In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 04-8008, 04-8009

LYNNE A. CARNEGIE, on behalf of herself

and all others similarly situated,

Plaintiff-Appellee,

v.

HOUSEHOLD INTERNATIONAL, INC., et al.,

Defendants-Appellants.

____________

Petitions for Permission to Appeal

an Order Granting Class Certification.

No. 98 C 2178—Elaine E. Bucklo, Judge.

____________

SUBMITTED MAY 15, 2004—DECIDED JULY 16, 2004

____________

Before CUDAHY, POSNER, and ROVNER, Circuit Judges.

POSNER, Circuit Judge. We have consolidated for decision

petitions, by two groups of defendants in a consumerfinance class action litigation, for leave to appeal an order

by the district court certifying a plaintiff class. Fed. R. Civ.

P. 23(f) authorizes us to entertain such interlocutory appeals. The rule does not state criteria for the exercise of this

discretionary authority. But the case law teaches that the
2 Nos. 04-8008, 04-8009

more novel the issue presented by the appeal and so the less

likely that the district court’s resolution of it will stand, the

more important the resolution of the issue is either to the

particular litigation or to the general development of class

action law, and the more likely the prompt resolution of the

issue is to expedite the litigation and prevent a coercive

settlement, the stronger the case for allowing the appeal.

E.g., In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1016 (7th

Cir. 2002); Blair v. Equifax Check Services, Inc., 181 F.3d 832,

834-35 (7th Cir. 1999); Newton v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 259 F.3d 154, 164 (3d Cir. 2001); Prado-Steiman

v. Bush, 221 F.3d 1266, 1278 (11th Cir. 2000); Waste Management Holdings, Inc. v. Mowbray, 208 F.3d 288, 294 (1st Cir.

2000). The issues that the petitions ask us to consider, in the

setting of a class of millions, concern, first, the procedures

and criteria for converting a settlement class into a litigation

class when having initially been approved the settlement is

later disapproved, and, second, the bearing of the doctrine

of judicial estoppel on class action litigation. These are novel

issues whose prompt resolution is important to the development of the law of class actions as well as to the resolution

of the present case. The petitions to appeal are therefore

granted. The merits of the appeals have been fully briefed

and we can therefore proceed to decide them without

requiring further briefing.

The litigation arose out of refund anticipation loans made

jointly by the defendants, who for simplicity we’ll refer to as

“the bank” and “the tax preparer.” When the tax preparer

files a refund claim with the Internal Revenue Service on

behalf of one of its customers, the customer can expect to

receive the refund within a few weeks unless the IRS

decides to investigate the return. Even a few weeks is too

long for the most necessitous taxpayers, and so the bank

will lend the customer the amount of the refund for the

period between the filing of the claim and the receipt of the
Nos. 04-8008, 04-8009 3

refund. The annual interest rate on such a “refund anticipation loan” (RAL) will often exceed 100 percent. Although

the bank is the lender, the tax preparer arranges the loan. It

is contended that the customer is told neither that the bank

pays the tax preparer a fee for having generated the loan nor

that the tax preparer receives an ownership interest in the

loan.

Beginning in 1990 a number of class-action suits were

brought against the defendants on behalf of a total of 17

million refund-anticipation borrowers, charging violations

of various state and federal laws, including RICO. The basic

claim is that the defendants lead the borrowers to believe

that the tax preparer is their fiduciary, much as if they had

hired a lawyer or an accountant to prepare their income tax

returns, as affluent people do, whereas, unbeknownst to

them, the tax preparer is engaged in self-dealing. This

conduct is alleged to constitute a scheme to defraud in

violation of the federal mail- and wire-fraud statutes. Violations of those statutes are “predicate offenses” that can

form the basis of a RICO charge.

In 1999 the named plaintiff in one of the suits entered into

a settlement agreement with the bank and the tax preparer.

This was to be a “global” settlement: the members of all the

classes would divide up a $25 million fund put up by the

defendants in exchange for the release of all claims arising

out of the RALs. The district judge approved the settlement

and enjoined (with one exception) the other RAL class

actions, Zawikowski v. Beneficial National Bank, No. 98 C 2178,

2000 WL 1051879 (N.D. Ill. July 28, 2000), but we reversed,

Reynolds v. Beneficial National Bank, 288 F.3d 277 (7th Cir.

2002), on the ground that the district judge had failed to

scrutinize the fairness of the settlement adequately. We

were concerned that the settlement might have been the

product of collusion between the defendants, eager to
4 Nos. 04-8008, 04-8009

minimize their liability, and the class lawyers, eager to

maximize their fees.

The district judge to whom the case was reassigned on

remand concluded that the settlement had indeed been unfair and disapproved it. 260 F. Supp. 2d 680 (N.D. Ill. 2003).

There was no appeal. The proceedings continued in the

district court, with both the named plaintiff and the class

counsel replaced. Although no class had formally been

certified in the earlier proceedings, rather than require the

new plaintiff to move for certification the judge asked the

defendants for their objections to certification, and they

responded. She agreed with some of the objections, rejected

others, and, in effect, certified the same class that had been

contemplated by the rejected settlement, which is to say all

RAL borrowers (with a few exceptions) whose claims

weren’t barred by the statute of limitations. But she limited

the certification to prosecution of just the RICO claim, plus

one breach of contract claim involving the law of only one

state.

The defendants object mainly to the procedure the judge

employed and to the brevity with which she pronounced

the class manageable despite its vast size. In the previous

round of this protracted litigation the defendants had urged

the district court to accept the giant class as appropriate for

a global settlement, had prevailed in their urging, and so are

now precluded by the doctrine of judicial estoppel, see, e.g.,

New Hampshire v. Maine, 532 U.S. 742 (2001), from challenging its adequacy, at least as a settlement class (the significance of this qualification will appear in due course). It is

true that we reversed the district court’s approval of the

settlement, but a reversal need not affect the application of

judicial estoppel. In re Cassidy, 892 F.2d 637, 641 (7th Cir.

1990); Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 398-99

(5th Cir. 2003); U.S. Philips Corp. v. Sears Roebuck & Co., 55
Nos. 04-8008, 04-8009 5

F.3d 592, 597 (Fed. Cir. 1995); cf. 18B Charles Alan Wright,

Arthur R. Miller & Edward H. Cooper, Federal Practice and

Procedure § 4477 (2d ed. 2002). The reason lies in the purpose

of the doctrine. The canonical statement of that purpose is

that it is “to protect the integrity of the judicial process.”

E.g., New Hampshire v. Maine, supra, 532 U.S. at 749-50;

United States v. Christian, 342 F.3d 744, 747 (7th Cir. 2003).

But we have been a little more precise. We have said that “a

party who prevails on one ground in a lawsuit cannot turn

around and in another lawsuit repudiate the ground. If

repudiation were permitted, the incentive to commit perjury

and engage in other litigation fraud would be greater. A

party envisaging a succession of suits in which a change in

position would be advantageous would have an incentive

to falsify the evidence in one of the cases, since it would be

difficult otherwise to maintain inconsistent positions.”

McNamara v. City of Chicago, 138 F.3d 1219, 1225 (7th Cir.

1998) (citations omitted). In other words, “the purpose of

the doctrine . . . is to reduce fraud in the legal process by

forcing a modicum of consistency on a repeating litigant.”

Ladd v. ITT Corp., 148 F.3d 753, 756 (7th Cir. 1998); see also

Bethesda Lutheran Homes & Services, Inc. v. Born, 238 F.3d 853,

858 (7th Cir. 2001).

The antifraud policy that animates the doctrine is fully

engaged when a party obtains a judgment on a ground that

it later repudiates, even if his opponent, the loser in that first

case, is able, obviously at some expense to itself but also

placing a demand on judicial resources, to get the judgment

reversed. Anyway the defendants benefited from the

temporary approval of the settlement, which they used to

enjoin other RAL litigation against them; and having reaped

a benefit from their pertinacious defense of the class treatment of the case for purposes of settlement they cannot now

be permitted to seek a further benefit from reversing their

position.
6 Nos. 04-8008, 04-8009

It is true that we went on to say in McNamara that “the

doctrine of judicial estoppel requires . . . that the party

sought to be estopped have obtained a favorable judgment

or settlement on the basis of a legal or factual contention

that he wants to repudiate in the current litigation. Otherwise it would be inconsistent with the rule that permits

inconsistent pleadings.” 138 F.3d at 1225. But the defendants

did obtain a judgment. The fact that it was reversed on

appeal has nothing to do with a party’s right to explore

inconsistent alternative positions in the early stages of a

lawsuit. 

The defendants are correct, however, that a class might be

suitable for settlement but not for litigation. The class might

be unmanageable if the case were actually tried yet manageable as a settlement class because the settlement might

eliminate all the thorny issues that the court would have to

resolve if the parties fought out the case. Amchem Products,

Inc. v. Windsor, 521 U.S. 591, 620 (1997). But although the

district judge might have said more about manageability,

the defendants have said nothing against it except that there

are millions of class members. That is no argument at all.

The more claimants there are, the more likely a class action

is to yield substantial economies in litigation. It would

hardly be an improvement to have in lieu of this single class

action 17 million suits each seeking damages of $15 to $30.

The rejected settlement capped damages at these amounts

for single and multiple RALs respectively, and while the

amounts may be too low they are indicative of the modest

stakes of the individual class members. The realistic alternative to a class action is not 17 million individual suits, but

zero individual suits, as only a lunatic or a fanatic sues for

$30. But a class action has to be unwieldy indeed before it

can be pronounced an inferior alternative—no matter how

massive the fraud or other wrongdoing that will go unpunished if class treatment is denied—to no litigation at all.
Nos. 04-8008, 04-8009 7

Often, and possibly in this case as well, there is a big

difference from the standpoint of manageability between

the liability and remedy phases of a class action. The number of class members need have no bearing on the burdensomeness of litigating a violation of RICO. Whether

particular members of the class were defrauded and if so

what their damages were are another matter, and it may be

that if and when the defendants are determined to have

violated the law separate proceedings of some character will

be required to determine the entitlements of the individual

class members to relief. Fed. R. Civ. P. 23(c)(4)(A); Allen v.

International Truck & Engine Corp., 358 F.3d 469 (7th Cir.

2004); Bell Atlantic Corp. v. AT&T Corp., 339 F.3d 294, 307 n.

16 (5th Cir. 2003); In re Visa Check/MasterMoney Antitrust

Litigation, 280 F.3d 124, 141 (2d Cir. 2001); Robinson v. MetroNorth Commuter R.R., 267 F.3d 147, 168-69 (2d Cir. 2001).

That prospect need not defeat class treatment of the question

whether the defendants violated RICO. Once that question

is answered, if it is answered in favor of the class, a global

settlement along the lines originally negotiated (though

presumably with different dollar figures) will be a natural

and appropriate sequel. And if there is no settlement, that

won’t be the end of the world. Rule 23 allows district courts

to devise imaginative solutions to problems created by the

presence in a class action litigation of individual damages

issues. Those solutions include “(1) bifurcating liability and

damage trials with the same or different juries; (2) appointing a magistrate judge or special master to preside over

individual damages proceedings; (3) decertifying the class

after the liability trial and providing notice to class members

concerning how they may proceed to prove damages; (4)

creating subclasses; or (5) altering or amending the class.”

In re Visa Check/MasterMoney Antitrust Litigation, supra, 280

F.3d at 141.
8 Nos. 04-8008, 04-8009

We did note in our previous decision an unremarked

conflict of interest between those class members who took

out one or two refund anticipation loans and those who

took out more than two and would thus, because of the $30

cap that we just mentioned, receive no compensation for the

additional harm that they suffered. 288 F.3d at 282. But we

went on to say that “in light of the modesty of the stakes

even of class members who had multiple refund anticipation loans and the expense of subdividing the class (and

how many subdivisions would be necessary to reflect the

full range of damages?), we are not disposed to regard this

particular defect in the settlement as fatal.”

The defendants argue that by requiring them to present

their objections to class certification rather than requiring

the plaintiff to move for certification, the district judge

improperly altered the burden of proof on the question

whether the class should be certified. Not so. Although the

plaintiff class had not formally been certified in the earlier

proceedings, that was indeed a formal defect—a technical

oversight that was surprising but from a practical standpoint inconsequential. The case had been settled as a class

action, notices had been sent, objections had been considered and rejected—all on the assumption that a class had

been certified. This was de facto certification, albeit of a

settlement class only, and that was enough, we think, to

empower Judge Bucklo, in the exercise of her discretion to

manage litigation before her in an efficient and expeditious

manner, to require the defendants to list their objections to

the certification of a litigation class, especially since she was

explicit that the burden of persuasion on the validity of the

objections would remain on the plaintiffs. They carried the

burden easily. Remember that the defendants themselves

had argued that the class was appropriate for settlement

purposes. That did not conclude the question whether it was

appropriate for litigation if the settlement fell through, as
Nos. 04-8008, 04-8009 9

we have explained and as the district judge recognized. But

it was some indication that there were issues appropriate for

determination on a class basis.

The defendants argue that the named plaintiff has not

been shown to be an adequate representative of the class,

but the district judge thought otherwise on sufficient

grounds. The defendants also argue that class certification

is barred by collateral estoppel, and this argument requires

a fuller discussion.

In re Bridgestone/Firestone, Inc., Tires Products Liability

Litigation, 333 F.3d 763 (7th Cir. 2003), holds that a judicial

finding that a class should not be certified is, at least in

some circumstances, entitled to collateral estoppel effect—

and in Buford v. H&R Block, Inc., 168 F.R.D. 340 (S.D. Ga.

1996), aff’d, 117 F.3d 1433 (11th Cir. 1997) (per curiam), a

federal district judge refused to certify a nationwide class

action charging, just as in this case, that our defendants’

practices with respect to RALs violated RICO. The judge

recognized that the question whether RICO was violated

was separate from the question whether the targets of the

violation had been injured by the violation. 18 U.S.C.

§ 1964(c); Holmes v. Securities Investor Protection Corp., 503

U.S. 258, 267-68 (1992). The predicate acts in the RICO claim

are violations of the mail- and wire-fraud statutes, and these

statutes are violated by a “scheme or artifice to defraud,” 18

U.S.C. §§ 1341, 1343, whether or not the scheme succeeds

and therefore causes injury. E.g., United States v. Tadros, 310

F.3d 999, 1006 (7th Cir. 2002); United States v. Coffman, 94

F.3d 330, 333-34 (7th Cir. 1996); United States v. Daniel, 329

F.3d 480, 486 (6th Cir. 2003). The separation of liability and

injury issues is illustrated by the suggestion in Moore v.

PaineWebber, Inc., 306 F.3d 1247, 1255-56 (2d Cir. 2002), that

in a suit charging “uniform misrepresentations” the question

whether they were indeed misrepresentations would be
10 Nos. 04-8008, 04-8009

appropriate for class treatment, with the question of reliance, and damages suffered, by individual class members

left for satellite proceedings. See also In re Prudential Ins. Co.

of America Sales Practices Litigation, 148 F.3d 283 (3d Cir.

1998).

The judge in Buford thought, however, that the issue of

violation would be swamped by issues concerning whether

the borrowers had been deceived—had relied on the fraud,

and thus had been injured, whether directly, as in American

Chiropractic Ass’n, Inc. v. Trigon Healthcare Inc., 367 F.3d 212,

233 (4th Cir. 2004); Bank of China v. NBM LLC, 359 F.3d 171,

178 (2d Cir. 2004); Byrne v. Nezhat, 261 F.3d 1075, 1109-10

(11th Cir. 2001), and Summit Properties Inc. v. Hoechst

Celanese Corp., 214 F.3d 556 (5th Cir. 2000), or perhaps, as in

Systems Management, Inc. v. Loiselle, 303 F.3d 100, 104 (1st

Cir. 2002), indirectly. Those issues would have to be resolved separately for each class member. In deciding that

therefore the case was inappropriate for class treatment, the

judge was applying the presumption against class action

certification in RICO cases that has been articulated by the

Fifth Circuit in Sandwich Chef of Texas, Inc. v. Reliance Nat’l

Indemnity Ins. Co., 319 F.3d 205, 219 (5th Cir. 2003). We are

dubious about such a presumption. The question whether

RICO was violated can be separated from the question

whether particular intended victims were injured, and thus

can—or so a district court could determine without being

thought to have abused its discretion—be resolved in a

single proceeding with the issue of injury parceled out to

satellite proceedings, as is frequently done in class action

tort litigation, see, e.g., Exxon Co. v. Sofec, Inc., 54 F.3d 570,

575-76 (9th Cir. 1995); In re Bendectin Litigation, 857 F.2d 290,

308-13 (6th Cir. 1988), of which the RAL class litigation is a

species.

The adequacy of the judge’s reasoning in Buford is not

important, however, if, as the defendants contend, his ruling
Nos. 04-8008, 04-8009 11

is entitled to collateral estoppel effect. But they overread

Bridgestone/Firestone to hold that any ruling denying class

certification is binding in future litigation. Our decision was

more nuanced. See 333 F.3d at 767-69. For example, we

pointed out that the binding effect of such a ruling would

depend on whether the class members who would be

affected by it had been adequately protected by the class

representatives and class counsel in the proceeding in which

the ruling was made. The judge in Buford discussed the

issue of adequacy at some length, however, 168 F.R.D. at

352-55, and we are not disposed to reexamine his ruling. But

it is too late for the defendants to plead collateral estoppel

when, though knowing of the Buford decision, which was

issued in 1996 and affirmed the following year, they insisted

until last year, when the district court on remand from our

decision threw out the settlement, that class treatment of the

RICO claim was entirely appropriate. Until then they

desperately wanted the RICO claim included in the class

settlement so that they wouldn’t have to face it in any other

RAL suits. They prevailed in the present litigation, until the

settlement was finally rejected, by arguing that Buford was

wrong. They are estopped to argue now that it was right.

And anyway collateral estoppel is an affirmative defense

that is forfeited if not raised in timely manner, and it was

not raised in a timely manner in this case.

The defendants tell us that anything that makes it easier

for a settlement class to molt into a litigation class will

discourage the settlement of class actions. They say that

defendants have settled class actions “in the past secure in

the knowledge that if the settlement agreement should

unravel, they would be restored to the pre-certification

position and remain free to defend against any future effort to certify a class for litigation purposes.” But the

defendants in this case were perfectly free to defend against

certification; they just didn’t put up a persuasive defense.
12 Nos. 04-8008, 04-8009

Anyway their argument is unrealistic. The pressures for

settlement of class actions are enormous and will not be

lessened significantly by our upholding the class certification.

We are mindful that no district judge has as yet explicitly

addressed whether the other criteria for class certification,

besides adequacy of representation of the class, have been

met in this case. Those criteria are whether “(1) the class is

so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class; (3)

the claims or defenses of the representative parties are

typical of the claims or defenses of the class.” Fed. R. Civ. P.

23(a). There is no need for a remand on these questions,

however. Criteria (1) and (2) have been met; and the

satisfaction of (3) is implicit in Judge Bucklo’s rejection of

the defendants’ contention that to handle their dispute with

the class members in the class action format would be

unmanageable. There has been substantial compliance with

the requirements of the rule, and no more is required,

Shvartsman v. Apfel, 138 F.3d 1196, 1201 (7th Cir. 1998);

Berger v. Iron Workers Reinforced Rodmen Local 201, 843 F.2d

1395, 1401 (D.C. Cir. 1988), especially in a case in which the

defendants were enthusiastic proponents of class treatment

until their opportunistic change of heart.

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—7-16-04