In April 2007, the Daily Journal ran an article by yours truly called "The Class Representative's Pre-Certification Bill of Rights" (subscription). To those mentioned in the article can now be added the right to select class counsel and to waive conflicts of interest on behalf of the putative class.
In Sharp v. Next Entertainment, Inc., 163 Cal.App.4th 410 (May 28, 2008) (Second Appellate District, Division Three), a union subsidized wage and hour class action litigation against non-unionized companies as part of an organizing campaign targeting those companies. The union referred potential plaintiffs to its own longtime attorneys, who filed the actions as counsel for the plaintiffs and the putative class. The union paid the attorneys' fees and costs, and the putative class representatives signed a written conflicts waiver disclosing this fact and the attorneys' continued, simultaneous representation of the union in other matters. Although the union paid for the litigation, the individual plaintiffs remained responsible for strategy decisions.Id. at 416-18. The trial court denied a motion to disqualify class counsel and/or to disqualify the named plaintiffs from acting as proposed class representatives -- although it did order the erection of "ethical walls" that prohibited the attorneys from discussing the litigation with the union "except with regard to the payment of fees." Id. at 421-22. The Court of Appeal affirmed.
The Court addressed the interplay between the Rules of Professional Responsibility (specifically Rule 3-310) and the procedural rules governing class actions. The Court rejected the defendant's argument that the named plaintiffs could not effectively waive any conflicts of interest and that, instead, "each and every member of the two putative classes was required to provide written consent to representation by the [union's] firm" (id. at 431-32):
[I]n actuality, defendants' argument is a request that we require all members of the class opt-in to the class action litigation. However, opt-in procedures conflict with California's class action procedures and inevitably are methods that permit a class action defendant to chip away at the size of a class. (Hypertouch, Inc. v. Superior Court, supra, 128 Cal.App.4th at pp. 1543-1550.) 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. (Id. at p. 1539.)
Id. at 432. The Court also observed that the class certification procedure ensures that only class representatives who are are found "adequate" will be permitted to represent the class (and thus, for example, waive conflicts of interest on its behalf):
Additionally, the class action procedures already include a system by which the court determines if the named class representatives can adequately represent the class. These procedures ensure that if there are conflict of interest issues, the representative plaintiffs are capable of providing informed consent on behalf of the class. The plaintiffs seeking certification have the burden to show that they can adequately represent the class by vigorously and tenaciously protecting the class members’ interests. (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1104; Simons v. Horowitz (1984) 151 Cal.App.3d 834, 846.) As part of this analysis, the trial court assesses the competency of class counsel, if the firm is representing the class as a whole and not simply the interests of the named representative plaintiffs (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 471; Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 12-13 (Cal Pak Delivery)), and if the named plaintiffs have lent their names to litigation that is controlled by class counsel. (Howard Gunty Profit Sharing Plan v. Superior Court (2001) 88 Cal.App.4th 572, 579-580.) A person’s class representative status may be defeated if there is a serious conflict among the members of the class that “goes to the very subject matter of the litigation . . . .” (Richmond v. Dart Industries, Inc., supra, at p. 470; Global Minerals & Metals Corp. v. Superior Court (2003) 113 Cal.App.4th 836, 851; J. P. Morgan & Co., Inc. v. Superior Court (2003) 113 Cal.App.4th 195, 212-213.)
Thus, when plaintiffs seek to have the classes certified, they will have the burden of meeting these requirements. At that time, if the trial court concludes that plaintiffs’ motives for pursuing the lawsuits or their connection to the Guild make them incapable of providing informed written conflict waivers, then the trial court will not permit certification.
Id. at 432-33. Next, the Court pointed out that allowing proposed class representatives to waive conflicts on behalf of the putative class was "consistent with the ABA Model Rules of Professional Conduct," which expressly "authorize the class representative to provide informed consent" to any conflict of interest. Id. at 434-35 (citing ABA Model Rules of Professional Conduct, Rule 1.7, cmt. 25).
Finally, the Court observed that to apply the disqualfication rules here would contravene the public policy purpose of class actions and would also implicate the First Amendment:
In the realm of class actions, the rules of disqualification cannot be applied so as to defeat the purpose of the class proceedings. (Cf. Lazy Oil Co. v. Witco Corp. (3rd Cir. 1999) 166 F.3d 581, 589-590 [traditional rules of professional conduct cannot be applied mechanically in the realm of class actions].) Rather, the circumstances of each case must be evaluated.
The motion to disqualify here is not brought by one of the parties who may suffer because of a purported conflict, but by opposition parties who are not directly touched by the purported conflict. Disqualification of the [union's] firm may impose a significant hardship on plaintiffs, who will bear the burden on finding replacement counsel with the skills and knowledge of the Rothner firm, a firm that already has expended more than 1,000 hours on the case, including the review of more than 8,000 pages of documents over seven months. (McPhearson v. Michaels Co. (2002) 96 Cal.App.4th 843, 849-850.) As such, we must be skeptical of the impetus and purpose of defendants’ motion to disqualify the [union's] firm because it poses the very threat to the integrity of the judicial process that it purports to prevent. Such motions “can be used to harass opposing counsel, to delay the litigation, to intimidate an adversary into accepting settlement on otherwise unacceptable terms, or for other strategic purposes. [Citation.]” (Ibid.; accord, Zador Corp. v. Kwan, supra, 31 Cal.App.4th 1285; cf. McPhearson v. Michaels Co., supra, at pp. 849-850 [generally conflicts may be waived by persons personally interested and courts must be skeptical when disqualification motions are brought by opposing parties.)
Lastly, we cannot ignore the public interest consequences of permitting the disqualification of the [union's] firm at this point in the litigation. “It is the policy of this state to vigorously enforce minimum labor standards in order to ensure employees are not required or permitted to work under substandard unlawful conditions . . . and to protect employers who comply with the law from those who attempt to gain a competitive advantage at the expense of their workers by failing to comply with minimum labor standards.” (Lab. Code, § 90.5.) Constitutional rights of association, speech, and assembly permit unions to provide, and assist in obtaining, legal services for their members. (United Transportation Union v. Michigan Bar (1971) 401 U.S. 576; Mine Workers v. Illinois Bar Assn. (1967) 389 U.S. 217; Railroad Trainmen v. Virginia Bar (1964) 377 U.S. 1; cf. Frye v. Tenderloin Housing Clinic, Inc. (2006) 38 Cal.4th 23, 39 [“The First Amendment protects the associational and expressive rights of persons – both lawyers and nonlawyers – to join together to employ litigation to seek redress of grievances.”].)
Wage and hour litigation is often financed by labor unions to support their members and members of the public because employees often lack the resources to do so. Such litigation is designed to protect all workers, including members of the union and non-members. (E.g., Shaffer v. Farm Fresh, Inc. (4th Cir. 1992) 966 F.2d 142; Aguiar v. Cintas Corp. No. 2 (2006) 144 Cal.App.4th 121, 125; cf. Gentry v. Superior Court (2007) 42 Cal.4th 443 [recognizing that class actions play important role in enforcing labor laws].) To deny these employees access to attorneys knowledgeable in labor law based upon an objection filed by their employer, when the named representatives of the class action lawsuit and the union have waived all conflicts and the motion is brought before class certification is sought will provide a tactical edge to the employer at the expense of the putative class. It will also preclude attorneys from representing union members if the attorneys have assisted the union in pre-litigation activities. (See, McClendon v. Continental Group, Inc. (D.N.J. 1986) 113 F.R.D. 39, 42-43 [union funding does not make interest of named parties antagonistic to interests of class].) The California Rules of Professional Responsibility cannot be construed so as to prohibit this type of advocacy. Further, they cannot be construed so as to hurt class members, under the guise of protecting them.
Id. at 434-35 (footnote omitted).
As for the defendants' alternative argument that the named plaintiffs themselves were inadequate to represent the class, the Court found the argument premature:
Here, however, defendants preemptively raised the issue of plaintiffs' qualification to serve as representative parties. Defendants' disqualification motion was an end-run around the certification procedures and an attempt to deny plaintiffs the ability to present their case. When plaintiffs seek to certify the classes, they will have the burden to prove that they can adequately represent the classes as defined in the two class action lawsuits. At this stage of the proceeding, the issue is premature. Plaintiffs are only representing themselves.
Id. at 439 (footnote omitted) (emphasis added). This part of the opinion is particularly interesting because of its inconsistency with another case handed down a couple of weeks later, In re BCBG Overtime Cases, 163 Cal.App.4th 1293 (Jun. 13, 2008) (Fourth Appellate District, Division Three). I will discuss that case in a future post. Meanwhile, Wage Law has more on Sharp.