Seventh Circuit Provides Guidance on Certifying Class Definition and Claims Differing from Those Proposed in Complaint

Permanent Link Archived: https://perma.cc/JW4L-HA3K

by: Colin E. Flora

     Today’s discussion turns to an interesting area of class action procedure that has long been governed by rules of thumb more than concrete caselaw. Specifically, what happens when the course of litigation compels a reshaping of the class definition in a manner that differs with what has been proposed in the complaint. There are different fields of thought, to be sure. In affirming the certification of a nationwide class and Illinois subclass regarding computer software marketed for speeding up the computer, the Seventh Circuit provided some much-needed guidance on the subject. That guidance is the primary focus of our discussion today.

Other Decisions

     But, because it has been a few weeks since our last discussion, there are a handful of recent decisions from the Seventh Circuit and Indiana appellate courts that merit some passing mention:

  • Campbell Hausfeld/Scott Fetzer Co. v. Johnson, Indiana Supreme Court: The decision resolved a lingering question under Indiana’s Products Liability Act. That question was whether the affirmative defense of plaintiff’s misuse of a product constitutes a complete defense or only a means of apportioning fault under Indiana’s Comparative Fault Act. After thorough analysis, the court “h[e]ld that the misuse defense, like the alteration and incurred risk defenses, is a complete one.” The court further clarified what must be shown in order to successfully assert misuse as a complete defense:

This is not to say that any allegation on the part of a seller that a plaintiff misused the product will suffice. The misuse defense is qualified by the plain language in the statute. That is, in order to successfully employ misuse as a defense, the seller must show both that the misuse of the product is: 1) the cause of the harm; and 2) not reasonably expected by the seller. If a plaintiff misuses a product but it is not the cause of the harm and/or the misuse can reasonably be expected by the seller, then the misuse would not serve as a complete defense and comparative fault principles would apply.

  • Destination Yachts, Inc. v. Pierce, Indiana Court of Appeals: A defendant’s complete about-face “treat[ing a] trial court’s order as not precluding arbitration for weeks, only to claim the exact opposite and argue that it did preclude arbitration” was sufficient to satisfy the “surprise” requirement for relief from a judgment under Indiana Trial Rule 60(B)(1). Further, when a trial court awards a motion compelling arbitration, the court should either stay the pending case or dismiss without prejudice; dismissal with prejudice can be a basis for error.

  • Community Hospitals of Indiana, Inc. v. Aspen Insurance UK Ltd., Indiana Court of Appeals: The court of appeals ruled that the plaintiffs’ prolonged assertion that the defendants were subject to the Indiana Medical Malpractice Act and several-year delay pending a determination by the medical review panel estopped the plaintiffs from later asserting that the Indiana Medical Malpractice Act did not apply to the case. 

  • Dunlap v. Lange, Indiana Court of Appeals: The trial court committed reversible error in barring admission at trial of the purchase agreement underlying the case for failure to include the agreement as in pretrial evidentiary designation because the agreement “was deemed admitted into evidence by virtue of its attachment to the Dunlaps’ complaint[.]”

  • BloomBank v. United Fidelity Bank F.S.B., Indiana Court of Appeals: Recognizing that a release is ineffective to bar a claim for breach of contract if the releasing party “was fraudulently induced into executing the [contract] containing the Release.” The case also clarified a confusing aspect of Indiana law regarding claims for unjust enrichment, also known as quantum meruit. Looking to the newly released Restatement (Third) of Restitution and Unjust Enrichment: Paymen to Defendant to Which Claimant Has a Better Right, the Court of Appeals of Indiana wrote: 

UFB contends that BloomBank failed to state a claim for unjust enrichment because BloomBank was not the entity that conferred the benefit on Village Capital and Village Capital did not request the benefit from BloomBank. It is true that, “[t]o recover under an unjust enrichment claim, a plaintiff must generally show that he rendered a benefit to the defendant at the defendant's express or implied request . . . .” However, this Court has allowed a plaintiff to recover against a defendant for unjust enrichment even when it was a third party that conferred the benefit on the defendant and the defendant did not request the benefit from the plaintiff.

The above holdings are consistent with the Restatement of Restitution and Unjust Enrichment. “If a third person makes a payment to the defendant to which (as between claimant and defendant) the claimant has a better legal or equitable right, the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment.” Similarly, “if a third person makes a payment to the defendant in respect of an asset belonging to the claimant, the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment.” Here, BloomBank alleged that third person purchasers made payments to Village Capital in respect of the Property which equitably belonged to BloomBank due to UFB’s alleged fraudulent actions resulting in UFB’s purchase of that Property for less than its full value. And BloomBank alleged that it was therefore entitled to restitution from Village Capital as necessary to prevent unjust enrichment. Thus, BloomBank stated a claim for unjust enrichment, and the trial court erred in dismissing that claim.

  • Owens v. Caudillo, Indiana Court of Appeals (unpublished): In a decision that I sincerely wish the Court of Appeals of Indiana had published instead of choosing to designate as a non-citable memorandum the court revisited a ruling initially handed down almost three months earlier. On rehearing, the majority of the split court determined that a trial court committed reversible error by not allowing one of the parties to reopen the case to admit a small but vital piece of evidence that had errantly not been admitted during the party’s case. The majority found:

It is undeniable that Owens’s attorney made a disastrous mistake by resting before ensuring that this crucial evidence had been admitted. It is likewise undeniable that it would have been eminently reasonable for the trial court to firmly chastise counsel for the error. All of that said, however, the jury was still empaneled and the evidence to be introduced was extremely limited and specific. Reopening the evidence would have caused no prejudice to State Farm, nor would it have caused confusion or inconvenience to the trial court or the jury.

The result in this case was an unearned $170,000 windfall to State Farm stemming from an inadvertent attorney error that could have been easily and quickly remedied. We agree with Owens that this outcome defies traditional notions of substantial justice and fair play. Under these circumstances, we can only conclude that the trial court erred by denying Owens’s motion to reopen the evidence. Therefore, we reverse and remand for further proceedings.

But the court was not unified on rehearing. Judge Bradford, who authored the initial ruling, dissented and simply wrote, “I respectfully dissent from the majority's decision on rehearing and, based on the reasoning included in the memorandum decision issued on August 2, 2018, would vote to deny rehearing.” The decision is instructive to trial courts that minor procedural errors should not be allowed to be outcome determinative. Unfortunately, the court’s choice to not publish the decision prevents direct future reliance on the conclusion.

  • Indy Auto Man, LLC v. Keown & Kratz, LLC, Indiana Court of Appeals: The court was confronted with applying the doctrines of apparent agency and apparent authority to the setting of a loose affiliation between an attorney and a law firm. We have discussed both concepts before, but this decision gives an excellent example of relevant facts for consideration. The succinct discussion found issues of material fact prevented summary judgment against the theories of both apparent authority and apparent agency:

Apparent authority is the authority that a third person reasonably believes an agent to possess because of some manifestation from the agent's principal. To find that a person had apparent authority to act for the principal, it is essential that there be some form of communication, direct or indirect, by the principal, which instills a reasonable belief in the mind of the third party. The communication from the principal need not be made directly to the third party; instead, the communication is sufficient to endow the agent with apparent authority if it placed the agent in a position to perform acts or make representations that appear reasonable to a third party.

Here, the following facts are undisputed:

  • The Firm provided Stohler with rent-free office space and allowed him to use the Firm's mailing address.

  • The Firm provided Stohler with business cards and letterhead.

  • The Firm provided Stohler with an email address, though he never activated it.

  • Stohler used the Firm's contact information when filing appearances in the two IAM cases.

  • The Firm added Stohler to its legal malpractice insurance policy. The Firm believes that was only intended to cover Stohler's work for the Firm's clients, but there is no written evidence supporting that belief.

  • IAM sought to retain an attorney with the backing of a firm and selected Stohler, in part, because it believed that he was in such a situation.

The Firm emphasizes that when IAM retained Stohler, it was not familiar with the Firm or the arrangement that Stohler had with the Firm. But at his deposition, Gorin testified that “I knew [Stohler] was affiliated with the law firm. I don’t know when I found that out.” Moreover, Massillamany attested that

I informed [IAM] that I had an attorney, Dustin Stohler, he worked for a firm Keown & Kratz, they’re a smaller firm, they can handle the work. They won't charge you the hourly rate that I was charging at the time at Barnes & Thornburg, they’d be cheaper and just as good. And I believe they're a Hamilton County firm. So I said, since your cases are in Hamilton County, it would be good to have a Hamilton County firm.

In other words, Massillamany believed Stohler worked for the Firm, Wabash College published an advertisement announcing that Stohler worked for the Firm, and the court system was sending mail to the Firm on behalf of Stohler—all third parties who relied on manifestations made by the Firm (e.g., provision of letterhead, permission to use business address, etc.). At the very least, there is a question of fact as to whether IAM had a reasonable belief that Stohler was acting as the Firm’s agent based on the Firm’s manifestations. It is clear that this evidence must be weighed and evaluated by a trier of fact. Consequently, it was erroneous to enter summary judgment in favor of the Firm on IAM's complaint.

  • Vermillion v. Corizon Health, Inc., Seventh Circuit: The case presented purely procedural issues but provides a tad bit of clarity to the rules governing length in federal appellate briefs. Federal Rule of Appellate Procedure 32(a)(7)(B)(i)caps the number of words in an appellate brief at 13,000 without leave of court. Each circuit, however, may alter the length requirement as the circuit sees fit. The Seventh Circuit has enacted Circuit Rule 32(c), which expands the limit to 14,000. In Vermillion, the self-represented appellant encountered two primary problems with the length of his brief. First, he used the “Properties” panel in Microsoft Word to conduct his word count. But that panel does not include footnotes, so his brief was longer than he had thought because he did not include the nearly 1,000 words in the footnotes. The other problem was a basic confusion of what does and does not count toward the word limit. Appellate Rule 32(f) provides a specific list of items to be excluded. The appellant errantly read the silence of the rules with respect to certain aspects of the brief—specifically, citations to the record—as also being excluded. The court instructed, “[T]he fact that Rule 32 does not ‘specifically include’ any category of words does not imply that they don’t count toward the limit. Rule 32(f) does not mention citations to the record or appendix, but neither does it mention citations to judicial decisions and law reviews. Rule 32(a)(7) sets a limit on the entire brief—statements of fact, summaries of the district court's or agency's opinions, substantive legal arguments, citations, quotations, footnotes, and everything else—with the exception of the items excluded by Rule 32(f) . . . .” Lastly, in addressing the appellee’s request for an increased word count, the court provided a reminder  that “Circuit Rule 32(c), which affords everyone 1,000 more words than the cap in Rule 32(a)(7), reflects a view that 14,000 suffices for all but the rare cases with lengthy trials, complex administrative records, or multiple complex issues.”

Class Definitions & Claims

     That takes us now to the Seventh Circuit’s opinion in Beaton v. SpeedyPC Software. After four years of litigation and motions practice, the plaintiff “moved to certify a class and subclass of software purchasers.” Two issues arose: (1) the “proposed class definition was narrower than the one in his complaint[;]” and (2) the classes were certified to pursue legal theories that were not specifically outlined in the original complaint. The defendant contended that these differences were sufficient to render the district court’s certification an abuse of discretion.

     Writing for the unanimous panel, Chief Judge Wood rejected that argument:

Speedy complains that the class definitions and legal theories covered by the court’s certification orders impermissibly differ from those outlined in the original complaint. Speedy first attacks the narrowing of the class from everyone in the United States who had purchased SpeedyPC Pro, to individual persons (not entities) who downloaded the free trial and purchased the licensed software over roughly a three-year period. This is nothing like what we faced in Supreme Auto Transport, LLC v. Arcelor Mittal USA, Inc., where the later proposed class greatly expanded the scope of the litigation beyond what the defendants could have imagined. We see no reason here why Speedy is prejudiced by the narrower certified definition. Speedy complains that it would have conducted discovery differently had it known about the narrowed class. But it has not told us, either in its briefs or at oral argument, what exactly would have changed. Speedy’s position is further weakened by the fact that the district court allowed additional merits discovery following its certification decision. District courts may amend class definitions either on motion or on their own initiative. We are satisfied that the court reasonably exercised its discretion in adopting its class definition.

We similarly find no reversible error in the district court’s decision to certify Beaton’s two implied warranty claims. It is immaterial that these legal theories were not spelled out in the initial complaint. As the Supreme Court and this court constantly remind litigants, plaintiffs do not need to plead legal theories. Rule 8 requires only that a complaint must set forth plausible facts that, if true, would support a claim for relief. Even where a plaintiff initially asserts particular theories of recovery, unless the change unfairly harms the defendant she is allowed to switch course and pursue other avenues of relief as litigation progresses. Here, the court’s certification of the implied warranty claims was permissible as long as Beaton’s allegations were plausible and Speedy had fair notice of what this suit was about. We note as well that applicable law is no longer in dispute, as the parties now agree that the implied warranty claims derive from the Agreement, which chooses the law of British Columbia.

Beaton’s complaint describes Speedy as a company that sells software products. He alleges that it marketed SpeedyPC Pro in the hope of persuading consumers to purchase the software to fix their computers. And he asserts that customers relied on the company’s expertise and representations that the software would improve their devices. For present purposes, this is enough to provide fair notice that he intends to pursue warranty claims under the law of British Columbia. It is hard to imagine how Speedy suffered any “unfair surprise,” given that the “legal basis for liability is based on the same allegations” about the sale of worthless software. Though Speedy insists that it is worse off because it cannot move to dismiss on the ground that the Agreement expressly disclaimed these implied warranties, there is no final judgment in this case. Nothing prevents Speedy from pursuing this point on remand.

     So, what do we take away from Beaton? First, the general rule of thumb that a class definition may easily be narrowed at certification whereas expanding the definition would be much more problematic appears to be well founded based upon Beaton. Second, it appears that Beatonstands for the proposition that the definition proposed at certification need not be identical to that proposed in the operative complaint. Indeed, this point has always appeared somewhat self-evident, given the power of the district court to certify a class definition different than what is proposed either in the complaint or by the parties. Nevertheless, there are still courts that require amendment of the complaint, even amendment after certification to conform to the class definition that was certified. But Beatonappears strong support for the proposition that the complaint need not be an identical recitation of the definition of the certified class. And, third, the liberal notice pleading scheme of Rule 8 applies with equal force to class claims. 

     Join us again next time for further discussion of developments in the law.

Sources

*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.