Court Opinion

ID: 2708478
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:00:10.73748+00
Date Added: 2024-06-11T09:15:55.956883
License: Public Domain

In the

      United States Court of Appeals
                     For the Seventh Circuit
                          ____________________  

No.  14-­‐‑1532  
IN  THE  MATTER  OF:  
         IKO  ROOFING  SHINGLE  PRODUCTS  LIABILITY  LITIGATION  

APPEAL  OF:  
         DEBRA  ZANETTI,  et  al.,  on  behalf  of  a  proposed  class  
                          ____________________  

                Appeal  from  the  United  States  District  Court  
                       for  the  Central  District  of  Illinois.  
                 No.  09-­‐‑md-­‐‑2104  —  Harold  A.  Baker,  Judge.  
                          ____________________  

           ARGUED  JUNE  5,  2014  —  DECIDED  JULY  2,  2014  
                     ____________________  

   Before  WOOD,  Chief  Judge,  and  EASTERBROOK  and  KANNE,  
Circuit  Judges.  
    EASTERBROOK,  Circuit  Judge.  Purchasers  of  organic  asphalt  
roofing  shingles  in  many  states  have  filed  suits  against  IKO  
Manufacturing  and  affiliated  firms,  contending  that  it  falsely  
told  customers  that  these  shingles  met  an  industry  standard  
known  as  ASTM  D225,  and  that  compliance  had  been  ascer-­‐‑
tained   by   use   of   a   testing   protocol   known   as   ASTM   D228.  
What  distinguishes  an  “organic”  asphalt  tile  is  the  inclusion  
2                                                                     No.  14-­‐‑1532  

of  a  layer  made  from  felt  or  paper;  tiles  that  include  a  fiber-­‐‑
glass  layer  are  not  called  organic,  even  though  asphalt  itself  
has   organic   components.   We   omit   other   details   about   the  
tiles  and  the  standards,  for  the  merits  of  plaintiffs’  claims  are  
not  material  to  the  current  dispute.  
      In   2009   the   Panel   on   Multidistrict   Litigation   transferred  
all   of   the   federal   suits   to   the   Central   District   of   Illinois   for  
consolidated   pretrial   proceedings   under   28   U.S.C.   §1407.  
Plaintiffs  asked  the  court  to  certify  a  class  that  would  cover  
IKO’s   sales   in   eight   states   since   1979.   The   court   declined,  
2014   U.S.   Dist.   LEXIS   80243   (C.D.   Ill.   Jan.   28,   2014),   and   we  
granted  the  plaintiffs’  request  for  interlocutory  review  under  
Fed.  R.  Civ.  P.  23(f).  
     Before   addressing   plaintiffs’   arguments   about   the   class-­‐‑
certification   decision,   we   must   consider   whether   the   judge  
who  denied  plaintiffs’  motion  had  authority  to  preside  over  
the  litigation.  Section  1407(b)  provides  that  the  “pretrial  pro-­‐‑
ceedings   shall   be   conducted   by   a   judge   or   judges   to   whom  
such   actions   are   assigned   by   the   judicial   panel   on   multidis-­‐‑
trict   litigation.”   The   Panel   assigned   the   cases   to   Judge  
McCuskey,   who   had   agreed   to   accept   them.   In   his   capacity  
as  the  district’s  Chief  Judge  at  the  time,  he  reassigned  them  
to  Judge  Baker  early  in  2010.  Unfortunately,  Judges  McCus-­‐‑
key   and   Baker   failed   to   recognize   that   §1407(b)   gives   the  
Panel   exclusive   power   to   select   the   judge.   Its   rules   provide  
that,   “[i]f   for   any   reason   the   transferee   judge   is   unable   to  
continue   those   responsibilities,   the   Panel   shall   make   the   re-­‐‑
assignment  of  a  new  transferee  judge.”  Rules  of  Procedure  of  
the   United   States   Panel   on   Multidistrict   Litigation   2.1(e).  
Neither  judge  asked  the  Panel  to  change  the  assignment.  The  
Panel   proceeded   to   transfer   follow-­‐‑on   cases   to   Judge  
No.  14-­‐‑1532                                                                  3  

McCuskey   through   2012,   without   appreciating   that   all   he  
did  was  relay  them  to  Judge  Baker.  Eventually  the  Panel  got  
wind   of   the   situation   (the   record   does   not   reveal   how)   and  
on  February  12,  2014,  issued  an  order  transferring  all  of  the  
cases   to   Judge   Baker.   But   he   had   denied   plaintiffs’   motion  
for   class   certification   two   weeks   earlier.   In   legal   jargon,   he  
was  acting  ultra  vires.  
    If  the  problem  deprived  the  court  of  subject-­‐‑matter  juris-­‐‑
diction,  then  there  is  nothing  for  us  to  do  but  vacate  the  or-­‐‑
der   of   January   28—and   every   other   order   Judge   Baker   en-­‐‑
tered   during   the   preceding   four   years.   We   do   not   think,  
however,   that   §1407   affects   subject-­‐‑matter   jurisdiction,   a  
term  that  deals  with  the  tribunal’s  adjudicatory  competence.  
See,  e.g.,  Gonzalez  v.  Thaler,  132  S.  Ct.  641  (2012);  Henderson  v.  
Shinseki,  131  S.  Ct.  1197  (2011);  Reed  Elsevier,  Inc.  v.  Muchnick,  
559  U.S.  154  (2010);  Minn-­‐‑Chem,  Inc.  v.  Agrium,  Inc.,  683  F.3d  
845  (7th  Cir.  2012)  (en  banc).  
     All   of   these   suits   are   properly   in   federal   court,   and   for  
that   matter   properly   in   the   Central   District   of   Illinois   for  
consolidated  pretrial  proceedings.  A  district  court’s  error  in  
complying   with   §1407(b),   which   gives   the   Panel   exclusive  
authority   to   select   the   transferee   judge,   does   not   vitiate   the  
Panel’s  selection  of  the  appropriate  district  court,  the  subject  
of  a  separate  clause  in  §1407(a).  In  the  Supreme  Court’s  cur-­‐‑
rent  terminology,  §1407(b)  creates  a  case-­‐‑processing  rule  ra-­‐‑
ther   than   a   jurisdictional   one.   One   vital   difference   between  
the  two  is  that  the  litigants  may  waive  or  forfeit  the  benefits  
of   case-­‐‑processing   rules,   while   jurisdictional   rules   must   be  
enforced  by  the  judiciary  on  its  own  initiative,  even  if  the  lit-­‐‑
igants   are   content.   No   one   protested   Judge   Baker’s   role,   so  
4                                                                  No.  14-­‐‑1532  

whatever   benefit   the   original   selection   of   Judge   McCuskey  
may  have  offered  to  any  litigant  has  been  forfeited.  
     Lexecon   Inc.   v.   Milberg   Weiss   Bershad   Hynes   &   Lerach,   523  
U.S.   26   (1998),   which   thoroughly   analyzes   §1407,   supports  
this  understanding.  The  Court  held  in  Lexecon  that  transferee  
courts’  authority  depends  on  §1407,  and  that  they  cannot  ex-­‐‑
ercise   greater   power   than   the   statute   provides.   This   means  
that  transferee  judges  and  the  Panel  must  implement  the  fi-­‐‑
nal  sentence  of  §1407(a),  which  reads:  “Each  action  so  trans-­‐‑
ferred   shall   be   remanded   by   the   panel   at   or   before   the   con-­‐‑
clusion   of   such   pretrial   proceedings   to   the   district   from  
which  it  was  transferred  unless  it  shall  have  been  previously  
terminated”.   That   sentence   prevents   transferee   courts   from  
seizing   control   for   all   purposes,   including   trial,   of   litigation  
that  is  supposed  to  be  in  their  charge  only  for  pretrial  coor-­‐‑
dination.   The   Court   analogized   this   provision   to   the   venue  
rules  in  28  U.S.C.  §1391  and  observed  that  it,  like  other  ven-­‐‑
ue   rules,   gives   plaintiffs   a   right   to   proceed   in   their   chosen  
forum.   523   U.S.   at   41–42.   But   venue   differs   from   subject-­‐‑
matter  jurisdiction,  which  is  why  Lexecon  was  careful  to  ob-­‐‑
serve,  id.  at  43,  that  its  holding  applies  to  a  “party  who  con-­‐‑
tinuously  objected  to  an  uncorrected  categorical  violation  of  
the   mandate   [in   §1407(a)]”.   The   need   for   objection   puts   the  
requirements   of   §1407   on   the   “case-­‐‑processing”   rather   than  
the  “jurisdictional”  side  of  the  Supreme  Court’s  line.  
    Statutes   in   addition   to   §1407   allow   federal   judges   to   be  
designated  to  hear  cases  that  otherwise  would  be  in  the  bail-­‐‑
iwick  of  a  different  judge,  and  this  is  not  the  first  time  there  
has   been   a   foul-­‐‑up   in   the   process.   Both   McDowell   v.   United  
States,   159   U.S.   596,   601–02   (1895),   and   Ball   v.   United   States,  
140   U.S.   118,   128–29   (1891),   hold   that   errors   in   designation  
No.  14-­‐‑1532                                                                 5  

do  not  spoil  the  action  of  the  judge  who  actually  renders  de-­‐‑
cision.  Nguyen  v.  United  States,  539  U.S.  69,  77–83  (2003),  de-­‐‑
clines   to   extend   the   principle   of   these   opinions   to   judges  
who  are  ineligible  to  be  designated.  The  chief  judge  of  a  court  
of  appeals  had  designated  a  judge  from  the  Northern  Maria-­‐‑
na  Islands  to  sit  on  an  appellate  panel.  Because  judges  of  that  
territory   serve   under   Article   IV   rather   than   Article   III,   the  
designated   judge   was   ineligible   under   both   the   statute   and  
the   Constitution.   Nguyen   holds   that   the   participation   of   an  
ineligible   decisionmaker   requires   vacatur   of   the   judgment,  
even   though   two   Article   III   judges,   a   quorum   of   the   panel,  
had  joined  it,  and  no  one  objected  to  the  panel’s  composition  
until  after  it  had  released  its  decision.  
      The  transfer  of  these  proceedings  to  Judge  Baker  is  on  the  
technical  side  of  Nguyen’s  line.  No  one  thinks  him  ineligible  
to  be  a  transferee  judge.  The  Panel  now  has  designated  him  
to   serve   in   that   capacity.   Given   the   technical   nature   of   this  
problem   and   the   lack   of   objection   by   any   litigant,   we   need  
not  decide  whether  the  Panel’s  order  would  have  had  retro-­‐‑
active   effect   and   thus   overridden   a   litigant’s   objection   to  
Judge  Baker’s  role.  
     On  to  the  class-­‐‑certification  issue.  One  vital  question  un-­‐‑
der  Fed.  R.  Civ.  P.  23(b)(3)  is  whether  “the  questions  of  law  
or   fact   common   to   class   members   predominate   over   any  
questions   affecting   only   individual   members”.   IKO’s   tiles  
are  exposed  to  the  elements,  where  they  may  fail  no  matter  
how   well   constructed.   Tornados   and   hurricanes   may   rip  
them   off;   storms   may   lift   them   up   so   that   water   gets   under  
them.   Poor   installation   may   shorten   their   expected   life.   At  
the   same   time,   some   tiles   that   flunk   the   D225   standard   will  
last  indefinitely.  The  district  court  thought  that  the  inevitable  
6                                                                  No.  14-­‐‑1532  

differences   in   consumers’   experiences   with   IKO’s   tiles   pre-­‐‑
vent  class  certification  under  the  language  we  have  quoted.  
    The   court   read   Comcast   Corp.   v.   Behrend,   133   S.   Ct.   1426  
(2013),   and   Wal-­‐‑Mart   Stores,   Inc.   v.   Dukes,   131   S.   Ct.   2541  
(2011),  to  require  proof  “that  the  plaintiffs  will  experience  a  
common   damage   and   that   their   claimed   damages   are   not  
disparate.”   2014   U.S.   Dist.   LEXIS   80243   at   *9.   Elsewhere   the  
district  court  wrote  that  “commonality  of  damages”  is  essen-­‐‑
tial.  Id.  at  *13,  20,  23.  If  this  is  right,  then  class  actions  about  
consumer  products  are  impossible,  and  our  post-­‐‑Comcast  de-­‐‑
cision  in  Butler  v.  Sears,  Roebuck  &  Co.,  727  F.3d  796  (7th  Cir.  
2013),   must   be   wrong.   Pella   Corp.   v.   Saltzman,   606   F.3d   391  
(7th  Cir.  2010),  which  approved  class  treatment  of  litigation  
asserting   defects   in   casement   windows,   another   product  
used   in   home   construction   or   renovation,   also   would   be  
wrongly   decided   under   the   district   court’s   reading   of   Com-­‐‑
cast   and   Wal-­‐‑Mart.   Indeed,   we   could   not   affirm   the   district  
court’s  decision  in  this  case  without  overruling  Pella,  so  close  
are  the  circumstances  of  the  two  home-­‐‑product-­‐‑defect  suits.  
     Yet   Wal-­‐‑Mart   has   nothing   to   do   with   commonality   of  
damages.  It  dealt  instead  with  the  need  for  conduct  common  
to  members  of  the  class,  and  it  concerned  Rule  23(a)(2)  rather  
than  Rule  23(b)(3).  Plaintiffs  in  Wal-­‐‑Mart  contended  that  dis-­‐‑
cretionary   acts   by   managers   of   more   than   2,000   local   stores  
produced   discriminatory   effects.   When   writing   that   com-­‐‑
monality  under  Rule  23(a)(2)  requires  proof  of  the  same  inju-­‐‑
ry,   the   Court   observed   that   each   store   was   managed   inde-­‐‑
pendently;  it  held  that  when  multiple  managers  exercise  dis-­‐‑
cretion,   conditions   at   different   stores   do   not   present   a   com-­‐‑
mon  question.  See  also  Bolden  v.  Walsh  Construction  Co.,  688  
F.3d   893   (7th   Cir.   2012).   In   that   situation   damages   differ,   to  
No.  14-­‐‑1532                                                                  7  

be  sure,  but  only  because  the  underlying  conduct  differs.  In  
a  suit  alleging  a  defect  common  to  all  instances  of  a  consum-­‐‑
er  product,  however,  the  conduct  does  not  differ.  
     Comcast,  by  contrast,  does  discuss  the  role  of  injury  under  
Rule   23(b)(3),   though   not   in   the   way   the   district   court  
thought.   Plaintiffs   filed   an   antitrust   suit   and   specified   four  
theories  of  liability.  The  district  judge  certified  a  class  limited  
to  one  of  these  four.  The  plaintiffs’  damages  expert,  howev-­‐‑
er,  estimated  harm  starting  with  the  assumption  that  all  four  
theories  had  been  established.  The  Court  held  that  this  made  
class   treatment   inappropriate:   without   a   theory   of   loss   that  
matched   the   theory   of   liability,   the   class   could   not   get   any-­‐‑
where.  
      That  would  be  equally  true  in  a  suit  with  just  one  plain-­‐‑
tiff.  In  antitrust  law,  damages  are  limited  to  the  sort  of  injury  
that  flows  from  unlawful  conduct.  See,  e.g.,  Brunswick  Corp.  
v.   Pueblo   Bowl-­‐‑O-­‐‑Mat,   Inc.,   429   U.S.   477   (1977).   Competition  
creates  benefits  for  consumers  and  harm  for  producers  at  the  
same   time,   while   monopoly   causes   harm   to   consumers   and  
some  producers.  It  is  essential  to  distinguish  the  encouraged  
injuries  (to  producers,  from  competition)  from  the  forbidden  
ones   (to   consumers,   from   monopoly).   That   requires   match-­‐‑
ing  the  theory  of  liability  to  the  theory  of  damages.  Comcast  
explained:  “The  first  step  in  a  damages  study  is  the  transla-­‐‑
tion  of  the  legal  theory  of  the  harmful  event  into  an  analysis  of  
the  economic  impact  of  that  event.”  133  S.  Ct.  at  1435,  quoting  
from   Federal   Judicial   Center,   Reference   Manual   on   Scientific  
Evidence  432  (3d  ed.  2011)  (emphasis  added  by  Comcast).  
   Plaintiffs   in   our   litigation   have   two   theories   of   damages  
that   match   their   theory   of   liability.   The   first   is   that   every  
purchaser   of   a   tile   is   injured   (and   in   the   same   amount   per  
8                                                                  No.  14-­‐‑1532  

tile)   by   delivery   of   a   tile   that   does   not   meet   the   quality  
standard   represented   by   the   manufacturer.   Damages   reflect  
the   difference   in   market   price   between   a   tile   as   represented  
and   a   tile   that   does   not   satisfy   the   D225   standard.   See   Uni-­‐‑
form  Commercial  Code  §2–714(2).  This  remedy  could  be  ap-­‐‑
plied  to  every  member  of  the  class.  
    The  second  theory  is  that  purchasers  whose  tiles  actually  
failed   are   entitled   to   recover   damages,   if   nonconformity   to  
the   D225   standard   caused   the   failure.   That   sort   of   remedy  
would   require   buyer-­‐‑specific   hearings   along   the   lines   dis-­‐‑
cussed  in  Butler,  727  F.3d  798.  The  problems  encountered  in  
an  effort  to  settle  Pella  (see  Eubank  v.  Pella  Corp.,  No.  13-­‐‑2091  
(7th   Cir.   June   2,   2014))   imply   the   wisdom   of   using   the   first  
approach  to  damages.  (The  first  and  second  are  alternatives:  
they   imply   the   same   gross   compensation   to   the   class   as   a  
whole,  and  to  award  both  remedies  would  be  double  count-­‐‑
ing.)   But   neither   approach   runs   afoul   of   Comcast:   both   the  
uniform  and  the  buyer-­‐‑specific  remedies  match  the  theory  of  
liability,  as  Comcast  requires.  
     A   buyer-­‐‑specific   remedial   approach   would   require   con-­‐‑
fining   any   class   certification   to   questions   of   liability,   as   in  
Pella  I  and  Butler.  It  is  not  hard  to  frame  liability  issues  suited  
to   class-­‐‑wide   resolution.   (1)   Did   IKO’s   tiles   generally   con-­‐‑
form   to   the   substantive   aspects   of   the   D225   specification?  
(“Generally”  is  an  important  qualifier.  In  any  mass  produc-­‐‑
tion   operation,   defects   or   deviations   are   inevitable.)   (2)   Did  
IKO  test  the  tiles  according  to  the  D228  procedure?  (3)  If  IKO  
failed   to   use   the   D228   procedure,   did   it   nonetheless   test   its  
output   in   a   way   that   would   verify   compliance?   (If   yes,   this  
implies  that  a  negative  answer  to  Question  2  would  not  play  
a  causal  role  in  buyers’  losses.)  (4)  Did  any  failure  to  satisfy  
No.  14-­‐‑1532                                                                       9  

the   D225   standard   cause   the   sorts   of   problems   plaintiffs   re-­‐‑
ported,   or   would   roughly   the   same   failure   rate   have   been  
experienced  with  complying  tiles?  (The  answer  could  be  “no  
causation”   because   the   difference   between   D225-­‐‑compliant  
tiles  and  other  organic  tiles  is  sufficiently  small  that  it  would  
not  lead  to  a  materially  different  failure  rate.)  
     We  do  not  say  that  a  district  court  is  required  to  certify  a  
class   action   on   all   four   of   these   subjects,   or   on   a   class-­‐‑wide  
damages  theory,  or  indeed  on  any  issue.  A  district  judge  has  
discretion   to   evaluate   practical   considerations   that   may  
make  class  treatment  unwieldy  despite  the  apparently  com-­‐‑
mon  issues.  On  occasion  the  problems  are  so  grave  that  it  is  
an   abuse   of   discretion   to   certify   a   class.   See,   e.g.,   Parko   v.  
Shell  Oil  Co.,  739  F.3d  1083  (7th  Cir.  2014).  But  when  exercis-­‐‑
ing   its   discretion   the   court   must   apply   the   correct   legal  
standards.  The  district  court  denied  plaintiffs’  motion  to  cer-­‐‑
tify  under  a  mistaken  belief  that  “commonality  of  damages”  
is  legally  indispensible.  With  that  error  corrected,  the  district  
court  can  proceed  using  the  proper  standards.  
     The  papers  filed  in  this  court  address  a  number  of  addi-­‐‑
tional  issues  that  are  outside  the  scope  of  a  Rule  23(f)  appeal.  
Whether  particular  experts’  reports  satisfy  the  criteria  of  Fed.  
R.   Evid.   702,   for   example,   is   a   subject   addressed   to   the   dis-­‐‑
trict   court   in   the   first   instance   (the   judge   has   not   ruled   yet)  
and  reviewable  on  appeal  from  a  final  decision.  Likewise  we  
do   not   express   any   view   on   the   question   whether   the   evi-­‐‑
dence  compiled  so  far  supports  the  plaintiffs’  contention  that  
the   tiles   are   defective.   That   some   or   even   many   tiles   exam-­‐‑
ined  15  years  after  their  manufacture  flunk  the  D225  stand-­‐‑
ard   does   not   necessarily   imply   that   they   did   so   when   they  
left  the  factory;  it  is  essential  to  understand  how  organic  tiles  
10                                                                 No.  14-­‐‑1532  

change   over   time   and   extrapolate   from   current   data   to   the  
tiles’  likely  condition  when  sold.  That  the  average  age  of  tiles  
that  have  already  failed  is  12  years  does  not  establish  that  all  
tiles   had   an   expected   12-­‐‑year   life   when   made;   IKO   repre-­‐‑
sents   that   less   than   1%   of   its   tiles   have   failed   (or,   perhaps  
more   accurately,   that   less   than   1%   are   reported   as   having  
failed).   It   may   require   sophisticated   analysis   to   determine  
what  failure  data  imply  about  the  durability  of  tiles  as  man-­‐‑
ufactured.   The   simplistic   pro-­‐‑and-­‐‑con   presentations   in   the  
papers  filed  here  do  not  make  much  progress  in  establishing  
the  tiles’  mean  time  between  failures  or  their  half-­‐‑life  in  use.  
    Getting  these  numbers  right  will  be  a  central  task  for  the  
district   court   whether   or   not   a   class   is   certified   on   remand.  
Development   of   facts   also   may   influence   the   ultimate   deci-­‐‑
sion  about  class  certification—and,  to  repeat,  we  do  not  say  
that   certification   is   required   (or   necessarily   would   be   pru-­‐‑
dent),   or   what   if   any   issues   should   be   certified.   Those   mat-­‐‑
ters  are  for  the  district  court.  
    The   decision   declining   to   certify   a   class   is   vacated,   and  
the   case   is   remanded   for   proceedings   consistent   with   this  
opinion.