A recent Seventh Circuit opinion indicates that plaintiffs' counsel in a class action suit that engages in misconduct will not likely be able to adequately represent the class. In Creative Montessori Learning Centers v. Ashford Gear LLC, No. 11-8020 (7th Cir. Nov. 22, 2011), Judge Posner's opinion overturned the district court's class certification because the district court applied a standard that was too lenient for misconduct on the part of plaintiffs' counsel.
The named plaintiff, Creative Montessori Learning Centers, sued Ashford Gear LLC for violating the Telephone Consumer Protection Act, 47 U.S.C. § 227. The Act provides that the recipient of an unsolicited fax can be compensated up to $1,500 for each fax. There are 14,573 other members of the class who collectively claim to have received 22,222 unsolicited faxes.
Plaintiffs' attorneys, attorneys from Bock and Hatch, specialize in bringing suits under the Act, but used some unethical tactics to initiate the suit. The attorneys contacted a fax broadcasting company that faxes advertisements on behalf of advertisers. Then the attorneys asked the broadcasting company for information about faxes it had sent – and promised to keep the information confidential. But instead of keeping the information confidential, the attorneys used the information to drum up lawsuits. The attorneys found violators of the Act and potential plaintiffs. Notably, the attorneys found Montessori, the named plaintiff, and misleadingly told them that a class action already existed.
This behavior prompted defense attorneys to argue that the class should not be certified because plaintiffs' attorneys behaved unethically and would not be able to adequately represent the class. However, the district court applied an egregious misconduct standard, and found that the conduct was not egregious and certified the class. On appeal, the Seventh Circuit applied a different standard.
The Seventh Circuit emphasized the importance of ensuring that plaintiffs' counsel can adequately represent a class. The court noted that class plaintiffs lack the knowledge and monetary stake to allow them to monitor their lawyers. Therefore, courts have to take great care in ensuring that plaintiffs' counsel will fulfill their fiduciary duties. The court then held that the district court erred by applying an egregious misconduct standard; rather, any misconduct on behalf of plaintiffs' counsel should create a serious doubt that plaintiffs' counsel is fit to represent a class. The court then remanded the case back to the district court so the district court could determine whether the class should be certified.
With this decision, the Seventh Circuit is leaving less room for unethical conduct on the part of plaintiffs' counsel in class action litigation. It is a decision that will likely be welcomed by defense counsel and class plaintiffs alike.
William F. Auther is a partner with an active trial practice in business litigation and Kelly M. McInroy is an associate in the Phoenix office of Bowman and Brooke LLP.