Sears class decertified at 7th Circuit; Lawyer tactics skewered as 'close to settlement extortion'

Steve Korris Nov. 10, 2010, 2:43am


CHICAGO – U.S. Seventh Circuit appeals judges accused lawyers Clinton Krislov and Mark Boling of tactics close to extortion in a class action against retailer Sears Roebuck, and they backed up the accusation with a letter from Boling himself.

They attached it to a Nov. 2 opinion enjoining him and Krislov from pursuing a class action that the Seventh Circuit previously rejected.

"As we progress through the various significant stages of this litigation, the cost of settlement will necessarily increase," Boling wrote after District Judge Claudia Wilken of Oakland, Calif. authorized discovery in a similar action against Sears.

"There can be no vindication for defendants in this case, only damage control," Boling wrote.

"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," he wrote.

"I trust that good business judgment will prevail by all parties," he wrote.

Circuit Judge Richard Posner stopped short of calling the letter extortion, but he used the word four times in a broad assault on class action abuse.

Krislov client Steven Thorogood of Tennessee originally sued Sears in Illinois state court, claiming it falsely advertised stainless steel drums on Kenmore clothes dryers.

Thorogood alleged that part of the front of the drum was made of steel with a ceramic coat rather than with chromium that would make it stainless.

He claimed the drum rusted and the rust stained his clothes.

He sought to represent half a million dryer buyers in 28 states.

Sears removed the suit to federal court in Chicago, where District Judge Harry Leinenweber certified it as a class action.

Seventh Circuit judges reversed Leinenweber and ordered him to decertify it.

Posner's current opinion summarized the earlier one by calling the case a notably weak candidate for class treatment.

"It was well nigh inconceivable that the other members of the class had the same understanding of Sears's advertising as Thorogood claimed to have," he wrote.

Stainless steel doesn't rust but ceramic doesn't rust either, he wrote.

Posner branded Thorogood's concerns as a confabulation.

After the Seventh Circuit decertified the action, Sears offered Thorogood $20,000 in damages and attorney fees.

Leinenweber dismissed the suit because the offer exceeded a $3,000 limit on damages under Tennessee consumer fraud law.

Thorogood appealed for reimbursement of $246,000 in attorney fees, but the Seventh Circuit rejected his argument that the settlement offer vindicated his claim.

"The argument for attorneys' fees was beyond weak," Posner wrote.

"Sears was paying to rid itself of a nuisance," he wrote.

Posner wrote that Krislov told Leinenweber he needed a judgment on the individual claim so he could preclude Sears from defending itself in other courts.

Krislov "was already planning to circumvent our order decertifying the class by bringing class actions elsewhere," Posner wrote.

"The California suit here sought to be enjoined will be the precursor to other class actions materially identical to Thorogood's," he wrote.

"For lawyer Krislov is nothing if not determined, indeed pugnacious."

Judge Wilken allowed plaintiff Martin Murray to begin discovery, Posner wrote.

Sears sought an injunction from Leinenweber, who denied it and held that Sears could pursue other remedies against repetitive litigation, Posner wrote.

The Seventh Circuit reversed Leinenweber at high speed, deciding the case three weeks after the parties submitted it.

Posner agreed there is no basis for an injunction if there is an adequate remedy.

"But this case is unusual both because it involves class action litigation and because of the specific tactics employed by class counsel, which include, as we'll see, something close to settlement extortion," he wrote.

He called class action a worthwhile device but wrote that it lends itself to abuse.

Class members are interested in relief but lawyers are interested in fees, he wrote.

Posner also wrote that stakes for class members are ordinarily too small to motivate them to align the incentives of lawyers with their own and that defendants are willing to trade small damages for high attorney fees.

"These convergent incentives forge a community of interest between class counsel, who control the plaintiffs' side of the case, and the defendants, but may leave the class members out in the cold," he wrote.

A judge's responsibility to prevent lawyers from selling out a class is "difficult to discharge when the judge confronts a phalanx of colluding lawyers," he wrote.

Class action enhances the risk of costly error, creating pressure for settlements out of proportion to the merits of a suit, he wrote.

A company sued a number of times for selling a defective product will win some and lose some, so the aggregate outcome reflects the expected value of the claims, he wrote.

"But when the central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice."

The risk becomes asymmetric when the number of claims is so great that an adverse verdict would push a defendant into bankruptcy, he wrote.

That "in such a case the defendant will be under great pressure to settle even if the merits of the case are slight," he wrote.

"A small probability of a large dollar loss can be a large dollar figure.

"A variant of this problem arises when class counsel can, as they are attempting to do in their scorched earth campaign against Sears, increase the number of throws of the litigation dice."

The cost of pretrial discovery is additionally adverse to defendants, he wrote.

"One purpose of discovery – improper and rarely acknowledged but pervasive – is: It makes one's opponents spend money," he wrote.

In most class actions, plaintiffs can discover far more in defense records than vice versa, he wrote.

He included email, "the vast and ever expanding volume of which has made the cost of discovery soar."

"[P]laintiffs will want to rummage in quest for smoking guns," he wrote.

The merit of the Murray and Thorogood cases was slight but pressure on Sears would mount if discovery continued, he wrote.

Posner quoted Boling's letter telling Sears that discovery would involve "delving into the full extent" of wrongdoing to justify equitable relief and punitive damages.

He quoted Boling on costs increasing and an olive branch.

"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 that considerable cost of responding to class counsel's distended project of 'delving' and assume the risk of a very large adverse judgment," Posner wrote.

"The threat to turn the screws on Sears is all the more credible because Murray's suit is a duplicate of Thorogood's, with just enough differences to confuse the district judge in California.

Without an injunction, nothing stood in the way of Krislov filing carbon copy class actions against Sears in other states, he wrote.

Murray's case was removed to federal court in California last December and as of early October had accrued 126 docket entries, he wrote.

"There is no way in which Sears can recoup the expense of responding to Murray's extravagant discovery requests and of filing preclusion defenses against duplicative class actions in other states," he wrote.

"The harm it faces from the denial of the injunction is irreparable and its remedy at law against settlement extortion nonexistent."

He expressed respectful attention to Wilken's ruling but added, "The judge has misunderstood both the ads and our opinion."

"The finding is that common issues did not predominate in Thorogood's suit," Posner wrote. "Well, neither do they in Murray's."

"If Krislov and the other class counsel are not enjoined, they will continue their state by state quest for certification and will doubtless be able to find at least one lad plaintiff in every state," he wrote.

Class members must be enjoined as well as lawyers, "so that additional Murrays don't start popping up, class action complaint in hand, all over the country, represented by other members of the class action bar," he wrote.

He directed Leinenweber to apply the injunction to state as well as federal courts.

Circuit Judge Michael Kanne and Senior Judge Terence Evans joined the opinion.

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