KT Class Action Blog

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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, May 12 2017 at 2:02 pm by
D.C. District Court Upholds FTC Staff’s Decision To Reverse Course On Soundboard Telemarketing Technology

by Mike Breslin

Not all automated voices are created the same. At least that is what the FTC staff had signaled to the telemarketing industry in a September 2009 opinion letter stating that telemarketing calls using “Soundboard” technology were not subject to the 2008 amendments to the Telemarketing Sales Rule (TSR), 16 CFR § 310.4(b)(1)(v), also known as the “Robocall Rule.” Among other things, the Robocall Rule prohibits the use of pre­recorded messages on telemarketing calls unless the recipients had agreed in writing to receive them.

Traditional robocalls, which are subject to the Rule, play a one-way message with no live sales agent or other human interaction. Soundboard technology, on the other hand, involves a form of two-way communication in which a sales agent selectively plays pre-recorded messages in response to the consumer’s verbal statements. The sales agent can also choose to intervene and speak directly with the consumer. Thus, if a consumer asks for more information about the product, the sales agent may play a pre-recorded message addressing that subject or choose to speak to the consumer directly. So while Soundboard still uses pre-recorded audio, there is a degree of human interaction. Think of it as somewhere between an entirely pre-recorded sales call and an actual live conversation.

Because the Robocall Rule requires the consumer’s written consent and imposes several other restrictions on using pre-recorded sales messages, it rendered marketing via traditional pre­recorded sales calls prohibitively expensive. Shortly after the Rule went into effect, and in response to inquiry from telemarketers using Soundboard technology, the FTC staff’s September 2009 letter stated the Robocall Rule would not apply to Soundboard technology since it involves a live sales agent who controls the content and continuity of what is said in response to the consumer’s statements.

So users of Soundboard telemarketing were able to breathe a sigh of relief. At least until seven years later, when the FTC changed its mind.

Following the September 2009 letter, the FTC saw increasing consumer complaints that Soundboard calls were not playing appropriate responses to consumers’ questions, that live sales agents were not intervening, and that sales agents were handling more than one call at a time. This undercut the FTC staff’s rationale behind its September 2009 letter. Following further investigation, the FTC staff announced in a November 10, 2016 letter that it was revoking its prior opinion and now considered Soundboard technology subject to the Robocall Rule. The FTC staff’s main rationale was that Soundboard calls do, in fact, use pre-recorded messages and are therefore subject to the Rule. However, the staff left no doubt that “the increasing volume of consumer complaints, and the abuses we have seen since we issued the September 2009 letter” were a driving force behind the reversal. The 2016 letter gave the telemarketing industry six months to adjust, stating the new opinion would become effective on May 12, 2017.

On January 23, 2017, the Soundboard Association filed suit in the U.S. District Court for the District of Columbia to challenge the 2016 letter opinion, styled Soundboard Association v. U.S. Federal Trade Commission, No. 17-cv-00150 (APM) (D.D.C.). The complaint first alleged the 2016 opinion was a “legislative rule” that, under the Administrative Procedures Act, the FTC was required to promulgate through notice and comment, which it did not do. The complaint also alleged the 2016 opinion effects a content-based speech restriction in violation of the First Amendment, because the Robocall Rule (to which Soundboard calls are now subject) applies to solicitations for charitable contributions directed to first-time donors, but expressly excludes such solicitations made to people who previously donated to, or are members of, the charity in question. See 16 CFR § 310.4(b)(1)(v)(B). According to the Soundboard Association, that carve-out improperly restricts speech based on what the caller says during the call – namely, whether the caller requests a first-time charitable donation or a repeated donation.

In an April 24, 2017 opinion, the district court rejected both arguments, granted the FTC’s motion for summary judgment, and denied the Soundboard Association’s cross-motion for summary judgment. The court first explained that the 2016 opinion is not a legislative rule that must be promulgated through notice and comment because it does not supplement or effect a substantive change in the Robocall Rule. Instead, the court held the 2016 opinion is an “interpretive rule” because it only communicates the FTC staff’s interpretation, based on new evidence, that Soundboard technology falls within the Rule’s existing restrictions on pre­recorded messages. The district court described the nature of the FTC staff’s conclusion – that an existing regulation now applies to a particular form of telemarketing technology as currently used by the industry – as a “quintessential interpretive rule” which does not require notice and comment. Soundboard Association v. FTC, 2017 WL 1476116, at *11 (D.D.C. Apr. 24, 2017), appeal docketed, No. 17-5093 (D.C. Cir. Apr. 28, 2017).

The court then held the Robocall Rule’s carve-out for charitable solicitations to prior donors or current members does not create a content-based speech restriction. Instead, the restriction is content-neutral because it turns on who the recipient is – a first-time donor or a prior donor – not what is said. Id. at *13-14.

The Soundboard Association has appealed the district court’s decision to the D.C. Circuit. Stay tuned to the KTS Class Action Blog for updates on where this issue comes out.

Takeaway: For the time being, telemarketers using Soundboard technology have until May 12, 2017 to ensure they comply with the TSR’s provisions (16 CFR § 310 et seq.) applicable to the use of pre-recorded messages. Companies using this technology should carefully review the TSR, stay apprised of developments in the Soundboard Association’s appeal, and seek legal advice regarding any compliance questions.


Posted on Friday, January 27 2017 at 1:09 pm by
What to Make of the Third and Seventh Circuit Dueling Spokeo Rulings in Recent Privacy Breach Class Actions

What to Make of the Third and Seventh Circuit Dueling Spokeo Rulings in Recent Privacy Breach Class Actions by Joe Dowdy and Phillip Harris

Spokeo-based challenges are now common in class actions alleging statutory violations. But disagreements remain concerning when Spokeo mandates dismissal for lack of Article III standing. Last week, two different federal appellate courts reached seemingly different conclusions about whether lower courts properly dismissed putative privacy breach class actions for failure to satisfy Article III’s concrete injury requirement. In re: Horizon Healthcare Services Inc. Data Breach Litigation, No. 15-2309, 2017 WL 242554 (3d Cir. Jan. 20, 2017) (“Horizon”) (reversing dismissal); Gubala v. Time Warner Cable, Inc., No. 16-2613, 2017 WL 243343 (7th Cir. Jan 20, 2017) (“Gubala”) (affirming dismissal). Considered together, however, these decisions clarify when standing exists in a data breach case.

In Horizon, the named plaintiffs asserted Fair Credit Reporting Act (FCRA) claims based on allegations that their insurance carrier failed to maintain the confidentiality of their personal information, given that two of the insurer’s laptops housing their unencrypted customer data had been stolen. Rejecting a Spokeo-based challenge, the Third Circuit held:

In light of the congressional decision to create a remedy for the unauthorized transfer of personal information, a violation of FCRA gives rise to an injury sufficient for Article III standing purposes. Even without evidence that the Plaintiffs’ information was in fact used improperly, the alleged disclosure of their personal information created a de facto injury.

According to the majority, “Spokeo itself does not state that it is redefining the injury-in-fact requirement. Instead, it reemphasizes that Congress ‘has the power to define injuries.’” The Third Circuit concluded that Spokeo did not require dismissal because Congress exercised the power to define injury “with the passage of FCRA” to “establish[] that the unauthorized dissemination of personal information by a credit reporting agency causes an injury in and of itself – whether or not the disclosure of that information increased the risk of identity theft or some other future harm.”

In Gubala, the named plaintiff asserted that his former cable provider (Time Warner) violated the Cable Communications Policy Act (CCPA) because Time Warner failed to destroy but continued to store his personal information long after he had cancelled his subscription. In an opinion authored by Judge Posner, the Seventh Circuit held that although retaining the data was an apparent but “not certain” violation of the CCPA, the plaintiff lacked standing because he asserted only that “the retention of the information, on its own, has somehow violated a privacy right or entailed a financial loss.” (The panel left unaddressed whether standing might exist if a plaintiff alleged fear that his personal information “might have been stolen from [the company] or sold or given away by it, and if so the recipient or recipients of the information might be using it, or planning to use it, in a way that would harm him.”)

According to the Seventh Circuit, the case failed under Spokeo because “while the [plaintiff] might well be able to prove a [statutory] violation . . . , he ha[d] not alleged any plausible (even if attenuated) risk of harm to himself from such a violation – any risk substantial enough to be deemed ‘concrete.’” The Seventh Circuit declined to find a concrete injury based on plaintiff’s right to privacy because he failed to allege an actual or threatened release or dissemination of his personal information.

Takeaway: Read together, Horizon and Gubala show that the mere retention of a consumer’s private information is insufficient to confer standing, but that the actual or imminent dissemination of that information likely does confer standing.

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