The Seventh Circuit recently provided additional guidance on the question of under what circumstances misconduct by plaintiff’s counsel can warrant denial of class certification.  In 2011, the Seventh Circuit addressed this issue in Creative Montessori Learning Ctrs. v. Ashford Gear, LLC, 662 F.3d 913 (7th Cir. 2011) (blog post), vacating and remanding an order granting class certification, explaining that “[m]isconduct by class counsel that creates a serious doubt that counsel will represent the class loyally requires denial of class certification.”  Id. at 918.  In its recent opinion, Reliable Money Order, Inc. v. McKnight Sales Co., No. 12-2599, 2013 U.S. App. LEXIS 501 (7th Cir. Jan. 9, 2013), a sequel to Creative Montessori, the Seventh Circuit further explicated its views on this subject. 

The case involved the Telephone Consumer Protection Act, which provides for penalties for unauthorized advertising sent to fax machines, known as “fax blasting.”  These penalties when aggregated in a class action can become very large.  The alleged misconduct by plaintiffs’ counsel involved: (1) obtaining a list of potential new clients (i.e., businesses that had received faxed advertisements) from a third party “fax blaster” in circumstances in which there allegedly was a promise by plaintiff’s counsel to the third party that the information would be protected as confidential under a protective order; (2) sending a solicitation letter to the potential new clients that was not registered in accordance with state bar rules; and (3) sending a $5,000 check to an attorney who represented the third party that had produced the aforementioned list, purportedly to compensate the third party for expenses arising from depositions and document production.  

The Seventh Circuit explained that “even ‘serious’ or ‘major’ ethical violations—not prejudicial to the class—can require denial of class certification,” and “reject[ed] the suggestion of plaintiff’s counsel that only misconduct directly harming the class is relevant to the class certification decision.”  Id. at *25.  “A ‘slight’ or ‘harmless’ breach of ethics will not impugn the adequacy of class counsel. . . . [U]nless the violation prejudices one of the parties or undermines the court’s ability to resolve the case justly, state bar authorities—not a court—should enforce the rules and sanction the attorney.”  Id. at *26.  If the misconduct is not prejudicial to the class, but “jeopardizes the court’s ability to reach a just and proper outcome in the case,” denial of certification is warranted.  Id. at *27. 

On the facts of Reliable Money Order, the court affirmed certification of the class, finding that the district court did not abuse its discretion.  The court concluded that the alleged promise of confidentiality to the third party did not prejudice the class or compromise the integrity of the lawsuit.  The court found that the same was true with respect to the solicitation letter.  With respect to the $5,000 payment, the court concluded that if that payment had been intended to influence the third party’s testimony or was contingent on the outcome of the case, it would warrant denial of certification.  To the extent that the recipient of the payment testified that he perceived it as a “payoff,” and plaintiff’s counsel denied that assertion, that was an issue of credibility on which the trial court was entitled to deference.  Id. at *28-34. 

If I take off my defense lawyer hat and look at this issue objectively, as a judge would, I think the Seventh Circuit may be raising the bar a bit too high here in terms of the standard it sets forth, although that may depend on how the standard is applied in future cases.  Understandably, a court would not want to create a standard that would encourage the defendant to raise minor borderline issues of ethics, or result in ethical debates in numerous class actions.  But in a class action, the court has a special, unusual obligation to protect the interests of the absent class members.  A named plaintiff often is not qualified to or capable of ensuring that his or her counsel is acting consistent with their ethical obligations.  I don’t think I’ve seen any case in which a named plaintiff has sought to discharge class counsel.  Holding class counsel to a higher standard than articulated in Reliable Money Order might be appropriate because the court needs to take the place of a client that is relatively uninvolved in the class proceedings, and needs to protect the absent class members.  Even if class members are not directly prejudiced, would thousands of absent class members actually want to be represented by counsel who does not adhere to ethical standards?  Can the court be confident that counsel is adequately representing them?