Cross-posted by Forbes.com at WLF Contributor Site
The plaintiffs’ bar often bemoans that class action lawsuits get a bad rap. But two federal court rulings from last month offer reminders as to why people think class actions have more to do with lawyer enrichment than client compensation. Each suit has the appearance of being lawyer-driven, and in both resulting decisions, the judge harshly criticizes the lawyers.
From the U.S. District Court for the Central District of California, we have Rothman v. General Nutrition Corp. As related in a National Law Journal article, the Rothman case was one of 150 class action suits filed after the California Supreme Court ruled that businesses who ask consumers for zip codes during credit card transactions can be sued under a California law prohibiting requests of “personal identification information.” In addition to denying certification of the class because the plaintiffs’ claims lacked sufficient “commonality,” Judge James Otero found that the lawyers bringing the suit could not adequately represent the class.
Judge Otero pointedly noted that plaintiffs’ counsel cited the U.S. Court of Appeals for the Ninth Circuit’s ruling in Dukes v. Wal-Mart as supporting certification. That would be the same Dukes case which, the judge, wrote, was “famously reversed” by the Supreme Court this year. Judge Otero concluded that this unfamiliarity with “arguably the most influential Supreme Court decision of the past decade” meant either that counsel is not sufficiently up to speed on prevailing precedents or that:
this motion was mere boilerplate, a rote class certification motion that is updated only to fit in the facts of the particular case without checking whether the cases cited remain valid points of law.“
The plaintiffs’ counsel told National Law Journal that the citation to the Ninth Circuit’s Wal-Mart ruling was a “complete oversight,” and that he would be seeking reconsideration and appealing to the Ninth Circuit if that was unsuccessful.
The second ruling, Creative Montessori Learning Centers v. Ashford Gear, was issued by a unanimous panel of the Seventh Circuit and authored by Judge Richard Posner. Ashford Gear, which, as Judge Posner put it, is “a home-furnishings wholesaler . . . that has three employees and annual sales of $500,000,” was sued under the Telephone Consumer Protection Act for allegedly sending unsolicited faxes.
The law firm learned of Ashford Gear’s “junk” fax marketing this from a third-party agent whose business it is to fax advertisements on behalf of clients like Ashford Gear. According to the opinion, the firm told the agent that it would not disclose anything from the list of recipients to any third parties. The firm subsequently contacted Creative Montessori, telling it that it was a likely member of a class action suit.
The Seventh Circuit found that not only did the lawyers mislead Creative Montessori into believing that a suit was already ongoing, but they also broke their confidentiality promise to the third-party ad agent. Such conduct, the presiding federal district court judge concluded, may be grounds for discipline by bar authorities, but was not bad enough to justify his rejection of class certification based on inadequate representation of counsel.
The Seventh Circuit strongly disagreed with the trial judge. After an eye-opening discussion of how class action lawsuits can be designed to coerce defendants into settlement, the panel accepted Ashford Gear’s interlocutory appeal and reversed the district court. The lower court judge’s conclusion that “only the most egregious misconduct ‘could ever arguably justify denial of class status'” would “condone, and by condoning invite, unethical conduct,” Judge Posner wrote. The correct standard, he concluded, was to deny class certification if “misconduct by class counsel . . . creates a serious doubt that counsel will represent the class loyally.” The appeals court vacated the certification of the class and ordered the trial court to reconsider the adequacy of representation issue under the standard noted above.
As Judge Posner wrote in Creative Montessori, “class counsel owe a fiduciary obligation” to their clients. That duty should not be taken lightly, especially by judges whose job it is to protect the interests of class members, and the integrity of the justice system. Kudos to Judge Otero and the Seventh Circuit panel for their fidelity to that duty.