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