Karraker, Steven L. v. Rent-A-Center ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2617
STEVEN L. KARRAKER, MICHAEL A. KARRAKER,
and CHRISTOPHER M. KARRAKER,
Plaintiffs-Appellants,
v.
RENT-A-CENTER, INC., J. ERNEST TALLEY, and
ASSOCIATED PERSONNEL TECHNICIANS,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Central District of Illinois.
No. 02 C 2026—Michael P. McCuskey, Chief Judge.
____________
ARGUED MARCH 29, 2007—DECIDED JULY 9, 2007
____________
Before FLAUM, EVANS, and WILLIAMS, Circuit Judges.
EVANS, Circuit Judge. Today we consider whether the
plaintiffs in this class action are prevailing parties en-
titled to attorney fees on their claim under the Americans
with Disabilities Act (ADA), 42 U.S.C. § 12101. We previ-
ously considered the merits of the dispute in Karraker v.
Rent-A-Center, 411 F.3d 831 (7th Cir. 2005).
The case involved RAC’s use of the APT Management
Test, which included the Minnesota Multiphasic Personal-
ity Inventory, in making promotions. The company would
2 No. 06-2617
not consider any employee for promotion in even the low-
est level jobs unless the employee had 12 or fewer devia-
tions on the test. The plaintiffs, who were certified as a
class of all past and present employees of RAC in Illinois
who took the test, contended that the MMPI was a medical
test as defined by the ADA. The district judge granted
RAC’s motion for summary judgment, dismissing the
case. We reversed in part and ordered judgment for the
plaintiffs on the ADA claim.
Following remand, the district judge entered an order
which stated in part:
(2) Defendant RAC is ordered to make a diligent
search of its Illinois stores, offices of district and
regional managers with authority over stores in
Illinois, corporate headquarters and storage facilities
to find the results of the Management Test scores of
Illinois RAC employees and narratives and any copies
thereof and remove the Management Test scores and
narratives for its Illinois employees from its Illinois
stores, from its district and regional managers’ offices,
from corporate headquarters and from storage.
(3) RAC is ordered to destroy the Management Test
results and not consider the scores or narratives in
making any employment decision for its Illinois
employees. However, Plaintiffs have ten days from the
entry of this order to object to the destruction of
documents if Plaintiffs feel they need access to these
documents for the present litigation. RAC should not
destroy any test results prior to ten days from entry of
this order.
The parties filed a joint proposal for storage of the APT
Test results pending the final resolution of the case.
Plaintiffs then moved for attorney fees and costs in the
amount of $267,023.75. The court denied the petition but
No. 06-2617 3
awarded the lead plaintiff, Steven Karraker, $5,000 as a
fee for being a class representative. Plaintiffs appeal from
the denial of attorney fees.
The issue is whether the plaintiffs are prevailing parties
and thus entitled to attorney fees under the ADA, 42
U.S.C. § 12205. In finding that they were not prevailing
parties, the district court relied primarily on Barnes v.
Broward County Sheriff ’s Office, 190 F.3d 1274 (11th Cir.
1999), which in turn relies on Farrar v. Hobby, 506 U.S.
103 (1992).
In Farrar, the Court determined that a plaintiff who
sued for $17 million and won $1 in nominal damages could
be considered a prevailing party under 42 U.S.C. § 1988.
To be a prevailing party, a plaintiff
must obtain at least some relief on the merits of his
claim. The plaintiff must obtain an enforceable judg-
ment against the defendant from whom fees are sought
or comparable relief through a consent decree or
settlement. Whatever relief the plaintiff secures must
directly benefit him at the time of the judgment or
settlement. Otherwise the judgment or settlement
cannot be said to “affec[t] the behavior of the defen-
dant toward the plaintiff.” Only under these circum-
stances can civil rights litigation effect “the material
alteration of the legal relationship of the parties” and
thereby transform the plaintiff into a prevailing party.
In short, a plaintiff “prevails” when actual relief on
the merits of his claim materially alters the legal
relationship between the parties by modifying the
defendant’s behavior in a way that directly benefits the
plaintiff.
At 111-112 (internal citations omitted).
RAC argues that plaintiffs are not prevailing parties
because they recovered no monetary (nor even nominal)
4 No. 06-2617
damages. Although the plaintiffs obtained injunctive relief,
RAC says they failed to show that they would receive any
tangible benefit from that relief. The company claims RAC
stopped administering the APT test in 2000, before this
suit was filed—a claim plaintiffs dispute. Further, RAC
says, no named plaintiff remains employed by RAC, and
plaintiffs have not identified a single class member who
might benefit from the new promotion procedures. In
addition, the argument is that the requirement that APT
test results be destroyed to prevent improper disclosure
in the future did not benefit the plaintiffs because there
is no evidence that RAC ever disclosed the test results
or ever intended to do so.
It is a close question, but we are convinced that the
value of the destruction of the test results is at least as
great as the $1 in nominal damages which made the
plaintiff in Farrar a prevailing party.1 In her concurrence
in Farrar, Justice O’Connor set out factors which should be
considered in determining prevailing party status: the
extent of relief granted, the significance of the legal issue
on which the plaintiff claims to have prevailed, and the
public purpose served. Destruction of the results of
improperly administered tests is a valuable benefit. It is
no answer to say that RAC has not disclosed the re-
sults. Without the injunction, there would be nothing to
prevent the company from either disclosing the results
in the future or allowing their dissemination through
negligence. The test results were not under lock and key
in one safe location. Declarations in the record show that
test results for 108 people were found in various stores
1
We do not consider the other aspect of the injunction forbidding
use of the test. That aspect is rendered unnecessary by the
destruction of the records. RAC cannot use what it does not have
so plaintiffs gained nothing additional by the prohibition on
the use of the test results.
No. 06-2617 5
throughout Illinois. Also, judging by the publications in
which our decision on the merits has been cited, the
case has had a significant impact not just on the law, but
on human resources departments throughout the country.
The plaintiffs also rely on the $5,000 incentive fee
granted to Steven Karraker. That fee was clearly a benefit
to him and it altered the relationship between him and
RAC, thus meeting the requirements of Farrar. RAC,
though, baldly states that “every court that has considered
the precise nature of these incentive payments has held
that they are not a component of a plaintiff ’s damages
recovery on the merits, and instead are akin to reimburs-
able litigation expenses—such as expert fees and long-
distance charges.” Interestingly, rather than providing
citations for this sweeping proposition in the text, citations
are relegated to a footnote. And it is no wonder.
First, RAC cites Matter of Continental Illinois Sec. Litig.,
962 F.2d 566, 571 (7th Cir. 1992), saying it says “class
representative incentive payments are ‘non-legal but
essential case-specific expenses, such as long-distance
phone calls . . . .’ ” That case was a common-fund case
under the federal securities laws, and the issue before us
was whether a plaintiff in such a case is ever entitled to a
fee. We reasoned that in some class actions, such
compensation is necessary to induce a plaintiff to assume
the risk of being a named plaintiff and that the fee “could
be thought the equivalent of the lawyers’ nonlegal but
essential case-specific expenses, such as long distance
phone calls, which are reimbursable.” (Emphasis added.)
RAC’s interpretation incorrectly takes the statement out
of conjecture and into certainty. Furthermore, in that case
we were considering only whether the plaintiff was
entitled to a fee, not whether, if one were awarded, it
would make him a prevailing party.
The next case RAC cites is Tiffany v. Hometown Buffet,
Inc., 2005 WL 991982 (N.D. Cal. 2005), a district court
6 No. 06-2617
case, which RAC says stands for the proposition that a
“class representative incentive payment is analogous to
litigation costs, and should be excluded from calculation
of plaintiff ’s potential damages recovery.” That court was
also not considering prevailing party status but rather
whether an as yet unawarded fee could be used to calcu-
late the jurisdictional amount in controversy so that the
case could be removed to federal court under diversity
jurisdiction. To be fair to RAC, we note that in disallowing
the fee in the calculation, the court cited Continental
Illinois for the proposition that fee payments were analo-
gous to costs. But, as we said, the case has nothing to do
with prevailing party status.
Finally, RAC cites In Re Southern Ohio Correctional
Facility, 175 F.R.D. 270 (S.D. Ohio 1997), for the proposi-
tion that “incentive compensation to class representa-
tive is litigation expense, similar to expert fee.” That is, in
fact, what the case says. What RAC does not tell us,
though, is that the Court of Appeals for the Sixth Circuit
reversed, saying in an unpublished order, “[i]ncentive
awards, moreover, do not fit comfortably within the
commonly accepted meaning of ‘expenses.’ ” In Re Southern
Ohio Correctional Facility, 2001 WL 1667267 (6th Cir.
2001). Apparently, not “every court that has considered”
the issue agrees with RAC.
We need not decide how exactly Karraker’s incentive
payment should be characterized because we conclude that
the injunction confers prevailing party status on him.
But we note that Karraker’s payment is unlike many
incentive fees which are given to a named plaintiff out of
a settlement fund, thus giving the named plaintiff a bit
more money than other members of the class without
having any effect on the defendant. Here, there is no
settlement fund, and the $5,000 is a direct payment
from RAC to Karraker and therefore could easily be said to
alter the relationship between him and RAC.
No. 06-2617 7
We conclude that Karraker is a prevailing party. That
conclusion, however, does not end this dispute. Farrar also
makes clear that prevailing party status does not automat-
ically make the plaintiffs eligible for all the fees they
request. In this case, there has been no consideration of
the reasonableness of the fee request. That is an issue for
the district court to determine on remand.
Accordingly, the order denying fees is VACATED and
the case REMANDED for a determination of a reasonable
award of attorney fees.
FLAUM, Circuit Judge, dissenting. As the majority
states, the question in this case is whether the plaintiffs
are prevailing parties. To make that assessment, we
must determine whether Karraker, or any other member
of the plaintiff class, obtained “some relief on the merits
of his claim” that “directly benefit[ted] him at the time of
judgment or settlement.” Farrar v. Hobby, 506 U.S. 103,
111 (1992). The majority does not specifically identify
any benefit that the plaintiffs received and simply con-
cludes that “[d]estruction of the results of improperly
administered tests is a valuable benefit.” See supra p. 4.
However, the mere existence of the test results caused the
plaintiffs no injury. To be entitled to an injunction, the
plaintiffs had to establish that they sustained, or were
immediately in danger of sustaining, some direct injury
as a result of the challenged conduct. Foster v. Center Tp.
of LaPorte County, 798 F.2d 237, 244 (7th Cir. 1986). The
plaintiffs’ claims that RAC might have disclosed the
results in the future or allowed their dissemination
through negligence did not confer standing because “the
8 No. 06-2617
injury or threat of injury must be real and immediate, not
conjectural or hypothetical.” O’Shea v. Littleton, 414 U.S.
488, 494 (1993). The power to grant injunctive relief is
not exercised to allay mere apprehension of injury at
some indefinite future time. Accordingly, I believe that
the first part of the district court’s injunction was im-
properly entered.
As for the second part of the injunction, which ordered
RAC not to consider the APT test scores when making
employment decisions, the district court found that “there
[wa]s no indication in the record . . . that [the test scores]
were used any longer in promotion decisions by RAC.” If
the district court’s factual finding was correct, then it did
not have jurisdiction to enjoin RAC from considering the
scores when making employment decisions, because the
issue was moot. However, the record reflects that the
district court’s factual finding was incorrect because, as
RAC acknowledged, it issued a memorandum on August
14, 2000 which stated that it would still use passing APT
test scores in promotion decisions. As a result, there may
have been a plaintiff who had standing to challenge RAC’s
continued use of the APT test scores if he or she 1) failed
the APT test, 2) did not pass the Future Choice Selection
Process and did not complete any required Developmental
Competencies, and 3) was still employed at RAC on the
date that the district court issued the injunction. Con-
sequently, I would remand the case to the district court
with instructions to determine whether the class in-
cluded such a plaintiff on the date the injunction issued.
For these reasons, I respectfully dissent from the major-
ity’s decision.
No. 06-2617 9
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-9-07