January 2017 | Earn one hour of MCLE Credit in Legal Ethics
Ethics and the absent class member
Ethical duties generally arise out of the existence of a lawyer-client relationship. But what happens when the identity of the client is unknown to the lawyers on the opposing side and even to the very lawyers who represent those clients?
That is the situation in which lawyers in class actions find themselves on a daily basis. This article addresses three areas of ethics where the rules are a square peg into which the round hole of class action fits poorly: (1) solicitation of prospective clients, (2) communication with represented parties and (3) conflicts of interest.
A class action is a form of representative litigation. W. Rubenstein, Newberg on Class Actions, § 1.1 (5th ed. 2016). Class representatives litigate on behalf of a larger group of plaintiffs known as "absent class members." Id. A class action does not typically begin with a client walking through the lawyer's door with a problem. Rather, it is common for a class action lawyer to go in search of class representatives. The imperative to identify class representatives, however, runs the would-be class counsel into California's prohibitions on solicitation. California's ethics rules prohibit an attorney from directly soliciting new clients by in-person or telephonic contact (unless the lawyer already has a professional or family relationship with the prospective client or the communication is protected by the U.S. Constitution or California Constitution). California Rules of Professional Conduct Rule 1-400 ("CRPC").
So what is a class action lawyer who has identified an injury to a broad swath of the public and wants to bring a lawsuit on behalf of the injured to do? There are two options. The first is to recruit a brother or another family member if any of them fit within the proposed class of injured parties. This is a solution consistent with ethical obligations under California law because the anti-solicitation rule does not apply to family members. Another source of representative plaintiffs is the lawyer's current or former clients. The rule does not apply to them either. Failing those options, attorneys can advertise or communicate through mass mailings. Best Buy Stores, L.P. v. Superior Court, 137 Cal. App. 4th 772 (2006) (mass mailing to prospective class representatives did not violate the rule against solicitation).
By choosing this route, however, the lawyer will want to be aware of, and comply with, the specific ethical rules that govern attorney advertising, which are set forth in Rule 1-400 of the California Rules of Professional Conduct ("CRPC") and the standards for advertising that have been promulgated by the Board of Trustees. Any appeal to potential class action representatives must comply with Rule 1-400. Such advertisements must not be untruthful, misleading or omit to state facts necessary to make a statement non-misleading. See e.g. Sheller v. Superior Court, 158 Cal. App. 4th 207 (2008) (flyer sent to prospective representatives asserting that representatives "would be paid for their time" without disclosing that payment was contingent upon success was misleading and in violation of ethics rules).
Even after class representatives have been identified and the class action has been filed, ethical considerations continue to potentially circumscribe communications with absent class members by class counsel and counsel for the defendant. The ethics rules prohibit a lawyer who represents a client from communicating "directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer." CRPC 2-100. This is commonly referred to as the "no-contact rule." Class counsel may wish to prevent counsel for the defendant from communicating with class members by invoking this rule. Before the class action is certified, however, class counsel will generally be unsuccessful in this effort. California courts are generally in agreement that pre-certification, absent class members are not represented by class counsel for purposes of the no contact rule. Atari, Inc. v. Superior Court, 166 Cal. App. 3d 867, 873 (1985) On the other hand, after a court certifies a class, including conditional certification for settlement, absent class members are treated as represented parties for purposes of the no contact rule and defense counsel will be prohibited from contacting those represented parties. Hernandez v. Vitamin Shoppe Indus., Inc., 174 Cal. App. 4th 1441 (2009).
There are constitutional and policy dimensions as well as ethical ones to efforts to block access to absent class members. This is particularly true where class counsel is a nonprofit. In Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 (1981), the NAACP brought a class action discrimination suit on behalf of Gulf Oil employees. Gulf Oil responded by sending out letters to affected employees offering a payment of back wages in exchange for a release. The NAACP lawyers sought to contact the employees and encourage them to join the lawsuit rather than accepting Gulf's offer. The district court ordered the NAACP not to communicate with absent class members without court approval of the proposed communication. The Supreme Court found the order improper and instructed that in the absence of "a clear record and specific findings" supporting the need for such limitations a court lacks authority to interfere with class counsel's efforts to communicate with potential class members.
The Gulf Oil rule has also been held to protect defense counsel's efforts to communicate with absent class members before the class has been certified. In Atari, the trial court entered an order permitting class counsel to provide notice of a lawsuit to laid off Atari employees and precluded Atari from contacting putative class members. The Court of Appeal reversed, holding that under Gulf Oil, in the absence of evidence that Atari would act abusively in contacting its former employees concerning the lawsuit, counsel for the defendant in a class action cannot be prohibited from contacting putative class members.
Conflicts of interest
Conflicts of interest is another area in which the unusual characteristics of a class action makes traditional application of the ethical rules difficult. The ethical rules against conflicts of interest protect core fiduciary duties to the client— the duty of loyalty and the duty of confidentiality. A lawyer's ethical duty of loyalty precludes the lawyer from representing a client adverse to another current client on any matter including unrelated matters without the client's informed written consent. Flatt v. Superior Court, 9 Cal. 4th 275 (1994); see also CPRC 3-310(c). However, as noted above, when analyzing conflicts of interest, a key question is who is a client. If the absent class members were deemed clients, it would be very hard to check conflicts and very easy for conflicts to arise.
One important distinction courts draw in analyzing conflicts in class actions is whether the class has been certified or not. Class certification is the mechanism by which the court certifies that claims asserted and those asserting the claims meet the requirements of the statute. See e.g. Fed. R. Civ. P. 23(a) (to be certified, case must meet four characteristics: impracticability of joinder of each member, common questions of law or fact, typicality and adequacy of the class representative). It is fairly well established under California law that for purposes of conflicts, class counsel does not represent unnamed class members before the class is certified. See e.g. Kullar v. Foot Locker Retail, Inc., 191 Cal App. 4th 1201, 1205 (2011).
In Kullar, a law firm sought to represent objectors to a class action settlement in case A and at the same time represent a class of employees in a similar lawsuit, case B. The defendant in case B moved to disqualify the law firm on the grounds that by representing the objectors, the law firm was adverse to its own clients in case B, many of whom were also members in class A and (at least according to the defendant's theory) favored settlement. The court denied the motion, holding that the law firm did not have an attorney-client relationship with members of class B.
Although not binding on California courts, the ABA Model Rules have provided assistance in navigating class action conflicts. Id., Comment 25 to Rule 1.7, which prohibits simultaneous representation of clients with directly adverse interests, indicates that the strict rule is not usually applicable to class actions. Comment 25 states: "[w]hen a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class-action lawsuit, unnamed members of the class are ordinarily not considered to be clients of the lawyer" The comment has been repeatedly cited approvingly by California courts in rejecting motions to disqualify based on purported conflicts with absent class members. See e.g., Sharp v. Next Entm't, 163 Cal. App. 4th 410 (2008); Kullar, 191 Cal. App. 4th at 1205.
A trickier question is whether absent members will be considered the clients of class counsel for purposes of conflict analysis after a class has been certified. A recent decision held that absent members of a certified class were a client for conflicts purposes. Walker v. Apple Inc., 4 Cal. App. 5th 1098 (2016).
But the unusual facts of Walker render its holding limited. In the case, Apple was sued in a wage and hour lawsuit. The certified class included 20,000 non-managerial employees. While that case was pending, the same law firm brought a second class alleging that Apple failed to provide final wage statements to terminated employees. Apple asserted as a defense that its policy was to require store managers to provide those final wage statements. Apple moved to disqualify class counsel on the grounds that certain employees who fell within the definition of certified class had been promoted to managers who could be witnesses in the second case. Thus, Apple contended, the firm would be put in the conflicted position of cross-examining its own clients. The trial court and court of appeal agreed and disqualified class counsel.
Another difficulty with applying traditional conflict of interest rules to class actions is the role of consent. Generally, most conflicts of interests can be waived by the affected client providing its informed written consent. See CRPC 3-310; Model Rule 1.7. But, this is not particularly practical, or even possible, with a class action. Sharp v. Next Entm't, 163 Cal. App. 4th 410 (2008) ("obtaining consent from all absent class members prior to certification is impractical, as the names of the absent class members are most likely unknown"). In Sharp, the defendant brought a motion to disqualify plaintiffs' counsel, asserting that the class action was actually being paid for and run by a labor union which had different interests than the class members. The class representatives had provided informed written consent to the conflict. Defendants argued that consent was required from the absent class members as well. The court rejected this position as unworkable and at odds with the class action device: "Were we to require a procedure by which each and every member of a class action lawsuit has to agree to the choice of class counsel, we would eviscerate the class action device that is designed to permit class members to sit back through the process, knowing there are safeguards for their protection."
Finally, the remedy for a conflict of interest in a class actions also may differ from traditional conflicts in litigation. Under California law, simultaneous representation of clients with conflicting interests ordinarily results in automatic or per se disqualification of the conflicted counsel. Flatt v. Superior Court, 9 Cal. 4th 275 (1994). It is currently unclear whether that is also the rule in California. In a recent decision, the Ninth Circuit approved the district court's use of a balancing test rather than automatic disqualification. Radcliffe v. Hernandez, 818 F.3d 537 (2016). In Walker, however, the court of appeal refused to follow Radcliffe and imposed automatic disqualification, finding that the nature of the conflict in Walker was more akin to a traditional violation of the duty of loyalty than the conflict in Radcliffe.
All of the same ethical rules apply to lawyers who litigate class actions. How those ethical rule apply, however, can prove more challenging.
Amy L. Bomse is a commercial litigator who focuses her practice principally on representing lawyers and law firms. She is a member of the State Bar's Committee on Professional Responsibility and Conduct. The opinions in this article are her own.