Reliable Money Order, Inc. v. McKnight Sales Co.

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-2599
R ELIABLE M ONEY O RDER, INC., individually
and as the representative of a class of
similarly-situated persons,
Plaintiff-Appellee,
v.
M C K NIGHT S ALES C O ., INC.,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:10-cv-00242-WEC—William E. Callahan, Jr., Magistrate Judge.
A RGUED N OVEMBER 27, 2012—D ECIDED JANUARY 9, 2013
Before F LAUM and T INDER, Circuit Judges, and T HARP,
District Judge.Œ
F LAUM, Circuit Judge. At oral argument, plaintiff’s
counsel acknowledged that he did not expect an opinion
Œ
The Honorable John J. Tharp, Jr., United States District Judge
for the Northern District of Illinois, sitting by designation.
2 No. 12-2599
that extolled certain actions of co-counsel. In that assump-
tion, he was correct: while investigating the claims in
this case, counsel with the firm of Anderson + Wanca
engaged in conduct which gives this Court serious pause.
Because of this alleged misconduct, defendant asks us
to reverse the district court’s class certification order
appointing Anderson + Wanca as class counsel. Suffice
it to say, while we neither approve of nor condone the
actions of Anderson + Wanca attorneys when in-
vestigating the claims in this suit, we nevertheless do
not conclude that counsels’ questionable performance
in the investigative stage of this case prevents class cer-
tification. For the reasons below, we affirm.
I. Background
A. Factual Background
Anderson + Wanca and Bock & Hatch are two Chicago-
area law firms that specialize in representing plaintiffs
in class action lawsuits under the Telephone Consumer
Protection Act as amended by the Junk Fax Prevention
Act of 2005 (the “Act”). The Act authorizes $500 in statu-
tory damages for faxing an unsolicited advertisement.
47 U.S.C. § 227(b)(1)(C), (b)(3). This award triples upon
a showing of willfulness, and each transmission is
a separate violation. Id.; see also Creative Montessori
Learning Ctrs. v. Ashford Gear, LLC, 662 F.3d 913, 914 (7th
Cir. 2011) [hereinafter Ashford Gear II]. Because plaintiffs
may enforce the statute via class action and because
a single advertisement is often faxed to hundreds—if not
thousands—of phone numbers, suits under the Act
No. 12-2599 3
present lucrative opportunities for plaintiffs’ firms. This
appeal involves one firm’s response to these finan-
cial incentives and its attorneys’ conduct in identifying
potential new cases under the Act.
1. Caroline Abraham, Business-to-Business Solutions,
and the Original Four Cases
Caroline Abraham and her company Busi-
ness-to-Business Solutions (“B2B”) sit at the center of this
lawsuit and scores of others. B2B contracted with busi-
nesses to send advertisements via facsimile. Advertisers
would pay a fee, and B2B would send the ad to
hundreds of fax numbers purchased from InfoUSA, Inc.
(a practice known as “fax-blasting”). Abraham, B2B’s
sole employee, never obtained from the fax recipients
permission to send them the advertisements.
B2B attracted the attention of Anderson + Wanca
during its investigation of four other putative class
action lawsuits (the “Four Cases”) brought under the
Act. Class certification in those cases, however, initially
presented challenges—the plaintiffs lacked proof of an
identifiable class because they could not identify the
recipients of the advertisements. E.g., G.M. Sign, Inc. v.
Finish Thompson, Inc., No. 07 C 5953 (N.D. Ill. Dec. 9, 2008)
(Dkt. No. 43) (order denying class certification for lack of
an identifiable class). Anderson + Wanca knew, though,
that the defendants in the Four Cases had contracted
with B2B to fax the offending advertisements. Unsur-
prisingly, Caroline Abraham’s B2B records became the
focus of discovery.
4 No. 12-2599
After she initially denied having any fax lists,
Ms. Abraham later admitted to finding fax records
from B2B. Her adult son, Joel Abraham, had found
“some old back-up disks” in a “box somewhere in his
room.” (Joel lived with Caroline.) The Abrahams also
located a hard drive with fax broadcasting data, and
Joel Abraham converted the data into a Microsoft Excel
spreadsheet. Caroline Abraham then produced these
spreadsheets in discovery, listing only the recipients of
the advertisements commissioned by the specific defen-
dants in the Four Cases. Plaintiffs’ counsel thus had
their proof of an identifiable class and certification fol-
lowed. E.g., G.M. Sign, Inc. v. Finish Thompson, Inc., No. 07
C 5953 (N.D. Ill. Aug. 20, 2009) (Dkt. Nos. 78, 79).
Flush with success, Anderson + Wanca recognized
that the B2B hard drives and fax lists likely contained a
treasure trove of potential clients for putative class
action lawsuits. So, despite having all information neces-
sary to certify the classes in the Four Cases, Anderson +
Wanca continued pushing Caroline Abraham to disclose
all B2B fax transmission data. Ryan Kelly, an attorney
at Anderson + Wanca, met with Caroline Abraham and
asked her for the actual back-up disks and hard drive.
He told her that “nobody would look at anything on
these media not related” to the Four Cases. Indeed,
Kelly even emailed Ms. Abraham a copy of the protec-
tive order filed in one of the Four Cases, explaining that
it “will prevent [Kelly] from disclosing any of the
back-up disks or hard drive to any third-party.” To
receive those protections, however, the producing party
No. 12-2599 5
had to stamp documents confidential or notify plain-
tiff’s counsel of their confidential nature at the time
of production. Ms. Abraham continued to resist.1
Ultimately, plaintiff’s counsel subpoenaed Joel Abraham
to testify at a deposition. The subpoena also ordered
Mr. Abraham to produce, at the time of his deposition,
the back-up disks and hard drive. Appearing at the
deposition with attorney Eric Ruben, Joel Abraham
produced the materials. Neither he nor Ruben, who
had read the protective order, asserted confidentiality.
Even so, Anderson + Wanca later instructed defense
counsel to “treat the DVD produced by Joel Abraham
as confidential pursuant to the protective order[.]” CE
Design Ltd. v. Cy’s Crabhouse North, Inc., No. 07 C 5456,
2010 WL 2365162, at *6 (N.D. Ill. June 11, 2010) [herein-
after Cy’s Crabhouse I].
The back-up disks and hard drive revealed not only
the recipients of fax advertisements sent by the
defendants in the Four Cases but the names of other
B2B clients as well.
1
Apparently, Caroline Abraham’s hesitation arose from the
fact that she had recently been sued as a third-party defendant
in the Cy’s Crabhouse case. See CE Design Ltd. v. Cy’s Crab-
house North, Inc., No. 07 C 5456 (N.D. Ill. Sept. 29, 2008) (Dkt.
No. 91).
6 No. 12-2599
2. Armed with Data from B2B’s Electronic Files,
Plaintiff’s Counsel Files Scores of Putative Class
Actions Under the Telephone Consumer Protection
Act
The B2B files provided a treasure trove of potential
new clients for Anderson + Wanca, revealing the names
of other potential defendants who contracted with B2B
to send unsolicited fax advertising and listing the recipi-
ents of that advertising.
Hoping to tap that reserve of potential litigants, Ander-
son + Wanca began sending out solicitation letters to
the recipients of B2B’s fax-blasting. The letter in this
case, addressed to Fast & Friendly Grocery, reads, in part:2
My law firm pursues class action lawsuits against compa-
nies that send junk faxes in Illinois and elsewhere.
***
During our investigation, we have determined that you are
likely to be a class member in one or more cases we are
pursuing. You might not remember receiving the junk faxes,
but if the lawsuit were successful, you would receive com-
pensation (from $500 to $1,500) for each junk fax sent
to you.
We would like to discuss this issue with you. Please call me
at [phone number] or send an email to [email address].
The letter was stamped “advertising material” at the
bottom but was not registered with the Wisconsin Office
2
As explained below, letters sent to different putative
plaintiffs differed slightly in wording.
No. 12-2599 7
of Lawyer Regulation, as required by state law. See Wis.
Sup. Ct. R. 20:7.3(c).3 Plaintiff’s counsel subsequently
destroyed their records identifying the recipients of
these letters, explaining to the magistrate judge in
Ashford Gear that they did “not possess and did not
retain a list of the names and addresses of the persons
who were sent” these letters.
Upon receipt of this letter, Fast & Friendly Grocery
forwarded it to Reliable Money Order, who contacted
Anderson + Wanca and became the named plaintiff in
this case. Reliable Money Order rents space from Fast
& Friendly and possessed the only fax machine on
the property. Reliable Money Order was not the only
new client netted from the solicitation letters: Anderson +
Wanca attorneys have filed over one hundred puta-
tive class actions under the Act, all rooted in data re-
covered from the B2B disks and hard drive.
3. Anderson + Wanca Sends Eric Ruben a $5,000
Check
In August 2009, Anthony Wanca, a partner with Ander-
son + Wanca, sent Ruben a $5,000 check, made payable
to Eric Ruben, in a Ramada Inn envelope. The envelope
contained no cover letter but the check beared a nota-
tion simply reading “document retrieval.” Ruben
voided the check and returned it. Plaintiff’s counsel
3
Though licensed in Illinois, Anderson + Wanca attorneys are
still subject to the Wisconsin rules because they filed this suit
in the Eastern District of Wisconsin. E.D. Wis. Loc. R. 83(d)(1).
8 No. 12-2599
had previously compensated Ms. Abraham for expenses
arising from the depositions and document production
but these earlier payments never neared $5,000.
B. Procedural Background
Upon learning of Anderson + Wanca’s promises of
confidentiality to Ms. Abraham, defendants in the
lawsuits arising from the B2B data (many of whom are
represented by defense counsel in this case) began chal-
lenging the propriety of class certification on grounds
that misconduct by Anderson + Wanca attorneys dis-
qualified the firm as adequate class counsel. See Fed. R.
Civ. P. 23(g)(1)(B). Defendants, including McKnight,
have generally raised three instances of misconduct
that, they argue, require denial of class certification.
First, they argue that Anderson + Wanca breached a
promise of confidentiality by using the B2B data to
identify targets of additional lawsuits. Second, they
argue that Anderson + Wanca sent misleading solicita-
tion letters. Finally, they challenge the $5,000 check as
improper witness compensation intended to influence
the content of testimony.
Several district courts have addressed these allega-
tions so we provide deeper procedural background
than we would ordinarily.
No. 12-2599 9
1. The Beginning: CE Design Ltd. v. Cy’s Crabhouse
North, Inc.
Cy’s Crabhouse I first evaluated the propriety of Kelly’s
representations to Ms. Abraham regarding confiden-
tiality, though the issue arose in a different procedural
posture than class certification. Defendant Cy’s Crab-
house moved to dismiss the already-certified class
action, raising as grounds Anderson + Wanca’s alleged
violation of the protective order and the attempted
$5,000 payment to Ruben. Denying the motion, the
court found that “the conduct of [plaintiff’s counsel] on
this point was not entirely on the up and up.” 2010 WL
2365162, at *6.
Moreover, it refused to place the disks and hard drive
outside the scope of the protective order merely be-
cause of the Abrahams’ failure to designate it as con-
fidential at the time of production:
It is undisputed that Kelly represented to Abraham
that the materials she turned over would be treated
as confidential and that he referred specifically to
a protective order . . . . Given those circumstances,
it is rather disingenuous for plaintiffs counsel now
to argue that it is Abraham’s own fault that the mate-
rials are not “confidential” as defined by the protec-
tive order because she failed to comply with
the technical designation process. The Court also
notes that CE Design’s counsel himself appears to
have believed, at least at one point, that the infor-
mation on the disk Joel produced at his deposition
was confidential. In an e-mail to counsel for Cy’s
10 No. 12-2599
Crabhouse, Kelly said, “please treat the DVD
produced by Joel Abraham as confidential pursuant
to the protective order in this case.”
Id. Nevertheless, dismissal was unwarranted because
the defendant could not show prejudice from the viola-
tion of the protective order. Sufficiently troubled, the
court scheduled a later “hearing to determine how the
materials from B2B have been used and the rationale
supporting such use.” Id. at *7. It reserved the right
to impose additional sanctions if necessary. Id.
Following this second hearing, the court concluded
that the information was not covered by the protective
order, vacating the Cy’s Crabhouse I order designating
the data confidential. Importantly, the Abrahams’
technical failure to assert confidentiality was not the
court’s reason for doing so. No. 07 C 5456, 2010 WL
3327876, at *2 (N.D. Ill. Aug. 23, 2010) [hereinafter Cy’s
Crabhouse II]. Instead, no good cause justified confiden-
tiality.4 Id. at *3.
Finally, Cy’s Crabhouse II also addressed the propriety
of the $5,000 check mailed to Ruben. After additional
evidentiary submissions, the court absolved Anderson +
4
Ms. Abraham had offered four justifications for good cause:
(1) the material was her property; (2) she wanted to end third-
party lawsuits naming her as a defendant; (3) she did not
like seeing her old customers suffer as defendants in these
lawsuits; and (4) appearing for depositions in the many law-
suits arising from her business operations was burdensome.
See Cy’s Crabhouse II, 2010 WL 3327876, at *3.
No. 12-2599 11
Wanca of wrongdoing. Noting that the Illinois profes-
sional conduct rules prohibit payments to witnesses
contingent on the content of the witness’s testimony or
the outcome of the case, Cy’s Crabhouse II explained that
“[n]othing in any of the parties’ filings suggests that
Wanca or Kelly paid or attempted to pay Abraham or
Joel anything ‘contingent upon the content’ of their testi-
mony or documents. . . . In other words, neither [Ruben]
nor Abraham suggests that any such inducement was
proposed or even hinted at.” Id. at *7. The parties ulti-
mately settled the Cy’s Crabhouse litigation.
2. The Seventh Circuit Identifies the Appropriate
Test for when Counsel Misconduct Requires
Denial of Certification: the Ashford Gear Litigation
The Ashford Gear litigation was the first to consider
whether counsels’ misconduct required denial of class
certification. Like McKnight here, the defendant in
Ashford Gear opposed class certification, arguing the same
misconduct that McKnight argues in this case—Kelly’s
misrepresentations to Ms. Abraham regarding the con-
fidentiality of the fax lists and the misleading solic-
itation letter. 5 Explaining that “[o]nly the most
5
The solicitation letter sent to Montessori Learning Centers
differed slightly in wording from the letter counsel sent to
Reliable Money Order (through Fast & Friendly Grocery).
Compare the letter sent to Creative Montessori:
[D]uring our investigation, we have determined that you
are likely to be a member of the class. You might not remem-
(continued...)
12 No. 12-2599
egregious misconduct on the part of [a plaintiff’s]
lawyer could ever arguably justify denial of class sta-
tus,” the district court certified the class. Creative
Montessori Learning Ctr. v. Ashford Gear LLC, No. 09 C
3963, 2011 WL 3273078, at *4-7 (N.D. Ill. July 27, 2011)
[hereinafter Ashford Gear I] (quoting Halverson v. Con-
venient Food Mart, Inc., 458 F.2d 927, 932 (7th Cir. 1972)).
Agreeing with Cy’s Crabhouse I that counsel’s representa-
tions to Ms. Abraham were not “entirely on the up and
up,” Ashford Gear I nevertheless certified the class
relying on the Cy’s Crabhouse II decision vacating the
protective order. Ashford Gear I, 2011 WL 3273078, at *5.
As to the solicitation letter, Ashford Gear I saw a violation
of ABA Model Rule of Professional Conduct 7.3(c):
the letter misled by suggesting a certified class already
5
(...continued)
ber receiving the junk faxes, but if the lawsuit is suc-
cessful, you would receive compensation (up to $1,500) for
each junk fax sent.
Ashford Gear II, 662 F.3d at 916 (emphasis added), to the letter
Reliable received:
During our investigation, we have determined that you
are likely to be a class member in one or more of the cases we
are pursuing. You might not remember receiving the junk
faxes, but if the lawsuit were successful, you would
receive compensation (from $500 to $1,500) for each junk
fax sent to you.
Reliable Money Order, Inc. v. McKnight Sales Co., 281 F.R.D.
327, 337 (E.D. Wis. 2012) (emphasis added).
No. 12-2599 13
existed. Id. at *6. The court, however, “doubt[ed] that
[a violation of Rule 7.3(c)] qualifies as the ‘most egregious
misconduct’ ” so as to require denial of class certification.
Id. at *7. Noting the “considerable experience” of plain-
tiff’s counsel in litigating class actions under the Act
and the preference for disciplinary action against the
lawyer over denial of certification to punish attorney
misconduct, Ashford Gear I certified the class.
Ashford Gear filed a petition for interlocutory review.
See Fed. R. Civ. P. 23(f). Plaintiff never responded. We
vacated the class certification order and remanded to
the district court with instructions to apply a new stan-
dard. Ashford Gear II, 662 F.3d at 919. Rejecting the
Halverson standard used by the district court, we found
the standard from Culver v. City of Milwaukee, 277 F.3d
908 (7th Cir. 2002), more appropriate: “[m]isconduct by
class counsel that creates a serious doubt that counsel
will represent the class loyally requires denial of class
certification.” Ashford Gear II, 662 F.3d at 919.
As we explained, unethical conduct by class counsel
implicates class certification because class counsel serves
as a fiduciary for the unnamed plaintiffs. Id. at 917 (citing
Culver, 277 F.3d at 913). Class actions present strong
incentives for counsel “to sell out the class by agreeing
with the defendant to recommend that the judge
approve a settlement involving a meager recovery for
the class but generous compensation for the lawyers[.]”
Id. at 918 (citing numerous cases). Thus, when “class
counsel have demonstrated a lack of integrity” through
misconduct and unethical action, “a court can have
14 No. 12-2599
no confidence that they will act as conscientious
fiduciaries of the class.” Id.
Ashford Gear II ultimately remanded with instructions
to evaluate counsel’s misconduct under this standard.
3. The District Court Applies Ashford Gear II to
the Class Certification Question
The decision currently on appeal, Reliable Money Order,
Inc. v. McKnight Sales Co., 281 F.R.D. 327 (E.D. Wis. 2012),
was the first after Ashford Gear II to consider expressly
whether the misconduct alleged in the Cy’s Crabhouse
litigation renders plaintiff’s counsel inadequate. As to
the misrepresentations in obtaining the fax lists, the
Reliable Money Order district court agreed that counsel’s
behavior “was not entirely on the up and up.” 281 F.R.D.
at 336 (quoting Cy’s Crabhouse I, 2010 WL 2365162, at
*6). Ultimately, though, the court concluded that this
“behavior does not create ‘serious doubt that class
counsel will represent the class loyally.’ ” Id. (quoting
Ashford Gear II, 662 F.3d at 918). Importantly, the
district court emphasized that Anderson + Wanca broke
no promise to a client, putative class member, or class
member. It did, however, suggest Anderson + Wanca
breached a promise of confidentiality to Ms. Abraham.
Id. Thus, without condoning Kelly’s conduct toward
Ms. Abraham, the district court did not believe that the
conduct undermined the loyalty of plaintiff’s counsel.
Moving on to the solicitation letter sent to Fast &
Friendly Grocery (and ultimately passed on to plaintiff
Reliable Money Order), the district court concluded
No. 12-2599 15
that the letter was not misleading. First, Anderson +
Wanca addressed it to Fast & Friendly, making it
“unlikely that Reliable Money was misled into believing
that it was a member of an already existing class.” Id. at
337. Additionally, the words “Advertising Material,”
stamped on the bottom of the letter, removed what
little possibility of deception may have existed. Id.
Finally, the Reliable Money Order court concluded that
the failure to register the letter as required by Wiscon-
sin rules “is insufficient to find that counsel will not
adequately protect the interests of the class.” Id. at 337 n.5.
In short, the district court here focused heavily on
the purpose underlying Rule 23: “to ensure that the
attorneys representing the class will adequately
represent those class members who are not actively
involved in the case, or may not know that a case exists
at all.” Id. at 337. Ethical violations alone, it reasoned,
did not automatically render class counsel inadequate.
McKnight filed a petition for interlocutory review of
the district court’s class certification order; Reliable
Money Order opposed, and we granted the petition.
After the close of briefing in this case, Reliable Money
Order moved to dismiss the appeal, arguing that the
justifications for interlocutory review no longer existed.
Following the district court’s decision in this case, at
least six other federal district courts have applied the
Ashford Gear II “serious doubt” standard to the very
same misconduct. See Imhoff Inv., LLC v. SamMichaels, Inc.,
No. 10-10996, 2012 WL 4815090 (E.D. Mich. Oct. 1, 2012);
Bridgeview Health Care Ctr. Ltd. v. Clark, No. 09 C 5601
16 No. 12-2599
(N.D. Ill. Sept. 28, 2012) (Dkt. No. 140); Van Sweden
Jewelers, Inc. v. 101 VT, Inc., No. 1:10-cv-253, 2012 WL
4127824 (W.D. Mich. Sept. 19, 2012); Creative Montessori
Learning Ctr. v. Ashford Gear, LLC, No. 09 C 3963, 2012 WL
3961307 (N.D. Ill. Sept. 10, 2012) [hereinafter Ashford
Gear III]; Jackson’s Five Star Catering, Inc. v. Beason, No. 10-
10010, 2012 WL 3205526 (E.D. Mich. July 26, 2012); Am.
Copper & Brass, Inc. v. Lake City Indus. Prods., Inc., No. 1:09-
cv-1162, 2012 WL 3027953 (W.D. Mich. July 24, 2012).6
Although the various district courts made conflicting
findings on whether Anderson + Wanca breached a
promise of confidentiality or mailed misleading solic-
itations, see footnote 9, infra, all agreed that the
conduct did not require denial of class certification.
III. Discussion
A. Reliable Money Order’s Motion to Dismiss
Rule 23(f) infuses courts of appeals with discretionary
authority to grant interlocutory review of class certifica-
tion decisions. See Fed. R. Civ. P. 23(f). This authority
is broad: we have “unfettered discretion whether to
permit the appeal, akin to the discretion exercised by
the Supreme Court in acting on a petition for certiorari.”
6
One other case found Anderson + Wanca’s representation
adequate but did not consider the misconduct presented in
this case or the “serious doubt” standard of Ashford Gear II.
Siding & Insulation Co. v. Beachwood Hair Clinic, Inc., 279 F.R.D.
442 (N.D. Ohio 2012).
No. 12-2599 17
Blair v. Equifax Check Servs., Inc., 181 F.3d 832, 833 (7th
Cir. 1999) (quoting Committee Note to Rule 23(f)). Al-
though no “bright-line” test or “catalog of factors” governs
the wisdom of interlocutory appeal under Rule 23(f),
Blair identified three situations when such an appeal is
probably appropriate. First, interlocutory review makes
sense when individual damages are so low that the
named plaintiff likely would not forge ahead with his
claim, regardless of its merits, if denied class action
status. Id. at 834. Likewise, when class action status so
greatly expands the defendant’s potential liability so as
to coerce a settlement, even if meritorious, interlocutory
review is also appropriate. Id. at 834-35. Finally, an
appeal that advances class action law might justify inter-
locutory review. Id. at 835. Reliable Money Order
now argues for dismissal of McKnight’s appeal, sug-
gesting that subsequent developments have undermined
McKnight’s original justifications for interlocutory re-
view. Even considering these developments, several
of the Blair considerations continue to apply. We deny
the motion to dismiss.
First, this appeal would inform class action law. In its
petition, McKnight raised the possibility of conflicting
district court opinions to justify interlocutory appeal.
Because all post-Ashford Gear II district courts have
found counsel adequate, interlocutory appeal is no
longer necessary according to Reliable Money Order.
True enough, McKnight did raise inconsistent outcomes
in its petition for appeal. But McKnight also argued
improper application of Ashford Gear II, a question no
appellate court has yet reviewed in any of the B2B
18 No. 12-2599
cases. Attorney misconduct requiring denial of class
certification has received little treatment in the circuit
courts. Thus, this appeal “may facilitate the develop-
ment of the law,” supporting denial of the motion to
dismiss. Blair, 181 F.3d at 835. What is more, the B2B
records spawned over one hundred lawsuits so the possi-
bility of inconsistent district court opinions remains. In
any event, and in light of the many B2B cases still
pending, district courts will benefit from additional
guidance on the application of Ashford Gear II’s “serious
doubt” standard.
Second, class certification here presents precisely the
scenario where “stakes are large and the risk of a settle-
ment or other disposition [may] not reflect the merits of
the claim[.]” Blair, 181 F.3d at 835. The district court’s
certification order extends McKnight’s exposure to
nearly $5 million. In contrast, denial of class certifica-
tion would keep this case a one-count, $1,500 claim. Such
a dramatic increase in potential liability would raise
the prospect of coercing a settlement from McKnight, a
self-described “small family business.” See Szabo v. Bridge-
port Mach., Inc., 249 F.3d 672, 675 (7th Cir. 2001) (Rule 23(f)
appeal appropriate when class certification turned
$200,000 dispute into $2 million dispute).
In the end, two of Blair’s three considerations are
present in this case. We also note that the parties have
briefed and argued the merits of this issue. Having
denied the motion to dismiss, we move on to the merits.
No. 12-2599 19
B. Anderson + Wanca’s Misconduct Does Not Require
Denial of Class Certification
We review class certification orders for abuse of discre-
tion. Kress v. CCA of Tenn., LLC, 694 F.3d 890, 892 (7th Cir.
2012) (citation omitted). Abuse of discretion results
when a district court commits legal error or makes
clearly erroneous factual findings. Id. (citing Christmas v.
City of Chi., 682 F.3d 632, 638 (7th Cir. 2012)). So long as
the district court employs the “rigorous analysis”
required by Rule 23, it enjoys broad leeway in deciding
the adequacy of class counsel. See Kirkpatrick v. J.C.
Bradford & Co., 827 F.2d 718, 728 (11th Cir. 1987) (noting
“adequacy of class representation is primarily a factual
issue”). The district court here applied the proper legal
test—Ashford Gear II’s “serious doubt” standard—and
employed a “rigorous analysis” when doing so. Indeed,
the district court’s thorough and carefully reasoned
opinion is oft-cited in the other cases rooted in the B2B
data. See Van Sweden Jewelers, 2012 WL 4127824, at *8;
Imhoff Inv., 2012 WL 4815090, at *2; Ashford Gear III, 2012
WL 3961307, at *2. Thus, we review the district court’s
confirmation order for abuse of discretion.
Anything “pertinent to counsel’s ability to fairly and
adequately represent the interests of the class” bears on
the class certification decision. Fed. R. Civ. P. 23(g)(1)(B).7
7
The district court must also consider counsel’s work on the
case to date, counsel’s class action experience, counsel’s knowl-
edge of the applicable law, and the resources counsel will
(continued...)
20 No. 12-2599
As we made clear in Ashford Gear II, an attorney’s mis-
conduct or ethical breach is pertinent: the potential at-
torneys’ fees in a class action so far outweigh the
potential recovery of any individual plaintiff that they
present attorneys with a strong temptation “to sell out the
class by agreeing with the defendant to recommend
that the judge approve a settlement involving a meager
recovery for the class but generous compensation for
the lawyers[.]” Ashford Gear II, 662 F.3d at 918. Given
this temptation—in tension with the fiduciary obliga-
tions of class counsel to the unnamed class members, see
Culver, 277 F.3d at 913—when “class counsel have demon-
strated a lack of integrity, a court can have no con-
fidence that they will act as conscientious fiduciaries of
the class.” Ashford Gear II, 662 F.3d at 918.
Not any ethical breach justifies the grave option of
denying class certification. No doubt, misconduct that
prejudices the class or creates a direct conflict between
counsel and the class requires such denial under
Ashford Gear II’s serious doubt standard. See, e.g., Rodriguez
v. West Publ’g Corp., 563 F.3d 948, 959-60 (9th Cir.
2009) (direct conflict between counsel and class); Piambino
v. Bailey, 757 F.2d 1112, 1144-46 (11th Cir. 1985) (same);
Walter v. Palisades Collection, LLC, No. 06-378, 2010 WL
308978, at *10-11 (E.D. Penn. Jan. 26, 2010) (noting ethical
7
(...continued)
commit to the case. See Fed. R. Civ. P. 23(g)(1)(A). No one
disputes the qualifications of plaintiff’s counsel under these
metrics.
No. 12-2599 21
violations related to attorney competency); In re
Mid-Atlantic Toyota Antitrust Litig., 93 F.R.D. 485, 489-90
(D. Md. 1982) (denying class certification where fee
arrangement created conflict of interest between
attorney and class). McKnight does not identify any
conflict of interest or prejudice to the class arising from
the misconduct here.
Nevertheless, even “serious” or “major” ethical viola-
tions—not prejudicial to the class—can require denial
of class certification. Ashford Gear II, 662 F.3d at 919. We
thus reject the suggestion of plaintiff’s counsel that
only misconduct directly harming the class is relevant
to the class certification decision. That does not mean,
however, that an ethical violation always requires denial
of certification, as McKnight argues. A “slight” or “harm-
less” breach of ethics will not impugn the adequacy of
class counsel. See id. at 918; see also Busby v. JRHBW Realty,
Inc., 513 F.3d 1314, 1323-24 (11th Cir. 2008) (noting that
even if plaintiff’s counsel “violated Rule 7.3 [of the Ala-
bama Rules of Professional Conduct], the district court was
not then required to find [plaintiff] inadequate to repre-
sent the class” (citing Halverson, 458 F.2d at 932)). 8 This
conclusion makes sense: the ABA Model Rules, the
8
McKnight briefly suggests that, because the mere appear-
ance of impropriety warrants denial of class certification, see
Susman v. Lincoln Am. Corp., 561 F.2d 86, 88 (7th Cir. 1977), full-
blown violations of the ethics rules should always require
the same. But Susman involved a conflict between proposed
class counsel and the class, id., not rules violations uncon-
nected to any prejudice to the class.
22 No. 12-2599
Illinois Rules, and the Wisconsin Rules all warn that “the
purpose of the Rules can be subverted when they are
invoked by opposing parties as procedural weapons.”
Preamble to ABA Model R. of Prof’l Conduct ¶ 20; Pream-
ble to Wis. R. of Prof’l Conduct for Att’ys ¶ 20; Preamble to
Ill. R. of Prof’l Conduct ¶ 20. Thus, unless the violation
prejudices one of the parties or undermines the court’s
ability to resolve the case justly, state bar authori-
ties—not a court—should enforce the rules and sanction
the attorney.
We therefore conclude that unethical conduct, not
necessarily prejudicial to the class, nevertheless raises
a “serious doubt” about the adequacy of class counsel
when the misconduct jeopardizes the court’s ability to
reach a just and proper outcome in the case. Other courts
have denied class certification on exactly this type of
misconduct. For example, in Wagner v. Lehman Brothers
Kuhn Loeb Inc., the court found that counsel’s attempts
to bribe potential witnesses violated the professional
rules and required denial of class certification. 646
F. Supp. 643, 659, 661-62 (N.D. Ill. 1986). And in Kaplan
v. Pomerantz, the attorney failed to correct a witness’s
false deposition testimony despite knowing its falsity.
132 F.R.D. 504, 510-11 (N.D. Ill. 1990). Like the attorney’s
conduct in Wagner, the court found that the Kaplan at-
torney’s ethical breach jeopardized the integrity
of the judicial proceedings, warranting denial of class
certification.
Although distressed by Kelly’s dealings with Ms. Abra-
ham and Anderson + Wanca’s solicitation letter, we do
No. 12-2599 23
not believe those lapses in professionalism undermine
the district court’s ability to decide the case. Regarding
the $5,000 check, McKnight never raised this alleged
misconduct before the district court.
1. Anderson + Wanca’s Interaction with Caroline
Abraham
Defendant first attacks Anderson + Wanca’s commu-
nications with Caroline Abraham as impermissible,
materially misleading statements to a third party. See Ill.
R. Prof’l Conduct 4.1; Wis. Sup. Ct. R. 20:4.1. McKnight
also argues Anderson + Wanca violated Rule 4.3
by failing to disclose plaintiff’s position adverse to
Ms. Abraham’s interests.
Although we do not join the assessment of plaintiff’s
counsel that “Mr. Kelly did nothing wrong in obtaining
the B2B records,” we do not believe his conduct and
the alleged violations of Rules 4.1 and 4.3 require denial
of class certification. As the district court explained,
“plaintiff’s attorneys did not breach a promise of con-
fidentiality with the members of the class in Cy’s
Crabhouse, or with the members of the class in Ash-
ford Gear, or with the potential members of this class.
Instead, the breach was with a third party holding in-
formation regarding the illegal behavior of potential de-
fendants.” Reliable Money Order, 281 F.R.D. at 336. In short,
the alleged misconduct, though it certainly raises con-
cerns about the professionalism of plaintiff’s counsel,
does not raise serious doubts about their ability to repre-
sent the class faithfully: It does not prejudice the class
24 No. 12-2599
or create a conflict of interest. Nor do these alleged ethical
lapses compromise the integrity of the lawsuit—plaintiff’s
counsel have not presented or suborned any false
evidence related to the merits of the case. Thus, these
ethical issues are unlike those in Wagner and Kaplan.
That is not to say, however, that attorneys at Ander-
son + Wanca did not breach their promise of confidentiality
or did not violate Rules 4.1 and 4.3. The district court
here concluded that Anderson + Wanca breached a
promise made to Ms. Abraham.9 Moreover, counsel’s
mailing of solicitation letters while contemporaneously
asking defense counsel to treat the information as confi-
dential does not speak well for the genuineness Kelly’s
9
Other district courts have disagreed. Beason, 2012 WL 3205526,
at *3 (“The Plaintiff has presented sufficient evidence to
show that the [B2B] client information was not obtained under
any confidentiality agreement.”); Ashford Gear III, 2012 WL
3961307, at *2 (“The evidence submitted in support of the
supplemental motion proves, however, that counsel breached
no such agreement.”). But see Am. Copper & Brass, 2012 WL
3027953, at *6 (“At the same time, Kelly still could have upheld
the representation that he made to Abraham . . . . But, Kelly
chose to make the representation to Abraham and he chose
not to keep the information confidential.”); Cy’s Crabhouse II,
2010 WL 3327876, at *2 (rejecting argument that “the mate-
rials on the B2B hard drive were not confidential under the
protective order because Abraham did not follow the process
established in the protective order for designating materials
confidential”).
No. 12-2599 25
promises.10 Our holding here reflects only the judgment
that actions such as occurred here—which do not
prejudice an attorney’s client or undermine the integrity
of judicial proceedings—do not mandate disqualification
of counsel.
2. The Solicitation Letter
Likewise, the solicitation letter does not require denial
of class certification. Even assuming the letter misled, it
neither prejudices the class nor undermines the outcome
of the case. Next, McKnight makes much of the failure
to register the letter as required by Wisconsin ethical
rules and of Anderson + Wanca’s failure to retain records
of the recipients. This questionable conduct, too, does
not cast doubt upon the attorneys’ ability to act as a
fiduciary of the class nor does it undermine the integrity
of the judicial proceedings. In fact, the defects in
counsel’s solicitation letters are not unlike the “slight
breach of ethics” in Halverson, which even the Ashford
Gear II court recognized was insufficiently serious to
require denial of class certification. Ashford Gear II, 662
F.3d at 918-19. Halverson noted that “pre-suit commu-
nication with prospective class members, where permis-
10
Plaintiff’s counsel asked defense counsel in the Cy’s
Crabhouse litigation to treat the B2B data as confidential on
June 23, 2009. In the months leading up to that request, how-
ever, plaintiff’s counsel had mailed solicitation letters and
already had filed over forty putative class action lawsuits,
all rooted in the B2B data.
26 No. 12-2599
sible, should be forthright and complete.” 458 F.2d at 931.
Counsel’s solicitation letters in that case, however, did not
discuss costs, drawing our disapproval but not our con-
demnation of plaintiff’s motion for class certification. Id.
at 931-32. Thus, the district court did not clearly err
in certifying the class despite these alleged ethical viola-
tions.
3. Anthony Wanca’s $5,000 Payment to Eric Ruben
Finally, McKnight faults one other aspect of the district
court’s analysis, arguing that the propriety of Wanca’s
$5,000 check, made payable to Ruben, “went unanalyzed
by the magistrate judge.” But the reason Judge Callahan
did not analyze the propriety of the $5,000 payment is
simple: McKnight never raised it before that court.1 1
Thus, without placing the issue before the district court,
defendant cannot argue error in leaving it unaddressed.
In any event, Reliable Money Order does not argue
that defendant waived this argument and other district
courts have made factual findings on this issue so we
briefly address its merits. See United States v. Rodriguez,
11
True, McKnight discussed the $5,000 check in its statement
of facts but nothing in the argument makes the case that this
check required denial of class certification. And mere inclu-
sion of facts supporting a particular argument does not
preserve that argument. See Bob Willow Motors, Inc. v. Gen.
Motors Corp., 872 F.2d 788, 795 (7th Cir. 1989) (argument
waived when included only in summary of argument section
of brief).
No. 12-2599 27
888 F.2d 519, 524 (7th Cir. 1989). Unlike defendant’s
other allegations of misconduct, this allegation, if proven,
would require denial of class certification: witness pay-
ments contingent on particular testimony or a case out-
come certainly undermine the integrity of judicial pro-
ceedings. Wagner, 646 F. Supp. at 659-60. Thus, without
a doubt, if Wanca sent Ruben the check to influence
Caroline Abraham’s testimony or made payment of
expenses contingent upon the outcome of the case,
Wanca would have committed a serious breach of the
ethical rules that would require denial of class certifica-
tion. See id. Defendant, however, offers no evidence
suggesting that Wanca’s $5,000 payment came with
such strings attached. See Am. Copper & Brass, 2012 WL
3027953, at *7; Cy’s Crabhouse II, 2010 WL 3327876, at *6-7.
And without that evidence the courts are powerless
to sanction or discipline.
Instead, defendant relies solely on Ruben’s testimony
that he perceived the payment as a “payoff” of “question-
able propriety.” Even assuming this testimony provides
adequate evidence that the payment was contingent on
the outcome of the case or the content of the testi-
mony, determining the propriety of the $5,000 check
required balancing the credibility of Ruben’s testimony
against that of Wanca, who denied the allegations. The
Cy’s Crabhouse court engaged in just such a credibility
determination and concluded that no evidence existed
28 No. 12-2599
to show improper motive for the payment.1 2 Defendant
does not now point to any evidence showing clear
error in such a conclusion.1 3
IV. Conclusion
In closing, we emphasize our concern over the chal-
lenged actions that Anderson + Wanca attorneys have
taken while investigating this case and others. McKnight
warns that our outcome will incentivize and reward
overly aggressive and unethical attorney conduct. But
this scenario of unpunished, inappropriate attorney
action results only if the litigants and fellow members of
the bar fail to refer legitimate instances of attorney mis-
conduct to the relevant bar authority for investigation.
12
McKnight does attack the credibility of Wanca’s testimony
by suggesting his later statements in open court directly
contradicted the substance of his testimony. Though question-
able whether the statements actually do contradict each
other, the alleged misstatement does not relate to the $5,000
check. In any event, that suggestion alone does not establish
clear error in concluding no improper motive existed.
13
Plaintiff’s counsel also suggests that, even if the misconduct
of Anderson + Wanca would otherwise require denial of class
certification, it does not in this case because Anderson + Wanca
has partnered with Bock & Hatch—a firm untainted by
the alleged misconduct—to prosecute this class action. Because
we conclude that the misconduct of Anderson + Wanca at-
torneys does not require denial of class certification, we
leave this question open.
No. 12-2599 29
But when an ethical breach neither prejudices an
attorney’s client nor undermines the integrity of the
judicial proceedings, state bar authorities are generally
better positioned to address the matter through disciplin-
ary proceedings, rather than the courts through sub-
stantive sanction in the underlying lawsuit. Notwith-
standing, when appropriate, a federal court retains the
power to impose discipline or refer questionable conduct
for further investigation. Therefore, we D ENY plaintiff-
appellee’s motion to dismiss and A FFIRM the district
court’s certification of the class.
1-9-13