Class action counsel must be as diligent reviewing potential conflicts as their defense counterparts

Defense counsel are well acquainted with the concept of conflicts checks at the outset of a matter.  Most defense firms with more than a handful of attorneys have electronic systems in place that track all past representations for the purposes of assessing potential conflicts when a matter is first offered to a firm.  Plaintiff-side practitioners, at least in my observations, are less rigorous about conflict checks, due, in part, to the infrequency with which conflicts arise in a predominantly plaintiff-side practice.  While the infrequency of conflicts allows for laxity without consequence in most cases, when conflicts do surface, the results can be painful.

For example, in Baas, et al. v. Dollar Tree Stores, Inc., (N.D. Cal. Case No. 07-03108 JSW), plaintiffs' counsel undertook to represent two hourly employees in a putative class actions against Dollar Tree Stores, Inc. (“Dollar Tree”), contending that Dollar Tree altered the time records of its employees and, thus, failed to compensate employees for all of the time that they actually worked.  Plaintiffs moved for class certification.  The Court denied the motion on the sole ground that a conflict of interest by counsel prevented them from adequately representing the class.

Rule 23(a)(4) requires that "the representative parties will fairly and adequately protect the interests of the class."  (Fed. R. Civ. P. 23(a)(4).)  Adequacy of representation is a two-part analysis, which asks "(1) Do the representative plaintiffs and their counsel have any conflicts of interest with other class members, and (2) will the representative plaintiffs and their counsel prosecute the action vigorously on behalf of the class?"  (Staton v. Boeing Co. (9th Cir. 2003) 327 F.3d 938, 957.)  In Baas v. Dollar Tree, the first question was answered "yes," leading the Court to conclude in its April 1, 2008 Order that counsel could not adequately represent their clients.  The Court explained the source of the conflict:

Dollar Tree argues that Plaintiffs’ counsel’s representation of John Hansen (“Hansen”), the manager of the store in which named Plaintiffs Baas and Lofquist used to work, in another lawsuit against Dollar Tree creates a conflict of interest. “The responsibility of class counsel to absent class members whose control over their attorneys is limited does not permit even the appearance of divided loyalties of counsel.” Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1465 (9th Cir. 1995) (quoting Sullivan v. Chase Inv. Serv. of Boston, Inc., 79 F.R.D. 246, 258 (N.D. Cal. 1978)). As the court explained in Kayes, “[t]he ‘appearance’ of divided loyalties refers to differing and potentially conflicting interests and is not limited to instances manifesting such conflict.” Id.

(Opinion, at p. 3.)  After setting forth various rules of professional conduct, the Court explained where the conflicts could materialize in the dual representations:

Here, Plaintiffs’ counsel’s client Hansen is a witness in this matter. Lofquist testified in her deposition that Hansen was aware that she worked off the clock in his presence and that Hansen encouraged her to do so. (Declaration of Beth Hirsch (“Hirsch Decl.”), Ex. F at 247:4-248:17. Hansen testified that Lofquist was paid for the time she worked and that he never asked anyone to come in and work off the clock. (Hirsch Decl., Ex. D at 547:23-548:16). He further testified that he knew it was against Dollar Tree’s policy to misrepresent the time employees worked or took breaks. (Id. at 648:13-17). To reconcile the testimony of Hansen and Lofquist, Plaintiffs’ counsel will either need to portray Hansen as a liar or as a manager who knowingly violated his company’s policies. Plaintiffs counter that Plaintiffs’ and Hansen’s claims and class actions are distinct and do not conflict with one another. Plaintiffs further argue that because Hansen is merely involved as a witness in this matter, he is not placed in any jeopardy of being liable. Plaintiffs thus focus on the existence or absence of any conflicts between the two cases and fail to address the duty of loyalty Plaintiffs’ counsel owe to all their clients.

From the testimony in the record, it appears as Plaintiffs’ counsel will either have to cross-examine Hansen and impeach his credibility, or “soft-pedal” their examination of Hansen to the detriment of their representation of the class members in this action. Even if this conflict of interest could be waived, Plaintiffs’ counsel would need to obtain waivers from every class member, which, as a practical matter, they cannot do from the absent class members. Therefore, the Court concludes that Plaintiffs have not demonstrated their counsel would adequately represent the class as required by Rule 23(a)(4). Failure to satisfy any one of Rule 23’s requirement precludes class certification. Rutledge v. Electric Hose & Rubber, Co., 511 F.2d 668, 673 (9th Cir. 1975); see also Sipper v. Capital One Bank, 2002 WL 398769, *4 (C.D.Cal. Feb. 28, 2002) (denying motion for class certification based on plaintiffs’ counsel’s conflict of interest). Accordingly, the Court denies Plaintiffs’ motion for class certification.

(Opinion, at p. 5.)  In a nutshell, plaintiffs' counsel reached one rung too far and were cut off at the knees for it.  Had they fully explored the potential for conflict at the outset of the second case, they may have concluded that a referral of the case to another firm was the better course of action.

The full opinion is included below:

Read this document on Scribd: 2008-04-01 Order Dollar Tree

Here is a link to the Order for visitors without flash:  April 1, 2008 Order Denying Certification.

UPDATE:  A reader informs me that the widget is not functioning correctly.  I've had some problems with it myself in getting this post up.  It is possible that the pdf file contains some sort of error.  If I can't get it fixed, I may have to see if iPaper works any better with this file.

UPDATE 2:  It appears that is experiencing some problem today.  I am presenting the Order through Scribd.