Seventh Circuit remands class action for determination on potential damages to resolve jursidictional fight

By Jonathan Bilyk | Apr 16, 2014

Despite the opportunity to demand at least $1.5 million more in federal court, a downstate attorney representing a class of at least 1,100 small claim debtors suing a company accused of bringing illegal collection actions has asked Chicago's federal court to let him try the case in Illinois state court, which he likely considers to be a more favorable venue.

Attorneys for the defendant debt collection firm, however, want the case to remain in federal court, to the point that they have argued the actual number of plaintiffs is higher, and so are the potential damages for which they could be liable.

To resolve the jurisdictional fight, a panel of the Seventh Circuit Court of Appeals in an April 9 opinion ordered a federal district judge to take another stab at calculating the extent of the potential damages.

In doing so, the appeals panel overturned the decision of U.S. District Judge Charles P. Korcoras, who determined the class action suit brought against debt collector Pushpin Holdings LLC should be remanded to state court for trial.

The opinion was delivered by Judge Richard A. Posner, with judges Ilana Diamond Rovner and John Daniel Tinder concurring.

The case centers on an action brought last fall in Cook County Circuit Court by class representative Michael Johnson, who had been sued by Pushpin over an alleged equipment lease agreement for which the company claimed he owed $3,300.

Johnson, of North Carolina, disputed he ever signed such a lease, and eventually retained O'Fallon attorney David M. Duree. They claim Pushpin brought the action against Johnson without a license to do so in Illinois and forged his signature on fraudulent documents to form the basis of the debt collection suit.

Through Duree, Johnson filed a complaint against Pushpin and others on behalf of himself and a class of similar alleged victims of actions brought by the company. Johnson's consumer fraud complaint estimated the class at about 1,100 members.

The plaintiffs suit sought $3.5 million in damages, including $400,000 in legal fees.

In response, attorneys representing Pushpin-- Christina E. Lutz of Levenfeld Pearlstein LLC in Chicago and Scott E. Silberfein Moses & Singer LLP in New York – removed the case to federal court, arguing that damages in the case could actually exceed $5 million, the threshold for moving suits from state to federal court.

Pushpin argued it believed the actual number of class members was closer to about 1,300, with potential damages more than $2 million more than what the plaintiffs were seeking.

Korcoras, the federal district judge, earlier this year said he believed the guiding legal precedent, known as the Rooker-Feldman Rule, rendered many of the claims in the class action suit ineligible for federal jurisdiction, thus reducing the damages below the $5 million threshold and making it impossible for Pushpin to prove its contention the case was best suited for federal court.

Pushpin appealed, arguing that Korcoras had erred in his analysis and the Seventh Circuit agreed in its recent opinion.

On behalf of the panel, Posner explained that plaintiffs are allowed to seek any amount of damages the law allows, including amounts seeming rather low.

"Class counsel doubtless consider it a sensible trade in this case: give up some damages in exchange for being able to litigate the case in what class counsel must believe is a more favorable forum—otherwise why insist that their damages would not reach $5 million?" Posner wrote.

He added, "Some members of the class, however, might think it better to gamble on the outcome of the suit if it is litigated in federal court than to give up what might be millions of dollars in damages."

"Or maybe not," Posner wrote, adding that an additional $1.5 million divided between more than 1,000 class members would mean less than $1,500 in additional damages per member, a number that would actually be less "since class counsel would take a big bite of the damages as an additional attorneys’ fee."

Posner went on to note there is no language in Illinois law limiting the amount plaintiffs could seek once the case landed in circuit court and pointed out that the plaintiffs had “failed to attach a binding stipulation or affidavit” limiting the damages specifically to the $3.5 million they had spelled out in the original complaint.

In the end, the appeals justices found Korcoras misapplied the Rooker-Feldman doctrine, which they said doesn't preclude the claims in the class action suit from being tried in federal court.

They further held that the district court judge was wrong in relying on a “‘strong presumption in favor of remand (to state court)’ when a case has been removed under the Class Action Fairness Act.”

For these reasons, Posner wrote, Korcoras will need to run new calculations to determine whether the case is fit for federal or state court.

“The judge will have to determine anew whether the amount in controversy reaches the statutory minimum,” the panel held. “We don’t have enough information to be able to make that determination ourselves.”

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