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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

Integrity & Adequacy of Counsel – Creative Montessori Learning Centers v. Ashford Gear LLC

Posted in Certification

Regular readers know that I usually average two posts a week here, discussing a case on Tuesday, and offering a think piece on Thursday. But a case came down the other day that justifies switching up the schedule. The case is Creative Montessori Learning Centers v. Ashford Gear LLC, and the issue is under what circumstances a court may find class counsel inadequate to represent a class.

Creative Montessori is a Telephone Consumer Protection Act case; the TCPA prohibits the sending of "junk faxes" or "blast faxes" to recipients without their consent. Because it allows for damages of $500 per fax (which can be trebled), it’s a juicy target for some plaintiffs’ firms.

One of those plaintiffs’ firms was Bock & Hatch LLC. (Bock & Hatch was also the firm that brought the CE Design case.) The firm got hold of a list of possible faxes and recipients from a "blast fax" company (a company that sent out the faxes in batches to numbers it had collected). It had promised the company confidentiality when it obtained the list, but its plan was to use the list to file more than 50 class actions. To get clients, it sent letters (addressed from another involved firm, Anderson + Wanca) to various companies that read:

during our investigation, we have determined that you are likely to be a member of the class. You might not remember receiving the junk faxes, but if the lawsuit is successful, you would receive compensation (up to $1,500) for each junk fax sent. We would like to discuss this issue with you. Please call me [telephone number].

Creative Montessori Learning Centers retained the firm, even though it had no evidence that it had actually received the fax at issue in the case.

During the debate over certification, Ashford Gear argued that the lawyers of Bock & Hatch were not adequate class counsel because of the underhanded means by they obtained their list, and because of the misleading statements they used to recruit clients. The trial court ruled that, while the firm’s actions displayed a lack of integrity, the proper remedy was discipline by the Illinois bar. It also ruled that the firm’s conduct did not affect its ability to represent a class.

The Seventh Circuit, in an opinion by Judge Posner, disagreed.  Judge Posner began by observing that class counsel have a fiduciary duty to absent class members.

Class counsel owe a fiduciary obligation of particular significance to their clients when the class members are consumers, who ordinarily lack both the monetary stake and the sophistication in legal and commercial matters that would motivate and enable them to monitor the efforts of class counsel on their behalf.

Based on that fiduciary duty, he observed that

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.

Finally, he addressed the lower court’s treatment of a finding of lack of adequacy as a disciplinary issue rather than a criterion for class certification.

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.

(Emphasis added.)  In doing so, Judge Posner acknowledged some prior precedent that had gone easier on class counsel, but pointed out that those cases had been decided before the issue of class counsel misconduct had become "acute."

This is a significant opinion. Usually, defendants are reluctant to proffer–and courts are reluctant to entertain–challenges to the adequacy of counsel. This reluctance stems from an assumption that, while usually implicit, the district court had announced explicitly: that somehow denying class certification operated as a punishment for class counsel. But even if–as many judges (including Posner) have observed–class counsel are the real actors in a class action, they are not supposed to be the primary beneficiaries of the litigation. Instead, the real beneficiaries are supposed to be the absent class members. Judge Posner’s opinion here called out that assumption and showed that it can get in the way of the real purpose of class actions, which is compensating absent class members who have been harmed.
 

[Note: This post was edited on 14 December to correct some information, based on a communication from Brett Levin of Stephen J. Schlegel, Ltd., one of the defense firms in the case.]