In a recent decision, the Seventh Circuit held that bad behavior by class counsel can lead to denial of class certification, even where that behavior doesn’t rise to the level of “the most egregious misconduct.”

In Creative Montessori Learning Centers v. Ashford Gear LLC, 662 F.3d 913 (7th Cir. 2011), Plaintiffs brought a purported class action under the federal Telephone Consumer Protection Act alleging defendant Ashford had sent unsolicited “junk faxes” to plaintiffs, each instance of which would carry statutory damages of $500, which could be trebled if the violation was willful or knowing.  The district court certified the class, despite concerns about class counsel’s conduct, relying on dicta from the Seventh Circuit that stated that only the most egregious misconduct could ever justify denial of class status.  Judge Richard Posner, writing for the Seventh Circuit, vacated and remanded, holding that class status should be denied because class counsel acted in a manner that “demonstrated a lack of integrity that casts serious doubt on their trustworthiness as representatives of the class.”

Defendant Ashford allegedly sent two unsolicited faxes to the class representative, Creative Montessori, which would carry a maximum of $3,000 in statutory damages under the Act.  In certifying the class, the district court “turned a $3,000 dispute . . . into an $11.11 million suit (assuming no trebling)—an almost four-thousand-fold increase—against a home furnishings wholesaler“ with three employees and annual sales of only half a million dollars.  Class counsel learned of the alleged 22,222 unsolicited faxes from a “fax broadcaster,” a company that sends faxed advertisements as an agent of the advertiser.  With a promise of confidentiality, class counsel obtained information on the faxes and their intended recipients from the fax broadcaster.  Class counsel then reached out to these fax recipients with a misleading letter that implied that they belonged to a class that was already certified.  The judge ruled “the proper sanction for these wrongful acts was discipline by the bar authorities.”  Judge Posner disagreed, finding that “there is no basis for confidence that [class counsel] would prosecute the case in the interest 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.”  To require the higher “most egregious misconduct” standard “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.”

The Seventh Circuit’s decision in Creative Montessori is a rebuke to class action firms that act recklessly in their own interests, rather than in the interests of the class members.