KT Class Action Blog

Category: Discovery

Posted on Thursday, December 21 2017 at 1:29 pm by
Communicating with Putative Class Members Prior to Class Certification: Important Reminders (or New Lessons) for Federal Court Practice

by Chad Hansen & Rich Keshian

Many class actions are won or lost at the class certification stage. Because FRCP 23(c) requires a district court to determine whether a class action is to be maintained (i.e., certified) “[a]t an early practicable time after a person sues,” both sides often engage in a flurry of activity to gather evidence either to support or oppose class certification. Frequently, this involves communication with potential class members.

Class action defense counsel readily recognize the pitfalls in communicating directly with putative class members once class counsel has been appointed. Rule 4.2 of the ABA Model Rules of Professional Conduct and corresponding state ethics rules prohibit a lawyer from communicating about the subject of representation with a person the lawyer knows to be represented by another lawyer. Less settled is whether that prohibition applies upon class certification or instead upon the later expiration of any opt-out period. (Compare, e.g., Walney v. Swepi LP, Civ. A. 13-102, 2017 WL 319801, at *12 (W.D. Pa. Jan. 23, 2017) (collecting cases for the proposition that the attorney-client relationship between class counsel and class member arises at the time of class certification) with ABA Committee on Ethics & Prof’l Responsibility, Formal Op. 07-445, at 3 (2007) (finding that the attorney-client relationship arises only after expiration of the opt-out period)). But there is much more uncertainty about how class or defense counsel may communicate with potential class members prior to class certification and about the ability and role of the district courts to regulate these communications.

Below, we answer some of the most commonly asked questions regarding communicating with potential class members prior to class certification.

Can counsel communicate with potential class members before a class is certified?

Yes. It is now well-established that both plaintiffs’ counsel and defense counsel can communicate with potential class members prior to class certification, just as they would with any other witness or unrepresented party. From an ethical standpoint, “[t]he key to evaluating the propriety of contacting putative class members is whether they are deemed to be represented by the lawyer or lawyers seeking to certify a class,” ABA Formal Op. 07-445 at 2, and, as discussed above, that happens at the earliest upon the certification of a class.

Under FRCP 23, and as confirmed by the U.S. Supreme Court, counsel generally are not required to obtain leave of court before communicating with potential class members before certification. See Gulf Oil Co. v. Bernard, 452 U.S. 89, 99-102 (1981); Agerbrink v. Model Serv. LLC, No. 14 Civ. 7841, 2015 WL 6473005, at *3 (S.D.N.Y. Oct. 27, 2015) (“[T]here is nothing inherently improper about a party’s communication with potential class members prior to certification.”), vacated sub nom. Agerbrink v. MSA Models, No. 14 CIV 7841, 2017 WL 4876221 (S.D.N.Y. May 23, 2017) (vacating restriction on communications with putative class members following withdrawal of class allegations). As the Manual for Complex Litigation explains, citing Gulf Oil, “Defendants and their counsel generally may communicate with potential class members in the ordinary course of business, including discussing settlement before certification.” Manual for Complex Litigation (Fourth) § 21.12 at p. 249 (2004).

Are certain types of communications with unrepresented potential class members ethically prohibited?

Yes. Even though counsel may be permitted to communicate with potential class members before class certification, state ethical rules still restrict certain types of communication. ABA Model Rule 4.3, for example, prohibits providing legal advice to unrepresented parties other than advice to retain counsel, if appropriate, if there is a reasonable possibility of a conflict of interest between the unrepresented party and the lawyer’s client. Model Rules of Prof’l Conduct r. 4.3.

ABA Model Rule 7.3’s restrictions on solicitation of clients presents another potential ethical pitfall. It prohibits a lawyer from soliciting professional employment by in-person, live telephone, or real-time electronic contact unless the person contacted is a lawyer or has a close personal or prior professional relationship with the lawyer. Model Rules of Prof’l Conduct r. 7.3. And written, recorded, and electronic communications soliciting clients must include the words “Advertising Material” as required by the rule. Id. Counsel for plaintiffs or defendants should check the applicable ethics rules, comments, and opinions before reaching out to putative class members, to avoid the potentially severe sanctions for prohibited solicitation of clients. See, e.g., Hamm v. TBC Corp., 345 Fed. Appx. 406, 409-12 (11th Cir. 2009) (affirming imposition of severe sanctions for solicitation of class members to join collective action).

Do federal courts have authority to regulate communications with potential class members?

Yes. FRCP 23(d)(1) provides as to putative class actions that “the court may issue orders that: . . . (C) impose conditions on the representative parties or on intervenors . . . [and] (E) deal with similar procedural matters.” The Court in Gulf Oil, acknowledging these provisions, recognized that “a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.” Gulf Oil, 452 U.S. at 100. It has that authority over communications because “it is critical that the class receive accurate and impartial information regarding the status, purposes and effects of the class action.” Kleiner v. First Nat’l Bank, 751 F.2d 1193, 1202 (11th Cir. 1985).

When may a district court regulate these communications?

Judicial intervention is warranted when communications pose a serious threat to the fairness of the litigation process, the adequacy of representation, and the administration of justice generally. Brown v. Mustang Sally’s Spirits & Grill, Inc., No. 12-CV-529S, 2012 WL 4764585, at *3 (W.D.N.Y. Oct. 5, 2012). Therefore, court intervention is typically justified only by “actual or threatened misconduct of a serious nature.” Great Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 59 F.3d 764, 766 (8th Cir. 1995). The party challenging the communications bears the heavy burden of adducing “evidence that a potential for serious abuse exists.” Burrell v. Crown Cent. Petroleum, Inc., 176 F.R.D. 239, 244 (E.D. Tex. 1997); Williams v. U.S. Dist. Ct., 658 F.2d 430, 436 (6th Cir. 1981) (finding trial court lacked grounds to restrict a party’s pre-certification communications absent evidence of abuse). Generally, a party seeking to regulate these communications must (1) “show that a particular form of communication has occurred or is threatened to occur” and (2) “show that the particular form of communication at issue is abuse in that it threatens the proper function of the litigation.” Cox Nuclear Med. v. Gold Cup Coffee Servs., Inc., 214 F.R.D. 696, 697-98 (S.D. Ala. 2003). “[T]he Court will not impose limitations based on speculation and conjecture.” In re M.L. Stern Overtime Litig., 250 F.R.D. 492, 500 (S.D. Cal. 2008). However, actual harm need not be proven. Ojeda-Sanchez v. Bland Farms, 600 F. Supp. 2d 1373, 1378 (S.D. Ga. 2009).

What constitutes misconduct and abuse?

            Courts are willing to correct communications that are inaccurate, unbalanced, misleading, or coercive, or which improperly attempt to encourage class members not to join the suit. Agerbrink, 2015 WL 6473005, at *3. These include communications that undermine cooperation with or confidence in class counsel. Cox Nuclear Med., 214 F.R.D. at 698. “Whether a communication is misleading or coercive—and therefore warrants judicial intervention—often depends not on one particular assertion, but rather the overall message or impression left by the communication.” Talavera v. Leprino Foods Co., Case No. 1:15-cv-105, 2016 WL 880550, at *5 (E.D. Cal. Mar. 8, 2016).

One court, for example, found the actions of a defendant in a Title VII discrimination case to be intimidating to putative class members where the employer for the first time compelled its employees to complete federal immigration employment forms. EEOC v. City of Joliet, 239 F.R.D. 490, 492-93 (N.D. Ill. 2006). Another court found that comments by the defendant about how “Plaintiffs’ lives will be subject to public scrutiny” as a result of participation in the putative class action would have a “chilling effect” on participating in the class action. Wright v. Adventures Rolling Cross Country, Inc., No. C-12-0982, 2012 WL 2239797, at *5 (N.D. Cal. June 15, 2012). Yet another court found letters from the defendant to potential class members to be misleading where the letters mischaracterized the damages available to the potential class and misrepresented how the plaintiffs’ attorneys would be compensated if successful in the class action. Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 668 (E.D. Tex. 2003).

            May the district court enter a blanket prohibition on communications?

No. Orders regulating communications between litigants pose grave threats to First Amendment freedom of speech. In re Sch. Asbestos Litig., 842 F.2d 671, 680 (3d Cir. 1988). As a result, orders that operate prospectively are unconstitutional prior restraints. Bernard v. Gulf Oil Co., 619 F.2d 459, 466-71 (5th Cir. 1980), aff’d on other grounds, 452 U.S. 89 (1981). As the Supreme Court explained, “[a]n order limiting communications between parties and potential class members should be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties. . . . [S]uch a weighing—identifying the potential abuses being addressed—should result in a carefully drawn order that limits speech as little as possible . . . .” 452 U.S. at 101-102.

What remedies are available to address misleading or abusive communications?

Because of First Amendment concerns, courts generally address improper communications with putative class members after the fact, through remedial or curative notices. The parties or their counsel who engaged in the behavior requiring remediation may be required to bear the costs of the curative notices. Great Rivers Coop., 59 F.3d at 766. The court may also impose a wide variety of sanctions, such as setting aside executed opt-ins or opt-outs or extending the deadlines for returning them. Belt, 299 F. Supp. 2d at 669-70. A district court may also impose monetary sanctions, as well as attorneys’ fees and costs. Kleiner, 751 F.2d at 1209-1210.

* * * *

Counsel for both plaintiffs and defendants, subject to applicable ethical restrictions, are free to communicate with putative class members prior to class certification in the normal course of business. Thus, for example, putative class counsel may communicate with potential class members to discuss representation, encourage support, or investigate the merits of the action. For their part, defense counsel may contact potential class members to marshal evidence on Rule 23’s class requirements or to discuss settlement. And defendants may have ongoing business relationships with potential class members (e.g., employees in a wage act suit) that require the involvement of counsel (e.g., releases arising out of a reduction in force).

But these communications remain subject to limitations. District courts are willing to police communications before certification to protect the administration of justice. That means the communications must be accurate, fair, and non- coercive. Otherwise, the offending party risks corrective action and the possibility of sanctions.

Posted on Friday, August 11 2017 at 2:18 pm by
California Supreme Court endorses “fishing expedition” discovery under PAGA

by Jon Michaelson

In its recent decision concerning the proper scope of discovery under California’s Labor Code Private Attorneys General Act of 2004 – known as “PAGA” – the California Supreme Court authorized discovery just as broad as that available in California class action proceedings, while at the same time weakening the ability of defendants to object to such discovery on invasion of privacy grounds. As a result, Williams v. Superior Court, 5 Cal. 5th 331, 2017 WL 2980258 (Cal. July 13, 2017), presents new challenges for California employers and others in defending PAGA and similar “representative action” claims.

PAGA, set forth in California Labor Code sections 2698 et seq., authorizes and encourages employees to bring actions against their employers to recover civil penalties for certain Labor Code violations. A PAGA suit is essentially a qui tam or representative proceeding brought on behalf of all affected employees, and thus is similar to a class action. Unlike a class action, however, the named plaintiff is entitled to only 25 percent of any recovery, with the remaining 75 percent allocated to the State of California to fund enforcement and educational activities.

In the Williams case, the plaintiff alleged that his employer – Marshalls Stores – failed to provide required meal and rest periods or compensation in lieu of required breaks; understaffed stores, forcing employees to work during meal periods without compensation; directed managers to erase meal period violations from time records; instituted a systematic, company-wide policy to avoid paying premiums for missed breaks; failed to provide timely, accurate, and complete wage statements; and followed a policy and practice of forcing workers to carry out certain tasks without compensation. In early discovery regarding this pro forma laundry list of alleged wrongdoing, Williams served special interrogatories demanding the disclosure of contact information and basic employment history for all Marshalls employees in California. In response, Marshalls disclosed that it had roughly 16,500 California employees, and objected to furnishing their contact information on grounds of overbreadth, undue burden, and invasion of privacy.

Ruling on Williams’ motion to compel, the trial court directed Marshalls to provide employee contact information limited to the single store at which the plaintiff worked, subject to an opt-out notice to enable workers at that store to protect their privacy if they wished, and held open the possibility that following further discovery Williams might obtain contact information for additional employees depending on his ability to demonstrate that his claims had substantive merit. Recognizing that there was no controlling authority on this subject, the trial judge certified his order for immediate appellate review. The Court of Appeal upheld the order, ruling that Williams was required to “set forth specific facts showing good cause” for the broad discovery he had sought and also that, in view of the third party privacy interests involved, Williams “must demonstrate a compelling need for discovery” – in other words, “the discovery sought is directly relevant and essential to the fair resolution of the underlying lawsuit.”

In a unanimous opinion, the California Supreme Court reversed. The Court began with the fundamental proposition that a party has a right to obtain discoverable information, absent a clear legal prohibition. And in this instance, the California discovery statute expressly authorizes discovery of the identity and location of those who might have knowledge of discoverable evidence. As a result, Williams was presumptively entitled to the information he had sought, and the requirements which the trial court and Court of Appeal had attempted to impose on him to justify the interrogatories were improper. Rather, the California Supreme Court held that the burden clearly fell on Marshalls to substantiate its objections.

With respect to overbreadth, Marshalls argued that contact information as to employees who did not share Williams’ position, job classification, and store location “exceeded the scope of permissible discovery.” The Court, however, viewed Williams’ request as an effort to identify other aggrieved employees and to obtain evidence with respect to the state-wide Labor Code violations he alleged. The Court analogized the situation to a putative consumer class action where it had held that “[c]ontact information regarding the identity of potential class members is generally discoverable, so that the lead plaintiff may learn the identities of other persons who might assist in prosecuting the case.” Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal. 4th 360, 373, 53 Cal. Rptr. 3d 513, 150 P.3d 198 (2007). It found nothing in the purpose or language of PAGA to suggest that a different standard for discovery should apply. And it set aside differences between a class action and a PAGA case in terms of the differing duties of class versus PAGA counsel to those impacted by the case and in terms of possible binding impacts of judgments in class actions versus PAGA actions as potentially legitimate reasons for a trial court’s discretionary decision to alter the normal approach to discovery. In sum, “[t]he trial court had no discretion to disregard the allegations of the complaint making this case a statewide representative action from its inception,” and the Court of Appeal “likewise misread the complaint when it described Williams’ claim as ‘parochial” and thus affording no basis for statewide contact information.” 2017 WL 2980258, at *8.

Relative to burden, Marshalls argued that it should not be forced to provide contact information for thousands of other employees absent a prior showing that the named plaintiff himself had been subject to any alleged Labor Code violations or that at least some others had been. Marshalls did not, however, provide any information indicating how much effort or expense would be necessary to gather the data involved for its entire California workforce. That failure in proof proved fatal to the burden objection. The Court had little difficulty rejecting Marshalls’ attempt to impose a good cause requirement on Williams: “[a]s a general matter, the [discovery] statute… imposes no obligation on a party propounding interrogatories to establish good cause or prove up the merits of any underlying claims.” 2017 WL 2980258, at *9. Moreover, Marshalls had not made a formal request to the trial court to manage the sequence or timing of discovery “for the convenience of parties and witnesses and in the interests of justice.” Id. at *10. Accordingly, the burden contention was unavailing: “[t]hat the eventual proper scope of a putative representative action is as yet uncertain is no obstacle to discovery; a party may proceed with [discovery] precisely in order to ascertain that scope.” Id.

And then, turning to the question of privacy, the Court noted that neither the trial judge nor the Court of Appeal had undertaken the analysis mandated by Hill v. National Collegiate Athletic Ass’n, 7 Cal. 4th 1, 26 Cal. Rptr. 2d 834, 865 P.3d 633 (1994): (1) whether a legally protected privacy interest exists, (2) whether there is a reasonable expectation of privacy under the circumstances, and (3) the relative seriousness of the potential invasion of privacy. This framework had been extended over the years to the consumer class action arena, as in Pioneer Electronics, 40 Cal. 4th at 372, and to wage and hour class actions in California, as in Belair-West Landscape, Inc. v. Superior Court, 149 Cal. App. 4th 554, 561-562, 57 Cal. Rptr. 3d 197 (2007). Addressing these elements, the Court recognized that while other Marshalls employees had a reasonable expectation of privacy which was implicated by requests for their names and contact information, the second Hill factor – reasonable expectation of privacy under similar circumstances – was not met because those other employees might expect and indeed might even hope that their names and contact information would be shared so that their employment rights could be protected. And third, the potential seriousness of any invasion of privacy had been mitigated by Williams’ willingness to accept an opt-out arrangement for other employees. As a result, the Court rejected Marshalls’ privacy objection. 2017 WL 2980258, at *13.

But that was not all. The Court went on to discuss the manner in which the Court of Appeal had handled the privacy question. It observed that instead of following Hill, the Court of Appeal had started (and also essentially ended) its analysis by examining whether Williams, as the requesting party, had demonstrated a compelling state interest in the disclosure of the private information involved. In doing so, the Court of Appeal had followed a host of cases which effectively compressed the assessment of privacy objections down to that single consideration. Doing so, per the Supreme Court, was not appropriate: “[we reject] the de facto starting assumption that … an egregious invasion is involved in every request for discovery of private information. Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies….To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to … other considerations … they are disapproved.” 2017 WL 2980258, at *14.

Applying this logic, the Court rejected several factors which the Court of Appeal had deemed important, including the fear of retaliation on the part of Williams’ fellow employees: “[to the extent real, this] cuts the other way, in favor of facilitating collective actions so that individual employees need not run the risk of individual suits.” 2017 WL 2980258, at *15. Nor, according to the Court, was it necessary for Williams to demonstrate the existence of any illegal uniform companywide policy as an element of “compelling need.” That “may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action, where recovery on behalf of the state and aggrieved employees may be had for each violation, whether pursuant to a uniform policy or not.” Id.

PAGA lawsuits are inherently difficult to defend, and the decision in Williams makes the task that much more difficult. While the sorts of objections which Marshalls raised are not absolutely foreclosed, employers in the future will have to advance far more compelling arguments and evidence to sustain those positions and avoid workforce- wide discovery.

Posted on Wednesday, December 21 2016 at 4:59 am by
Recent Orders in Two California Class Actions Highlight the Need for a Well-Crafted Discovery Strategy

Recent Orders in Two California Class Actions Highlight the Need for a Well-Crafted Discovery Strategy by Nancy Stagg

Recent decisions in two federal consumer class actions in California show how the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes 564 U.S. 338 (2011) is a double-edged sword for class action defendants. While Wal-Mart is routinely heralded as a victory for class action defendants – because it finally put teeth into Rule 23’s commonality requirement – the case poses a different reality for class action defendants in the discovery trenches. Just as often, Wal-Mart is cited by plaintiffs’ counsel to justify broad, merits-based discovery requests to defendants pre-certification. In our experience, the key to handling overly-broad discovery requests is to first seek to limit the scope of those requests, particularly where a production involves too much effort and expense. If that fails, a defendant should utilize the information and documents produced to defeat class certification. These two recent class actions illustrate this point.

In the first case, In re Coca-Cola Prods. Mktg. and Sales Practices Litig., Case No. 14-md-2555-JSW 2016 WL 6245899 (N.D. Cal. Oct. 26, 2016), Magistrate Judge Maria-Elena James ordered the defendants in a food-additive mislabeling action to produce three broad categories of documents pre-certification, finding that “the line between merits and class certification discovery is not always bright,”… “because discovery going to the merits of a plaintiff’s claim also often has ‘significant bearing on issues such as predominance and commonality under Rule 23.’” (citing Lindell v. Synthes U.S.A., 2013 WL 3146806 at *6 (E.D. Cal. June 18, 2013)). Among other requests, the court ordered the defendants to produce all of their communications with the FDA and other governmental agencies regarding the legality of defendants’ labeling regarding phosphoric acid. Defendants argued that these documents did not go to consumers’ decision-making and therefore were irrelevant to class certification. The court disagreed and found that if government entities warned defendants their labeling was misleading, such evidence would be “useful common proof to determine what consumers were likely to understand.” The court did, however, limit production in response to two other broad requests, including internal market share data and communications between the defendants and their marketing and advertising consultants. Finding those pre-certification discovery requests as too broad and imposing a burden “not proportional to the needs of the case,” the court declined to require defendants to produce all of the requested documents. Instead, the court ordered the parties to meet and confer, “tailoring and narrowing the production” to exclude any irrelevant and unhelpful materials and lessen Defendants’ burden.” While probably not as much relief as the defendants and their counsel hoped for, the court appeared sensitive to arguments regarding proportionality and burden, especially in the pre-certification context.

In the second case, In Re MyFord Touch Consumer Litigation, Case No. 13-cv-03072-EMC (N.D. Cal. November 22, 2016), the defendants put to good use what had clearly been extensive pre-certification discovery to thwart the plaintiffs’ effort to certify a class. There, plaintiffs alleged that defendants’ in-car communication and entertainment system (“MFT”) was defective and that the defendants had made false and misleading statements to consumers in numerous states, either by mispresenting, or entirely omitting, key information about the system.

In an order by U.S. District Court Judge Edward Chen, which denied plaintiffs’ motion for reconsideration (seeking to certify additional classes) and granted defendants’ motion for reconsideration (to decertify certain classes), the court ruled that plaintiffs were not entitled to a class-wide presumption of reliance on Ford’s alleged misrepresentations and omissions. Instead, the court found that the information produced by Ford in discovery showed that information about the MFT system’s problems was widely available to the public almost as soon as the system was released, including news reports, consumer surveys, and Ford’s public statements. The district court also pointed to Ford’s evidence that the MFT software was updated several times during the class period to address the problems, including three years’ worth of internal communications about the MFT system. Given the evolving nature of the MFT software, the district court found there was too much variability in the material facts throughout the class period to permit a class-wide inference with respect to Ford’s state of mind about the alleged MFT defects. As a result, the district court ruled that all of the plaintiffs’ fraud-based claims requiring a showing of reliance could not be certified due to “predominance and manageability” concerns. This order shows how a class defendant can take advantage of extensive pre-certification discovery to defeat class certification.

Today’s lesson? Try to limit pre-certification discovery at the outset on proportionality and burden grounds. But if that’s not possible, and the discovery is ordered to be produced, be ready to pivot and use that same discovery to attack class certification by showing that common issues do not predominate, and that plaintiffs are not entitled to a class-wide presumption of reliance.

If you want more information, contact Nancy Stagg at nstagg@kilpatricktownsend.com.

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