CLASS ACTIONS/REGULATORY PROCEEDINGS
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Comment [25] to
Model Rule 1.7 provides as follows:
[25] When 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 for purposes of applying
paragraph (a)(1) of this Rule. Thus, the lawyer does not typically need to get
the consent of such a person before representing a client suing the person in
an unrelated matter. Similarly, a lawyer seeking to represent an opponent in a
class action does not typically need the consent of an unnamed member of the
class whom the lawyer represents in an unrelated matter.
That comment was added by the ABA
House of Delegates in February 2002, as part of the "Ethics 2000"
project. The comment describes the two most frequently encountered
scenarios involving possible conflicts of lawyers in class actions.
Because the law involving the latter scenario seems better-settled, this
discussion will start with it.
A. Class Action Plaintiffs' Lawyer Sues
Member of Class in Another Action
A
lawyer is representing plaintiff classes in two separate and unrelated class
actions. In one of the actions the lawyer is suing a party who happens to
be an unnamed member of the plaintiff class in the other action. The
question is, then, whether the lawyer is suing a current client. A handful
of cases say "no" and allow the lawyer to proceed. The most
recent is Dean v. Kraft Foods North America, Inc., 2004 U.S. Dist. LEXIS 5491
(E.D. Pa. March 26, 2004). Others are In re Fine Paper
Antitrust Litigation, 617 F.2d 22 (3d Cir. 1980); Little Rock School Dist. v.
Borden, 1979 WL 1626 (E.D. Ark. 1979); and In re Firestorm 1991, 22
P.3d 849 (Wash. App. 2001). A word of caution about Fine Paper: the
court dismissed the appeal because the trial court's denial of a motion to
disqualify was not appealable. But, in the opinion the court agreed with
the trial court that the lawyer did not have a conflict because he did not
receive information from the class member in the one case that would in any way
give the lawyer an advantage in suing the class member in the other case.
NY City Op. 2004-01
approves of class counsel handling matter adverse to unnamed members of the
class on matters unrelated to the class action.
B. Plaintiffs' Class Members Are Clients of
Defense Counsel
A class action
defendant hires a law firm to represent it. The plaintiff class has
thousands of members. Numerous of the class members are clients of the
defendant's law firm on matters unrelated to the class action. The named
class representatives are not clients. Does the fact that class members
are clients mean that the lawyer is disqualified from defending the case?
We are not aware of any cases on this point.
One might start with an analogy. An electric utility
asks a law firm to file an application for a rate increase with the state public
utility regulatory agency. The law firm represents hundreds of clients
within the service area of the utility. We are not aware of a
single instance in which a law firm has been disqualified because it was seeking
a rate increase on behalf of a public utility client. Of course, the
situation becomes more complex when a manufacturing client makes a special
appearance before the agency claiming that the requested increase will put it
out of business. One might argue that the law firm may not be able to
proceed. In most cases, however, the effect upon the average customer would be
small. Likewise, with many class actions. The ultimate effect on the
average class member is apt to be quite small.
Likewise, the cases under Part A
above provide help. For example, in Dean the court noted three
factors that led to its conclusion: (1) the class members were not named
parties; (2) the lawyer had received no information from the class member client
that would be useful in defending the case; and (3) the court cited several
cases that stood for the proposition that conflict-of-interest rules cannot be
applied as rigorously in class action litigation. All three statements
apply to this Part B scenario.
Caution, however. Some opinions on issues
relating to communication with class members characterize all the class members
as having an attorney-client relationship with class counsel. See, e.g.,
Fulco v. Continental Cablevision, Inc., 789 F. Supp. 45 (D. Mass.
1992); In re: Shell Oil Refinery, 152 F.R.D. 526 (E.D. La. 1989); and Blanchard
v. Edgemark Financial Corp., 1998 U.S. Dist. LEXIS 15420 (N.D. Ill. 1998).
Too Much Contact with the Class Member. Fuchs v. Schick, 2002 U.S. Dist.
LEXIS 6212 (S.D.N.Y. April 10, 2002). The Moriarty law firm sought leave to appear for the
plaintiff pro hac vice. The defendant, Schick, objected, claiming the law firm had a
conflict. The firm had earlier been
class counsel in a related case, and Schick had been a member of the class.
While the opinion in this case does not say, it appears that
Schick was not a named class representative.
Nevertheless, the court denied the law firm’s motion to appear for the
plaintiff, noting that Schick had not been “an obscure member of a large
class,” but rather had been an active participant in the earlier litigation,
and had a number of communications with the Moriarty firm during that
litigation. An implication of the opinion is that if Schick had
been "an obscure member of a large class," the Moriarty firm could now
be adverse to Schick.
Vermont lawyers should be aware of
Vermont Op. 99-9 (undated). The facts are not clear enough to justify
discussing the opinion here. Anyone with a class action conflicts issue in
Vermont should attempt to find out more about the situation and the attitude of
Vermont Bar officials.
C. Conflicts of Class Counsel During Settlement Objections
Suppose some class members object to a proposed
settlement. Class counsel may find themselves aligned against some of
their "clients" in trying to sustain or defeat the proposed
settlement. The courts are adopting more flexible rules in allowing class
counsel to continue to represent some of the class members. In Lazy Oil
Co. v. Witco Corp., 166 F.3d 581 (3d Cir. 1999), the court ruled
that class counsel could withdraw from representing class members objecting to a
settlement and continue representing the other class members. In In Re:
Agent Orange Prod. Liab. Litigation, 800 F.2d 14 (2d Cir. 1986), the court
refused to disqualify class counsel for objecting to a settlement on behalf of
just some of the class members. To the same effect, see In
re Holocaust Victim Assets Lit., 2007 U.S. Dist. LEXIS 18339 (E.D.N.Y. March
15, 2007); Banyai v. Mazur, 2004 U.S. Dist. LEXIS 17572
(S.D.N.Y. Sept. 1, 2004); and In re
Firestorm 1991, 22 P.3d 849 (Wash. App.
2001). However, in In Re: Corn Derivatives
Antitrust Litigation, 748 F.2d 157 (3d Cir. 1984), the court did not allow
class counsel to withdraw from representing the class so that he could represent
the only objector.
What Happens when Parties Agree that They Cannot Bring Class Action and
Cannot Agree on Settlement. The
Tax Authority, Inc. v. Jackson Hewitt, Inc., 898
A.2d 512 (N.J. 2006). This
began as a suit by 154 franchisees of the defendant involving the distribution
of money acquired by the defendant. The franchise agreements provided that the plaintiffs could
not seek redress through a class action. That
meant that 154 individual plaintiffs had to bring the suit.
They all had the same lawyer, Eric Karp, and signed identical engagement
agreements. As to settlement, the
agreements provided that a steering committee of a few plaintiffs could
negotiate a proposed settlement. The settlement would then be submitted to all the plaintiffs
for a vote. If 60% voted in favor
of the settlement, it would be binding on all the plaintiffs.
The steering committee did negotiate a settlement, but a small minority
of plaintiffs refused to approve it. Karp
moved to withdraw from representing the dissenting plaintiffs.
The franchisor moved to enforce the settlement.
The trial court granted both motions, and one of the dissenting
plaintiffs appealed. The appellate
court reversed the order enforcing the settlement.
The court held that the engagement agreement term providing that fewer
than all the plaintiffs could bind all plaintiffs violated New Jersey’s
version of Model Rule 1.8(g) (the rule dealing with aggregate settlements).
In the above cited opinion the New Jersey Supreme Court held that the
prohibition would be prospective.
Treatise. Hazard
& Hodes § 11.12.
Restatement,
§ 14, cmt. f.
Law Reviews. Northway, Non-Traditional
Class Action Financing and Traditional Rules of Ethics: Time for a Compromise,
14 Geo. J. Legal
Ethics 241 (2000); Gregg H. Curry,
Conflicts of Interests Problems for Lawyers Representing a Class in a
Class Action Lawsuit, 24 J. Legal Prof. 397 (1999/2000); David Brainerd
Parish, Comment, The Dilemma: Simultaneous Negotiation of Attorneys' Fees
and Settlement in Class Actions, 36 Hous. L.
Rev. 531 (1999); Genine C.
Swanzey, Using Class Actions to Litigate Mass Torts: Is there Justice for
the Individual?, 11 Geo. J. Legal
Ethics 421 (1998); Samuel Issacharoff,
Class Action Conflicts, 30 U.C. Davis L.
Rev. 805 (1997); Sylvia R.
Lazos, Note, Abuse in Plaintiff Class Action Settlement Negotiations,
84 Mich. L. Rev. 308 (1985); Arthur Miller, Of Frankenstein Monsters and
Shining Knights, Myth, Reality and the Class Action Problem, 92 Harv. L.
Rev. 664 (1979); Rhode, Class Conflicts in Class Actions, 34
Stan. L. Rev. 1183 (1982); Note, Scott, Don't forget Me! The Client in a Class
Action Lawsuit, 15 Geo. J. Legal
Ethics 561 (2002).
D. Miscellaneous Other Class Action Cases and Opinions
Class Counsel's Fees Reduced $6 Million Because of Conflict. Allapattah Services, Inc. v. Exxon Corp., 454 F. Supp. 2d 1185 (S.D. Fla.
2006). This
is the class action in which the court, in this opinion, awarded a Miami law
firm $247 million for its work as lead class counsel. Not so well known is the fact that the court in this same
opinion reduced another lawyer’s fee from $21 million to $15 million because
the lawyer had an undisclosed conflict of interest.
The conflict was that during the litigation the lawyer borrowed $400,000
from one of the class representatives. The
lawyer also had a fee splitting agreement with that same class representative.
It provided that the lawyer would pay the representative the lesser of
$13 million or one half of the lawyer’s fee.
On top of that, the class representative had sued the lawyer in Virginia
and obtained a $13 million judgment against the lawyer.
Neither of them disclosed any of this to the court, the other class
representatives, or to other class counsel.
One way the court found the conflict manifested itself was that the
lawyer and class representative had attempted to replace lead counsel. This would have enhanced their mutual recovery.
Davis
v. Kraft Foods North Amer., 2006 U.S. Dist. LEXIS 3512 (E.D. Pa. Jan. 31,
2006). Law Firm represented Davis,
the named plaintiff, in this class action, race discrimination case.
Davis claimed, among other things, that Kraft discriminated against
African Americans in employee disciplinary cases.
Opposing the motion to certify the class, Kraft claimed that Law Firm had
a conflict of interest, arising out of Law Firm’s representation of Dean in a
separate discrimination case against Kraft.
The problem was that Dean, Kraft’s former Employee Relations Manager,
during the time frame involved in this case, was involved in investigating
employee conduct and participating in disciplinary decisions.
That meant, according to the court, that Law Firm might have had to
attack Dean’s actions in this case. The
court held that Law Firm was barred from representing the class in this case by
Pennsylvania’s version of Model Rule 1.7(a)(2) (the “punch-pulling”
provision). The court held that
even though Davis, the class-representative, waived the conflict, she could not
waive it for the class.
For Malpractice Purposes, Unnamed Class Member not a Client of Class Counsel
until Class Certified. Schick v. Berg, 430 F.3d 112 (2d Cir. 2005). This
is a legal malpractice case brought by Schick against Berg.
The trial court granted summary judgment for Berg, and the Second Circuit
affirmed. Both courts held that
Schick was never a client of Berg, and, thus, had no standing to sue Berg.
Berg had been class counsel in a Texas case.
Schick was an unnamed member of the class.
In this opinion the court held that under Texas law, Schick was not a
client of class counsel until the class was certified.
The notice of settlement to the class said that members of the class who
are represented by separate counsel, which Schick was, do not become clients of
class counsel upon certification of the class.
State ex rel.
Union Planters Bank, N.A. v. Kendrick, 142 S.W.3d 729 (Mo. 2004). This is a class action
arising from a bond offering gone bad. Several
of the brokers involved, who were potential defendants, hired lawyer X to bring
a class action on behalf of the investors and advanced funds to X for this
purpose. There was a tacit
understanding that X would not sue those particular brokers.
Only after X was retained did X find class representatives.
The trial court certified the class.
Pursuant to a writ of prohibition the Missouri Supreme Court ordered that
X should be removed as class counsel, because of his conflict of interest.
Boyle v.
Giral, 820 A.2d 561 (D.C.
App. 2003).
This is a class action against various vitamin-related products
manufacturers for price-fixing and market-allocation. There are two classes: commercial purchasers and consumers.
The proposed settlement has half the settlement going to commercial
purchasers in cash payments. The
other half of the settlement is for consumers.
However, the consumers will take nothing in cash.
Rather, the consumers’ portion will go to a fund for the promotion of
nutrition education in the District of Columbia.
(A cash distribution would have amounted to approximately $1.00 for each
resident of D.C.) This is sometimes
referred to as a “cy pres” distribution.
Intervenors objected to the settlement in part because class counsel had
a conflict of interest in representing both the commercial class and the
consumer class. The court disagreed
and approved the settlement.
Krim v. pcOrder.com, Inc., 210 F.R.D. 581 (W.D.
Tex. 2002). Milberg Weiss attempted
to be class counsel in this action. The
court denied them that status, because (1) they had not informed the class
representatives that they represented other classes in other courts against the
same defendants, and (2) because of the possibility that defendants may not be
able to satisfy all the claims (in essence, a “zero sum” argument).
Milberg Weiss attempted to counter the latter argument by noting that the
court could supervise the allocation of any settlement or award.
(At the “Zero Sum Games” page of this site are cases in which the
court felt its supervisory power removed the zero sum objection.)
The court in this case countered by noting that it would not have control
over the courts in which the other cases against these defendants are pending.
In re BankAmerica
Corp. Securities Litigation, 228 F. Supp. 2d 1061
(E.D. Mo. 2002).
The court denied fees to lawyers who had represented named parties in
objecting to a settlement. The
court noted that it had approved the settlement and that the objectors’
opposition did not result in a greater recovery for class members.
The court also noted that one of the named objectors was a partner in the
law firm claiming the fees, stating that this was a potential conflict of
interest
Zylstra v. Safeway
Stores, Inc., 578 F.2d 102 (5th Cir. 1978). The
court held that a class member, or a close relative of a class member, could not
be class counsel.
Jacobs v. Citibank, N.A., 2003 U.S. Dist. LEXIS 2880 (S.D.N.Y. Feb. 26,
2003). The court held that a lawyer
could not be a class representative and lawyer for the class.
The court based its decision upon the conflict facing a lawyer who might
want to negotiate a higher fee at the expense of the other class members.
Where Lawyer is
Named Plaintiff, His Law Firm cannot be Class Counsel. Jacobs v. Citibank, N.A., 2003 U.S. Dist. LEXIS 2880 (S.D.N.Y. Feb. 26,
2003); Apple Computer, Inc. v. Superior Court, 24 Cal. Rptr. 3d 818 (Cal. App.
2005); Karn v. Quick & Reilly Inc., 912
A.2d 329 (Pa. App. 2006)
.
Class Counsel Can Be Class
Representative – at Least Temporarily.
Best Buy Stores, L.P. v. Superior
Court, 40 Cal. Rptr. 3d 575 (Cal. App. March 13, 2006), rev.
denied, 2006 Cal. LEXIS 8504 (Cal. July 12, 2006).
Class Representative and Class Counsel Can Be Good Friends.
In re Currency Conversion Fee Antitrust Litigation, 2004 U.S. Dist.
LEXIS 24134 (S.D.N.Y. Dec. 2, 2004). The
court held that the fact that the class representative and class counsel are
close friends is not, standing alone, grounds for not certifying the class.
Sipper v. Capital One Bank, 2002
U.S. Dist. LEXIS 3881 (C.D. Cal. 2002). This is a suit brought by credit card
customers of a bank claiming that the bank did not credit payments correctly.
Sipper sought to be class representative, and Kramer sought to be class
counsel. After the hearing on the
motion to certify the class, the court said:
Sipper and Kramer are business partners in a series of
real estate deals. . . . Kramer is the "money-man" and Sipper is the
public front for these deals. . . . According to Sipper, he depends on Kramer
for his involvement in these deals because Kramer supplies the money. . . .
Not only are Kramer and Sipper business partners, they have been joint
defendants in a California lawsuit. . . .
The court also noted that these relationships had not
been disclosed voluntarily by the plaintiffs.
As a result, the court refused to certify the class.
Gates v. Cook, 234 F.3d 221
(5th Cir. 2000). A lawyer represented the general prison
population in Mississippi in at least one class action. He also
represented a class of HIV-positive prisoners in an action to win them more of
the privileges of the prison population at large. A number of members of
the latter class sought to have the lawyer replaced. The court said, in
part, as follows:
The allegation of a conflict
of interest is not self-evident; there is no necessary or inherent
conflict between the objectives of the HIV-positive subclass and that of the
general population. However, Welch explained to the class in responding to
complaints about his inaction that he refrained from taking aggressive action on
their desegregation claims in part because he feared the general population
would object to it. We therefore have a direct admission by counsel that his
advocacy was in fact impaired, at least at one time and as to one set of issues.
That admission erases any doubt that would otherwise exist regarding conflict
of interest difficulties faced by counsel.
In re Auction
Houses Antitrust Litigation, 197 F.R.D. 71 (S.D.N.Y.
2000). This was an antitrust class action against Sotheby's and
Christie's. In this opinion the court explains the auction method of selecting class counsel,
and explains how some fee arrangements create conflicts of interest between
counsel and members of the class. In re Auction Houses Antitrust
Litigation, 2001 U.S. Dist. 1713 (S.D.N.Y. 2001). Same case. In
this opinion the court approves the settlement. Much of the settlement was
to be paid in cash. A portion was to paid in the form of discount
certificates. The court said that a settlement consisting of discount
certificates creates the potential for class counsel to have a conflict of
interest. The court said this is not such a case because much of the
settlement was to be paid in cash, and because the certificates have a
discernible market value.
Blitzer v.
Comdisco, Inc., 2001 U.S. Dist. LEXIS 3764 (N.D. Ill.
2001). Securities class action. Judge Shadur ordered nine cases
pending elsewhere in the Northern District of Illinois to be reassigned to
him. He already had three nearly identical cases before him, including
the case with the lowest number of the twelve. In the Memorandum Order
Judge Shadur also indicated that he might choose counsel for the class via a
bidding process. He ordered all counsel not to discuss their fee
arrangements with each other, until further order. In his last
paragraph on that subject the court said:
(c) It is recognized that certain law firms are reflected as
co-counsel in more than one of the cases in this group. In order to preserve
the integrity of a bidding procedure if one were to be adopted, while at the
same time avoiding conflict
of interest situations for such law firms, until further order of
this Court the members of those firms are ordered not to discuss the subject
of any prospective fee arrangements in any of the cases in which they are
acting as co-counsel.
D.C. Op.
301 (June 22, 2000). A law firm represents a class of 3,000 special
education students against D.C. They are seeking better transportation and other
benefits to which they believe they are entitled. A member of the class
was injured on his way to school, and the issue is whether the law firm can
represent him in a damage case against D.C. because of its unsafe transportation
services. Analyzing the case under D.C.'s unique version of Model Rule
1.7, the Committee opined that the law firm could take the case. Moreover,
the Committee opined that the likelihood of a conflict between the class and the
individual student was so remote, the law firm would not need anyone's
consent. The Committee distinguished the situation where a law firm might
be representing two different plaintiffs against the same defendant or fund,
where the success of one plaintiff might affect the recovery of the other.
It cited North Carolina State Bar v. Whitted, 347 S.E.2d 60 (N.C. App.
1986), where a lawyer was disciplined for doing just that. The Committee
also cited Fiandaca v. Cunningham, 827 F.2d 825 (1st Cir. 1987), in which
the court held that a law firm had a conflict where the relief it was
seeking in two different class actions might cause one class to benefit at the
expense of the other.
Frank v. Fleck,
101 Wn. App. 1006 (Wash. App., Div. 1, June 5,
2000). Malpractice action against lawyer for class. The former clients claimed
that the lawyer had a conflict of interest because he recommended that they proceed as a
class. They claimed that they could have done better without a class action. The
court affirmed a summary judgment for the lawyer. The court ruled that the
former clients’ expert did not specify adequately how they were harmed.
In re: Mego Financial Corp. Securities Litigation,
213 F.3d 454 (9th Cir. 2000). Court approved a settlement
notwithstanding allegations that class counsel had a conflict of interest. Class counsel was
representing several classes of securities holders. The court found that the
fact that one class benefited more from the settlement than another was not,
alone, a basis for denial of the settlement.
As already mentioned, when Pathman [class representative and member of law
firm] initially filed this would-be class action, he hired his own law firm
as counsel. Pathman's firm then represented him during the approximately two
years of litigation that preceded the filing of the motion for class
certification. While Pathman ultimately obtained new counsel, TGA asserts that
the bill for Pathman's firm's services exceeds $ 200,000 and that Pathman's
stake, as a partner, in these legal fees precludes a finding that he is an
adequate class representative. We agree that Pathman's status as a shareholder
in a firm that is owed more than $ 200,000 in fees could create a conflict
of interest. During oral argument in this case, Pathman expressly
waived the right to any fees for legal work previously performed by himself and
Pathman Lewis, LLP. We find that such waiver cures any potential conflict
of interest.
Hansen v. Landaker, 2000
Ohio App. LEXIS 5674 (Ohio App. 2000). Court approved the class's law firm
even though it had earlier represented an entity that had become a third-party
defendant in the class action. The court relied, in part, upon a similarly
lenient decision in Healy v. Loeb Rhoades & Co. 99 F.R.D. 540
(N.D. Ill. 1983).
Dollens v. Zionts, 2001 U.S. Dist. LEXIS 19966 (N.D.
Ill. 2001). The issue was whether a law firm could be lead counsel for
plaintiffs in a derivative action when they had represented plaintiffs in a
class action involving the same matters. The court said that they could.
In re Continental Illinois Securities
Litigation, 750 F. Supp. 868 (N.D. Ill. 1990). In
an opinion on fees the court noted that it had ruled six years earlier that the
same lawyers could not represent plaintiffs in both a derivative action and a
class action, particularly with respect to settlement, because the funds
available to pay both were "limited."
Class Counsel Member of Class; N.D. "Exception." Bice v. Petro-Hunt,
LLC, 681 N.W.2d 74 (N.D. 2004).
Motion to certify class. Class
counsel is a member of the class, as are his parents, his ex-wife, and members
of his ex-wife’s family. Defendant
claimed that class counsel had a conflict of interest.
The court held that the situation was “troubling” and that class
counsel had a “potential” conflict. However,
the court held that class counsel could stay in the case because the North
Dakota class action rules were more protective of class members than federal
rules.
Fees: Clear-Sailing Agreements. Stokes v. Saga Int’l. Holidays, Ltd.,
376 F. Supp. 2d 86 (D. Mass. 2005).
In this class action opinion the court approved plaintiffs’ counsels’
petition for fees. The petition was unopposed because the fees were the subject
of a “clear sailing” agreement. A
“clear sailing” agreement provides that the defendant will not oppose the
application for fees as long as it does not exceed a stated amount, here
$350,000. While the court did not
find a conflict of interest, it warned that “clear sailing” agreements
increase the risk of a conflict of interest, because there is no one to object
to the fees. Thus, the court said,
courts have a greater duty to police such agreements.
Nat. Air Traffic Controllers Ass’n. v. Dental Plans, Inc., 2006
U.S. Dist. LEXIS 12544 (N.D. Ga. March 10, 2006). In this class action, Law Firm represented members of NATCA
who were claiming benefits under a dental plan arranged between NATCA and the
defendants. Because Law Firm also
represented NATCA, and because NATCA had potential liability to the plaintiffs,
the court found that Law Firm had a conflict of interest and refused to certify
the class.
Hernandez v. Chase Bank USA, N.A., 2006 U.S. Dist. LEXIS 93044 (N.D.
Ill. Dec. 21, 2006). Motion to certify class; adequacy of representation.
Defendants claimed the class representative had a conflict of interest with his
law firm because he had signed an agreement to pay “all legal fees and
costs” if he abandoned this action. The magistrate judge held that this
was not a conflict.
Nowak v. Ford Motor Co., 240 F.R.D.
355 (E.D. Mich. 2006)
. The conflicts issue was whether a law
firm could be lead counsel in a case against Co. A, while at the same time being
lead counsel in a class action against a former subsidiary of Co. A.
Stated another way, could the firm’s role in this case impair the former
subsidiary’s ability to respond in the other case, or vice versa? The
court noted that Co. A had several contingent liabilities arising out of the
sale of the subsidiary, but found that none of them was relevant to the
selection of lead counsel in this case. So, the court approved the
appointment. The magistrate judge noted that the court in In
re Cardinal Health, Inc. ERISA Litig., 225 F.R.D. 552 (S.D. Ohio 2005),
reached a different result under similar facts, but found that the reasoning in Cardinal
Health was “incomplete and overly cautious.”
Koehler v. Brody, 483 F.3d 590 (8th Cir. 2007)
. In a class action one of the
lead plaintiffs objected to the settlement.
The trial court overruled the objection, and, on appeal (not this case),
the Eighth Circuit affirmed. Koehler
then sued the lawyers (this case) for the class for breach of fiduciary duty,
aiding and abetting fraud, and similar theories. The trial judge granted a motion to dismiss, and, in this
opinion, the Eighth Circuit affirmed. The
court held that Koehler was collaterally estopped from suing the lawyers because
the approval of the settlement in the earlier case was tantamount to holding
that the lawyers for the class had acted properly.
Abrams v. Sachnoff & Weaver, Ltd., 2007 Del. LEXIS 158 (Del. April 4,
2007). Abrams is seeking to recover
a portion of the fee earned by Law Firm as class counsel.
Abrams’ wife was the original class representative.
Upon her death Abrams became class representative.
Both the trial court and the Delaware Supreme Court (in this opinion)
held that an agreement to share the fee would be unenforceable because in
Delaware it is a conflict for a lawyer for the class to also be class
representative or to be married to a class representative.
Yip
v. Zia, 2007 Cal. App. Unpub. LEXIS 3243 (Cal. App. April 24, 2007).
The only point worth making about this unpublished opinion is that an
appellate court can reverse a trial court’s approval of a derivative action if
the plaintiff had a serious enough conflict of interest in the trial court.
Mowry v. JP Morgan
Chase Bank, 2007 U.S. Dist. LEXIS 44222 (N.D. Ill. June 19, 2007).
Named Plaintiff No. 1 was the brother of class counsel.
Because of that relationship, the court held that Plaintiff No. 1 was
not an adequate representative of the class.
Named Plaintiff No. 2 was the “roommate” of Named Plaintiff No. 1
and was also a friend of class counsel. Because
of those relationships, the court held that Named Plaintiff No. 2 was not an
adequate representative of the class.
ABA Op. 07-445 (April 11, 2007). The
ABA Standing Committee on Ethics and Professional Responsibility has laid
down guidelines for when counsel in class actions may contact potential
members of the class. The
Committee’s summary of the opinion follows:
Before a class action has been certified, counsel for
plaintiff and defense have interests in contacting putative members of the
class. Model Rules of
Professional Conduct 4.2 and 7.3 do not generally prohibit counsel for
either plaintiff or defendant from
communicating with persons who may in the future become members of the
class. Both plaintiff’s and
defense counsel must nevertheless comply with Model Rule 4.3.
Law Firm could not Represent both Corporation and Majority Shareholder.
Jellema v. American Bullion Minerals Ltd., 2007 BCSC 1150 (CanLII) (
S. Ct. of Brit. Col. Aug. 1, 2007). This
is a suit by minority shareholders of Corp., intended to be a class action,
to prevent the sale of property of Corp. to the majority shareholder at a
price allegedly below market value. Law
Firm attempted to represent the majority shareholder as well as Corp.
The minority shareholders objected and sought Law Firm’s
disqualification. A judge of
the B.C. Supreme Court agreed and ordered that Law Firm cease representing
Corp. The court further ordered
that Law Firm could continue on behalf of the majority shareholder because
Law Firm had not been involved in the underlying transactions.
Interests of Class Representatives Do
not have to Be Identical to Interests of Absent Class Members.
Williams v. LexisNexis Risk
Mgm’t. Inc., 2007 U.S. Dist. LEXIS 62193 (E.D. Va. Aug. 23, 2007).
This is a class action filed under the federal Fair Credit Reporting
Act (“FCRA“). The defendants opposed class certification in part because
the class representatives and the class lawyers had conflicts of interest
with absent members of the class. This
is because the class lawyers were representing the class representatives in
individual actions against the defendants under a provision of the FCRA
(Section 1681e(b)) not appropriate for class treatment.
The court disagreed with the defendants’ conflict claim saying that
the interests of the class representatives do not have to be identical to
those of the absent class members, just coextensive.
Representing Supervisory and Non-Supervisory Employees in Same Action.
Blackwell v. Skywest Airlines, Inc., 245 F.R.D. 453 (S.D.
Cal. 2007). Motion to
certify class. The court held
that, in the circumstances of this case, a law firm could represent a class
that comprised both supervisory and non-supervisory employees.
The court denied certification on other bases.
Representing Former Employees and Their Union. Bailey v. AK Steel Corp.,
2008 U.S. Dist. LEXIS 5751 (S.D. Ohio Jan. 14, 2008).
This is a class action brought by former employees of the defendant
to prevent defendant from cutting off their health benefits.
Interveners objected to the fact that class counsel also represented
the former employees’ union, claiming that was a conflict of interest. In this opinion the magistrate judge found no conflict.
In-House Lawyer as Class Representative in Case against Employer.
Schaefer v. General Electric Co., 2008 U.S. Dist. LEXIS 5552 (D. Conn.
Jan. 22, 2008). This is a sex
discrimination class action. The
plaintiff and class representative is a woman and a lawyer employed by defendant
GE. GE moved to strike the class
allegations because the plaintiff’s role as lawyer for GE puts her in a
position to violate her duty of confidentiality as a lawyer
and puts her in a conflict of interest.
In this opinion the district judge denied GE’s motion.
[Note: the case is young, and much could change.
But, this opinion is an exhaustive discussion of the tricky concept of an
in-house lawyer as a plaintiff against her employer, including issues of
confidentiality and conflicts of interest.]
Bringing in Other Counsel Cure's Class Counsel's Conflict. East Maine
Baptist Church v. Regions Bank, 2008 U.S. Dist. LEXIS 7234 (E.D. Mo. Jan.
31, 2008). Class counsel had a
former-client conflict as to a group of defendants.
In this opinion the court said that the conflict was cured by bringing in
independent class counsel to act as to those defendants.
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Freivogel on Conflicts