Earlier this week, the Seventh Circuit, in an opinion by Judge Richard Posner, granted an injunction to Sears under the All Writs Act to block a class action that had been filed in federal court in California. The opinion, Thorogood v. Sears, Roebuck & Co., is noteworthy for a couple of reasons. First, it extends relief under the All Writs Act to defendants facing copycat class actions in other jurisdictions. Second, it does so in response to a plaintiff's attempt to leverage a settlement using the threat of class-action discovery.
Steven Thorogood, the nominal plaintiff here, filed a class action against Sears after he bought a Kenmore stainless-steel dryer, which, as it turned out, was not 100% stainless steel. Instead,
part of the front of the drum—a part the user would see only if he craned his head inside the drum—is made of a ceramic-coated “mild” steel, which is not stainless steel because it doesn’t contain chromium. Thorogood alleged that the “mild” steel in the drum rusted, and stained his clothes.
His lawyer, Clinton Krislov (who just ran for Illinois comptroller) convinced an Illinois federal trial court to certify a consumer-fraud class, but the Seventh Circuit reversed it on a Rule 23(f) appeal, finding that there were no common issues justifying certification. It later affirmed the denial of attorneys' fees after Sears made an offer of judgment to Thorogood personally.
Undeterred, Krislov filed a copycat class action in California federal court (Murray). The California court originally ruled that it was barred by collateral estoppel, but after a few amendments to the complaint, it reversed its ruling and allowed discovery to begin. At that point, Krislov's co-counsel sent a letter to Sears telling it:
that discovery is proceeding and “will involve Plaintiff’s counsel delving into the full extent of Defendants’ alleged wrongdoing” in order to justify not only equitable relief but also punitive damages—which are potentially very large given the size of the class and the possible preclusive use of any judgments favorable to the plaintiffs in suits brought in other states. The letter continues: “as we progress through the various stages of this litigation, the cost of settlement will necessarily increase . . . . At this point, we may want to consider whether an appropriate olive branch for resolution can be mutually created on a class wide basis commensurate with the status of the case. If interested, please pick up the telephone and call me. In the meantime, Plaintiff will continue to diligently and timely prosecute this case to an appropriate result.” In other words, unless Sears settles now (implicitly for modest relief for the class and an agreement with class counsel to recommend to the judge generous fees for Krislov and Boling), it will incur the considerable cost of responding to class counsel’s distended project of “delving” and assume the risk of a very large adverse judgment.
(Emphasis added.) Faced with the prospect of plaintiffs' counsel commencing invasive and expensive discovery to leverage a settlement, Sears requested an injunction from the Seventh Circuit. The court, in an opinion by Judge Richard Posner, granted the request. After noting the in terrorem effect of plaintiff's discovery threat, he observed that:
quite apart from the green light that such a ruling would give to extortionate class action practice, a denial of relief would make no sense in a case like this, in which the class (Thorogood’s) was certified, albeit later decertified at our direction. Class counsel had and took the opportunity to litigate the certification issue fully—so that to say that a ruling against certification could not be the basis of an injunction would be inconsistent with the doctrine of collateral estoppel itself. There is no denying that a final ruling against certification has collateral estoppel effect. And the basis of the injunction sought in this case is simply the need for enforcing collateral estoppel more effectively than by forcing the defendant to plead it as a defense in case after case.
This is not the first time the Seventh Circuit has granted relief to a class-action defendant under the All Writs Act. But this opinion is noteworthy for the strong language Judge Posner uses in criticizing plaintiff's conduct, and the plain language he uses in describing the dilemma Sears faced. It's also noteworthy for its explicit suggestion that a class-action defendant may seek an injunction before it has to assert collateral estoppel in a new case.
(Also noteworthy, at least for this blog, is that the court cited the Class Acton Playbook in its discussion of plaintiff's strategic use of discovery.)