Case: Sharp v. Next Entertainment, Inc., 2008 WL 2191209 (June 3, 2008)
Resolving an issue not directly addressed by the California Rules of Professional Conduct or previous California case law, the Second District, Division 3, of the California Court of Appeal held that the named plaintiffs in a class action could provide adequate conflict waivers and informed written consent to representation by counsel. Counsel was not required to obtain consent from all putative class members at the pre-certification stage.
This appeal arose out of the denial of a motion to disqualify the law firm of Rothner, Segall & Greenstone. The motion was brought by entity defendants in two related class actions that alleged wage and labor violations involving reality television employees. Defendants claimed that plaintiffs’ counsel had disqualifying conflicts because counsel was concurrently representing, and had previously represented, a labor organization, the Writers Guild of America (the “Guild”), in other matters. The Guild organizes writers of film, television, and other media, in connection with labor and employment issues.
The class action lawsuits arose out of meetings held by the Guild. Several class representatives attended the meetings before agreeing to serve as named plaintiffs in the class action lawsuits. The Guild funded the lawsuits and made statements suggesting that its principal interest in the litigation was to organize workers and facilitate unionizing activities. One of the lawyers who participated in the meetings and advised the Guild with respect to possible litigation, Anthony Segall, was a member of the Rothner firm and had represented the Guild on a variety of other matters. Another Rothner lawyer, Emma Leheny, also attended the meetings. A few months after the filing of the lawsuits, Mr. Segall accepted a position as General Counsel for the Guild while continuing as a partner with the Rothner firm. Mr. Segall’s position with the Guild included overseeing various legal matters, including advising the Guild with respect to its unionizing activities.
Defendants claimed that the Guild’s interest in the lawsuits, which centered on its organizing efforts, was actually and potentially in conflict with the primary goal of the putative classes, which was to maximize monetary recovery for wages and hours earned but unpaid. At the time of retaining the Rothner firm, each of the 21 named plaintiffs signed a conflict waiver acknowledging that the Guild would subsidize the attorneys’ fees for the two class actions, and that the firm represented the Guild in other matters.
During discovery, the Guild’s Director testified that the Rothner firm was not required to obtain, nor had it obtained, approval from the Guild before it performed any task in the class actions. Following deposition, the Director also signed a declaration stating his understanding that litigation decisions were to be made by the plaintiffs and their counsel, not by the Guild. The Guild signed a conflict waiver acknowledging that it would not interfere with the independent professional judgment of plaintiffs’ counsel and further memorializing the fact that plaintiffs, not the Guild, controlled the litigation.
The trial court denied defendants’ motion to disqualify the Rothner firm but imposed prophylactic measures to ensure that the primary interest of the class members was not undermined. These measures included the establishment of “ethical walls” barring members of the Rothner firm from communicating with the Guild or Mr. Segall about the litigation, except with regard to payment of legal fees. The court also removed four of the 21 named plaintiffs because of deposition testimony they provided stating that one of their personal goals for being involved in the lawsuits was to assist the Guild in its campaign to organize reality television employees. The court further ordered the Rothner firm to advise the remaining plaintiffs that the court had determined that organizing members of the classes was not a proper goal for the litigation. Mr. Segall and all plaintiffs who continued in their representative capacity were required to provide written consent to the terms of the Court’s order.
At the time the motion for disqualification was brought, the Rothner firm had expended over 1,000 hours on the two lawsuits. Ninety-seven percent of the time had been spent by attorney Leheny, or associates and law clerks working under her direction.
The appellate court upheld the denial of the motion for disqualification finding that the conflict waivers were effective. The court began by emphasizing that Rule 3-310 of the California Rules of Professional Conduct permits concurrent representation of clients with actual or potential conflicts when both clients provide informed written consent. The court noted that the rule also permits payment of costs by a third party if the client provides informed written consent. The court explained that such consent was a “sensible feature of the law, for it recognizes the autonomy of individuals to make reasoned judgments about the trade-offs that are at stake.” The court further noted that by mandating that consent be in “writing” the client’s attention is focused on the fact that the decision should not be taken lightly.
Under the circumstances, the court found that the Guild and the plaintiffs were fully aware of, and effectively waived, any conflict of interest. The court noted that the plaintiffs had signed conflict waivers acknowledging that the Guild was paying for the litigation, knew that the Rothner firm represented the Guild, and were adamant that plaintiffs would control the outcome of the case. The Guild also signed a conflict waiver acknowledging it would not interfere with the independent judgment of plaintiffs’ counsel and memorializing the fact that plaintiffs, not the Guild, controlled the litigation. The plaintiffs were further informed, pursuant to court’s order, that facilitating the union’s organizing activities was not a proper goal of the litigation, and they each provided written consent acknowledging they were so informed. Finally, the Guild and the plaintiffs all provided written consent to the trial court’s order.
The court next rejected the argument that an effective conflict waiver would require written consent by each member of the putative class. The court found this argument unpersuasive on several fronts. The court began by emphasizing that as a procedural matter neither class had been certified, and the 21 plaintiffs therefore represented only themselves at the time of the disqualification motion. The court further noted that requiring consent from all members of a class prior to certification is impractical as the names of absent class members are unlikely to be known. The court also explained that adopting defendants’ argument would effectively require all members of the class to “opt-in” to the litigation, a procedure that would conflict with existing California law, and which would allow defendants to chip away at the size of a class. The court stressed that California’s class action procedures already include a mechanism for determining if named class representatives can adequately represent the class. Thus, the court concluded that “if the trial court concludes that plaintiffs’ motives for pursuing the lawsuits or their connection to the Guild make them incapable of providing informed written conflict waivers, then the trial court will not permit certification.” Finally, the court noted that its position was consistent with ABA Model Rule 1.7 and comment 25 thereto, and further stressed that in the realm of class actions, rules of disqualification cannot be applied so as to defeat the purpose of the class proceeding.
The court stressed that the motion had been brought “by opposition parties  not directly touched by the purported conflict” and that the court therefore must be skeptical of the impetus and purpose of the motion because it posed the very threat to the integrity of the judicial process that it purported to prevent.
The court also addressed the public interest consequences of granting disqualification. The court explained that wage and hour litigation is often financed by labor unions in order to support their members, who often lack individual resources. Such litigation, the court noted, is designed to protect all workers, including members of the union and non-members. The court reasoned that to deny employees access to attorneys knowledgeable in labor law, based on objections filed by their employer, when the named representatives of the class and the union had waived all conflicts and the motion is brought before class certification is sought, would provide a tactical edge to the employer at the expense of the putative class, and would preclude attorneys from representing union members if the attorneys have assisted the union in pre-litigation activities.
In reaching its conclusion, the court distinguished California cases (see Cal Pak Delivery, Inc. v. United States Parcel Service, Inc. (1997) 52 Cal.App.4th 1 and Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253) that include language that “unidentified class members cannot waive a potential conflict of interest.” The court noted that the statements in these cases are dicta, and that the cases presented situations involving “irreconcilable” conflicts of interests.
Finally, the court found it unnecessary to resolve the parties’ dispute as to whether the firm had represented the Guild and plaintiffs in a single “matter” within the meaning of Rule 3-310(C)(1)&(2), and whether the respective representations involved “adversity” or interests that “actually conflict” under 3-310(C)(2)&(3), since the court found that any conflict of interest had been effectively waived. The court did note however that defendants could not create an actual conflict of interest merely by pointing to some unknown class member who may have a disagreement with the Guild’s promotional activities. To do so, the court explained, would mean that no labor organization or public interest organization could fund litigation in which counsel with whom the organization had a relationship also represented a class, if any member of the class did not agree with a single, broader goal of the organization.
Case: Sharp v. Next Entertainment, Inc., 2008 WL 2191209 (June 3, 2008)