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Class Defense Blog Cutting-Edge Issues in Class Action Law and Policy

Do Class Counsel Owe Fiduciary Duties to Absent Class Members Before Class Certification (and Should Defendants Care)?

Posted in Adequacy, Class Action Trends, Class Certification

According to an interesting student note that will soon be published in the Stanford Law Review, the answer to both questions is “yes.” Specifically, the would-be class counsel must “protect[] the substantive legal rights of putative class members . . . from prejudice” “resulting from the actions of class counsel.”

The implications for defendants opposing class certification are significant: If the plaintiff’s lawyers have prejudiced the rights of absent class members, then they have demonstrated that they will not “fairly and adequate protect the interests of the class,” as required by Federal Rule of Civil Procedure 23(a)(4). And that means that a class can’t be certified—at least not with those lawyers at the helm. Here are three common ways in which plaintiff’s lawyers exalt their own interests over those of the absent class members:

  • Stipulations to limit the class recovery. Because the Class Action Fairness Act permits removal of class actions in which the amount in controversy exceeds $5,000,000, some plaintiffs’ lawyers have been trying to stipulate that the class recovery would be less than that amount in an attempt to evade removal. The Supreme Court will determine whether these stipulations actually do eliminate jurisdiction later this term in Standard Fire Insurance Co. v. Knowles. But regardless of the effect on federal jurisdiction, placing an artificial cap on the recovery of absent class members would appear to be a textbook violation of the lawyer’s fiduciary duties to the putative class.
  • Forgoing claims for punitive damages. Either as a means of reducing the amount in controversy to dodge removal under CAFA or in an effort to prevent individualized issues of law from swamping common issues, plaintiffs’ lawyers sometimes forswear punitive damages even when the cause of action they allege would otherwise support such damages. Because a legitimate punitive damages claim could (in theory) increase an individual’s recovery several fold, plaintiffs’ lawyers who eschew such a claim in an effort to satisfy the criteria for class certification (or remain in state court) have created an irreconcilable conflict with their own clients.
  • Jettisoning individualized claims. To try to tilt the playing field towards class certification with respect to some claims, plaintiffs’ lawyers often abandon other claims arising out of the same facts that are rife with individualized issues. For example, the complaint might seek restitution for the purchase price of an allegedly defective product under a false-advertising theory, but leave out claims for much greater damages from the resulting personal injuries or property damage that some absent class members would have experienced, because those latter claims involve individualized issues of causation. Yet if the low-value restitution claims are allowed to proceed on a class-wide basis, the doctrine of res judicata and prohibitions against claims splitting would bar absent class members from pursuing high-value claims personal-injury or property-damage claims in individual actions. Similarly, a plaintiffs’ lawyer might forgo pleading a common-law or statutory fraud claim because of the individualized issues that such a claim often entails and instead proceed only on a breach-of-contract claim even though the remedies for the former are broader than those for the latter.

Defendants in class actions should remain vigilant for these and other similar gambits. By attempting to increase the chances of class certification, putative class counsel may—ironically—supply the grounds for rejecting the very outcome they seek.