Pre-Certification Communications with Putative Class Members March 25, 2017

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1 American Bar Association Section of Labor and Employment Law: 2017 Midwinter Meeting of the Ethics and Professional Responsibility Committee Introduction Pre-Certification Communications with Putative Class Members March 25, 2017 By Steven W. Moore and LaLonnie Gray 1 Employment-related Federal Rule of Civil Procedure 23 class and 29 U.S.C. 216(b) collective actions are high-stakes litigation for employees and employers alike. In addition to involving hundreds, if not thousands, of class members, they also present unique and expensive challenges in discovery and in the development of evidence. Additionally, these cases present many ethical traps for the unwary practitioner, particularly with respect to communications that counsel for either side may have with putative class members in the pre-certification stage. While the attorney-client relationship is clear in a single-plaintiff action and in an action that is certified as a class action, there is great ambiguity and important consequences with respect to whether class counsel or defense counsel may communicate with putative class members prior to class certification. Because class and collective actions in the employment realm continue to increase dramatically year over year, 1 it is important for attorneys to understand the ethical requirements set forth by the Model Rules of Professional Conduct promulgated by the American Bar Association regarding communicating with putative class members. This article provides an analysis of Rule 23 and the ABA Model Rules of Professional Conduct regarding communications 1 Steven Moore is a partner with Constangy, Brooks, Smith & Prophete LLP and is co-chair of the firm s Class Action Litigation Practice Group. Splitting his time between Denver, Los Angeles, and San Francisco, Steve is a national litigator and devotes his practice exclusively to the representation of employers in a wide range of labor and employment disputes, including discrimination and wage and hour cases. smoore@constangy.com LaLonnie Gray is an associate in the Denver office of Constangy Brooks Smith & Prophete, a preeminent boutique firm for labor and employment law in the United States. She helps employers navigate the prickly legal and regulatory environments of the changing workplace. lgray@constangy.com

2 with putative class members before a federal court certifies the action as a class action. Additionally, the article sets forth relevant case law examples and offers comparisons between Rule 23 and Section 216(b) actions when communicating with putative class members. Class Actions When a complaint for a class action is filed, it must comply with Federal Rule of Civil Procedure 23. The complaint must demonstrate the prerequisites of Rule 23(a): (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Additionally, to comply with Rule 23(b), purported class counsel must identify the type of class action: (1) that the class action would avoid inconsistent or varying adjudications with respect to either individual class members or the disposition of the interests of nonparties; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, thus, final injunctive relief is appropriate respecting the class as a whole; or (3) the questions of law or fact common to class members predominate over any questions affecting only individual members, and a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. In a typical Federal Rule 23 employment-related class action, the battle is often won or lost at the class-certification stage. Under Rule 23(c) a district court is directed to determine as soon as practicable after the commencement of a class action whether the class action is to be so maintained, i.e., whether the class should be certified. As a result, at the beginning of a Rule 23 case, both sides typically engage in a flurry of activity to gather evidence to either support or oppose class certification, which inevitably involves communicating with putative class members. 2

3 For example, it may be advantageous for purported class counsel to communicate with putative class members because they must assess the merits of the claims alleged, which includes interviewing and gathering relevant evidence; or counsel may wish to discuss the possibility of representation with putative class members. Contrastingly, defense counsel may wish to obtain declarations or affidavits from putative class members to support their defense and possibly discuss settlement. Despite the potential benefit to both sides in communicating with putative class members, attorneys must adhere to ethical rules and case law decisions governing communications with this peculiar group of potential class members. Attorney Communications with Putative Class Members: Relevant Case Law The determination as to whether a putative class member becomes an actual class member is not resolved until the court rules on a motion for class certification and the opt-out period expires. Thus, before certification is granted, the status of putative class members is uncertain. 2 Perhaps because the stakes are so high, counsel may be quick to cast aspersions regarding communications with putative class members before class certification. When parties file motions regarding such communications, courts often resolve the issues through their general authority to control counsels communications with putative class members. 3 In fact, several courts have recognized that a limitation on pre-certification communications is appropriate when misleading, coercive, or improper communications have taken place. 4 One case, in particular, provides an example of the actions courts may take when the parties communicate with putative class members prior to certification. In Quezada v. Schneider Logistics Transloading & Distribution, plaintiffs filed a class action alleging, among other things, violation of California overtime provisions, and full and timely wage provisions. 5 The matter before the court was plaintiffs motion to limit 3

4 communications between defendant and potential class members. 6 Defendant had obtained 106 sworn declarations from its employees, the potential class members in the case, regarding the conduct alleged in plaintiffs complaint. 7 The declarations were obtained in a series of interviews defendant conducted with its employees. 8 The meetings were held in a manager s office during work hours, and the employees were ordered to report to the interviews. 9 At the conclusion of the interview, the employees were asked to sign a declaration. 10 Defense counsel who met with each of the employees failed to inform the putative class members that the declaration was a sworn statement that could be used in plaintiffs lawsuit to limit the employees potential recovery. 11 Some employees felt that they were being pressured into signing the declarations, and in total, only six employees declined to sign the declarations. 12 Plaintiffs argued that the manner in which defendant obtained the declarations was coercive and unethical. 13 The court agreed, holding that it would disregard the 106 declarations should defendant attempt to use them, for any reason. 14 The court further ordered that defendant and its agents could not communicate with putative class members regarding the lawsuit without first obtaining written permission from the court. 15 Additionally, the court issued a curative notice to potential class members explaining that any declarations they signed would not be considered by the court, and that the defendant could not retaliate against them for cooperating with plaintiffs counsel or in the lawsuit. 16 In order to avoid the outcome in the Quezada case, counsel would be well advised to have an employee sign, before an interview is conducted, a written statement similar to the Johnnie Poultry 17 statements that originated in the context of traditional labor law. The written statement should advise the employee that the interview is voluntary; there will be no retaliation or benefit whether the employee participates in the interview; and that any declaration or affidavit signed could be used by the employer to oppose certification or otherwise limit the employee s potential 4

5 for recovery. Additionally, if there are language barriers with the employee, counsel should retain an interpreter to assist with the interviews. If an employee refuses to be interviewed, counsel must respect that decision and not go forward with the interview. In sum, when absent class members and defendant are in an employer-employee relationship, there may be a heightened potential for coercion. However, an employer-defendant has a right to investigate and seek settlement as long as its actions and communications are not misleading, coercive, or improper. Further, in addition to staying informed on relevant case law, both plaintiffs and defense counsel must know the applicable rules of professional conduct governing communications with putative class members. ABA Ethics Opinion and Model Rules of Professional Conduct The American Bar Association, in Formal Opinion , addresses the parameters within which both plaintiffs and defense counsel may ethically communicate with persons who may become class members. 18 According to the ABA, [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. 19 This is so because Rule 4.2 of the ABA Model Rules of Professional Conduct prohibits a lawyer from communicating about the subject of representation with a person the lawyer knows another lawyer in the matter represents. 20 In class litigation, however, the ABA explains, [a] client-lawyer relationship with a potential member of the class does not begin until the class has been certified and the time for opting out by a potential member of the class has expired. 21 In other words, putative class members are not represented parties within the meaning of Model Rule 4.2 before the class is certified and the opt-out period expires. 5

6 The ABA Formal Opinion further explains that [b]oth plaintiffs counsel and defense counsel have legitimate need to reach out to potential class members regarding the facts that are the subject of the potential class action, including information that may be relevant to whether or not a class should be certified. 22 Thus, counsel for either side may communicate with putative class members in an effort to gather evidence to either support or oppose certification. However, lawyers communicating with class members must still comply with Model Rule 4.3, which requires both sides to refrain from giving legal advice other than advice to retain counsel, if warranted. 23 Further, if the plaintiff s counsel s intent in communicating with a putative class member is to represent that person as a named plaintiff, adherence to Model Rule 7.3 is required. This rule provides that a lawyer shall not by in-person, live telephone or real-time electronic contact solicit professional employment when a significant motive for the lawyer s doing so is the lawyer s pecuniary gain unless the person contacted is a lawyer or has a close personal or prior professional relationship with the lawyer. 24 Rule 7.3(c) states that any permissible communication must include the words Advertising Material on the outside of the envelope or at the beginning or ending of any recorded or electronic communication. 25 Thus, while both plaintiff and defense counsel may communicate with the putative class members for investigation purposes, they may not offer legal advice or solicit professional employment. These rules are relevant in the collective action setting as well. Collective Actions While Formal Opinion is very helpful in the traditional Rule 23 context of class litigation, the opinion does not specifically address ethical issues in the context of the collective action mechanism. In recent times, collective actions under the Fair Labor Standards Act have 6

7 been one of the fastest-growing areas of representational litigation, far outpacing Title VII class actions in terms of case filings. Collective actions, however, do not follow the traditional certification paradigm of Rule 23 and its opt-out procedures under Rule 23(b)(3). Instead, in a collective action a lawsuit brought by a group of individuals who are similarly situated to a lead plaintiff employees must file a written consent with the court to opt-in to the collective action. 26 If employees do not opt-in with the court, they are not bound by the outcome of the FLSA collective action and may bring a subsequent private action. 27 Contrastingly, in a Rule 23 class action, each person who falls within the definition of a class member is bound by the judgment, whether favorable or not, unless the case is under Rule 23(b)(3) and the person has opted out. Similar to the parties to a Rule 23 class action, parties to a collective action are also focused on gathering evidence from putative class members for class certification. This may involve obtaining declarations and affidavits. Indeed, courts have often addressed issues concerning communications with putative class members in the context of Section 216(b) collective actions under their general authority to regulate the notice process and to address misleading or coercive communications to putative class members. 28 As a result, there is a dearth of case law on these issues in the context of professional conduct rules. Further, while some of the same guiding principles supporting the rationale of ABA Formal Opinion would apply to collective action litigation, there are some significant differences. As in Rule 23 class litigation, both plaintiffs and defense counsel should be able to communicate with potential class members before a Section 216(b) case is conditionally certified for purposes of fact-gathering related to the merits or certification of the case. However, once a collective action is conditionally certified, class counsel would not presumptively represent each putative class member because Section 216(b) requires class members to affirmatively opt into the action. 7

8 If an employee has decided not to opt into a conditionally certified collective action after receiving notice of the conditional certification and the opt-in period has expired, it logically follows that defense counsel would be free to communicate with that employee for purposes of fact gathering. This is significantly different from the situation in which a court has certified a class under Rule 23. Conclusion While, in general, neither defense nor plaintiffs counsel are barred from precertification communications with prospective members of the plaintiff class, to ensure effective representation, both parties in class and collective actions must abide by the Rules of Professional Responsibility and stay abreast of case law concerning communicating with putative class members. In particular, defense counsel s communications to putative class members must not be misleading, coercive, or improper, or counsel risks unfavorable action by the court. Similarly, Plaintiffs counsel must not solicit professional employment from the putative class as it may give rise to malpractice liability or conflict-out class counsel from representing plaintiffs with adverse interests in subsequent proceedings. Both plaintiffs and defense counsel may not offer legal advice to the putative class. It is recommended that counsel discuss these limitations and consequences prior to any communications with putative class members. 8

9 1 Data released Tuesday by the Administrative Office of the U.S. Courts said 8,160 Fair Labor Standards Acts cases were launched in the 12 months ending Sept. 30 [2015], an 8.8 percent increase from the 7,500 FLSA cases filed during the previous 12 months. The 8,160 figure may be an all-time high for FLSA filings. Ben James, FLSA, FMLA Lawsuits Soaring New Statistics Show, LAW 360 (March 11, 2015), available at 2 Some courts have suggested that an attorney-client relationship forms upon certification of the class, or even prior thereto, such that defense counsel is ethically precluded from contacting absent class members. See e.g., Walney v. Swepi LP, No. 13-cv-102, 2017 WL , at *12 (W.D. Pa. Jan. 23, 2017) (citing collection of cases); Good v. W. Virginia-Am. Water Co., No. 14-cv-01374, 2016 WL , at *2 (S.D.W. Va. Oct. 26, 2016) ( Following certification of a class action, an attorney-client relationship arises between all members of the class and class counsel. ) (quoting Fulco v. Cont l Cablevision, Inc., 789 F. Supp. 45, 47 (D. Mass. 1992)); Gortat v. Capala Bros., Inc., No. 07-cv-3629, 2010 WL , at *2 (E.D.N.Y. May 10, 2010) ( A number of courts have held that this relationship arises once the class has been certified and not only at the end of the opt-out phase. ) (citing collection of cases). Contrastingly, other courts and the ABA have expressed the view that the attorney-client relationship is not formed until expiration of the opt-out period. See e.g., In re Katrina Canal Breaches Consol. Litig., No. 05-cv-4182, 2008 WL , at *3 (E.D. La. Sept. 22, 2008) ( A client-lawyer relationship with a potential member of the class does not begin until the class has been certified and the time for opting out by a potential member of the class has expired. ) (quoting ABA Committee on Ethics & Prof l Responsibility, Formal Op , at 3 (2007)); The Kay Co., LLC v. Equitable Prod. Co., 246 F.R.D. 260, 264 (S.D. W. Va. 2007) (quoting ABA Formal Opinion ). 3 See, e.g., Gulf Oil v. Bernard, 452 U.S. 89, 100 (1981) ( Because of the potential for abuse, 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. ); see also Fed. R. Civ. P. 23(d) (allowing a district court to issue orders that impose conditions on the representative parties... [or] deal with similar procedural matters. ). 4 See e.g., Gulf Oil, 452 U.S. at ; Longcrier v. HL A Co., Inc., 595 F. Supp. 2d 1218, 1227 (S.D. Ala. 2008) ( Federal courts have routinely exercised their discretion to restrict communications in class actions, in both the Rule 23 and 216(b) settings, where a party has engaged in misleading or coercive behavior with respect to prospective class members. ); Maddock v. KB Homes, Inc., 248 F.R.D. 229, 236 (C.D. Cal. 2007) ( Courts have limited pre-certification communications with potential class members after misleading, coercive, or improper communications were made. ) (quoting Mevorah v. Wells Fargo Home Mortg., Inc., No. 05 cv-1175, 2005 WL (N.D. Cal. Nov. 17, 2005)). 5 No. 12-cv-2188, 2013 WL (C.D. Cal. Mar. 25, 2013). 6 at * at *2. 9

10 at * Johnnie s Poultry Co., 146 NLRB 770 (1964). 18 ABA Committee on Ethics & Prof l Responsibility, Formal Op (2007). 19 at MODEL RULES OF PROF L CONDUCT R ABA Committee on Ethics & Prof l Responsibility, Formal Op , at 3 (2007). 22 at MODEL RULES OF PROF L CONDUCT R MODEL RULES OF PROF L CONDUCT R U.S.C. 216(b) See, e.g., Mendez v. Enecon Ne. Applied Polymer Sys., Inc., No. 14-cv-6736, 2015 WL , at *1 (E.D.N.Y. July 13, 2015) ( Courts have the authority in both Rule 23 class actions and FLSA collective actions (29 U.S.C. 216(b)) to enter appropriate orders governing the conduct of counsel and parties. ); McKnight v. D. Houston, Inc., No. 09-cv-3345, 2010 WL , at *2 (S.D. Tex. Dec. 8, 2010) (applying the Gulf Oil standard to FLSA collective action); Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 668 (E.D. Tex. 2003) ( As in Rule 23 class actions, courts have the authority to govern the conduct of counsel and parties in 216(b) collective actions. ). 10