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.

Comments

[Andrew Sussman]

The more likely and more innocuous explanation for the court's use of the male third person singular pronoun = each of the three named attorneys for the Plaintiff/Appellants on the appeal had first names ordinarily associated with men.

[Kimberly A. Kralowec]

The sentence in which the generic "he" was used was a general statement of the issues raised in the case that was supposed to applicable to everyone reading it. It was not limited to the specific attorneys involved in the case (who I recognize appear to be males). It's time to stop using the generic "he" for such broad statements. And to be clear, I'm not suggesting any nefarious intent on the court's behalf.

[rb]

If Andrew is correct, I assume this decision is limited to the facts of, and persons involved in, this case.