Court Opinion

ID: 2996677
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:30:42.357877+00
Date Added: 2024-06-11T15:03:12.703621
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 03-1338
THOMAS G. VOLLMER, PEGGY R. POSPESHIL,
MARY KENNAH, ET AL.,
                                 Plaintiffs-Appellees,
                       and

PUBLISHERS CLEARING HOUSE AND CAMPUS
SUBSCRIPTIONS, INCORPORATED,
                                        Defendants-Appellees,
                              v.

LYNDE SELDEN, II   AND   RICHARD H. ROSENTHAL,

                                   Respondents-Appellants.
                         ____________
          Appeal from the United States District Court
               for the Southern District of Illinois.
        No. 99 C 434—G. Patrick Murphy, Chief Judge.
                         ____________
 ARGUED SEPTEMBER 9, 2003—DECIDED NOVEMBER 26, 2003
                    ____________

 Before CUDAHY, EASTERBROOK, and RIPPLE, Circuit
Judges.
  CUDAHY, Circuit Judge. Frederick L. Hawk, represented
by his counsel, Lynde Selden II and Richard H. Rosenthal,
2                                                No. 03-1338

attempted to intervene in this class action. The district
court denied the motion to intervene and sua sponte levied
$50,000 in sanctions against Selden and Rosenthal under
Federal Rule of Civil Procedure 11 (Rule 11). The district
court found that they had failed to properly investigate Mr.
Hawk’s claims and had filed pleadings on his behalf for the
sole purpose of extracting a fee. Selden and Rosenthal
appealed the district court’s imposition of sanctions and
Hawk appealed the denial of intervention. This court
affirmed the denial of intervention but vacated the imposi-
tion of sanctions, finding that the district court improperly
relied on evidence outside of the record and failed to provide
a detailed explanation as to why an “extremely large” sua
sponte levy of sanctions was appropriate. See Vollmer v.
Publishers Clearing House, 248 F.3d 698, 709-12 (7th Cir.
2001) (Vollmer I). On remand, the district court reduced the
sanctions to $35,000 but provided no additional explanation
for the amount and continued to rely on evidence outside of
the record. This appeal followed.
  As in most sequels, virtually nothing has changed since
we last met the characters, precious little of the content
is novel and we find ourselves asking “why are we back
here?” Unlike most sequels, however, we do not lay the
groundwork for a trilogy. For the reasons that follow, we
vacate the district court’s imposition of Rule 11 sanctions.

                              I
                      BACKGROUND
  We will assume familiarity with our prior opinion in this
matter and will repeat only those facts necessary to under-
stand the issues presented in this appeal. See Vollmer I,
248 F.3d at 701-05. On February 3, 1998, Thomas G.
Vollmer filed this class action lawsuit against Publishers
Clearing House (PCH), alleging violations of Illinois
No. 03-1338                                                3

consumer protection laws. The complaint claimed that PCH
fraudulently induced customers to purchase magazines by
falsely suggesting in its advertising that customers could
increase their chances of winning a sweepstakes by making
purchases.
  After a failed motion to dismiss, the parties entered into
a stipulation of settlement, filed with the district court on
June 23, 1999. The district court conditionally certified a
class for settlement purposes and granted preliminary ap-
proval of the settlement. The settlement included remedial
undertakings by PCH aimed at addressing the allegations
raised in the complaint and also provided monetary relief in
the form of refunds for class members who filed a claim
during the claim period. Initially, the settlement contained
a $10 million cap on refunds.
  Hawk, a farm equipment salesman from San Diego,
California, was a past customer of PCH and had received a
notice of settlement in early August 1999. Hawk testified
that shortly thereafter, he contacted Selden, his lawyer and
an appellant. Hawk knew Selden because Hawk’s wife was
an administrator in Selden’s office. Selden, joined by
Rosenthal, contacted class counsel requesting information
and access to documents regarding the settlement, os-
tensibly to determine whether it would be in Hawk’s best
interest to opt out of the settlement class. These requests
were denied by class counsel.
  As a result, on September 13, 1999, Hawk filed a “Petition
to Intervene for Limited Purposes of Viewing Document
Depository,” claiming that intervention was appropriate
under Rule 24(a) (intervention of right) and Rule 24(b)
(permissive intervention). The petition noted that “[b]efore
Intervenor accepts the proffered settlement . . . [he] wants
to view the document depository defendant has made
available to class counsel.” Both class counsel and the
defendants opposed the motion, asserting that Selden and
4                                              No. 03-1338

Rosenthal were “professional objectors” or “claim jumpers”
who filed such claims often in the past, usually without
merit.
  On October 4, 1999, Hawk filed “Intervenor’s Motion to
Invervene” in which he sought to intervene for all purposes.
At that point, the district court seemed inclined to believe
that Hawk meant to intervene to represent others in the
action.
  AARP (formerly known as the American Association of
Retired Persons), along with more than twenty attorneys
general of various states and other individuals who had a
separate class action currently pending against PCH, also
sought to intervene. One month after Hawk sought to in-
tervene, when it became clear that claims would exceed the
$10 million cap, PCH agreed to pay all approved claims in
full.
  At a hearing held regarding the motions to intervene,
Hawk testified that he believed $10 million was insufficient
and would provide only pennies on the dollar. However,
Hawk also testified that he did not know what his losses
were or what he would claim; he enjoyed the magazines he
ordered; he may have entered the sweepstakes as many as
twelve times without purchasing a magazine; he was totally
unaware of the injunctive relief portion of the settlement;
and he did not know what his basis was for asking to
represent other individuals in the lawsuit. Moreover, Hawk
did not recall ever reading the “Motion to Intervene” filed
on his behalf.
  The district court denied Hawk’s motion to intervene and
sua sponte ordered that Selden and Rosenthal show cause
why they had not violated Rule 11(b) and should not be
sanctioned. On February 25, 2000, the district court held a
hearing on Selden and Rosenthal’s objection to the im-
position of Rule 11 sanctions. The district court imposed
$50,000 in sanctions against Selden and Rosenthal, stating
No. 03-1338                                                 5

that Hawk’s lack of a “passing understanding” about the
nature of the settlement showed that he was put forth to
cause delay and increase the cost of litigation so that his
lawyers could extract a fee. The district court judge also
asserted that it had “made it the court’s business to find out
all I can” about the attorneys’ legal practice and that “I
haven’t been able to find anyone anywhere that say these
are recognized class counsel.” The district court concluded
that Selden and Rosenthal were “not real class action
lawyers” but instead that “they follow people around the
country, . . . and then they stick their nose in [a case] and
they extract money.” The district court used the amount of
attorney’s fees necessary to defend against the intervention
as a “marker” in determining the amount of the sanctions
and also said that the amount was necessary to deter such
conduct, given the huge fees available in class action
litigation. See Vollmer I, 248 F.3d at 705.
  On appeal, in an opinion by Judge Ripple, we affirmed the
district court’s denial of the motion to intervene but re-
versed and remanded to address concerns about the
sanctions. This court found, in relevant part, that it was
improper for the district court to rely on evidence not in the
record and the “extremely large” sanctions required a
detailed explanation by the district court—not merely
“cursory” reasoning. Id. at 710-11.
  On remand, the district court issued a new order to show
cause why sanctions should not be imposed. The appellants
provided a written response and also spoke at a hearing on
the imposition of such sanctions. In an order dated January
15, 2003, the district court re-imposed sanctions. While the
new order omitted the previous language suggesting that
the district court had considered facts not within the record,
it nonetheless stated that it “conducted its own research
into other class action litigation involving Selden and
Rosenthal.” App. at 559. Additionally, the district court
reduced the sanctions to $35,000 but provided no additional
6                                                  No. 03-1338

explanation for the amount. Instead, the district court judge
stated, “we’ll see how that fares.” App. at 553. This appeal
followed.

                               II
                        DISCUSSION
   Rule 11 provides that, if an attorney presents a motion to
a court for “any improper purpose, such as to harass or to
cause unnecessary delay or needless increase in the cost of
litigation,” monetary sanctions may be imposed.
Fed. R. Civ. P. 11(b)(1) & (c); Vollmer I, 248 F.3d at 709.
The district court found that Selden and Rosenthal encour-
aged Hawk to intervene for such purposes, solely to enable
themselves to receive a fee as part of this litigation. As
a result, the court, on its own initiative, imposed monetary
sanctions under Rule 11(c)(1)(B), requiring Selden and
Rosenthal to pay $35,000 to the district court. We review all
aspects of the district court’s decision to impose Rule 11
sanctions for abuse of discretion. See Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990); Vollmer I, 248
F.3d at 709.
  We begin our analysis by noting that a judge can sanction
a litigant for filing a frivolous suit or claim regardless of the
motives for such filing. See Reed v. The Great Lakes Co.,
Inc., 330 F.3d 931, 936 (7th Cir. 2003). In this case, how-
ever, the judge never made a finding that Hawk’s interven-
tion was frivolous. App. at 559-60. Such a finding
of frivolousness would have been inappropriate here in light
of the fact that (a) AARP, along with a large number of
attorneys general, also sought to intervene and their claims
were not found frivolous; and (b) the settlement was
significantly improved in favor of the class after Hawk
and the others sought to intervene. See Gottlieb v. Westin
Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993) (“Where Coun-
No. 03-1338                                                  7

sel’s inquiry was objectively reasonable under the circum-
stances of the case . . . Rule 11 sanctions are inappropri-
ate.”). Thus, because Selden and Rosenthal’s attempt to
intervene was not frivolous, this court must decide whether
sufficient evidence supports the district court’s finding of an
improper purpose.
  The district court found that Selden and Rosenthal’s im-
proper purpose was seeking to intervene “solely to extort a
fee for themselves.” App. at 599. Certainly, it is not im-
proper to file a non-frivolous claim in the hope of getting
paid. If it were, every motion for attorney’s fees would
result in sanctions. There are two ways, however, in which
an intervenor might get paid. An intervenor might get paid
by raising the value of a class action settlement and re-
ceiving a percentage of the increase in value or a fixed-
payment for having improved the settlement; on the other
hand, he might intervene and cause expensive delay in the
hope of getting paid to go away. The former purpose for
intervening would be entirely proper, while the latter would
not.
  While the parties to a class action start out in an ad-
versarial posture, once they reach the settlement stage,
incentives have shifted and there is the danger of collusion.
See In re General Motors Corp., 55 F.3d 768, 778 (3d Cir.
1995) (noting that class actions can become a vehicle for
collusive settlements); see also Deborah R. Hensler et al.,
Class Action Dilemmas: Pursuing Public Goals for Private
Gain, 27 (RAND Institute for Civil Justice, 2000) (same).
Class counsel, for instance, might settle claims for signifi-
cantly less than they are worth, not because they think it is
in the class’s best interest, but instead because they are
satisfied with the fees they will take away. See Rand v.
Monsanto Co., 926 F.2d 596, 599 (7th Cir. 1991) (“[T]he
representative and counsel may be tempted to sell out the
class for benefits to themselves.”).
8                                                No. 03-1338

   Intervenors counteract any inherent objectionable tend-
encies by reintroducing an adversarial relationship into the
settlement process and thereby improving the chances that
a claim will be settled for its fair value. See, e.g., Crawford
v. Equifax Payment Services, Inc., 201 F.3d 877, 882 (7th
Cir. 2000) (reversing an order approving settlement based
on an intervenor’s appeal); General Motors, 55 F.3d at 803
(“[W]here there is an absence of objectors, courts lack the
independently-derived information about the merits to
oppose proposed settlements.”). Intervenors have the
potential to play this important role even in the numerous
valid class actions where each plaintiff is seeking to be
compensated only by a few dollars. Cf. Crabill v. Trans
Union, L.L.C., 259 F.3d 662, 665 (7th Cir. 2001) (“[T]he core
function of [the class action] is to enable the litigation of
claims too small to warrant the costs of prosecuting a
separate suit for each claim.”); Rand, 926 F.2d at 599
(“Class actions assemble small claims—usually too small to
be worth litigating separately, but repaying the effort in the
aggregate.”). The slightness of individual recovery does not
make the counsel’s purpose invalid nor his role as objector
less vital. Thus, it would have been proper for Selden and
Rosenthal to file a non-frivolous objection with the purposes
of increasing the value of the settlement and thereby
deriving a fee.
   The district court, however, found that Selden and
Rosenthal’s purpose in seeking to intervene was extortion.
See App. at 559. Extortion is the act or practice of obtaining
something or compelling some action by illegal means, as by
force or coercion. Black’s Law Dictionary (7th ed. 1999). In
the context of intervening in a class action settlement,
extortion would mean intervening not to increase the value
of the settlement, but in order to get paid to go away. As the
district court’s order correctly suggested, this would be an
improper purpose for intervening. This is, in part, because
it would benefit only the intervenors at the expense of all
No. 03-1338                                                  9

other parties to the litigation. Cf. Jeffrey N. Gordon, Ties
That Bond: Dual Class Common Stock and the Problem of
Shareholder Choice, 76 Cal. L. Rev. 1, 12-13 (1988) (noting
in an analogous situation that “greenmailers” who threaten
disruption unless “paid to go away” may decrease share-
holder value).
  Therefore, we must determine whether there is sufficient
evidence in the record to show that Selden and Rosenthal
intervened for the purpose of getting paid to go away. We
find that there is not. The district court relied on (a) Hawk’s
testimony, which it found demonstrated a lack of familiarity
with basic components of the settlement, as well as (b) the
fact that Selden and Rosenthal have sought to intervene in
a number of nationwide class actions. See App. at 559.

  A. Hawk’s Testimony
  Let us assume for the moment that Hawk knew nothing
at all about the settlement in which he was intervening and
in fact thought he was appearing in court on October 4,
1999 to contest a traffic ticket. What would that teach us
about Selden and Rosenthal’s purpose for seeking inter-
vention? Certainly, we could infer that whatever Selden and
Rosenthal’s purpose was in seeking intervention, it was
their own and was not attributable to Hawk. However, it
would be improper to infer from this evidence alone that
Selden and Rosenthal’s purpose was extortion. Selden and
Rosenthal may have been legitimately concerned that the
settlement was inadequate and initiated the intervention
for that reason. Even if they were not, they may have been
motivated to improve the settlement for the class and to
thereby recover a fee, which, as discussed supra, is not
improper if the objection is non-frivolous.
  Although it involves an award of attorney’s fees rather
than Rule 11 sanctions, we find Rothenberg v. Security
10                                                No. 03-1338

Mgmt. Co., Inc. to be instructive on this point. See 736 F.2d
1470, 1472 (11th Cir. 1984). In Rothenberg, Jack and
Shirley Rothenberg had filed individual and derivative
actions against Security Management Corporation. When
their derivative actions were dismissed, the district court
awarded attorney’s fees to the defendant finding that the
derivative actions were brought in bad faith. On appeal, the
Eleventh Circuit considered the two sets of findings on
which the district court based its award:
     In the first set, the [district] court recited those facts
     which supported dismissal of both Jack’s and Shirley’s
     derivative actions: Jack did not own stock in the cor-
     poration at the time the derivative suit was filed and
     Shirley had not read the complaint, had no personal
     knowledge of the facts surrounding the allegations made
     in the complaint, and “displayed an obvious unwilling-
     ness to learn about the suit by not acquiring more than
     a rudimentary understanding of the case.” (citation
     omitted) The second set of findings relates
     to appellants’ motive for bringing the suit: the
     Rothenbergs brought the derivative actions as “lever-
     age” to enhance their personal claims.
Id. (emphasis added). The Eleventh Circuit vacated the
district court’s award, holding that in determining the pro-
priety of the bad faith fee award, the inquiry should focus
primarily on the conduct and motive of a party (the second
set of findings) rather than on what it called the “validity of
the case” (the first set of findings). Id. (citations omitted).
The Eleventh Circuit, found, in essence, that Shirley’s
complete lack of familiarity with the details of the suit was
of minimal relevance in determining whether she brought
the suit for an improper purpose.
  If it is fruitless for a court to attempt to determine the
motive of a named plaintiff based on his or her ignorance of
the case, it would be an even greater inferential leap to use
No. 03-1338                                                    11

the named plaintiff’s ignorance to determine the motive of
his or her attorney. In fact, the district court implicitly
recognized the limited value of determining an attorney’s
motive on the basis of the breadth of his client’s knowledge
when it declined to impose sanctions on another intervenor,
Mr. Hoy, who saw his own complaint for the first time when
he appeared for the hearing on the order to show cause. See
App. at 241; cf. App. at 206-08 (class counsel also asserted
that Hawk was “better prepared in his questions” than Hoy
and another intervenor who was not sanctioned). We find
that, in and of itself, the plaintiff’s level of familiarity with
the details of his case to be of little relevance in determin-
ing the specific purpose of his counsel in initiating such
case.1 It certainly does not show that Selden and Rosenthal
were attempting extortion.

B. History of Intervening
  The district court’s only other given explanation for its
holding that Selden and Rosenthal intervened “solely to
1
  By so holding, this court does not intend in any way to endorse
the practice of putting an ill-informed and ill-prepared plaintiff
before the court. While it may reveal little about whether an
attorney’s purpose in bringing the suit is proper, it may itself be
independently sanctionable conduct. See Vollmer I, 248 F.3d at
709 (“On its own, Mr. Hawk’s testimony and the circumstances
surrounding it would provide sufficient justification for the
imposition of Rule 11 sanctions.”). We decline to remand this issue
to the district court, however, since any proper sua sponte
sanction based solely on Hawk’s testimony would necessarily be
too low to warrant further expenditure of resources. See, e.g.,
Kotsilieris v. Chalmers, 966 F.2d 1181, 1188 n.2 (7th Cir. 1992)
(“Considering the amount of judicial resources that have already
been expended in reviewing this issue, and considering that it
may cost more than the few thousand dollars at stake for courts
and counsel to address this issue on remand, we will not re-
mand.”).
12                                               No. 03-1338

extort a fee for themselves” was its finding that “[t]hese
attorneys have seemingly made intervening in nationwide
class actions a routine practice.” App. at 599. The district
court apparently based this finding on four cases, which it
cited in its order. See In re Synthroid Marketing Litig., 201
F. Supp. 2d 861 (N.D. Ill. 2002); French v. Selden, 59
F. Supp. 2d 1152 (D. Kan. 1999); In re The Prudential Ins.
Co. of Am. Sales Practices Litig., 962 F. Supp. 450 (D.N.J.
1997); White, III v. General Motors Corp., 718 So.2d 480
(La. Ct. App. 1998).
   Even assuming that Selden and Rosenthal have routinely
engaged in a practice of intervening, this finding teaches us
little about the propriety of their motives for intervening in
this case. Each of these past interventions may have been
made out of concern for the class members or at least with
the intention of increasing the value of the settlement. In
fact, with the exception of the case at bar, none of Selden
and Rosenthal’s interventions have ever been found to be
frivolous or motivated by an improper purpose.
  In a recent case, this court reviewed a district court’s sua
sponte award of $1,000 in Rule 11 sanctions based on its
finding that the plaintiff was an “extortionist.” See Reed,
330 F.3d at 936-37. The district court based its finding that
the plaintiff was an extortionist on his 15-year history of
bringing similar lawsuits. This court vacated the district
court’s award because none of the plaintiff’s previous cases
had been adjudged frivolous and the district court did not
find them to be frivolous. Id. (“[T]he sanctions order thus
appears to rest on nothing more solid than the speculation
that Reed is an extortionist. This speculation is too thin to
sustain that order.”). So too, in this case Selden and
Rosenthal’s past objections, which have never been ad-
judged frivolous, cannot form the proper basis of a sanctions
award.
No. 03-1338                                                13

  Although the district court cited no other evidence sup-
porting its finding of an improper motive, we have consid-
ered the record in its entirety and see no other basis upon
which to support the proposition that either Selden or
Rosenthal sought to intervene in order to get paid to go
away or for other improper purposes. At oral argument,
class counsel suggested that the improper purpose could be
inferred from the fact that Selden and Rosenthal ultimately
declined to intervene. We find this fact to be of little
relevance as well. By the time Selden and Rosenthal
declined to intervene, there were numerous good reasons for
them to do so, including the amount of time and effort they
had already expended, and the fact that other capable
objectors had emerged. In sum, we find no evidence in the
record supporting the finding that Selden and Rosenthal
intervened solely to extort a fee, and the imposition of
sanctions was therefore an abuse of discretion.
   Further, the district court disregarded this court’s in-
structions in Vollmer I, in which we indicated that it was
inappropriate for the district court to rely on evidence out-
side of the record and that the court had to provide a more
detailed explanation for such a large award of sanctions.
The district court ignored both instructions. Even after
remand, the district court’s opinion indicated that it “con-
ducted its own research into other class action litigation
involving Selden and Rosenthal” but failed to cite to any
of this research or to indicate what part of the research,
if any, the district court relied on in imposing sanctions.
App. at 559. The few cases cited by the district court in
which Selden and Rosenthal allegedly intervened were not
the result of the court’s “own research,” since they had been
repeatedly cited by the class since the two filed objections
with the court. Further, the district court failed to provide
any additional explanation for the exceptionally large
sanctions. Instead, the district court arbitrarily reduced its
sanctions from $50,000 to $35,000 stating, “we’ll see how
14                                               No. 03-1338

that fares.” Given that in Vollmer I we suggested that $500-
$1,000 was an appropriate amount for sanctions imposed
sua sponte, we find that $35,000 in sanctions fares pretty
poorly.
  Finally, we reiterate that even if we had found sanctions
to be appropriate in this case, absent extraordinary cir-
cumstances not shown here, sua sponte sanctions are gen-
erally limited to several thousand dollars. See, e.g., In re
Bagdade, 334 F.3d 568, 571-72 (7th Cir. 2003) (imposing a
$1,000 sua sponte sanction); Powers v. Duckworth, No. 90-
2492, 1995 WL 496751, at *3 (7th Cir. 1995) (upholding
$500 sua sponte sanctions); Burda v. M. Ecker Co., 2 F.3d
769, 776 (7th Cir. 1993) (reducing sua sponte sanction from
$2,500 to $1,000). Given the resources already devoted to
this issue and the potential additional costs of litigating it
further, we would decline to remand. See Kotsilieris, 966
F.2d at 1188 n.2 (declining to remand sanctions in a case
where the court found it would not be worth the expendi-
ture of further resources).

                      CONCLUSION
 For the foregoing reasons, we VACATE the imposition of
Rule 11 sanctions.

  RIPPLE, Circuit Judge, concurring in the judgment. In my
view, the district court could have sustained Rule 11
sanctions solely on the fact that counsel had offered
Mr. Hawk as a party. However, the district court was not
No. 03-1338                                                15

required to rest its determination solely on this factor, and,
indeed, it did not. Rather, it premised its imposition of
sanctions not only on that ground but also on the ground
that counsel had engaged in a pattern of conduct that
amounted to “claim jumping.” This latter reason is certainly
not supported by the record.
  Having afforded the district court a second opportunity to
ground the award of sanctions on a specific and appropriate
basis, I do not think that we need to give it a third chance.
See Kotsilieris v. Chalmers, 966 F.2d 1181, 1188 n.2 (7th
Cir. 1992). Accordingly, I join the judgment of the court.

A true Copy:
       Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—11-26-03