Seventh Circuit Decision Calls for Class Action Reform
In its recent decision in Manistee Apartments, LLC. v. City of Chicago, No. 15-3113 (7th Cir. Dec. 20, 2016), a three-judge panel of the Seventh Circuit Court of Appeals upheld the district court’s dismissal of the plaintiff’s class-action complaint. Potentially more interesting than the decision itself was the court’s express call for changes to the class-action process to avoid frivolous class actions motivated solely by attorneys seeking fees.
The claims at issue in the case arose from a default administrative judgment entered against Manistee Apartments in 2011 by the City of Chicago. Once registered, the judgment imposed a lien against Manistee’s real estate holdings. Manistee claims it first became aware of the lien years later, when pursuing a sale of its real estate. In response to Manistee’s inquiry, the City provided a payoff letter detailing the outstanding amount, which included the underlying judgment of $3,540, plus $820.34 in statutory interest and $1,394.82 in collection costs and attorney fees. Manistee disputed only the collection costs and attorney fees. While working to resolve the City’s claim, Manistee conveyed the property to an out-of-state buyer representing the title was clear. It also paid the total amount due to the City, but claimed to be doing so “under protest.” Shortly thereafter, Manistee filed a class action against the City, alleging that the assessment of collection costs and attorney fees violated due process guarantees under the federal and state constitutions, as well as other provisions of Illinois state law.
The district court granted the City’s motion to dismiss on the grounds that Manistee’s payment to the City was not made under duress, but was voluntary. As a result, Manistee could not be deprived of a protected property interest under federal law. Finding no federal constitutional violation, the court applied the same test to dismiss the state constitutional claims and declined to exercise supplemental jurisdiction over the remaining state-law claims.
On appeal, the Seventh Circuit employed similar reasoning in upholding the district court’s decision. The court noted that there was a more than year-long gap between the date of sale of the property by warranty deed and the release of the lien as well as the fact that the sale price of the property was only $10, ultimately rejecting Manistee’s claim that it was coerced into paying the full amount demanded by the City. The court easily held that there was no deprivation of any property interest by the City, and upheld the district court’s dismissal of Manistee’s claims. Noting the extremely minimal amount at issue and the extremely limited pool of the potential class of plaintiffs in the same position as Manistee, the court went on to question the true motivation behind the class action. The answer: attorney fees – a fact which plaintiff’s counsel apparently admitted during oral argument. The court explained “it is cases like the one before us that demonstrate precisely why the courts, and Congress, ought to be on the lookout for ways to correct class action abuses.”
The court’s distain for attorney abuses of the class action and overall litigation system in this case is clear. Unfortunately, no easy answer exists to protect defendants against the hassle and costs of such litigation, but the court has issued a clear warning to class-action counsel that it has no patience for this sort of extortion-style litigation.
