*Be Aggressive In Attacking Class Actions -- Look For Misconduct Of Class Counsel
January, 2012
by Melinda S. Kollross and Edward M. Kay
On November 22, 2011, the United States Court of Appeals for the Seventh Circuit issued an important opinion in class action jurisprudence, giving ammunition to the defense bar in attacking class actions by giving more teeth to an attack on the adequacy of class counsel. The Seventh Circuit overturned a lower court's decision allowing a lawsuit to proceed as a class action, criticizing the class action plaintiff's counsel for a lack of integrity in bringing the action. The case is Creative Montessori Learning Centers v. Ashford Gear LLC, No. 11-8020, 2011 WL 5924421 (7th Cir. 2011).
Facts
Various federal enactments, while having a laudable purpose, have been turned into a money source by plaintiffs' attorneys seeking exorbitant class counsel fees at the expense of honest businesses and insurance companies. The federal Act in this case is known as the Telephone Consumer Protection Act (TCPA) which imposes, on anyone who sends an unsolicited fax advertisement, statutory damages of $500 per fax, which can be trebled if the court finds the violation was willful or knowing. The class certified in this case consisted of 14,574 persons, who were alleged to have received a total of 22,222 faxed advertisements from the defendant.
The Creation Of A Class Action Lawsuit
According to the Seventh Circuit, the law firm of Bock & Hatch specializes in bringing class action suits under the TCPA. That firm learned about the faxes not from a recipient but from a fax broadcaster, one Caroline Abraham, who conducts her business under the name B2B. B2B faxes advertisements as an agent of the advertiser. Bock & Hatch asked her for transmission reports of faxes that she had sent and information on how to communicate with the intended recipients but promised not to disclose any of this material to a third party. On the basis of this assurance of confidentiality from Bock & Hatch, Abraham turned over material that evidenced (or so it was alleged) faxes of advertisements that Ashford Gear had sent to the 14,574 persons constituting the class. One of the alleged recipients was the Creative Montessori Learning Center. Bock & Hatch notified Creative Montessori that "during our investigation" it had determined that it was likely to be a member of the class -- when, in fact, there was as yet no class at all. In any event, Creative Montessori retained Bock & Hatch and became the named plaintiff, even though it had no evidence that it had actually received the fax at issue in this case.
The Arguments Against Class Certification Based On Misconduct Of Class Counsel
The defense argued to the District Court that it ought to deny class certification based upon class counsel's misconduct. The defense argued that Bock & Hatch's misconduct showed that it could not adequately represent the class. The District Court found that there had been misconduct by Bock & Hatch and that that misconduct had taken two forms: (1) obtaining material from Abraham's files on the basis of a promise of confidentiality that concealed the purpose of obtaining the material -- a purpose inconsistent with maintaining confidentiality and likely to destroy Abraham's business; and (2) implying in the letter to Creative Montessori that there already was a certified class to which the school belonged. This was misconduct because it was misleading. The district judge ruled that the proper sanction for these wrongful acts was discipline by the Bar authorities and that the acts did not reflect on the adequacy of class counsel to represent the class.
The Seventh Circuit's Decision
The Seventh Circuit, in an opinion written by Judge Posner, disagreed with the District Court, holding that class counsel "demonstrated a lack of integrity that cast serious doubt on their trustworthiness as representatives of the class." According to the Seventh Circuit, the conduct displayed in this case showed that there was no basis for confidence that class counsel will prosecute the case in the interests of the class, "of which they are fiduciaries," rather than just in their interest as lawyers who, if successful, will obtain a share of any judgment or settlement as compensation for their efforts. Judge Posner wrote: "When class counsel have demonstrated a lack of integrity, a court can have no confidence that they will act as conscientious fiduciaries of the class."
The Seventh Circuit also squarely rejected the District Court's finding that these acts of misconduct did not demonstrate that class counsel was inadequate to represent the class. The Seventh Circuit stated:
To suggest as the District Court did that ‘only the most egregious misconduct' by class counsel should require denial of class certification on grounds of lack of adequate representation was bad enough. To rule that only the most egregious misconduct ‘could ever arguably justify denial of class status,' as the court went on to hold, would if taken literally condone, and by condoning invite, unethical conduct. Misconduct by class counsel that creates a serious doubt that counsel will represent the class loyally requires denial of class certification.
Learning Point
Panel counsel should be encouraged to study Ashford Gear closely as it may provide ammunition to defendants to challenge class certification by attacking the adequacy of class counsel. Obviously, a factual record will need to be made. But if you are defending a class action against firms, such as the one involved in Ashford Gear, who have made a cottage industry out of using federal legislation such as the TCPA to obtain, as Judge Posner described it, "generous compensation" for the class lawyers at the expense of a meager recovery for the class, panel counsel should consider attacking the adequacy of class counsel. Seek to obtain discovery to determine whether class counsel has put their own interests first by engaging in similar misconduct, as exemplified in the Ashford Gear opinion and if so, use that misconduct in opposing class certification.
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