Steven Thorogood filed a putative class action in Illinois state court alleging that Sears had engaged in deceptive conduct by selling dryers with the words “stainless seal” imprinted on them and by advertising the dryers as having drums made of stainless steel when the dryer drums were not made entirely of stainless steel. After Sears removed the case, an Illinois federal district court certified a class of dryer purchasers from 28 states (including California) and the District of Columbia. Sears appealed. The Seventh Circuit Court of Appeals reversed and decertified the class.

Thorogood’s claim was based on a Tennessee law that limited Thorogood’s damages to $3,000. After the class was decertified, Sears made a Rule 68 offer of judgment of $20,000, inclusive of attorneys’ fees. The district court held that Thorogood had no right to recover attorneys’ fees and dismissed the case, as the offer of judgment exceeded the recoverable damages. Thorogood claimed that he was entitled to attorneys’ fees of $246,000 and appealed. Earlier this year, the Seventh Circuit affirmed the dismissal.

Meanwhile, after the Seventh circuit denied certification, Martin Murray, represented by the same lawyers as Thorogood, filed a putative class action in California state court based on “a similar general set of operative facts” against both Sears and Electrolux Home Products, the manufacturer of the dryers. Murray, however, limited the class that he sought to certify to California purchasers. Sears removed the case to federal court and moved to dismiss the class allegations, arguing that the Illinois federal court’s order denying class certification prevented Murray, a member of Thorogood’s proposed class, from re-litigating the class issue. The California federal district court initially held that collateral estoppel barred certification of the class, but, after Murray amended his complaint to allege some additional facts, reversed its ruling and permitted discovery to proceed.

Because Sears could not immediately appeal the California court’s order rejecting its collateral estoppel defense, Sears asked the Illinois court that presided over Thorogood to enter an order enjoining Murray from proceeding with the California class action. The Illinois court denied the request, finding that Sears’ ability to argue its collateral estoppel defense on appeal in California was an adequate remedy. Sears again appealed. The Seventh Circuit reversed and directed the district court to issue the injunction against members of the putative class in Thorogood and their lawyers. Thorogood v. Sears Roebuck and Co., 2010 WL 4286367 (7th Cir. Nov. 2, 2010).

The Seventh Circuit first rejected the plaintiff’s argument that the district court lacked jurisdiction because it had disposed of Thorogood’s claim with a final order and did not reserve jurisdiction. Sears’ request for injunction was based on the All Writs Act, which allows federal courts to enter any orders necessary in aid of its jurisdiction. Specifically, the All Writs Act empowers federal courts to enjoin parties from re-litigating decided issues.

The Seventh Circuit then held that the California federal court’s decision that collateral estoppel did not bar class certification was wrong. Even after amending the complaint, Murray’s allegations were substantively identical to the Thorogood allegations that the seventh circuit found inadequate to support class certification.

Even though Sears had a viable collateral estoppel defense in California, however, the Seventh Circuit found that the Illinois district court erred in finding that defense to be an adequate remedy for Sears. In California, the district court’s order forced Sears to defend class allegations and submit to expensive discovery burdens. These forces would “create [] a pressure for settlement that may be disproportionate to the actual merits” of plaintiff’s claims. The court went so far as to append to its opinion a letter plaintiff’s counsel sent to Sears’ lawyers after the district court denied Sears’ motion to dismiss. The letter, which the court described as “something close to settlement extortion,” described the extent of discovery that was forthcoming and announced that the cost of settlement would increase as the case progressed. Under these circumstances, “[t]he harm [Sears] faces from the denial of the injunction is irreparable and its remedy at law against settlement extortion nonexistent.” The Seventh Circuit then directed the district court to enjoin putative class members and plaintiffs’ lawyers from pursuing “copycat” class litigation in state or federal courts.

The Seventh Circuit noted, however, that in Smith v. Bayer Corp., No. 09-1205, the Supreme Court has agreed to decide whether such injunctions may be applied to those seeking class certification in state courts. The Seventh Circuit accordingly held that while the injunction to be issued in Thorogood would apply to cases in both federal courts and state courts, those pursuing certification in state courts might be entitled to modification of the injunction depending upon the decision that the Supreme Court eventually issues in Smith v. Bayer Corp. To read our bulletin on Smith v. Bayer, please click here.