Do you ever wonder how plaintiffs’ class action lawyers find their class representatives? And whether there is any possibility of defeating class certification if their efforts are sleazy or downright unethical? In the recent decision of Reliable Money Order, Inc. v. McKnight Sales Co., Inc., —F.3d —, No. 12-2599, 2013 WL 85937 (7th Cir. Jan. 9 2013), the Seventh Circuit addresses exactly these issues. Plaintiff class action lawyers will be happy to know that according to the Seventh Circuit, class certification will not be denied due to attorney misconduct unless the misconduct prejudices the class or undermines the court’s ability to resolve the case justly. Id. at *9. Otherwise, “state bar authorities—not a court—should enforce the rules and sanction the attorney.” Id.
McKnight involved a class action based on the practice of “fax blasting”—the practice of sending hundreds of advertisements to unsuspecting recipients’ fax machines. Although one would think this practice of the 1990s has been mostly replaced by email spam, Congress (a little behind the times) passed the Junk Fax Prevention Act of 2005 (the “Act”). The law authorizes $500 in statutory damages for faxing an unsolicited advertisement, with treble damages upon a showing of willfulness. 47 U.S.C. § 227(b)(1)(C), (b)(3). The key for class action lawyers is that each transmission is a separate violation. Id.
Based on the Act, the Chicago-based law firm of Anderson & Wanca filed four putative class actions for fax blasting prior to instituting the McKnight action. In those previous actions, Anderson & Wanca subpoenaed the records of Business-to-Business Solutions (“B2B”), the marketing entity that had sent the fax advertisements on behalf of the companies sued in the four prior class actions. Based on the B2B records, Anderson & Wanca was able to identify all of the recipients of the unwanted faxes in the four cases. Significant to McKnight and hundreds of other class actions, Anderson & Wanca also convinced B2B to disclose all of their fax transmission data—a treasure trove of information that identified numerous fax recipients far beyond the four cases at issue. To obtain that information, however, an Anderson & Wanca attorney told B2B’s principal that “nobody would look at anything on these media not related” to the four cases. Id. at 2. The attorney even emailed B2B’s principal a copy of a protective order from one of the cases and explained that that it “[would] prevent [him] from disclosing any of the back-up disks or hard drive to any third-party.” Id.
In addition, although the materials were produced at a deposition of a B2B representative without an assertion of confidentiality, an Anderson & Wanca attorney later instructed defense counsel in the case to treat the materials “as confidential pursuant to the protective order.” Id.
Despite these representations, Anderson & Wanca subsequently took the data from B2B and sent out solicitation letters to the recipients of B2B’s fax blasting. Id. at *3. To make matters worse, an Anderson & Wanca partner sent the attorney for B2B a mysterious $5,000 check bearing the notation “document retrieval.” Id. at *3.
Despite the promises made to B2B to keep the information confidential, the B2B records spawned more than 100 lawsuits filed by Anderson & Wanca, including the one against McKnight. See id. at *7. Not surprisingly, when the defense lawyers in the various cases found out how Anderson & Wanca learned about the identities of their clients, the defendants in the various cases filed motions challenging the propriety of class certification and to disqualify Anderson & Wanca as class counsel. See id. at *3.
McKnight is actually the second Anderson & Wanca-related fax blasting case to reach the Seventh Circuit based on alleged unethical conduct in the recruiting of class representatives. In the first case, Creative Montessori Learning Ctrs. V. Ashford Gear, LLC, 662 F.3d 913 (7th Cir. 2011), the Seventh Circuit announced its standard for denying class certification based on attorney misconduct. [See our blog post of January 2, 2012, “Seventh Circuit Rebukes Class Counsel” by Brett Wall.] In Ashford Gear, the Seventh Circuit held that class certification could be denied when “[m]isconduct by class counsel . . . creates a serious doubt that counsel will represent the class loyally . . . .” McKnight, 2013 WL 85937, at *9 (quoting Ashford Gear, 662 F.3d at 919. “[W]hen ‘class counsel have demonstrated a lack of integrity’ through misconduct and unethical action, ‘a court can have no confidence that they will act as conscientious fiduciaries of the class’.” Id.
The Seventh Circuit remanded the Ashford Gear case for the district court to apply the new standard, but McKnight was the first of the various Anderson & Wanca cases to reach the Seventh Circuit after application of the standard. Id. at *6. Although the district court had found that counsel’s behavior had not been “entirely on the up and up,” it concluded that the behavior had not created serious doubt regarding class loyalty and refused to deny certification. Id. (quoting Reliable Money Order, Inc. v. McKnight Sales Co., 281 F.R.D. 327, 336 (E.D. Wis. 2012). At least six other federal district courts applying the Seventh Circuit’s standard agreed with the McKnight district court decision. Id. at *6.
Noting that class certification orders are reviewed for abuse of discretion, the Seventh Circuit affirmed the district court’s decision to certify the class despite the unethical conduct. Id. at *8, 11. In affirming, the Seventh Circuit revisited the standard set forth in Ashford Gear, noting that attorney conduct that bears on class certification—such as “selling out the class”—for settlement approval will defeat class certification. See id. The Seventh Circuit also held that a “serious” or “major” ethical violation not prejudicial to the class can require denial of class certification: “unethical conduct, not necessarily prejudicial to the class, nevertheless raises a ‘serious doubt’ about the adequacy of class counsel when the misconduct jeopardizes the court’s ability to reach a just and proper outcome in the case.” Id. at *9. The Seventh Circuit cautioned, however, that courts should avoid getting involved in non-egregious ethical breaches. “[W]hen an ethical breach neither prejudices an attorney’s client nor undermines the integrity of the judicial proceedings, state bar authorities are generally better positioned to address the matter through disciplinary proceedings, rather than the courts through substantive sanction in the underlying lawsuit.” Id. at *11.
Utilizing this standard, the Seventh Circuit found that although they disagreed that Anderson & Wanca “did nothing wrong in obtaining the B2B records,” their conduct did not require denial of class certification. Id. at *10. Although the alleged misconduct raised issues concerning plaintiff counsel’s professionalism, the misconduct did not raise serious doubts about their ability represent the class faithfully. Id. Nor did the conduct undermine the judicial proceedings. See id. The court noted, however, that if it had been found that the $5,000 payment to B2B’s counsel had come with strings attached, then the proceedings could have been undermined to such an extent as to deny class certification. See id. at *11.
It is difficult to conceive of circumstances more egregious than sending solicitation letters and filing lawsuits based on documentation that had been promised to be kept confidential, along with making a mysterious payment to counsel for the entity from whom the documentation had been obtained. The Seventh Circuit and the district courts within that circuit nevertheless seemed to go out of their way to avoid making a class certification decision based on the alleged misconduct of the plaintiff attorneys. This approach is problematic in the context of class certification, where the suitability of class counsel should be of paramount importance. Appropriate class representation is key to due process, and unethical conduct needs to be fully considered at the class certification stage.