Hawk, Frederick L. v. Publishers Clearing

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-3993, 00-1562 & 00-1610
THOMAS G. VOLLMER, PEGGY R. POSPESHIL,
MARY KENNAH, et al.,
Plaintiffs-Appellees,
v.
PUBLISHERS CLEARING HOUSE and
CAMPUS SUBSCRIPTIONS, INCORPORATED,
a New York corporation,
Defendants-Appellees,
APPEALS OF:
FREDERICK L. HAWK, putative intervenor,
LYNDE SELDEN II, attorney,
RICHARD H. ROSENTHAL, attorney.
Appeals from the United States District Court
for the Southern District of Illinois.
No. 99 C 434--G. Patrick Murphy, Chief Judge.
ARGUED SEPTEMBER 6, 2000--DECIDED APRIL 27, 2001
Before CUDAHY, COFFEY and RIPPLE, Circuit
Judges.
RIPPLE, Circuit Judge. Mr. Frederick L.
Hawk, represented by his attorneys Lynde
Selden II and Richard H. Rosenthal,
attempted to intervene in this class
action. The district court denied Mr.
Hawk’s motion to intervene under Federal
Rules of Civil Procedure 24(a) and (b)
("Rule 24(a) and 24(b)").
The district court also found that Mr.
Selden and Mr. Rosenthal did not
investigate appropriately Mr. Hawk’s claims
and that they filed pleadings on Mr.
Hawk’s behalf to interfere with and delay
the administration of justice.
Consequently, on its own initiative, the
court entered an order directing Mr. Selden
and Mr. Rosenthal to show cause as to why
they should not be sanctioned under Federal
Rule of Civil Procedure 11 ("Rule 11") and
later imposed $50,000 in sanctions on the
attorneys.
For the reasons set forth in the
following opinion, we affirm the district
court’s denial of the motion to intervene.
We vacate the decision to impose Rule 11
sanctions, and we remand that decision to
the district court for proceedings
consistent with this opinion.
I
BACKGROUND
A. Facts
On February 3, 1998, Thomas G. Vollmer
filed this class action lawsuit against
Publishers Clearing House ("PCH") and its
competitor American Family Publishers
("AFP") in Illinois state court./1 PCH is
a New York limited partner-ship that sells
magazine subscriptions and other
merchandise through direct mail
advertising, and it often personalizes its
solicitation materials to include specific
information about the recipient. Since
1967, PCH has also operated the "Publishers
Clearing House Sweepstakes" ("the
Sweepstakes"), which offers prospective
customers the ability to win cash and
prizes as a method of drawing attention to
its mailings. No purchase of PCH
merchandise is necessary to enter or
improve one’s chances of winning the
Sweepstakes.
Mr. Vollmer’s suit, one of a number
against PCH at the time, alleged violations
of Illinois state consumer protection law.
His complaint charged that PCH fraudulently
induced customers to purchase magazines and
other items. The complaint claimed that PCH
did so by falsely suggesting in its
advertising that customers could increase
their chances of winning the Sweepstakes by
making purchases, and Mr. Vollmer sought to
certify a class of Illinois residents who
had been deceived by PCH mailings into
making unwanted purchases. The complaint
was later amended on June 21, 1999, to
include the additional named plaintiffs and
to add Campus Subscriptions, Inc. ("CSI")
as an additional defendant./2 It was also
amended to allege violations of federal
racketeering laws, which led to the removal
of the case to the district court,
pursuant to its federal question
jurisdiction.
After negotiations between class counsel
and PCH, the parties entered into a
stipulation of settlement, filed with the
district court on June 23, 1999. One week
later, the district court conditionally
certified a class for settlement purposes
that included all persons in the United
States who received a PCH solicitation
between February 3, 1992, and June 30,
1999. This certification also included a
subclass of class members who purchased PCH
merchandise during the class period./3
Additionally, the district court granted
preliminary approval of the settlement. The
settlement included remedial undertakings
by PCH aimed at addressing the allegations
raised in Mr. Vollmer’s complaint/4 and
also provided monetary relief in the form
of refunds for subclass members who filed
a claim during the claims period.
Initially, the settlement contained a cap
on these refunds of $10 million, less
costs, other refunds and attorneys’ fees
that could have reduced the total amount
to as low as $4 million. One month after
Mr. Hawk had attempted to intervene in
this action, when it became clear that
claims would exceed this $10 million
figure, PCH agreed to pay all approved
claims in full. The amount of those claims
would eventually reach approximately $18
million to $21 million.
Mr. Hawk, a farm equipment salesman from
San Diego, California, was a past customer
of PCH and had received a notice of the
settlement in early August of 1999. Mr.
Hawk testified that soon after, he
contacted Mr. Selden regarding the notice.
He knew Mr. Selden because Mr. Hawk’s wife
was an administrator in Mr. Selden’s
office. Mr. Selden, later joined by Mr.
Rosenthal, contacted class counsel
requesting information and access to
documents regarding the settlement,
ostensibly to determine whether it would be
in Mr. 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, Mr.
Hawk filed a "Petition to Intervene for
Limited Purposes of Viewing Document
Depository," which noted that "[b]efore
Intervenor accepts the proffered settlement
. . . [he] wants to view the document
depository defendant has made available to
class counsel." R.44 at 1. Mr. Hawk
claimed that intervention of right under
Rule 24(a) was appropriate because class
counsel had not considered the impact of
the settlement upon Mr. Hawk in comparison
to the relief Mr. Hawk could achieve under
California’s consumer protection laws.
Additionally, he claimed that permissive
intervention was appropriate under Rule
24(b) for basically the same reason.
Both class counsel and the defendants
opposed this motion. Among its arguments in
this regard, class counsel asserted that
Mr. Selden and Mr. Rosenthal were
"professional objectors" or "claim jumpers"
who filed such claims often in the past,
usually without merit. To bolster this
theory, they cited a number of cases and a
newspaper article describing the attorneys’
involvement in contesting class action
settlements, some of which cast Mr. Selden
and Mr. Rosenthal in an unflattering light.
See R.45 at 1-2. Class counsel and the
defendants also disputed Mr. Hawk’s asser
tion that greater monetary relief could be
gained under California law, and argued
that, because he had not decided whether
to request exclusion from the settlement,
Mr. Hawk could not properly seek
intervention under Federal Rule of Civil
Procedure 23(c)(2)(C).
B. District Court Proceedings
1.
The district court, noting that
difficulties can arise with intervention in
major class action litigation, required Mr.
Hawk and two other proposed intervenors to
appear before the court to explain their
objections to the settlement. On October 4,
1999, the day he was scheduled to appear,
Mr. Hawk filed "Intervenor’s Motion to
Intervene," which requested the ability to
"intervene into this preliminarily approved
class action, appoint purported
Intervenor’s counsel as co-class counsel
and such other relief as the court deems
proper." R.56 at 1-2. In a memorandum in
support of that motion, Mr. Hawk maintained
that his interests were inadequately
represented by class counsel because (1)
the temporal proximity of the filing of
class counsel’s Second Amended Complaint
and the agreement to the settlement
suggested collusion between class counsel
and defendants, (2) no meaningful discovery
had been undertaken by class counsel and
(3) the monetary and injunctive relief in
the settlement was inadequate.
Later that morning, the district court
held a hearing regarding the motions to
intervene. The court was alerted by Mr.
Selden that, in addition to his motion to
intervene for the limited purpose of
discovery, Mr. Hawk had also filed a more
general motion to intervene that morning.
The following exchange ensued:
THE COURT: All right. So are you
withdrawing your . . . petition to
intervene for a limited purpose . . . ?
MR. SELDEN: No, your Honor. We’re
supplementing it.
THE COURT: Well, do you want in for all
purposes or for a limited purpose?
MR. SELDEN: All purposes.
THE COURT: All right. When you say you’re
supplementing it, what do you wish for me
to do with this paper, the one for a
limited purpose?
MR. SELDEN: I would wish that that would
be granted and then the motion to
intervene would come on and you would
grant that. That would be my wish.
Tr.6 at 4-5. At this point, the court
seemed inclined to believe that Mr. Hawk
now meant to intervene to represent others
in the action, not primarily to conduct
discovery regarding the settlement. It
noted that "[w]hat they do once they get
here, if I let them intervene, is a whole
different matter as to whether I’m going
to let them conduct discovery." Id. at 6.
Mr. Hawk then testified. He claimed that
he believed that the monetary relief for
refunds in the settlement, at that point
capped at a maximum of $10 million, was
insufficient. He also asserted that he
sought legal counsel in this case on his
own initiative. However, Mr. Hawk also
demonstrated great unfamiliarity with the
nature of his complaint. He lacked any
knowledge of the injunctive relief agreed
to in the settlement, the mechanics of the
refund process described in the notice, the
settlement’s $3 million cap on attorneys’
fees and the amount that he had personally
spent on PCH merchandise. Moreover, Mr.
Hawk did not recall ever reading the
"Motion to Intervene" filed on his behalf
prior to that morning and could not
articulate his basis for asking to
intervene on behalf of other individuals in
the lawsuit. He also was not familiar with
Mr. Rosenthal and was unaware that Mr.
Rosenthal was representing him in the case.
Lastly, Mr. Hawk confirmed that he was
unsure as to whether he would opt out of
the class and did not know what
information he would need to ultimately
make such a decision.
The district court thereafter denied Mr.
Hawk’s motions to intervene in this case.
It determined that Mr. Hawk had not shown
that intervention of right was appropriate
under Rule 24(a) because he could not
demonstrate that his interests were
inadequately represented by class
counsel.Additionally, the court ruled that
permissive intervention under Rule 24(b)
was not justified because it would unduly
delay and prejudice the rights of the
class. The district court also made it
clear that, after hearing Mr. Hawk, it now
believed that he was not "here because
[he] ha[d] serious questions about the
injunctive relief that the Court has
authored," but that the "intervention was
for purposes of conducting discovery." Tr.7
at 24-25. The district court also
determined that Mr. Hawk’s lack of a
"passing understanding" about the nature of
the lawsuit, id. at 25, showed that he was
put forward by Mr. Selden and Mr.
Rosenthal to cause delay and increase the
cost of the litigation. As a result, on
its own initiative, the court ordered the
attorneys to show cause as to why they had
not violated Rule 11(b) and should not be
sanctioned.
Subsequently, on January 25, 2000, the
district court held a final fairness
hearing regarding the settlement, at which
Mr. Selden and Mr. Rosenthal appeared on
behalf of Mr. Hawk. Before the hearing,
the district court noted that "it was
never this Court’s intention to deny anyone
the opportunity to intervene and preserve
their appellate rights." Tr.16 at 9.
Instead, it maintained that it had denied
Mr. Hawk’s motions to intervene because it
"became clear to the Court" that "these
proposed intervenors wanted to intervene
[for a limited purpose] and conduct
discovery to see if they did wish to
intervene for all purposes" and because it
did not find Mr. Hawk to be a proper class
representative or his attorneys to be
proper class counsel. Id. at 148-50. When
asked if they wished to make any argument
against the settlement, Mr. Selden and Mr.
Rosenthal declared that they would rest on
their pleadings. The district court queried
at the end of the hearing if Mr. Hawk
still wished to intervene, but Mr. Selden
responded that because the hearing was
over, such a motion would serve no
purpose. The district court subsequently
approved the settlement on February 18,
2000.
2.
On February 25, 2000, the district court
held a hearing on Mr. Selden and Mr.
Rosenthal’s objection to the imposition of
Rule 11 sanctions. There the court said
that Mr. Hawk’s lack of knowledge regarding
the settlement and his personal
relationship with Mr. Selden led it to
believe that the attorneys recruited Mr.
Hawk to intervene so that they could
extract a fee from the proceedings. It
believed that Mr. Hawk’s discovery request
was a ploy to "see how much is here and
what we can get out of it." Tr.18 at 13.
Moreover, in referring to Mr. Selden and
Mr. Rosenthal, the court claimed that they
"are 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."
Id. at 7.
Additionally, the district court 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." Id. at 15. Ultimately, the court
levied sanctions in the amount of $50,000.
To arrive at that figure, it used the
attorneys’ fees that class counsel and the
defendants’ counsel generated in response
to the motions to intervene as a "marker",
but not a dispositive one. Id. at 20. It
directed that the fees were to be paid
directly to the Greater East St. Louis
Community Fund, Inc., a local charitable
organization.
Mr. Hawk appealed the denial of his
motion to intervene and the judgment
certifying the class and approving the
settlement. Mr. Selden and Mr. Rosenthal
appealed the imposition of Rule 11
sanctions. All three appeals were
consolidated into the present case.
II
DISCUSSION
A. Motion to Intervene
1.
Mr. Hawk sought to intervene as of right
under Rule 24(a), which required him to
(1) make a timely application, (2) have an
interest relating to the subject matter of
the action, (3) be at risk that that
interest will be impaired by the action’s
disposition and (4) demonstrate a lack of
adequate representation of the interest by
the existing parties. See Nissei Sangyo
America, Ltd. v. United States, 31 F.3d
435, 438 (7th Cir. 1994). Mr. Hawk is
required to prove each of these four
elements; the lack of one element requires
that the motion to intervene be denied.
See Keith v. Daley, 764 F.2d 1265, 1268
(7th Cir. 1985). The district court denied
this motion on the ground that Mr. Hawk
had not shown that his interests were
inadequately represented by class counsel.
With the exception of the first factor,
which relates to the timeliness of the
intervention and is reviewed for abuse of
discretion, we review de novo the denial
of an intervention of right. See Nissei
Sangyo, 31 F.3d at 438. However, it is
clear that the district court based much
of its determination regarding this issue
on its assessment of Mr. Hawk’s testimony,
a finding to which we owe deference. See
Rush v. Martin Petersen Co., 83 F.3d 894,
896 (7th Cir. 1996) (regarding factual
finding, deference given to district judge
"who had the opportunity to observe the
witnesses firsthand, to assess their
credibility and weigh their testimony").
The district court determined that Mr. Hawk
had failed to articulate reasons as to why
he was not represented adequately by class
counsel.
Ample evidence exists to support the
district court’s conclusion that Mr. Hawk
could not demonstrate why he was
represented inadequately in this action.
Although both of his motions to intervene
argue that the settlement’s terms were
unfair, Mr. Hawk showed a lack of
familiarity with the content of those
terms. He did not know when he was
required to decide to opt out of the
settlement, was unclear on the amount of
attorneys’ fees sought by class counsel and
PCH’s counsel and he showed general
unfamiliarity with the motions to intervene
filed on his behalf. He thought,
incorrectly, that to receive a refund under
the settlement he must return the actual
magazines that he had purchased from
PCH./5 Also worrisome was Mr. Hawk’s
ignorance of the terms of the injunctive
relief contained in the settlement. When
asked whether he had "any concept of what
PCH is willing to do to change the message
to customers," Mr. Hawk replied "No." Tr.6
at 20. Lastly, when asked whether he had
any basis, other than what Mr. Selden had
told him, to believe that class counsel
was inadequately representing him in the
suit, Mr. Hawk again responded "No." Id.
at 28.
Moreover, although Mr. Hawk indicated
that he wanted to intervene to represent
other members of the class, he could not
articulate why he wished to do so. When
asked by PCH’s counsel what his basis for
intervention was, the following exchange
occurred:
Q [PCH counsel]: What’s your basis for
asking to represent other individuals in
this lawsuit?
A [Mr. Hawk]: I don’t know.
Q: You don’t have a basis; do you?
A: I don’t know.
Id. at 34. The district court was thus
presented with a proposed intervenor in the
lawsuit who could not explain his basis
for wishing to intervene on behalf of
other class members./6 Its determination
that Mr. Hawk could not meet Rule 24(a)’s
requirements was therefore well supported
by the facts.
The district court also denied Mr. Hawk’s
request for permissive intervention under
Rule 24(b). Relevant factors to consider in
ruling on a motion for permissive
intervention include whether the request is
timely and whether it would unduly delay
or prejudice the adjudication of the rights
of the original parties. See Southmark
Corp. v. Cagan, 950 F.2d 416, 419 (7th
Cir. 1991). We shall reverse a denial of
permissive intervention only if the
district court abused its discretion. See
Keith, 764 F.2d at 1272.
For similar reasons to those supporting
the denial of Mr. Hawk’s intervention under
Rule 24(a), the district court did not
abuse its discretion in denying permissive
intervention in this matter. In light of
its examination of Mr. Hawk, the court’s
ruling that his entry as a party would
unduly delay and prejudice the adjudication
of the lawsuit was eminently reasonable.
2.
Because Mr. Hawk’s motion to intervene
was properly denied, under the law of this
Circuit, he cannot appeal the fairness of
the settlement. See Felzen v. Andreas, 134
F.3d 873, 876 (7th Cir. 1998), aff’d by an
equally divided court, California Pub.
Employees’ Ret. Sys. v. Felzen, 525 U.S.
315 (1999). We have noted that, because
only those who intervene in a class action
may appeal such a settlement, "it is vital
that district courts freely allow the
intervention of unnamed class members who
object to proposed settlements and want an
option to appeal an adverse decision."
Crawford v. Equifax Payment Servs., Inc.,
201 F.3d 877, 881 (7th Cir. 2000).
However, in this case, the district court
was on solid ground in concluding that Mr.
Hawk’s real purpose in intervening was to
conduct discovery, not to preserve his
appellate rights regarding the fairness of
the settlement. Numerous times after the
court denied Mr. Hawk’s motions to
intervene, it clarified that it did so
because it believed Mr. Hawk’s intention
was solely to gain access to settlement-
related documents. The court repeatedly
emphasized that it did not intend to deny
class members the right to intervene to
protect their appellate rights. When
reminded of this point at the fairness
hearing and asked if he still wished to
intervene, Mr. Selden replied that he was
"at a loss" as to what such intervention
would accomplish. Tr.16 at 151.
Given the chance, repeatedly, Mr. Hawk’s
attorneys never moved to intervene to
protect Mr. Hawk’s appellate rights./7 As
a result, the district court was entitled
to believe that Mr. Hawk’s motions to
intervene were for the primary purpose of
obtaining discovery of the settlement
negotiations.
Discovery of settlement negotiations in a
case such as this one is difficult to
obtain because of the potential for under
mining the settlement process. See Mars
Steel Corp. v. Continental Ill. Nat’l Bank
& Trust Co. of Chicago, 834 F.2d 677, 684
(7th Cir. 1987). It is only proper where
"the party seeking it lays a foundation by
adducing from other sources evidence
indicating that the settlement may be
collusive." Id. Mr. Hawk claimed that
collusion existed between class counsel and
PCH’s counsel, due primarily to (1) the
close time frame between the amendment of
Mr. Vollmer’s complaint to allege federal
claims and the agreement to the settlement
and (2) the lack of "meaningful adversarial
discovery" undertaken before settlement.
R.57 at 8. The timing of a settlement in
relation to the start of litigation is an
important indicator in determining whether
collusion occurred. See Mars Steel, 834
F.2d at 684 (noting timing as an important
factor and finding no suggestion of
collusion when settlement reached less than
a year after suit filed by party to
settlement); White v. National Football
League, 822 F. Supp. 1389, 1407 (D. Minn.
1993) (collusion not suggested when
settlement occurred after "five and
one-half years of frequently acrimonious
litigation"). The initial suit in this case
against PCH and AFP was filed well over a
year before the settlement, and class
counsel’s investigation of the claims
surrounding this suit began in 1997./8
Although set-tlement negotiations were
ongoing during much of the period after
the lawsuit was brought, class counsel’s
efforts demonstrate a zealous
representation of the class’s interests,
sufficient to prevent any inference of
collusion with PCH.
In sum, therefore, the district court was
correct in characterizing Mr. Hawk’s
motions to intervene as attempts to gain
discovery, not motions seeking to maintain
his right to appeal. It was also correct
in denying those motions. Moreover, the
court repeatedly gave Mr. Hawk the chance
to protect his right to appeal, an
approach counseled by our decision in
Crawford, 201 F.3d at 881, but Mr. Hawk
failed to do so. As a result, Mr. Hawk
cannot now appeal the merits of the
settlement. Nevertheless, we note that Mr.
Hawk did have the opportunity to present
his objections at the fairness hearing and
also presented them to this court in his
appellate briefs. We believe that his
substantive objections, even if they were
properly before us, would not merit a
disruption of the settlement in this case.
B. Rule 11 Sanctions
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. See Fed.
R. Civ. P. 11(b)(1) & (c). The district
court found that Mr. Selden and Mr.
Rosenthal encouraged Mr. Hawk to intervene
for such purposes, solely to enable
themselves to receive a fee as part of
this litigation. As a result, the court
imposed monetary sanctions on its own
initiative under Rule 11(c)(1)(B),
requiring Mr. Selden and Mr. Rosenthal to
pay $50,000 to a local charity. 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);
Independent Lift Truck Builders Union v.
NACCO Materials Handling Group, Inc., 202
F.3d 965, 968 (7th Cir. 2000).
The record certainly contains some
evidence to support the district court’s
determination to impose sanctions on Mr.
Selden and Mr. Rosenthal. Mr. Hawk’s marked
unfamiliarity with basic components of the
settlement supports the court’s finding
that he was put forward by his attorneys
solely to enable them to collect fees in
this action. On its own, Mr. Hawk’s
testimony and the circumstances surrounding
it would provide sufficient justification
for the imposition of Rule 11 sanctions.
The district court, however, also took
into account the nature of Mr. Selden and
Mr. Rosenthal’s legal practice in deciding
to impose sanctions and in determining the
amount of the fine. In doing so, it
appeared to consider not only information
provided by class counsel regarding Mr.
Selden and Mr. Rosenthal’s past
actions,/9 but also information about the
attorneys that the court gathered in ex
parte conversations. This latter source was
suggested when the district court
maintained that it had "made it the
court’s business to find out all I can"
about Mr. Selden and Mr. Rosenthal’s legal
practice and that "I haven’t been able to
find anyone anywhere that say these are
recognized class counsel." Tr.18 at 15.
Rule 11 was designed to ensure due
process and to give the potentially
offending party a "full and fair
opportunity to respond and show cause
before sanctions are imposed." Divane v.
Krull Elec. Co., 200 F.3d 1020, 1025 (7th
Cir. 1999); see also Fed. R. Civ. P. 11,
Advisory Committee’s Notes (1993
Amendments) (noting that when court acts on
own initiative under Rule 11(c)(1)(B), a
show cause order must be granted to
"provide[ ] the person with notice and an
opportunity to respond"); Johnson v.
Waddell & Reed, Inc., 74 F.3d 147, 151
(7th Cir. 1995). In reviewing this
sanction, we must be able to look to
information in the record that justifies
the imposition of sanctions articulated by
the district court. See Pacific Dunlop
Holdings, Inc. v. Barosh, 22 F.3d 113, 118
(7th Cir. 1994). Additionally, although not
all ex parte contacts by the district
court are prohibited, if they render it
impossible for the district court to fairly
consider a plaintiff’s arguments, or are
not made a matter of record in the case
and do not provide an opportunity for a
plaintiff to respond to them, those
contacts threaten that plaintiff’s due
process rights. See Simer v. Rios, 661
F.2d 655, 680-81 (7th Cir. 1981); see also
Blumenfeld v. Stuppi, 921 F.2d 116, 118 n*
(7th Cir. 1990).
The district court was permitted to
consider Mr. Selden and Mr. Rosenthal’s
past conduct in fashioning Rule 11
sanctions, as the decision to impose such
sanctions and their form may be influenced
by consideration of a party’s past
misconduct. See, e.g., Fed. R. Civ. P. 11,
Advisory Committee’s Notes (1993
Amendments) (noting that "in deciding
whether to impose a sanction or what
sanctions would be appropriate," factors to
consider include whether conduct "was part
of a pattern of activity" or "whether the
person has engaged in similar conduct in
other litigation"); Pope v. Federal Exp.
Corp., 49 F.3d 1327, 1328 (8th Cir. 1995);
Lockheed Martin Energy Sys., Inc. v.
Slavin, 190 F.R.D. 449, 459 (E.D. Tenn.
1999); see also Cheek v. Doe, 828 F.2d
395, 398 (7th Cir. 1989) (per curiam)
(considering past improper conduct as
relevant factor in Rule 11 fee
determination). However, Rule 11 and our
case law also mandate that this evidence
must be stated with some specificity in
the record, and the offending party must
be given a full and fair opportunity to
respond to the charges. Here, there is
evidence suggesting that the district
court, in considering information regarding
Mr. Selden and Mr. Rosenthal’s reputation
or past conduct, utilized sources not
disclosed to the attorneys or presented in
the record. Use of such information to
fashion a Rule 11 sanction would be
inappropriate./10
Adding to our concern in this regard, the
$50,000 sanction is extremely large, as
compared to other Rule 11 sua sponte
sanctions that this court has reviewed.
See, e.g., Powers v. Duckworth, No. 90-
2492, 1995 WL 496751, at *3 (7th Cir.
1995) (upholding $500 sua sponte sanction);
Burda v. M. Ecker Co., 2 F.3d 769, 776
(7th Cir. 1993) (reducing sua sponte
sanction from $2,500 to $1,000). Rule 11
requires that the least severe sanction
adequate to serve the purpose of the
penalty should be imposed. See Johnson v.
A.W. Chesterton Co., 18 F.3d 1362, 1366
(7th Cir. 1994). There may be cases in
which a $50,000 sanction under Rule
11(c)(1)(B) is appropriate, if such a
significant penalty is warranted for
effective deterrence of such conduct in the
future. See Fed. R. Civ. P. 11(c)(2).
Indeed, the district court suggested as
much in this case, stating that because of
the huge fees available in class action
litigation, sanctions for misconduct in the
filing of intervention motions must be
similarly weighty. Yet when the district
court is cursory or unclear about its
reasoning for imposing significant monetary
sanctions, we have required that a more
detailed explanation be provided. See Katz
v. Household Intern., Inc., 36 F.3d 670,
673 (7th Cir. 1994); Kotsilieris v.
Chalmers, 966 F.2d 1181, 1187 (7th Cir.
1992).
The district court took information into
account regarding Mr. Selden and Mr.
Rosenthal’s past legal practice,
information that Mr. Selden or Mr.
Rosenthal may not have been aware of or
may not have had the opportunity to
respond to. It then used that information,
in part, to find that the imposition of an
extraordinarily large sanction was
appropriate. The record in this case does
not provide us with sufficient information
to determine all of the sources for the
district court’s consideration of Mr.
Selden and Mr. Rosenthal’s past relevant
conduct. Therefore, the district court
should reconsider its decision regarding
the appropriateness and, if necessary, the
amount of Rule 11 sanctions. In doing so,
it must afford counsel an adequate
opportunity to reply to the information
upon which the court relies. It also must
state explicitly the evidence that it
relies upon to determine the
appropriateness, and, if necessary, the
amount of the sanction./11 The court
may not consider any information that has
not been adequately introduced into the
record or to which Mr. Selden or Mr.
Rosenthal have not had the ability to
respond.
Conclusion
For the foregoing reasons, we affirm the
district court’s denial of Mr. Hawk’s
motions to intervene. We vacate the
imposition of Rule 11 sanctions and remand
that matter to the district court for
further proceedings consistent with this
opinion.
AFFIRMED in part,
VACATED and REMANDED in part.
/1 The Illinois state court later severed Mr.
Vollmer’s claims against AFP from his claims
against PCH alleged in this action. Due to the
similar nature of their businesses, PCH and AFP
are often confused with each other. PCH is
perhaps best known for its "Prize Patrol," which
makes unannounced visits to the homes of its
Sweepstakes winners to surprise them with their
winnings. AFP, on the other hand, is most often
associated with its spokespersons, television
personalities Ed McMahon and Dick Clark.
/2 CSI is a wholly owned subsidiary of PCH that
markets similar products to students and
educators on college campuses. For purposes of
convenience, the defendants in this action will
be referred to collectively as "PCH" or "the
defendants."
/3 The settlement class was estimated to include
hundreds of millions of people, although PCH
cannot provide information as to the names of
those persons who simply received its mailings
but did not respond to them. The subclass of
those who did make purchases included over 42
million people.
/4 The injunctive relief in the settlement included:
(1) an Ironclad Guarantee in PCH’s future
solicitation materials containing various
statements and information alerting customers
that no purchase is necessary to enter the
Sweepstakes, (2) further revision of PCH’s
business practices to ensure that customers
understand that ordering is not necessary to win
the Sweepstakes and (3) PCH’s commitment to
furnish customer assistance and education
services designed to protect the public from
entities committing sweepstakes fraud and assist
persons who respond inappropriately to
sweepstakes promotions.
/5 In fact, the notice Mr. Hawk had received
described a method by which refunds could be
garnered without the return of actual
merchandise. When asked by PCH’s counsel if
knowledge of this fact changed his mind about the
fairness of the settlement, Mr. Hawk replied, "I
don’t know." Tr.6 at 30.
/6 Mr. Hawk also repeatedly indicated that he had
not yet determined whether he wished to opt out
of the proposed settlement, at the same time that
he was requesting to intervene in this
litigation. It is unclear if a party may request
intervention under Rule 24 without first deciding
that it wishes to be a part of the settlement
class. See, e.g., In re Potash Antitrust Litig.,
162 F.R.D. 559, 561 (D. Minn. 1995) (holding that
to make an appearance in a class action lawsuit,
Rule 23(c)(2)(c) requires that a party must have
decided not to opt out of the class). We need not
reach this issue, however, as we have determined
that Mr. Hawk’s motions to intervene were
properly denied on the merits.
/7 Mr. Hawk now argues that his attorneys did not
make such a motion because they believed that
their appeal of the district court’s denial of
their initial motions to intervene divested the
district court of jurisdiction to grant a future
motion to intervene for a limited purpose. This
assertion was apparently first made, not by Mr.
Selden or Mr. Rosenthal during the course of the
litigation leading up to the settlement’s
approval, but by their attorney during a later
hearing on the issue of Rule 11 sanctions. See
Tr.18 at 19 ("About the declining of the
invitations to intervene. The denial of leave to
intervene was, at that time, on appeal. I think
that divested the court of jurisdiction . . . [as
to] the intervention question. I think that’s why
they declined.").
However, a district court is not divested of
jurisdiction to grant a motion to intervene until
an appeal has been filed on a final judgment in
the entire case. See, e.g., Roe v. Town of
Highland, 909 F.2d 1097, 1099-1100 (7th Cir.
1990); Armstrong v. Board of Sch. Dirs. of the
City of Milwaukee, 616 F.2d 305, 327 (7th Cir.
1980), overruled on other grounds, Felzen v.
Andreas, 134 F.3d 873 (7th Cir. 1998), aff’d by
an equally divided court, California Pub.
Employees’ Ret. Sys. v. Felzen, 525 U.S. 315
(1999). So long as they are not duplicative,
there is no bar to filing more than one motion to
intervene during litigation such as this. See,
e.g., B.H. v. McDonald, 49 F.3d 294, 297 n.3 (7th
Cir. 1995); Heyman v. Exchange Nat. Bank of
Chicago, 615 F.2d 1190, 1193 (7th Cir. 1980).
The district court made it clear on numerous
occasions, before it made a final judgment on the
settlement, that it had characterized both of Mr.
Hawk’s earlier motions to intervene as ones
seeking discovery. Therefore, Mr. Hawk was on
notice that if he wished to intervene for the
limited purpose of preserving his appellate
rights, he could do so and that the district
court would likely look favorably on such a
motion. See Tr.16 at 149 (district court notes at
fairness hearing that "I tried to make that
clear, at several of the hearings, that I wasn’t
and didn’t intend to prevent someone from simply
intervening as an objector to protect their
appellate rights" and asks Mr. Selden if he still
wishes to move to intervene). The court also
remarked at the fairness hearing that "of course
. . . a motion to intervene can be granted at any
time as long as I have jurisdiction over this
case." Id. at 151. Therefore, this attempted
justification cannot excuse Mr. Hawk’s failure to
move for intervention to preserve his appellate
rights.
/8 The district court described this investigation
in the following way:
The investigation included interviewing hundreds
of PCH customers and reviewing PCH mailings,
meeting with members of the Florida Attorney
General’s office concerning its investigation of
AFP, reviewing files that the Florida Attorney
General had accumulated, meeting with the
Illinois Attorney General, and discussing the
case with a national expert on marketing
psychology and direct mail marketing. . . . In
addition, after entering into a Court-approved
Protective Order, class counsel was given access
to thousands of pages of documents containing
internal and proprietary PCH information. PCH
also produced numerous officers and employees to
answer questions about its internal operations,
customer purchasing histories, composition and
conduct of mailings, computer and database
issues, and customer contacts and complaints.
R.227 at 20-21.
/9 In an earlier memorandum opposing Mr. Hawk’s
initial motion to intervene, class counsel cited
a number of sources to show that Mr. Hawk’s
lawyers were "professional objectors." These
included a Wall Street Journal article describing
the potentially lucrative nature of challenging
class action settlements, which quotes Mr.
Rosenthal describing his involvement in one such
matter. See Richard B. Schmitt, Objecting to
Class-Action Pacts Can Be Lucrative for
Attorneys, Wall Street Journal, Jan. 10, 1997, at
B1 (also noting that the judge who approved the
fee in that case found it "’a reasonable
amount’"). This article was later noted
disapprovingly by another court, in a case where
Mr. Selden and Mr. Rosenthal were involved in a
fee dispute with other attorneys, and where the
court also stated that a part of Mr. Rosenthal’s
testimony had been "somewhat hyperbolic at best,
and somewhat false at worst." French v. Selden,
59 F. Supp. 2d 1152, 1156, 1160 (D. Kan. 1999).
The other references made by class counsel were
to cases involving Mr. Selden and/or Mr.
Rosenthal in which the attorneys simply
represented objectors to class actions or, in one
matter, in which Mr. Selden himself opted out of
a settlement.
/10 We note that it is possible, though perhaps
difficult, to read the district court’s
statements that "I’ve made it the court’s
business to find out all I can about [the
attorneys’] legal practice" or that "I haven’t
been able to find anyone anywhere that say these
are recognized class counsel" to mean that, based
on information presented in the record, the
district court drew these conclusions. Tr.18 at
15. It is precisely because of this uncertainty
that we require a more explicit justification for
the district court’s determination as to the
basis for the sanction.
/11 Two other aspects of the district court’s
imposition of sanctions are problematic. First,
Rule 11(c)(2) allows for a penalty requiring the
payment of attorneys’ fees by a party only if the
sanctions were initiated by motion; a district
court would abuse its discretion if, on its own
initiative, it imposed a sanction based on
attorneys’ fees. See Divane, 200 F.3d at 1030. We
have noted that Rule 11(c)(2) was amended to
limit the extent that attorneys’ fees may be used
as a measure of sanctions, so as to more
precisely focus on the Rule’s primary goal of
deterrence. See id. at 1030-31; see also Fed. R.
Civ. P. 11, Advisory Committee’s Notes (1993
Amendments) ("Since the purpose of Rule 11
sanctions is to deter rather than to compensate,
the rule provides that, if a monetary sanction is
imposed, it should ordinarily be paid into the
court as a penalty."). Here the district court
initially indicated that Mr. Selden and Mr.
Rosenthal would be required to pay a sanction
based on the attorneys’ fees of class counsel and
PCH’s counsel; when alerted that such a ruling
would be improper under Rule 11(c)(2), the court
nevertheless used those fees as "a marker but not
dispositive" in its sanction determination. Tr.18
at 20. In light of the intent of Rule 11(c)(2),
in reflecting on the amount of the sanction in
this case, the district court should not consider
attorneys’ fees at all. Instead, it should only
take into account those factors relating to
effective deterrence of such misconduct in the
future.
Secondly, the district court ordered that the
sanctions be paid to the Greater East St. Louis
Community Fund, Inc., a local charity. Yet where
sanctions are imposed under Rule 11(c)(1)(B) by
the district judge on his own initiative, Rule
11(c)(2) provides that payment of sanctions may
be directed only to the court as a penalty. See
Johnson, 74 F.3d at 152 n.3 (where judge awarded
such sanctions payable to financial services
corporation and to United States, Rule 11(c)(2)
was violated). As a result, when this issue is
reconsidered on remand, if the district court
again determines that sanctions are warranted, it
must direct that they be paid only to the court.