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Murray v. GMAC Mortgage Corp.

January 17, 2006


Petition for Permission to Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 05 C 1229. Samuel Der-Yeghiayan, Judge.

The opinion of the court was delivered by: Easterbrook, Circuit Judge.


Before EASTERBROOK, ROVNER, and WILLIAMS, Circuit Judges.

Shortly after her debts had been discharged in bankruptcy, Nancy Murray received a credit solicitation from GMAC Mortgage, which had learned her name and address by asking credit bureaus to forward information about potential borrowers who met specified criteria. GMACM offered Murray a loan to be secured by a mortgage on her home. Deluged by offers, Murray showed them to a lawyer, who concluded that GMACM had violated the Fair Credit Reporting Act in two ways: first, GMACM had not made the "firm offer of credit" that is essential when a potential lender accesses someone's credit history without that person's consent, see 15 U.S.C. §1681b(c)(1)(B)(i); second, GMACM's offer did not include a "clear and conspicuous" notice of the recipient's right to close her credit information to all who lacked her prior consent, see 15 U.S.C. §1681m(d)(1)(D). Murray filed suit, proposing to represent a class of about 1.2 million recipients of similar offers from GMACM and demanding statutory damages, which range from $100 to $1,000 per person. See 15 U.S.C. §1681n(a)(1)(A). A recent amendment to the Act abolishes private remedies for violations of the clear-disclosure requirement, which in the future will be enforced administratively, but that change does not apply to offers made before its effective date and thus does not affect this litigation. See 117 Stat. 1952, adding 15 U.S.C. §1681m(h)(8).

While waiting for the judge to decide whether the suit could proceed as a class action, the parties reached a tentative settlement-which the district judge refused to read, stating that this would be a waste of time because he had decided that Murray could not represent a class. See 2005 U.S. Dist. LEXIS 27254 (N.D. Ill. Nov. 8, 2005), reconsideration denied, 2005 U.S. Dist. LEXIS 28249 (Nov. 11, 2005). In an effort to save the availability of class-wide relief, Murray proposes an interlocutory appeal, which we have discretion to allow. See Fed. R. Civ. P. 23(f). GMACM, seeing an opportunity to avoid liability (at least until another recipient of its offer files suit), opposes her petition. Meanwhile another district judge has certified a class in an essentially identical action. See Murray v. New Cingular Wireless Services, Inc., 2005 U.S. Dist. LEXIS 29162 (N.D. Ill. Nov. 17, 2005). We accept the appeal, which presents some fundamental questions about the management of consumer class actions, in light of this conflict and the fact that about two score more of these suits are pending in the Northern District of Illinois. Because the papers already filed cover the issues fully, we proceed directly to decision.

The district court gave four reasons for declining to certify a class: (1) Counsel did not try to cut a deal for Murray personally. (2) The complaint seeks statutory but not compensatory damages. (3) Statutory damages, if awarded to a class, would be ruinously high. (4) Nancy Murray is a "professional plaintiff" unfit to represent a class. All but #4 evince hostility to all class litigation; if any one were adopted, consumer class actions under the Fair Credit Reporting Act would be impossible. None is a proper ground on which to deny class certification, however.

1. Let Us Start With The First

The district judge wrote: "Murray's interests are antagonistic to other class members' interests because Murray may desire to settle her claim alone. Murray might be able to recover more funds individually with fewer complications if she settled individually." Yet every plaintiff "may desire" to settle alone; if this were enough to preclude class treatment, there could be no class actions for damages under Rule 23(b)(3). The district judge did not point to any evidence suggesting that Murray does want to settle privately; if she did (and her lawyers say, without contradiction from the record, that she doesn't), why launch the suit as a class action? The only answer would be that she wanted to use the class as bait to attract a better offer, then cash in by withdrawing the class claim. If that were her goal (or her lawyer's), it would be unethical, see Shelton v. Pargo, Inc., 582 F.2d 1298, 1306 (4th Cir. 1978), as well as unrealistic. For unless the statute of limitations had run (which it hasn't), why would GMACM pay Murray to go away when any of a million other recipients could take her place?

Unfortunately, the terms of the tentative settlement suggest that Murray or her lawyers may have tried something worse, negotiating for payment while giving GMACM the benefit of a judgment that leaves the class empty-handed. GMACM agreed to put up a fund of $950,000 that would be divided between the class members and their lawyer. Murray would get the first $3,000; the remaining class members (some 380,000 of whom would receive mailed notice) and counsel would divide the rest. That works out to less than $1 per recipient of GMACM's mailing. Money not claimed from the fund-and, given the tiny sum per person, who would bother to mail a claim?-would be distributed to charity and Murray's lawyers.

This looks like the sort of settlement that we condemned in Blair v. Equifax Check Services, Inc., 181 F.3d 832 (7th Cir. 1999), and Crawford v. Equifax Payment Services, 201 F.3d 877 (7th Cir. 2000), two appeals arising from the same litigation. That suit had been settled for $2,000 to the named plaintiff, $5,500 to a legal-aid society that had not been injured by the defendant's conduct, and $78,000 in legal fees. We treated the disproportion-$2,000 for one class member, nothing for the rest-as proof that the class device had been used to obtain leverage for one person's benefit. See also, e.g., Young v. Higbee Co., 324 U.S. 204, 211-14 (1945); Weiss v. Regal Collections, 385 F.3d 337, 343-45 (3d Cir. 2004); Chauteau de Ville Products, Inc. v. Tams-Witmark Music Library, Inc., 586 F.2d 962, 965-67 (2d Cir. 1978). Here the proposed award is $3,000 to the representative while other class members are frozen out. The payment of $3,000 to Murray is three times the statutory maximum, while others don't get even the $100 that the Act specifies as the minimum. Oddly, this is the sort of tactic that the district judge chastised counsel for not employing on Murray's behalf.

Such a settlement is untenable. We don't mean by this that all class members must receive $100; risk that the class will lose should the suit go to judgment on the merits justifies a compromise that affords a lower award with certainty. See In re Mexico Money Transfer Litigation, 267 F.3d 743 (7th Cir. 2001). But if the reason other class members get relief worth about 1% of the minimum statutory award is that the suit has only a 1% chance of success, then how could Murray personally accept 300% of the statutory maximum? And, if the chance of success really is only 1%, shouldn't the suit be dismissed as frivolous and no one receive a penny? If, however, the chance of success is materially greater than 1%, as the proposed payment to Murray implies, then the failure to afford effectual relief to any other class member makes the deal look like a sellout. Thus it may well be that Murray is not a good champion, that her law firm (Edelman, Combs, Latturner & Goodwin, LLC) is not an appropriate counsel, or both. But this is the opposite of the district judge's reason (recall that the judge wanted Murray to jettison the class for personal benefit), so this consideration cannot sustain the decision.

2. The district court's second reason-that Murray should have sought compensatory damages for herself and all class members rather than relying on the statutory-damages remedy-would make consumer class actions impossible. What each person's injury may be is a question that must be resolved one consumer at a time. Although compensatory damages may be awarded to redress negligence, while statutory damages require wilful conduct, introducing the "easier" negligence theory would preclude class treatment. Common questions no longer would predominate, and an effort to determine a million consumers' individual losses would make the suit unmanageable. Yet individual losses, if any, are likely to be small-a modest concern about privacy, a slight chance that information would leak out and lead to identity theft. That actual loss is small and hard to quantify is why statutes such as the Fair Credit Reporting Act provide for modest damages without proof of injury.

Rule 23(b)(3) was designed for situations such as this, in which the potential recovery is too slight to support individual suits, but injury is substantial in the aggregate. See, e.g., Mace v. Van Ru Credit Corp., 109 F.3d 338, 344-45 (7th Cir. 1997). Reliance on federal law avoids the complications that can plague multi-state classes under state law, see In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 288 F.3d 1012 (7th Cir. 2002), and society may gain from the deterrent effect of financial awards. The practical alternative to class litigation is punitive damages, not a fusillade of small-stakes claims. See Mathias v. Accor Economy Lodging, Inc., 347 F.3d 672 (7th Cir. 2003).

Refusing to certify a class because the plaintiff decides not to make the sort of person-specific arguments that render class treatment infeasible would throw away the benefits of consolidated treatment. Unless a district court finds that personal injuries are large in relation to statutory damages, a representative plaintiff must be allowed to forego claims for compensatory damages in order to achieve class certification. When a few class members' injuries prove to be substantial, they may opt out and litigate independently. See Jefferson v. Ingersoll International, Inc., 195 F.3d 894 (7th Cir. 1999). Only when all or almost all of the claims are likely ...

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