In four decisions from the past few months, the Seventh Circuit has staked out positions on several cutting-edge consumer class action issues. See In re: Subway Footlong Sandwich Marketing & Sales Practice Litig., 869 F.3d 551 (7th Cir. 2017); Conrad v. Boiron, Inc., 869 F.3d 536 (7th Cir. 2017); Laurens v. Volvo Cars of North America, LLC, 868 F.3d 622 (7th Cir. 2017); and Fulton Dental, LLC v. Bisco, Inc., 860 F.3d 541(7th Cir. 2017). These developments in the case law may have a significant impact on consumer class action strategy for both plaintiffs and defendants alike, and thus warrant a close look.
First, the Seventh Circuit made clear that Rule 23(a)'s adequacy requirement precludes class certification where a class action provides no meaningful relief to the absent class members but rather serves primarily to drive fees to class counsel.
Second, and related to the court's skepticism about frivolous claims propping up class actions, the Seventh Circuit has now held that efforts to obtain injunctive relief will fail if the named plaintiff could not possibly benefit from the prospective relief she seeks.
Third, the Seventh Circuit has now answered no to the question left open by the Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016): whether class action defendants can resolve a named plaintiff's individual claim by depositing funds for the plaintiff with the court. The court of appeals has, however, identified alternative mechanisms for defendants to deal with plaintiffs who unreasonably refuse to settle their claims.
We address each development in turn below.
Rule 23(a)(4) Adequacy in Consumer Class Actions
In Conrad and Subway Footlong, the Seventh Circuit emphasized the importance of weeding out class actions that fail to provide any material benefit to the absent class members. The Seventh Circuit's vigilance on this front dates back to In re Aqua Dots Products Liability Litigation, 654 F.3d 748 (7th Cir. 2011), which explained that courts should use Rule 23(a)(4)'s adequacy requirement—mandating that the class representative "fairly and adequately protect the interests of the class"—to police class actions driven by fees for class counsel and not a genuine desire to aid absentee members of the class. The Seventh Circuit reiterated this point last year in In re Walgreen Co. Stockholder Litig., 832 F.3d 718 (7th Cir. 2016), and now again in Conrad and Subway Footlong.
Each of these decisions holds that class representatives do not act in the best interests of the class when they pursue class actions that incur class costs (in the form of attorneys' fees and notice costs) that "swallow" any potential recovery for the class. That's particularly likely to happen in consumer class actions where the value of each class member's claim for damages is low (often the cost of the product) and plaintiffs can already obtain that money—without filing suit—by asking the defendant for a refund. Because the customer can get the money directly from the defendant, it is hard to see what is added by the litigation. In circumstances like these, when a court cannot "see how the proposed class action benefits anyone but the attorneys who filed it," it should determine that the class representative is not adequate and refuse to certify the class on that basis. Conrad, 869 F.3d at 540-41. Indeed, suits seeking "fees for class counsel" and "only worthless benefits for the class" should be "dismissed out of hand." Subway Footlong, 869 F.3d at 556 (quoting Walgreen¸ 832 F.3d at 724).
Conrad and Subway Footlong illustrate these principles. In Conrad, the plaintiff alleged that he was misled by the labeling on Boiron's homeopathic product because, in his view, the product did not provide the relief it advertised. Boiron (while represented by the authors of this Alert, see Appellate Win for Boiron (Sept. 6, 2017)), successfully resisted class certification on the ground that the company already provided full refunds to unsatisfied customers. The Seventh Circuit affirmed, explaining that Conrad failed "to show that he can bring any significant extra value to the absentee members." 869 F.3d at 541. The court reasoned that the class action was "driven by attorneys' fees," id. at 540, and held that the district court was "well within its rights to refuse to certify Conrad's proposed class," id. at 541.
The Subway case arose in a different posture (after a class action settlement), but the result was the same. In various suits around the country, consumers alleged that Subway was misleading customers because some "footlong" sandwiches actually measured less than 12 inches. Because the sandwiches always contained roughly the same amount of food, the Subway plaintiffs struggled to articulate a damages theory and instead focused on obtaining injunctive relief designed to ensure 12-inch sandwiches in the future. The defendant settled and agreed to implement measures to achieve that goal (though all admitted that it would be impossible). The settlement also provided class counsel with $525,000 for their efforts. Because the Seventh Circuit could not see any way in which the injunctive relief would benefit the class—going so far as to call the settlement's promises of "bread-length uniformity" "utterly worthless"—it agreed with an objector that the district court was wrong to certify the class and approve the settlement. 869 F.3d at 556-57.
Named Plaintiffs Cannot Seek Injunctions That Do Not Benefit Them
The Seventh Circuit also held in Conrad that, just as Rule 23(a)'s adequacy requirement prevents class representatives from pursuing class actions that offer no meaningful relief to class plaintiffs, Article III's standing requirement prevents class representatives from pursuing claims for relief that will not benefit them.
This is often an issue for plaintiffs in the consumer fraud context. At the heart of many consumer fraud claims is the notion that the defendant is unlawfully misleading consumers. Plaintiffs seek injunctive relief asking defendants to stop engaging in the deceptive practices. But it is difficult, if not impossible, for plaintiffs to show how that injunctive relief will benefit them because they are already aware of the practices they claim are misleading and thus will either avoid purchasing the product again or, at the very least, not be taken in by any false promises. Conrad explains that, under these circumstances, "[n]o injunction could … redress any potential injury for [the plaintiff] and that lack of redressability defeats standing." 869 F.3d at 542.
This is a particularly helpful development for consumer class action defendants because it stands as a strong counterpoint to the district courts who have been willing to bend Article III in the consumer fraud context. See, e.g., Leiner v. Johnson & Johnson Consumer Cos., 215 F. Supp. 3d 670, 673 (N.D. Ill. 2016); Larsen v. Trader Joe's Co., No. 11-cv-5188, 2012 WL 5458396, at *3-4 (N.D. Cal. June 15, 2012); Henderson v. Gruma Corp., No. 10-cv-4173, 2011 WL 1362188, at *7-8 (C.D. Cal. Apr. 11, 2011). Those courts—concerned that a strict application of standing doctrine would prevent all injunctions in consumer fraud cases—have not required plaintiffs to demonstrate standing for each form of relief sought. Instead, they have reasoned that plaintiffs can meet Article III's requirements by bootstrapping their claims for injunctive relief to claims they have been harmed by the deceptive practice in the past. Conrad rejected that approach and made plain that such pragmatism cannot substitute for Article III analysis. And that analysis requires a separate showing for each form of relief sought.
Seventh Circuit Removes One More Tool to Force Plaintiffs to Accept Settlements
While the first two developments make it easier for defendants to weed out valueless class actions, the final development makes it easier for plaintiffs to refuse settlement of their individual claims.
Prior to the Supreme Court's decision in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), a common strategy among class action defendants was to make a Rule 68 offer of judgment to the named plaintiff, thereby mooting her individual claim. In Campbell-Ewald, the Court held if the plaintiff rejects such an offer, her claim is not in fact mooted, and she can persist as the named class representative. The Court noted, however, that its decision did not address situations where "a defendant deposits the full amount of the plaintiff's individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount." Id. at 672. Taking up that hypothetical, defendants across the country have attempted to resolve plaintiffs' claims using this approach, specifically relying on Rule 67 to deposit funds in district court's registry in the plaintiff's name.
The Seventh Circuit has not been receptive. In Fulton Dental, the court of appeals held that a Rule 67 deposit of funds no more resolves a plaintiff's claim than does a Rule 68 offer of judgment. Either method amounts to "an unaccepted contract offer." 860 F.3d at 545. Even with the Rule 67 deposit, the plaintiff does not have "a right at any time to withdraw funds" because "funds can be withdrawn from the court's registry only under the control of, and with the permission of, the court." See id. at 545. In other words, the plaintiff still had to take additional steps to obtain the deposited funds from the court's registry. See id. at 545-46. Because that means that the defendant had not actually delivered the funds to the plaintiff, the deposit did not end the case. The Seventh Circuit reached the same result in Laurens and Conrad.
But the news is not all bad for class action defendants. Defendants may still be able to raise affirmative defenses like "payment, estoppel, or waiver" or "accord and satisfaction" based on the defendant's attempt to resolve the lawsuit. See Fulton, 860 F.3d at 544, 546 (citing Chapman v. First Index, Inc., 796 F.3d 783, 787 (7th Cir. 2015)). And if the plaintiff shows "he really has no personal stake in the litigation, the district judge might well question whether it is the appropriate champion for the class." Id. at 546. Moreover, to the extent the plaintiff persists in unreasonably refusing to settle the suit, Conrad identifies alternative tools courts and defendants can use to address "abusive litigation." 869 F.3d at 542. For example, 28 U.S.C. § 1927 authorizes courts to impose sanctions on those who unreasonably or vexatiously multiply the litigation. And Rule 11 can be used to punish frivolous filings. And, perhaps most helpfully, if the defendant does make a Rule 68 offer of judgment and the plaintiff obtains a judgment worth less than that offer, then the plaintiff "must pay the costs incurred after the offer was made." Although it may be harder to force plaintiffs to accept a settlement, these consequences for unreasonable plaintiffs may raise the stakes. Plaintiffs will have to consider carefully whether they should turn down generous settlement offers or deposits.
