Challenging Adequacy of Class Counsel: Misconduct Creating Serious Doubt that Counsel will Represent the Class Loyally Requires Denial of Certification

Defendants are often disinclined to attack the adequacy of class counsel in opposing class certification because challenges to the adequacy of class counsel rarely work.  For good reason -- courts are often reluctant to deny class certification based upon arguments that class counsel may not be adequate to represent the class.  If the recent decision from the United States Court of Appeals for the Seventh Circuit in Creative Montessori Learning Centers v. Ashford Gear LLC, Case No. 11-8020, 2011 U.S. App. LEXIS 23324 (7th Cir. November 22, 2011) is any guide, then this may be about to change -- opening another possible avenue for defendants seeking to oppose class certification.

In Creative Montessori, the named plaintiff (a private school) filed a complaint asserting a violation of the Telephone Consumer Protection Act (as amended by the Junk Fax Prevention Act), 47 U.S.C. § 227, after allegedly receiving two one-page faxes from defendant (a "tiny" home-furnishing wholesaler in California with three employees and annual sales of $500,000).  The Telephone Consumer Protection Act allows for the recovery of statutory damages of $500 per fax, which can be trebled for a willful or knowing violation.  Id. at § 227(b)(1)(C).  Because of the "draconian penalties" imposed by the Act, defendant faced significant liability and the potential for a catastrophic damage award -- the Act "turn[ed] a dispute of at most $3,000 . . . into an $11.11 million suit (assuming no trebling)."  Creative Montessori Learning Centers, 2011 U.S. App. LEXIS 23324, *5.

The lawsuit was brought by a law firm that specializes in bringing class action lawsuits under the Telephone Consumer Protection Act.  The law firm learned about the faxes not from the named plaintiff, but from the company that faxed the advertisements as an agent of the advertiser.  Id. at *6.  The law firm requested the transmission reports from the company and for information about how to communicate with the intended recipients, but "promised not to disclose any of the material to a third party."  Id.  On the basis of the promise of confidentiality, it was disclosed to the law firm that 14,574 persons were faxed the advertisements.  Id.

One of the alleged recipients was the named plaintiff, and the law firm notified the now potential named plaintiff that "during our investigation, we have determined that you are likely to be a member of a 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]." Id. *7.  Responding to the solicitation, the named plaintiff contacted the law firm and (thereafter) became the proposed class representative.  Id.

Defendant opposed certification by arguing, among other things, that class counsel's misconduct showed that counsel would not adequately represent the class. Id. at *8.  While the district court did find that there was misconduct by the law firm (obtaining material on the false promise of confidentiality and implying to the potential putative class members that a class had already been certified), the district court ruled that the proper sanction for the improper conduct was discipline by the bar association and not the denial of class certification.  Id.

The United Stated Court of Appeals for the Seventh Circuit disagreed, reversing the decision and remanding the case with instructions to re-evaluate the gravity of class counsel's misconduct and its implications for the likelihood that class counsel will adequately represent the class.  Id. at *14-15.  Judge Posner wrote that "[c]lass 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."  Id. at *9.  Judge Posner further states that in such cases, "the court takes the place, as monitor of counsel, of nominal clients."  Id.  "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."  Id. at *12.  The Seventh Circuit further rejected the position that "'only the most egregious misconduct' by class counsel should require denial of class certification on grounds of lack of adequate representation."  Id.  Rather, the Seventh Circuit held that "[m]isconduct by class counsel that creates a serious doubt that counsel will represent the class loyally required denial of class certification."  Id.

While still rare, challenging the adequacy of class counsel may be another viable avenue for defendants seeking to oppose class certification.