The UCL Practitioner

Seventh Circuit holds you can pick off the class reps: Damasco v. Clearwire Corp.

In August, I reported on a new Ninth Circuit opinion holding that a defendant may not defeat a class action by "picking off" the class representatives.  Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011).

In the Seventh Circuit, however, it appears the defendant can "pick off" the class representive -- simply by extending a full-relief settlement offer before the class certification motion is filed.  Damasco v. Clearwire Corp., ___ F.3d ___ (7th Cir. Nov. 18, 2011).  The solution to the obvious problem this creates?  File the class certification motion simultaneously with the complaint: 

A simple solution to the buy-off problem that Damasco identifies is available, and it does not require us to forge a new rule that runs afoul of Article III: Class-action plaintiffs can move to certify the class at the same time that they file their complaint. The pendency of that motion protects a putative class from attempts to buy off the named plaintiffs. See Primax, 324 F.3d at 546-47. 

Slip op. at 9 (emphasis added). 

And if discovery is needed to draft that motion?  Well of course the district court will postpone the hearing to allow it:

Damasco argues that this solution would provoke plaintiffs to move for certification prematurely, before they have fully developed or discovered the facts necessary to obtain certification. See 5 MOORE’S FEDERAL PRACTICE § 23.64[1][b], at 350 (3d ed. 2011). But this objection is unpersuasive. If the parties have yet to fully develop the facts needed for certification, then they can also ask the district court to delay its ruling to provide time for additional discovery or investigation.

Id. (emphasis added).  In other words, for cases within the jurisdictional bounds of the Seventh Circuit, it will be necessary to file the complaint, the class certification motion, and a motion to delay the ruling on that motion -- all at the same time -- or risk getting involuntarily "picked off."

Oregon Supreme Court affirms consumer fraud class action judgment: Strawn v. Farmers Ins. Co.

In another decision of interest from May, the Oregon Supreme Court affirmed a judgment for compensatory damages (but reversed the punitive damages award) following a jury verdict in a common-law consumer fraud class action.  Strawn v. Farmers Ins. Co., ___ P.3d ___, 2011 WL 1886283 (Or. May 19, 2011).

The opinion's discussion of classwide reliance in a common-law fraud case is of particular interest. 

New opinion addresses class counsel conflicts of interest: Kullar v. Foot Locker Retail, Inc.

In Kullar v. Foot Locker Retail, Inc., ___ Cal.App.4th ___ (Jan. 18, 2011), the Court of Appeal (First Appelate District, Division Three) addressed conflict of interest issues arising in the context of a class action settlement with objectors.  Both The Complex Litigator and the Bailey Class Action Daily have more detailed posts on the opinion.

Federal developments of interest: Philip Morris USA Inc. v. Scott; Sullivan v. DB Investments, Inc.; Wal-Mart Stores, Inc. v. Dukes

On Friday, September 24, 2010, U.S. Supreme Court Justice Antonin Scalia entered an order staying enforcement of a $240 million judgment entered in Louisiana state court in a class action against the tobacco industry.  The order states that the Supreme Court is likely to grant the anticipated petition for a writ of certiorari to review the defendants' federal due process arguments, which appear to attack many aspects of class procedure.  Philip Morris USA Inc. et al. v. Scott, no. 10A273.  See this post at SCOTUSblog for a more detailed discussion of the order.  SCOTUSblog also has links to the stay application (a large file), the opposition, and the reply.

A month ago today, the Third Circuit granted en banc rehearing in Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010), the class action settlement case discussed in this blog post.  See Sullivan v. DB Investments, Inc., ___ F.3d ___, 2010 WL 3374167 (3rd Cir. Aug 27, 2010) (granting rehearing and vacating the panel opinion).  Sullivan is an antitrust class action for price-fixing in the diamond industry. 

In Wal-Mart Stores, Inc. v. Dukes, no. 10-277, the response to the cert. petition will be due on October 25, 2010, according to the docket.  Both sides have submitted consents to the filing of amicus briefs, and three amicus briefs supporting Wal-Mart have been filed so far. 

Recently-published UCL res judicata opinion: Fireside Bank Cases

About three weeks ago, the Court of Appeal (Sixth Appellate District) published a new opinion called Fireside Bank Cases, ___ Cal.App.4th ___ (Jul. 28, 2010; pub. ord. Aug. 25, 2010).   You may remember the Supreme Court's opinion in this same case, from April 2007, addressing the rule against one-way intervention in class action litigation. Fireside Bank v. Superior Court (Gonzalez), 40 Cal.4th 1069 (2007). The case has continued to wend its way through the lower courts, and the latest opinion addresses another fascinating procedural topic:  claim preclusion.

The original named plaintiff took out a car loan from Fireside Bank and later defaulted.  Fireside repossessed her vehicle, then filed suit against her for the deficiency.  She filed a class action cross-complaint alleging that Fireside's redemption notice violated the Rees-Levering Motor Vehicle Sales and Finance Act (Civ. Code §§ 2981–2984.4) by misstating the amount necessary to cure.  According to the cross-complaint, Fireside had a uniform practice of seeking and obtaining improper deficiency judgments against borrowers.  For this wrongful conduct, the cross-complaint sought classwide UCL restitution of all sums Fireside had collected on those deficiency judgments.  Slip op. at 1-2, 8. 

The plaintiff then moved both for judgment on the pleadings and class certification.  The trial court granted both motions simultaneously, ruling on the merits question before notice to the class.  This led the Supreme Court to reverse the judgment, citing the one-way intervention rule.  Id. at 2-3. 

In December 2007, after remand to the trial court (and apparently after class notice), Fireside Bank moved to strike all allegations from the cross-complaint (as well as similar allegations in a second cross-action filed while the original case was pending and later coordinated with it, but in which class certification had not yet been granted) "insofar as they [sought] to overturn or bar Fireside from enforcing deficiency judgments it has previously obtained."  Id. at 3-4.  Fireside argued that those judgments operated as res judicata, barring the class claims (although not the named plaintiffs' claims, which did not attack any final judgment because none had yet been entered) to the extent they sought to undo the judgments' effects.  Id. at 4.

The trial court granted this motion and (in the original case) entered judgment dismissing the claims of all class members against whom a deficiency judgment had been entered (referred to in the opinion as "judgment debtors").  The plaintiffs appealed, and the Court of Appeal affirmed.  Id. at 4, 6. 

Observing that "that the class setting of the order greatly complicates the required legal analysis," the Court first explained that the motion was not brought, or granted, on the basis that all of the elements of res judicata had been, or could be, either proven or disproven classwide.  Id. at 7-8.  Rather:

the issue was joined over one question: whether the judgment-debtor class members were entitled to relief en masse on the theory that the UCL rendered the judgments essentially irrelevant. Their argument—which is also their central argument on appeal—proceeds as follows: (1) The UCL empowers trial courts to “make such orders or judgments . . . as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition . . . or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (Bus. & Prof. Code, § 17203.) (2) Fireside secured the judgments in question by means of unfair competition, i.e., violations of the Rees-Levering Act. (3) Any sums collected on the judgments were therefore also the products of unfair competition. (4) Therefore the court has the power to restore such sums to plaintiffs despite the judgments in Fireside’s favor, and to make any orders needed to accomplish that result.

Id. at 8.  The Court of Appeal did not accept that reasoning, holding that res judicata principles apply in UCL cases just as they do in any other type of case.  Id. at 9-11.  The Court explained:

We find even less cause to suppose that the Legislature intended to free UCL litigants of the constraints ordinarily imposed on civil plaintiffs by the law of judgments. Cross-complainants have pointed to nothing in the legislative history that suggests such an idea was even remotely present in the legislative mind. Giving a prior judgment its normal effect in a UCL action does not “imply” an “exception” to the act or fashion a “safe harbor” from it. It simply recognizes a defense that is available to every civil defendant when the facts support it. We therefore reject cross-complainants’ contention that the court below was empowered by the UCL to grant class-wide relief to judgment debtors without a factual showing of grounds to avoid the judgments against them. Since no other basis for relief on their behalf was ever suggested, the court did not err by concluding that the UCL afforded no basis for the class-wide affirmative relief they sought in this class action.

Id. at 11 (emphasis added). 

The Court of Appeal went on to explain that "[t]he real foundation for the order disposing of [the judgment debtors'] claims appears to have been the absence of any demonstrated basis for their class-wide adjudication," and that nothing in the order would prevent those class members from challenging the judgments in later, individual actions, in which the elements of res judicata could be litigated on the merits. Id. at 11-12.   "All that is known is that Fireside obtained judgments against the affected class members, and that these judgments may furnish a defense to any claims those members might bring against Fireside. .... [T]he dismissal of the judgment debtors’ claims did not reflect any disposition of their individual rights, if any, to avoid the effects of the judgments."  Id. (emphasis in original).

"Defending the Class Action Trial"

Monday's Daily Journal had an interesting Perspective article, "Defending the Class Action Trial" (link not available), by attorney James Donato of Shearman & Sterling in San Francisco.  It begins:

Class action trials. It is probably safe to say that more lawyers have seen a double rainbow or climbed Mt. Everest than have tried a class action case. Most practice guides offer little or no commentary on the unique trial issues that can arise in class cases.

The article goes on to discuss (from a defense perspective, as the title promises) some of those issues, including "how to explain the class action to the jury," "the absence of a strong plaintiff representative at trial," and "the predominance of live witnesses on the defense side."  For plaintiffs' attorneys, the lesson is to be sure you make a strong showing of aggrieved plaintiff-side witnesses. 

New opinion addresses responsibility of class counsel post-judgment: Barboza v. West Coast Digital GSM, Inc.

In Barboza v.  West Coast Digital GSN, Inc., ___ Cal.App.4th ___ (Nov. 19, 2009), the Court of Appeal (Second Appellate District, Division Four) posed the question on appeal this way:

What are the obligations of class counsel when he learns that the defendant in the class action he is prosecuting has ceased operations, sold its assets to a third party, and intends to file for bankruptcy?

Slip op. at 1. Obviously, this means that the ruling the Court is about to announce applies only to male class counsel.  (Seriously, aren't we beyond the generic "he" by now?)

The opinion goes on:

In the case before us, counsel obtained a stipulated default and a default judgment that included more than $4 million in aggregate damages for the class, plus more than $1 million in prejudgment interest. So far, so good. But counsel then asserted that his job would be completed once his motion for attorney fees was heard, i.e., that he had no obligation to enforce the judgment on behalf of the class. The trial court disagreed. It ruled that “by assuming the responsibility of pursuing claims on behalf of the class, class counsel assumed the obligation to pursue it until the end (i.e., enforcement of the judgment) and not just until judgment.” Based upon the principles guiding class actions, we agree that class counsel’s obligations to the class do not end with the entry of judgment, and hold that class counsel’s obligations continue until all class issues are resolved, which may include enforcement of the judgment.

Id.  Or perhaps the Court meant to imply that female class counsel would not abandon the class in such a manner.  That must be it. 

(I should add that I have heard, through the grapevine, that the conduct of class counsel in this case was not nearly so egregious as the opinion makes it seem.  I was told that the case was filed in 2004, that five years of hard-fought litigation ensued, including a successful appeal from the trial court's original order denying class certification, and that plaintiffs' counsel eventually obtained a default judgment (not a settlement) of nearly $6 million, after spending tens of thousands of dollars in expert witness fees to establish damages (and other expenses, none of which has been recovered).  The reason plaintiffs' counsel sought to be relieved from any further duties was that the defendant had no assets and they believed there was nothing to collect — not even their own fees or out-of-pocket costs.)

In any event, the Court of Appeal held that the "general common law rule" that "the duties of an attorney employed to conduct litigation end upon entry of judgment in the absence of an agreement to the contrary" — and do not include enforcement of the judgment — does not apply in class action cases.  See id. at 6-8.  Class actions are different from normal litigation, the Court explained:

[U]nlike situations in which the litigant has retained an attorney to conduct litigation, where the litigant and the attorney agree upon the scope of the engagement, and their rights and duties are governed by their agreement, in class actions, where there is no agreement with absentee class members to define the scope of the engagement, class counsel must represent all of the absent class members’ interests throughout the litigation to the extent there are class issues, and it is the duty of the trial court to ensure at every stage of the proceeding that counsel is adequately representing those interests.

Slip op. at 7-8 (emphasis added).   Because "it seems unlikely (based upon counsel’s own assertions) that there are sufficient assets to pay each class member what is owed, plus attorney fees, there remains an important class issue — i.e., how the recoverable assets (if any) are to be distributed. In short, class counsel’s job — to represent the class in resolving class issues — is not yet done." Id. at 8.

But suppose class counsel has no experience in attempting to enforce judgments against defendants who have sold all their assets, ceased operations, and intend to declare bankruptcy?  The Court held that "nothing prevents class counsel from associating in counsel with that expertise, and the cost of that association can be paid by the class from any recovery achieved."  Id.  I wonder, though, how likely it is that a specialist with expertise in enforcing judgments would be interested in becoming involved in this case on a contingency-fee basis.  From the opinion, it appears that no common fund from which fees could be paid has been created, nor is one likely to be.  It is unclear whether the panel expects class counsel to pay collections counsel by the hour. 

Will class counsel ever be free of this case, even after making (unsuccessful) efforts to enforce the judgment?  The opinion answers that question:

[I]f, after diligent inquiry, class counsel determines there are no recoverable assets, counsel may present such findings to the trial court, and the trial court, as guardian of the rights of the absent class members, may determine whether counsel should be relieved of any further obligations to the class.

Id. at 8-9.  It will be interesting to see what eventually happens in this case and whether any money is ever collected.  There may also be additional appellate activity.  According to the docket, a rehearing petition was filed last Friday, December 4, and denied on Monday, December 7.

Three new UCL and class-action-related decisions

Last Thursday, November 19, 2009, was a busy day for our state appellate courts.  Thirteen published opinions (and one modification of a published opinion) were issued on that date.  I've been following the opinions for a long time, and that's a huge number for a single day.  It probably had something to do with the fact that the preceding day (Wednesday, Nov. 18) was a court closure day.  I have a feeling that a lot of our appellate justices and research attorneys (not to mention our trial court judges) aren't exactly taking those days off. 

Three of the Nov. 19th opinions, listed below, involve interesting UCL or class action issues.  I will have more on these cases after the holiday.  Happy Thanksgiving! 

• Barboza v. West Coast Digital GSM, Inc., ___ Cal.App.4th ___ (Nov. 19, 2009) (Second Appellate District, Division Four)
• Davis v. Ford Motor Credit Co., ___ Cal.App.4th ___ (Nov. 19, 2009) (Second Appellate District, Division Three)
• Dowell v. Pacesetter, Inc., ___ Cal.App.4th ___ (Oct. 20, 2009; partial pub. ord. Nov. 19, 2009) (Second Appellate District, Division Two)
  

"Class Notice in the Electronic Age"

The November 2009 isse of California Lawyer has this article by Matt C. Bailey.

"Supreme Court Appointee Sotomayor’s Judicial Record in Class Actions"

Paul Karlsgodt, author of ClassActionBlawg.com, has a very interesting post on Judge Sotomayor's rulings in class action cases.  According to Paul, she was a member of the three-judge panels in both In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2d Cir. 2001) and In re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. 2006).  (See this post for more on those cases.)

UPDATE:  Legal Blog Watch has a post on Judge Sotomayor's rulings in the Visa Check and IPO cases. 

Recent Ninth Circuit class-action-related decisions: Chalk v. T-Mobile USA, Inc., Hunt v. Imperial Merchant Services, Inc., Rodriguez v. West Publishing Corp., and Hatfield v. Halifax PLC

The Ninth Circuit has handed down a number of interesting opinions relating to class actions in recent months:

• In Chalk v. T-Mobile USA, Inc., 560 F.3d 1087 (Mar. 27, 2009), the court struck down an arbitration clause with a class action ban as unconscionable under Oregon law.
  
  
• In Hunt v. Imperial Merchant Servs., Inc., 560 F.3d 1137 (Mar. 31, 2009), the court held, apparently for the first time, that "a district court has the discretion to require a class action defendant to pay the costs of class notification when the court has already determined that the defendant is liable on the merits." Slip op. at 3885.
  
  
• In Rodriguez v. West Publishing Corp., 563 F.3d 948 (Apr. 23, 2009), the court affirmed an order granting final approval of a class action settlement, although it disapproved of certain "ex ante incentive agreements" between some (but not all) of the class representatives and class counsel.
  
  
• In Hatfield v. Halifax PLC, ___ F.3d ___, 2009 WL 1259380 (May 3, 2009), the Ninth Circuit held that California courts would recognize American Pipe tolling, at least as to California class members. The opinion discusses American Pipe tolling in detail. [Via The Complex Litigator.]

We are still waiting for the Ninth Circuit to hand down its en banc opinion in Dukes v. Wal-Mart, Inc., nos. 04-16688 & 04-16720, which was argued on March 24, 2009.

Recent Fifth Circuit American Pipe tolling decision: Taylor v. United Parcel Service

Class action junkies, take note.  The Fifth Circuit handed down a new opinion on American Pipe tolling just before the end of the year.  Taylor v. United Parcel Service, Inc., ___ F.3d ___ (5th Cir. Dec. 30, 2009).  [Via Wage Law.]

Class action against a newspaper? No prior restraints allowed: Freedom Communications, Inc. v. Superior Court

In Freedom Communications, Inc. v. Superior Court, ___ Cal.App.4th ___ (Sept. 30, 2008), the Court of Appeal reversed an order prohibiting the the Orange County Register from reporting on the trial of a wage and hour class action in which the Register is the defendant.

Recent class-action-related opinions from other Circuits

The Second, Fifth and Eleventh Circuits have issued some interesting class-action-related opinions in recent weeks:

• In In re: Nortel Networks Corp. Securities Litig., ___ F.3d ___ (2d Cir. Aug. 19, 2008), the Second Circuit affirmed an attorneys' fees award in a securities class action settlement.

• In Silvercreek Mgmt. Inc. v. Banc of America Securities LLC, ___ F.3d ___ (5th Cir. Jul. 7, 2008), the Fifth Circuit affirmed the trial court's approval of a class action settlement, holding that the objectors' objections were properly overruled and that others had failed to timely opt out. [Via Blawgletter.]

• In Kenny A. v. Perdue, ___ F.3d ___ (11th Cir. Jul. 3, 2008), the Eleventh Circuit addressed the concept of "extraordinary results" for purposes of a fee multiplier. [Via How Appealing.]

Other countries have class actions, too: International Justice

An interesting new new web page, International Justice, introduces us to class action laws around the globe:

More than 30 countries have now adopted systems of group litigation, and other countries are actively debating enactment of such procedures. In some of the countries, the United States for example, class action practice has been active for many decades. In many other countries, such laws are new or merely a few years old.

From the site's home page:

Welcome to International Justice, an informational resource for human rights. Included are discussions of significant United States human rights statutes, international courts, listings of prominent human rights organizations, and information on the growth of class action/ group litigation laws worldwide.

Court of Appeal mentions defendant classes: Farwell v. Sunset Mesa Property Owners Association, Inc.

In Farwell v. Sunset Mesa Property Owners Association, Inc., ___ Cal.App.4th ___ (Jun. 18, 2008), the Court of Appeal (Second Appellate District, Division Eight), penned this paragraph on defendant class actions:

We note here that the adequacy of the representation of a defendant class is not a novel problem and has engaged the attention of the courts and text writers. (See cases and materials collected in 2 Conte & Newberg, Newberg on Class Actions (4th ed. 2002) § 4:60, pp. 375-384.) It is by no means an insurmountable task to identify persons who can serve as representatives of a defendant class, although the dynamics of such a class are different from that of a plaintiff class. (Id., § 4.46, pp. 336- 339.) Indeed, defendant classes have a long history, dating back to 1853. (Id., § 4.46, p. 338, citing Smith v. Swormstedt (1853) 57 U.S. 288.) California has also long recognized defendant classes. (E.g., Wheelock v. First Presb. Church (1897) 119 Cal. 477, 481-482; Rosicrucian Fellow. v. Rosicrucian Etc. Ch. (1952) 39 Cal.2d 121, 139-140.)

Slip op. at 6 (emphasis in original). The opinion says nothing more about defendant classes. Instead, it addresses whether an order sustaining a demurrer to the defendant class allegations with leave to amend was an appealable order (it wasn't). Id. at 6-9.

New Ninth Circuit decision on insurance coverage for UCL and CLRA claims: Sony Computer Entertainment America, Inc. v. American Home Assurance Co.

In Sony Computer Entertainment America, Inc. v. American Home Assurance Co., ___ F.3d ___ (9th Cir. July 15, 2008), the Ninth Circuit held that the defendant's "professional liability" and "general liability" policies did not obligate the insurers to indemnify or defend against a UCL and CLRA class action alleging:

that the PlayStation 2s suffered from an “inherent” or “fundamental” design defect that rendered them unable to play DVDs and certain game discs. The complaints set forth causes of action for breach of express and implied warranties, fraud, negligent misrepresentation, bad faith, violations of the Consumer Legal Remedies Act (Cal. Civ. Code § 1750 et seq.), false advertising (Cal. Bus. & Prof. Code § 17500 et seq.), and unfair business practices (Cal. Bus. & Prof. Code § 17200 et seq.). The assertions in the false advertising and negligent misrepresentation claims primarily revolved around Sony’s statements in press releases, advertising, product packaging, and instruction manuals that the PlayStation 2 would function as a DVD player as well as a game player.

Slip op. at 8756.

New decision on class representatives' pre-certification rights: Sharp v. Next Entertainment, Inc.

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.

"Keeping Up with Class Actions: Reports, Legal Sites and Blogs of Note"

LLRX.com has an article called "Keeping Up with Class Actions: Reports, Legal Sites and Blogs of Note" (May 19, 2008). The article is by Scott Russell, a Reference Librarian with Shook Hardy & Bacon LLP in Kansas City, Missouri. Thanks, Scott!

[Via ClassActionBlawg.com]

"2007 Developments in California Class Action Law"

The Spring/Summer 2008 issue of Competition, the journal of the Antitrust and Unfair Competition Law Section of the State Bar of California, arrived in the mail last week. It includes several articles on antitrust law and one of interest to class action practitioners, "2007 Developments in California Class Action Law" by Pamela M. Parker of Coughlin Stoia Geller Rudman & Robbins LLP. The article is very comprehensive and discusses a number of recent class action cases of interest, including Capitol People First v. State Department of Developmental Services, 155 Cal.App.4th 676 (2007) and Lewis v. Robinson Ford Sales, Inc., 156 Cal.App.4th 359 (2007).

Articles from the Spring/Summer 2008 issue of Competition are not yet available online.

New Ninth Circuit class action decision: Negrete v. Allianz Life Insurance Co.

In Negrete v. Allianz Life Insurance Co., ___ F.3d ___ (9th Cir. Apr. 29, 2008), the Ninth Circuit invalidated a district court order that would have prohibited the defendant from settling similar class actions pending in other jurisdictions without the participation of plaintiff's co-lead counsel in the certified nationwide class action case before it. The concluding paragraphs of the opinion read:

The district court was troubled by the fact that settlements in other courts might draw the fangs from at least a portion of the class action case that it was then considering. Perhaps they will. But in this instance it was improper for the district court to react by issuing an injunction against other federal and state court proceedings.

Rather, the district court must live with the vicissitudes and consequences of our elegantly messy federal system. The restrictions inherent in the All Writs Act and explicit in the Anti-Injunction Act have helped to concinnate the elements of our national polity; this is not the time to disrupt the harmony.

Slip op. at 4594. There's no "harmony" when someone else files on top of you and then tries to settle your case out from under you — especially if the district court can do nothing to prevent it. However, the Ninth Circuit was concerned about a different kind of "harmony." This morning's Daily Journal reports that "Panel Finds Judge's Order Went Too Far" (subscription).

[Vocabulary word of the day: Concinnate. Verb, tr. "To place fitly together; to adapt; to clear."]

"Class Action Lawsuits"

A blog called Disgusted Beyond Belief has an interesting post refuting the criticisms often levied against class action cases generally and the class action bar in particular. An excerpt:

Dealing with the [class action attorney's] fees [and] whether they are "deserved" - I say that they clearly are. Were it not for those fees, as noted above, the poor could be trod upon with impunity (as it is, they still often are, but it would be much much worse without [class action cases]). Putting together a class action suit is hard work that requires specialized lawyers with years of experience and also requires spending a lot of cash upfront on the part of the law firm. Only a large, rich law firm can handle class action suits for that reason. Veteran lawyers with highly specialized skills are needed. They don't come cheap, for good reason. They work hard, working long hours, sometimes for years, and all with the chance that in the end, they will get nothing. So the winning cases not only have to pay them for their time for those cases, they also have to cover all of the money spent on losing cases or on cases that, despite winning, still did not cover the cost of their actual time spent. In short, they deserve every penny - they work hard for it.

Thank you. I don't necessarily think that only a "rich, large law firm" can handle a class action case, but you definitely have to be persistent and very hard-working to succeed in this area of practice.

[Via ClassActionBlawg.com]

New York decision on rights of absent class members: Wyly v. Milberg Weiss Bershad & Schulman LLP

In Wyly v. Milberg Weiss Bershad & Schulman LLP, ___ N.Y.S.2d ___, 2007 NY Slip. Op. 10506 (Dec. 27, 2007), the New York Supreme Court, Appellate Division (First Department) addressed the relationship between absent class members and class counsel. In holding that absent class members do not have the right to inspect class counsel's files, as does the client in a more traditional attorney-client relationship, the Court explained:

[I]t has been observed, by courts and commentators alike, that the relationship between appointed counsel and an absent member in a class action differs fundamentally from that found in the traditional [attorney-client] relationship (see e.g. Selection of Class Counsel, Third Circuit Task Force Report, 208 FRD 340, 347-348 [2002] ["absent class [*5]members are not individual clients. Thus, the ordinary attorney-client relationship does not exist between each class member and class counsel."]; In re Community Bank of N. Va. & Guaranty Natl. Bank of Tallahassee Second Mortgage Loan Litig., 418 F3d 277, 313 [2005] ["([c]ourts have recognized that class counsel do not possess a traditional attorney-client relationship with absent class members."]; In re J.P. Morgan Chase Cash Balance Litig., 242 FRD 265, 277 [2007] ["appointment of class counsel is an extraordinary practice with respect to dictating and limiting the class members' control over the attorney-client relationship and thus requires a heightened level of scrutiny to ensure that the interests of the class members are adequately represented and protected."]; In re Chicago Flood Litig., 289 Ill App3d 937, 942 [1997] ["attorney-client relationship is limited, however, and is different in the class context than it is in a traditional, nonclass situation"]; 2 Bus & Com Litig Fed Cts, § 16:3 2nd ed ["absent class members not only do not get to select their own counsel, but often they are unaware that their legal rights may be bartered and compromised by counsel who are not constrained by a traditional attorney-client relationship with the absent class members."]; G. Donald Puckett, Note, Peering Into a Black Box: Discovery and Adequate Attorney Representation for Class Action Settlements, 77 Tex L Rev 1271, 1291 [1999] ["[c]ourts have recognized that the class action context differs drastically from the traditional bipolar attorney-client relationship, and that salient differences make a strict application of traditional ethics rules to class representation both unwise and impractical."]; Howard W. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U Chi Legal F 519, 524 [2003] ["in a class action, numerous plaintiffs depend upon the work of counsel with whom they have no meaningful individual lawyer-client relationship, [and] over whom they have no meaningful control . . ."]).

The United States Supreme Court, in Phillips Petroleum Co. v Shutts (472 US 797, 810-811 [1985]), succinctly addressed not only the status of an absent class action plaintiff, but also the relative detachment, and concomitant security, that characterizes that plaintiff's involvement in the litigation.

"Unlike a defendant in a normal suit, an absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection. In most class actions an absent plaintiff is provided at least with an opportunity to opt out' of the class, and if he takes advantage of that opportunity he is removed from the litigation entirely."

The Supreme Court further opined that:

"absent plaintiff class members are not subject to other burdens imposed upon defendants. They need not hire counsel or appear. They are almost never subject to counterclaims or cross-claims, or liability for fees or costs. Absent plaintiff class members are not subject to coercive or punitive remedies. Nor will an [*6]adverse judgment typically bind an absent plaintiff for any damages . . ." (id. at 810 [footnote omitted]).

In sum, while petitioner herein, as an absent class member in the federal action, was entitled to some of the benefits of the attorney-client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants' counsel to communicate with him, he had no right to direct the course of the litigation, testify at trial, participate in discovery, or dismiss class counsel. Moreover, petitioner was free to hire his own counsel to appear in the class action if he wished to employ a traditional attorney-client relationship, although his input into the litigation would still have been curtailed, or to opt out of the class action altogether if he was unsatisfied with his limited role.

Given the above-delineated disparity in the roles, responsibilities, and potential liabilities assumed by a client in the traditional attorney-client context, as opposed to an absent class member's relationship to class counsel, and his/her status as a litigant, coupled with the potential for class counsel to be unduly burdened, even after the end of litigation, by a multitude of requests from absent class members for counsel's entire file, we reject a blanket extension of Sage Realty's presumptive-entitlement right to absent class members, and find that the better practice is to require absent class members to establish their entitlement to class counsel's file on a case-by-case basis. Petitioner, in this matter, has failed to shoulder that burden.

Slip op. at *5-*6 (hyperlink added) (citing Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, 91 N.Y.2d 30 (1997)). On December 28, 2007, Anthony Lin of the New York Law Journal reported on the decision: "Court Rejects Billionaire's Bid to Obtain Milberg Weiss Work Product."

ALI's "Principles of the Law of Aggregate Litigation"

The American Law Institute, which publishes the various Restatements, is now working on a project called "Principles of the Law of Aggregate Litigation." Here is the project's statement of purpose:

Purpose: This project aims to supply up-to-date coherence to the law of aggregate litigation, which has changed significantly in recent years. In addition to formal aggregation in litigated settings, such as with class actions, this project addresses a broader array of cases that are bundled together and settled or tried to test the value of related claims.

Several drafts have been prepared and the latest one, Discussion Draft No. 2 (April 6, 2007), is available for purchase at ALI's website. I have not seen a copy of the draft so I can't comment on it, but this is a project that's worth knowing about and following.

"Fees Account for 'Human Nature': Alameda Courts Delay Some Fees to Keep Class Counsel on Toes"

On the day before Thanksgiving, the Recorder had an article (subscription) discussing a recently-adopted practice in class actions in Alameda County. Apparently, the court is often withholding part of the plaintiffs' attorneys' fees in class action settlements to ensure that the attorneys follow through with the work needed to make sure the class members receive their distributions and to wind up the case. An excerpt:

Earlier this year, Alameda County Superior Court Judge Bonnie Sabraw approved a $275,000 attorneys fee award in a meal and rest-break suit against Ace Cash Express, a check cashing chain. She let plaintiff lawyers collect most of the money in April — but made them wait seven months, until last Friday, to pick up the last $25,000.

Sabraw says she held back a small part of the fee award — as she often does in class action settlements — so plaintiff lawyers would help ensure that as many class members as possible would receive a portion of the settlement funds.

"It's not because anybody did anything wrong," Sabraw said. "It's a little further incentive to make sure all the loose ends are tied up."

The local court's practice of withholding part of class action attorneys fees is a few years old at most, and some attorneys say the strategy isn't common elsewhere.

The article does not explain why the court would assume that the plaintiffs' attorneys are going to breach their ethical duties by abandoning the class members unless they have a financial incentive not to. Such an incentive has not been required or needed in my experience.

New Ninth Circuit FLSA collective action case: McElmurry v. U.S. Bank Nat'l Assn.

In McElmurry v. U.S. Bank Nat'l Assn., ___ F.3d ___ (Aug. 8, 2007), the Ninth Circuit held that a district court order denying plaintiffs' motion to issue notice of a collective action under section 16(b) of the Fair Labor Standards Act ("FLSA") (29 U.S.C. §216(b)) was not immediately appealable under the collateral order doctrine. The opinion contains this useful explanation of the difference between a class action and a FSLA "collective action":

A “collective action” differs from a class action. See generally CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, 7B FED. PRAC. & PROC. § 1807 (3d ed. 2005). In a class action, once the district court certifies a class under Rule 23, all class members are bound by the judgment unless they opt out of the suit. By contrast, in a collective action each plaintiff must opt into the suit by “giv[ing] his consent in writing.” 29 U.S.C. § 216(b). As result, unlike a class action, only those plaintiffs who expressly join the collective action are bound by its results. See 29 U.S.C. § 256; Partlow v. Jewish Orphans’ Home of S. Cal., Inc., 645 F.2d 757, 758-59 (9th Cir. 1981), abrogated on other grounds by Hoffman-LaRoche Inc. v. Sperling, 493 U.S. 165 (1989). Because non-parties to a collective action are not subject to claim preclusion, giving notice to potential plaintiffs of a collective action has less to do with the due process rights of the potential plaintiffs and more to do with the named plaintiffs’ interest in vigorously pursuing the litigation and the district court’s interest in “managing collective actions in an orderly fashion.” Hoffmann-LaRoche, 493 U.S. at 173. Although § 216(b) does not require district courts to approve or authorize notice to potential plaintiffs, the Supreme Court held in Hoffman-LaRoche that it is “within the discretion of a district court” to authorize such notice. Id. at 171; see Does I thru XXIII v. Advanced Textile Corp., 214 F.3d 1058, 1064 (9th Cir. 2000) (a district court “may authorize the named plaintiffs . . . to send notice to all potential plaintiffs”).

Slip op. at 9453-54. The court held that it lacked appellate jurisdiction over the trial court's order denying the motion for notice to the potential plaintiffs, and that post-judgment appellate review provided an adequate remedy. In particular, it cited the federal rule governing the appealability of class certification orders (which differs from the California rule):

[I]t is well-established that there is no collateral order jurisdiction over a district court decision to certify or not to certify a class action under Rule 23. See Coopers & Lybrand, 437 U.S. at 477 (no collateral jurisdiction over appeal from order refusing to certify the class); Blackie v. Barrack, 524 F.2d 891, 895 (9th Cir. 1975) (no collateral jurisdiction over appeal from order certifying the class).

Slip op. at 9457.

Supreme Court denies review in class member communication case: Belaire-West Landscaping, Inc. v. Superior Court

On Wednesday, July 25, 2007, the Supreme Court denied review in Belaire-West Landscaping, Inc. v. Superior Court, no. S152806. In that case, the Court of Appeal applied Pioneer Electronics in the context of a wage and hour class action, rejecting the argument that the Supreme Court's discovery-related decision should apply only to consumer cases. Belaire-West Landscaping, Inc. v. Superior Court, ___ Cal.App.4th ___ (Apr. 9, 2007). My original post on Belaire-West is here.

"Consumer Class Actions Usurping Personal Injury Claims"

On July 11, 2007, the National Law Journal had an interesting article called "Consumer Class Actions Usurping Personal Injury Claims." The article reports that "[p]aintiffs lawyers are filing an increasing number of class actions under state consumer-protection laws in conjunction with, or in place of, traditional personal injury class actions, which have become too difficult in recent years to certify." The article goes on to explain that these suits seek to recover the economic loss the consumers suffered, rather than damages for personal injury. Sounds familiar, as monetary relief under the UCL has long been limited to restitution, which encompasses economic loss.

"Managing Class Action Litigation: A Pocket Guide for Judges"

In 2005, the Federal Judicial Center published "Managing Class Action Litigation: A Pocket Guide for Judges" (pdf). The preface states that "[t]his pocket guide is designed to help federal judges manage the increased number of class action cases expected as a result of the Class Action Fairness Act of 2005." The guide makes for interesting reading.

Trial-level briefs and order interpreting Fireside Bank: In re Cellphone Termination Fee Cases

Many thanks to the blog reader who brought the following briefs and order to my attention. They were filed in In re Cellphone Termination Fee Cases, Alameda County Superior Court, JCCP no. 4332, and address the impact of Fireside Bank, the one-way intervention decision, on the scheduling of various types of motions:

• Plaintiffs' Supplemental Case Management Conference Statement (filed 04/20/07)
  

• Defendants' Supplemental Memorandum of Points and Authorities Regarding Fireside Bank v. Superior Court (filed 04/20/07)
  

• Order on Effect of Fireside Bank on Scheduling of Motions of (1) AWS for Summary Judgment (2) Plaintiffs for MJOP and (3) Plaintiffs for Class Certification (filed 04/25/07) (Hon. Bonnie Sabraw)