Todays’ classic case asks the question: how close an attorney-client relationship is too close an attorney-client relationship?
In London v. Wal-Mart Stores, Inc. (11th Cir. 2003), the plaintiff, Roger London, sued Wal-Mart and a group of banks, alleging that they had sold insurance without providing the proper disclosures, violating the Truth in Lending Act (TILA) and Florida state law.
During discovery, it came out that London’s lawyer, Robert Ader, had been his close friend since high school. In fact, for a while, London had served as his counsel’s stockbroker as well. So there had been both a business and a personal relationship. Once Ader had discovered that London was paying for this insurance (at which point, he was in the hole only 41 cents), he told him to keep doing so so that he could be a plaintiff in a class action.
The defendants opposed class certification, in part because London was not an adequate class representative. Nonetheless, the trial court certified a class action against them. The defendants appealed.
On appeal, the Eleventh Circuit reversed. It began by noting that
adequacy of representation is primarily based on the forthrightness and vigor with which the representative party can be expected to assert and defend the interests of the class and whether plaintiffs have interests antagonistic to those of the rest of the class. In fact, we went on to note that meeting these requirements might still be insufficient if the named plaintiffs do not possess the personal characteristics and integrity necessary to fulfill the fiduciary role of class representative.
(Internal quotations omitted.) The court also noted that
The requirement for a stringent examination of the adequacy of the class representative is especially great when, as in this case, the attorney’s fees will far exceed the class representative’s recovery. In such circumstances, courts fear that a class representative who is closely associated with the class attorney will allow settlement on terms less favorable to the interests of absent class members.
(Internal quotations omitted, emphasis added.) In this case, a close personal friendship and a business relationship clearly counted as "closely associated."
After reviewing the record, we conclude that the district court abused its discretion by ignoring London and Ader’s significant personal and financial ties. The long-standing personal friendship of London and Ader casts doubt on London’s ability to place the interests of the class above that of class counsel. The close relationship between London and Ader creates a present conflict of interest — an incentive for London to place the interests of Ader above those of the class. Furthermore, even though London is no longer Ader’s stockbroker, nothing prevents his returning to that role after this litigation is concluded. If London plans to do so, London would have an additional incentive to increase Ader’s fees at the expense of the class. Thus, combined with their close friendship, the former financial relationship between London and Ader creates a potential conflict of interest.
(Emphasis added.) London marked an important moment in the continuing development of the adequacy requirement, because it reaffirmed that one of the primary reasons adequacy is so important is that class actions need representatives who can independently direct their counsel. The Eleventh Circuit–like many class-action scholars–recognized that class counsel (who really control the case) do not necessarily have the best interests of absent class members in mind, particularly when attorneys’ fees can run into the millions of dollars while relief for the class members may be only pennies. There are several ways of addressing that asymmetry. One is to reduce attorneys’ fees, a reform courts have unfortunately been reluctant to implement. The other–which courts do occasionally enforce–is to make sure that the named plaintiff actually has the independence to stand up for the class when counsel opts for the money instead.