## Facts

- Taxpayers obtained refund-anticipation loans (RALs) arranged through tax preparers and funded by affiliated lending entities.
- The loans advanced the amount of an expected tax refund for the period between filing and receipt of the refund, in exchange for fees and interest.
- The named plaintiff sought to represent a nationwide class of RAL borrowers alleging they were misled about the nature and cost of the loans and about financial arrangements between the lender and the preparer.
- The proposed class was extremely large (millions of borrowers) with small individual damages (roughly tens of dollars per borrower).
- A prior global settlement in related litigation had been approved with a settlement class, but the approval was reversed and the matter was remanded due to concerns about collusion and adequacy in the settlement context.
- On remand, the district court disapproved the settlement and certified essentially the same class as a litigation class under Rule 23.
- Defendants sought interlocutory review of the certification order under Federal Rule of Civil Procedure 23(f).

## Issues

1. Whether the court should exercise discretionary interlocutory review under Rule 23(f) to address novel and potentially case-dispositive certification questions.
2. Whether a Rule 23(b)(3) class was manageable and “superior” given a nationwide class of millions with small individual claims and potential individualized issues (reliance, causation, damages, and state-law variation).
3. Whether certifying a litigation class after disapproval of a proposed settlement raised adequacy-of-representation concerns.
4. Whether judicial estoppel barred defendants from challenging certification (or otherwise constrained the parties) based on positions taken during earlier settlement-class proceedings.

## Decision

- The court granted Rule 23(f) review, citing the novelty and importance of the questions presented and the potential for certification rulings to pressure settlement.
- The court affirmed the district court’s order certifying the litigation class.
- The court held the district judge did not abuse discretion in concluding that common issues predominated and that class treatment was superior to realistic alternatives.
- The court rejected the argument that the class was unmanageable merely because individualized issues might require some separate proceedings.
- The court found no bar to certifying a litigation class after a settlement was rejected, provided Rule 23 requirements were independently satisfied.
- The court declined to apply judicial estoppel to prevent certification-related arguments based on earlier settlement positions.

## Legal Principles

- Rule 23(b)(3) “superiority” and manageability require a comparative inquiry: the class mechanism should be evaluated against realistic alternatives, including the likelihood that no individual suits would be filed when damages are small.
- A very large class size does not, by itself, defeat certification; in small-claim cases, aggregation can be the only practical means of adjudication.
- The presence of some individualized issues (e.g., reliance or damages) does not preclude certification if common questions predominate and the court can use procedural tools such as bifurcation, issue trials, subclasses, or claims administration.
- A class contemplated for settlement may later be certified for litigation after the settlement is disapproved, so long as adequacy and other Rule 23 prerequisites are established in the litigation posture.
- Judicial estoppel is applied cautiously in class litigation and generally does not arise solely from changed positions between settlement proceedings and litigation-class certification.

## Conclusion

The Seventh Circuit affirmed certification of a nationwide Rule 23(b)(3) litigation class for RAL borrowers, emphasizing that manageability and superiority must be assessed against practical alternatives in small-value, high-volume disputes and that limited individualized proceedings do not automatically defeat predominance or certification.


Carnegie v. Household Int'l, Inc., 376 F.3d 656 (7th Cir. 2004)