This week's case is Reliable Money Order Inc v McKnight Sales Co Inc, which serves as a companion case to Creative Montessori Learning Centers v. Ashford Gear. Following the events in Ashford Gear (for those who might not remember, one of the plaintiffs' firms, Bock & Hatch, had lied to a witness about keeping a list of possible faxes and recipients confidential), defense lawyers in a number of blast-fax class actions challenged the adequacy of the firms (among them, Anderson + Wanca) that had participated in the case. In each case, the defendants' primary argument was that the plaintiffs' lawyers' dishonest conduct rendered them inadequate to represent a class. The trial courts largely rejected these challenges, one of which resulted in an interlocutory appeal under Rule 23(f) against plaintiff Reliable Money Order (which was represented by Anderson + Wanca).
The Seventh Circuit took on the appeal because of the lack of case law explicating Rule 23(g), which governs the adequacy of counsel. Its first job, as a result, was to determine the proper standard for attorney conduct under Rule 23(g). The plaintiffs urged the Seventh Circuit to adopt the "egregious conduct" standard, which states that only truly egregious conduct that directly affects class members can disqualify counsel. Instead, the Seventh Circuit chose to adopt the Ashford Gear standard:
Anything "pertinent to counsel's ability to fairly and adequately represent the interests of the class" bears on the class certification decision. Fed. R. Civ. P. 23(g)(1)(B). As we made clear in Ashford Gear II, an attorney's misconduct or ethical breach is pertinent: the potential attorneys' fees in a class action so far outweigh the potential recovery of any individual plaintiff that they present attorneys with a strong temptation "to sell out the class by agreeing with the defendant to recommend that the judge approve a settlement involving a meager recovery for the class but generous compensation for the lawyers." Given this temptation--in tension with the fiduciary obligations of class counsel to the unnamed class members, "class counsel have demonstrated a lack of integrity, a court can have no confidence that they will act as conscientious fiduciaries of the class."
We therefore conclude that 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.
(Emphasis added, internal case citations omitted.)
Nonetheless, the Seventh Circuit held that the conduct here--lying to a witness to obtain confidential information and then breaching that confidentiality--while definitely a "lapse in professionalism," did not compromise the court's ability to decide the case fairly.
In making that decision, the Seventh Circuit explained that it was balancing two competing concerns: one the one hand, as the defendant-appellants had pointed out, not punishing Anderson + Wanca would "reward overly aggressive and unethical attorney conduct." On the other, it worried about transforming the Rules of Professional Conduct into "procedural weapons." It opted to reduce the likelihood of the latter bad outcome, even if that meant allowing the former bad outcome to come to pass. (The panel's solution to this tension--that one can still report the counsel to the appropriate disciplinary authorities--seems hollow. If courts frown on reporting unethical conduct when it is relevant in litigation because that is using the rules as a "weapon," why would it allow the weaponizing of disciplinary reports?)
What does that mean for defense attorneys? Two things:
- While the standard for attorney conduct under Rule 23(g) is clearer, it has not changed substantively; plaintiffs attorneys will still feel free to engage in borderline conduct around fact development, solicitation of clients, and the attorney-client relationship.
- To the extent one's opponent has engaged in conduct that cries out for a challenge, be sure to frame that challenge in terms of the court's ability to reach a just result in the case. And, as always, remember that the real goal of a class action is to protect the absent class members: if the conduct imperils their interests, the court will likely intervene.