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Nick Pearson v. Target Corp.

United States Court of Appeals, Seventh Circuit

June 26, 2018

Nick Pearson, et al., Plaintiffs-Appellees,
Target Corporation, NBTY, Inc. and Rexall Sundown, Inc., Defendants-Appellees, Appeal of: Theodore H. Frank, Objector.

          Argued January 16, 2018

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 7972 - John Robert Blakey, Judge.

          Before Wood, Chief Judge, and Rovner and Hamilton, Circuit Judges.

          Wood, Chief Judge.

         Inequitable settlements are an unfortunate recurring bug in our system of class litigation. Federal Rule of Civil Procedure 23(e) is designed to minimize such problems, but appeals by class members who object to a settlement indicate that the system still needs improvement. All too often, class counsel negotiate a settlement with substantial attorneys' fees but meager benefits for the class. See, e.g., Redman v. RadioShack Corp., 768 F.3d 622, 638-39 (7th Cir. 2014). Named plaintiffs fail to live up to their ethical obligations as fiduciaries to the class. See, e.g., Eubank v. Pella Corp., 753 F.3d 718, 723-24 (7th Cir. 2014). The objector-appellant before us, Theodore Frank, has brought problems like these to our attention before, including in an earlier appeal in this case. See, e.g., Pearson v. NBTY, Inc., 772 F.3d 778 (7th Cir. 2014); In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., 869 F.3d 551 (7th Cir. 2017).

         But this appeal is different. It does not concern the class settlement itself, but rather what happened after the district court approved the settlement. Frank characterizes it as "objector blackmail": an absent class member objects to a settlement with no intention of improving the settlement for the class. Instead, the objector files her objection, appeals, and pockets a side payment in exchange for voluntarily dismissing the appeal. A potential benefit for the class-a better settlement-is leveraged for a purely personal gain-a side bargain. Although Rule 23 may change at the end of this year, if Congress allows some proposed amendments to go into effect, up until now the federal rules have not had any provision targeted at side settlements reached on appeal. Proposed Amendments to the Federal Rules of Civil Procedure, Rules 5, 23, 62, and 65.1, Slip Order at *9-15 (U.S. Apr. 26, 2018),

         In this case, three objectors voluntarily dismissed their appeals before appellate briefing began. Frank suspects that they acted in bad faith. He hoped to bring the issue to the district court's attention, but he was stymied because final judgment had already been entered with prejudice. Frank moved for a limited reopening of the case, but the district court denied that motion. Because the motion should have been granted and Frank allowed to pursue his theory, we reverse.


         Nick Pearson filed this suit in November 2011 on behalf of a putative class of consumers who purchased glucosamine, a dietary supplement advertised for its benefits to joint health. The class alleged that Target Corporation, NBTY, Inc., and Rexall Sundown, Inc., violated consumer protection laws by making false claims about the efficacy of the supplement. The parties reached a settlement, which the district court initially approved on January 22, 2014. Frank objected and appealed to this court. We reversed because the settlement provided outsized benefits for class counsel. Pearson, 772 F.3d at 787. On remand, the parties reached a new settlement, which the district court approved on August 25, 2016. The district court entered final judgment on the same day; its order reflected its approval of the settlement, which included both monetary and injunctive relief. We call this the "Settlement Judgment." The order specified that the action was being dismissed "'without prejudice' so as to allow the Court to supervise the implementation and administration of the Settlement."

         Three unnamed class members-Steven Buckley, Patrick Sweeney, and Randy Nunez-objected and filed appeals. All three dismissed their appeals before briefing began. From here the proceedings took an unusual turn. After the voluntary dismissal of the objectors' appeals, the district court entered a new order on November 18 dismissing the (already dismissed) action. Unlike the Settlement Judgment, the November dismissal was unconditional: it was entered with prejudice and was not accompanied by any order effectuating the settlement. We call this the "Post-Appeal Judgment."

         On December 7, Frank moved to intervene and disgorge any side settlements made by the other three objectors. Frank claims that because the appeals were brought on behalf of the class, the class is entitled to any proceeds from the side settlements. Judge Zagel, who had presided over the case since 2012, approved a briefing schedule for the issue on December 12. But because Judge Zagel had taken senior status, the case was reassigned to Judge Blakey the next day. Judge Blakey promptly struck Frank's motion and vacated the briefing schedule, reasoning that the court lacked jurisdiction to consider the issue because the Post-Appeal Judgment had terminated all proceedings in the district court. That order, however, did not stop the named plaintiffs from moving two months later for court approval of the distribution of class settlement funds. The court denied the motion, again for want of jurisdiction, on March 6, 2017. Finally, on May 19, Frank moved under Federal Rule of Civil Procedure 60(b) to vacate the Post-Appeal Judgment and restore the Settlement Judgment as the applicable final judgment. That, he believed, would allow the court to entertain his previous motion to disgorge any side payments. The district court denied the motion the same day. Frank appealed. Because all appellees declined to file briefs, Frank was the lone party represented on appeal.



         Before addressing the merits, we must consider whether Frank was entitled to bring a Rule 60(b) motion in the first place. Rule 60(b) contemplates relief only for "a party or its legal representative." Fed.R.Civ.P. 60(b). Thus, Frank must count as a "party" to bring the motion and, consequently, to bring this appeal. Absent class members, such as Frank, "may be parties for some purposes and not for others." Devlin v. Scardelletti, 536 U.S. 1, 9-10 (2002). Generally, they are not parties for Rule 60(b) purposes. In re Four Seasons Sec. Litig., 525 F.2d 500, 504 (10th Cir. 1975). But this is not an absolute rule. While we have never so held in a published opinion, "it has long been the general rule that some form of participation in the litigation is necessary before an unnamed class member can seek relief under Rule 60(b)." Adelson v. Ocwen Fin. Corp., 621 Fed.Appx. 348, 351 (7th Cir. 2015); see also In re Four Seasons, 525 F.2d at 504; 6 Newberg on Class Actions § 18:40 (5th ed. 2017); cf. Devlin, 536 U.S. at 10 ("The label 'party' does not indicate an absolute characteristic, but rather a conclusion about the applicability of various procedural rules that may differ based on context."). Through his objection to ...

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