with
the adequacy of representation by class counsel,
Rule 23 was amended in 2003—long after Halverson—by
the addition of a new subsection, (g), “to guide the court
in assessing proposed class counsel as part of the certif-
ication decision.” Committee Note to 2003 Amendments
to Rule 23, Subdivision (g). The new subsection em-
phasizes that class counsel must “fairly and adequately”
represent the entire class. Fed. R. Civ. P. 23(g)(1)(B). There
is reason to doubt that class counsel in this case will
do that. The certification of the class is therefore vacated
and the case remanded with directions that the district
court, applying the Culver standard rather than the
“egregious misconduct” standard, re-evaluate the
gravity of class counsel’s misconduct and its implica-
tions for the likelihood that class counsel will adequately
represent the class.
V ACATED AND R EMANDED,
WITH D IRECTIONS.
11-22-11