Fast and Loose Litigants and Courts: Carnegie V. Household International, Inc. and the End of Settlement Classes*

I. Introduction Class action defendants have previously been free to pursue settlement classes to reach a global resolution of all claims with little fear of adverse consequences. Recently, however, in Carnegie v. Household International, Inc., the Seventh Circuit unearthed the little-used doctrine of judicial estoppel and, in an unprecedented move, applied it to settlement-class defendants whose settlement with members had been overturned.1 Consequently, the court held that the defendants were estopped from arguing against for litigation purposes.2 Clearly, Carnegie's history greatly influenced the Seventh Circuit's holding. In the matter's initial incarnation,3 several plaintiffs' attorneys entered into a settlement agreement with defendants H&R Block and Beneficial National Bank.4 The settlement disposed of claims that the two companies had violated various state and federal laws through the improper use of refund anticipation loans (RALs).5 The settlement included both defendants, who each asserted that the was suitable for certification.6 In return, the class release[d] defendants from any and all actual and potential claims, known or unknown, that the representatives asserted or could have asserted against defendants arising out of the RALs.7 This was to be a global settlement, binding all absent members who failed to opt out and preventing any further RAL suits.8 After approval by the trial judge under Rule 23(9) and appeal by objecting members, the Seventh Circuit reversed the settlement's approval, holding that the circumstances surrounding the settlement demanded closer scrutiny than the district judge gave it.10 On remand, a different district court judge declined to approve the settlement.11 Carnegie, the case's third incarnation, was brought before the same district court judge who had rejected the initial settlement on remand. Remarkably, she never formally certified the for litigation purposes, instead placing the burden on the defendants to present objections to certification.12 On appeal, the Seventh Circuit applied judicial estoppel to the defendants' arguments against certification, found that there was a de facto certification because the had originally settled as a settlement action, ruled that the second trial judge was within her discretion when she put the burden on the defendants to object to certification, and held that the could proceed to trial, certified as a litigation class.13 This Note makes two fundamental arguments regarding the Carnegie decision. First, the Seventh Circuit misapplied the doctrine of judicial estoppel, failing to ground it in either circuit precedent or the law as interpreted by a majority of federal courts. Second, and more importantly, the Seventh Circuit's decision, although it innovatively uses judicial estoppel to attack certain perceived ills of settlement classes, creates unprecedented costs for defendants who still wish to seek a settlement and, in so doing, paves the way for the end of settlement classes. This Note's arguments develop through four distinct Parts. Part II analyzes the doctrine of judicial estoppel as formulated and applied by different federal courts. Specifically, it examines the application among the courts of either the test-which requires that a litigant benefit from some form of prior judicial acceptance before it can be estopped-or the fast and loose test-which only requires a showing that the litigant improperly changed its arguments so as to gain an unfair advantage. Part III examines the Seventh Circuit's pre-Carnegie judicial estoppel jurisprudence and argues that, until very recently, the Circuit had fully embraced the success test. In other words, like a majority of federal courts, the Seventh Circuit only applied judicial estoppel when there was a prior judgment, or at least a settlement, in which a party had been successful. …