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California Court of Appeal denies disqualification of class counsel focusing on the absence of an attorney-client relationship between counsel and putative class members pre-certification, and the nature of disputes between class members and/or class representatives involving the advisability of settlement.  Kullar v. Foot Locker Retail, Inc., 121 Cal.Rptr.3d 353 (2011) 


Significance of Decision


This decision reaffirms that California courts are unlikely to mechanically apply traditional principles of conflict analysis to class action proceedings, and that the unusual nature of such proceedings directly impacts resolution of conflict issues.  The decision further highlights the importance, under California law, and for conflicts purposes, of the nature of the relationship between class counsel and putative class members prior to class certification.


Factual Background


The law firm in question represented three objectors to a class action settlement.  On appeal, the settlement was vacated on the ground that the trial court received insufficient information to support its determination that the settlement was fair and reasonable.  Prior to the trial court’s approval of the settlement, the firm had filed a partially overlapping putative class action against the same defendant on behalf of one of the objectors in another court.  That action was stayed during the pendency of the settlement and its subsequent appeal by the objectors.

A month after remittitur issued, the firm filed a second action on behalf of the objectors in the same court as the matter involving the settlement.  The second action was stayed based on the pendency of identical claims in the objectors’ first action.

On remand of the action involving the settlement, the trial court considered additional evidence and the three objectors renewed their objections to the settlement.  The trial court approved the settlement a second time.  The objectors’ first action was voluntarily dismissed and the stay in the second action was lifted.

Defendant moved to disqualify the law firm from the action involving the settlement and from the objectors’ second action.  Defendant argued that the law firm had a “simultaneous” conflict of interest in representing both the objectors and the putative class members in the objectors’ second action who presumably wanted to participate in the settlement.  The motions were denied.  Defendant appealed.


Analysis


The court of appeal began by confirming that while a writ of mandate is the “preferred and more expedient method” of challenging an order denying disqualification, such an order is directly appealable under California law.

On the merits of the conflict issue, the court explained that it was reasonable to assume some, and perhaps many, of the overlapping class members in the objectors’ action who had not objected to or opted out of the settlement in the other action preferred to accept the benefits of the settlement rather than pursue claims for additional recovery in that action.  Nevertheless, the court concluded that there were “several reasons” why the firm’s representation in both matters did not constitute a concurrent client conflict under CRPC 3-310(C).

First, as to the objectors’ action, the class had not yet been certified so there was no attorney-client relationship between the firm and the putative class members who allegedly supported settlement of the other action.  The court rejected the contention that absent an attorney-client relationship there were fiduciary obligations to putative class members (pre-certification) requiring disqualification.  The court distinguished the decision in In re GMC Pick-Up Truck Fuel Tank Prod. Liab. Litig. (3d Cir. 1995) 55 F.3d 768, which recognized such a duty in the factual context of considering the propriety of certifying a settlement class.  The court further explained that even if there were a fiduciary duty to putative class members pre-certification, there was no authority suggesting such an obligation would preclude the law firm from urging that a proposed settlement in related litigation was not in the best interests of the class.

The court emphasized that the objectors’ position in the action involving the settlement related to whether it was fair and reasonable.  While unnamed class members may not have filed objections to the settlement or opted out of the settlement, they had not expressly indicated that they believed the settlement was in their best interests or that they were not entitled to a greater recovery than provided for in the settlement.  Success by the objectors would forestall the recovery those class members would have received under the proposed settlement, but that could be in their best interests if they were likely to obtain a much greater recovery by pursuing the litigation.  The court concluded “[t]here is no more of a conflict between the objectors (and their attorneys) and unnamed members of the class who favor the settlement than there is between the class representatives (and their attorneys) and unnamed members of the class who do not favor the settlement but who have refrained from expressing their views and do not want to be excluded from the recovery if the settlement is approved.”

The court conceded that putative class members favoring the settlement might be “adverse” to the objectors in the sense that they disagree as to the adequacy of the settlement and their desire to have it approved or rejected, but explained that “their common interests in the outcome of the litigation are unaffected by the disagreement.”  Moreover, there was no suggestion the law firm obtained any confidential information from the putative class members who favor settlement, or engaged in any conduct displaying disloyalty to putative class members.  Under these circumstances, the court stated, disqualifying the law firm “would be no more justified than automatic disqualification of class counsel whenever a dispute arises among class members or class representatives as to the advisability of settlement.”

Finally, the court of appeal distinguished a federal decision from the Northern District of California (Moreno v. Autozone, Inc. (N.D.Cal. 2007) 2007 WL 4287517) where attorneys had been disqualified from continuing to represent a putative class because they were representing members of the class in opposing the settlement of a related class action while the class included members who favored settlement of the other action.  The court distinguished Moreno on the grounds that there the putative class members who favored settlement of the other action were not unknown individuals with whom no attorney-client relationship had been developed.  Rather, they were individuals from whom the attorney had obtained declarations and whom the attorney had personally represented at their depositions.  These individuals, who the attorney was representing, had already approved the settlement, submitted claim forms, and were awaiting payment with respect to settlement of the other action.  The court further distinguished Moreno on the grounds that the attorney in Moreno withheld information from the clients who favored settlement, and the court in that case had found that the attorneys committed two other ethical breaches while involved in the litigation.  No similar conduct existed in the present case, the court of appeal explained, and therefore the logic in Moreno did not require disqualification of counsel in the present action.

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