Class Members Are Represented Parties, Court Rules

Friday, June 19, 2009

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Class Members Are Represented Parties, Court Rules

By a MetNews Staff Writer

A San Clemente attorney who sent a letter to various members in a conditionally certified class action urging them to opt out of a settlement and retain him was properly enjoined from further communicating with class members, the First District Court of Appeal has ruled.

In a partially published decision Wednesday, Div. Two clarified that the conditional certification of a class triggers Rule of Professional Conduct 2-100’s prohibition on communicating with represented parties.

Three class actions were filed against Vitamin Shoppe Industries Inc. by several of its employees, alleging various labor law violations. Vitamin Shoppe’s counsel approached plaintiffs’ counsel in each of these actions and offered to settle on a classwide basis if the plaintiffs would agree to participate in mediation.

Jeffrey P. Spencer, as attorney for the named plaintiff in Thompson v. The Vitamin Shoppe, filed in Orange County, declined to participate, but the plaintiffs in one of the other actions reached an agreement with Vitamin Shoppe and they sought preliminary approval from the trial court.

The proposed settlement established a settlement fund of $351,000, which, after deduction of $105,000 for attorney fees, $7,500 for litigation expenses and $7,500 for administrative expenses, provided for payments to two—subsequently expanded to three—subclasses of Vitamin Shoppe employees.

Lisa Hernandez and the named plaintiff in Thompson, represented by Spencer and Jeffrey Wilens of the Lakeshore Law Center, opposed preliminary approval. The named plaintiffs in Beauford v. Vitamin Shoppe Industries Inc., filed in Marin County, also opposed this preliminary approval.

In April 2006, Marin Superior Court Judge John A. Sutro Jr. granted the motion for preliminary approval of the proposed settlement and conditionally certified a class for settlement purposes.

Sutro approved the proposed notice to class members regarding the settlement and a procedure for class members to object to, and exclude themselves from the settlement, appointed a claims administrator and ordered the administrator to mail the approved notices and exclusion forms, designated the class representatives and class counsel, and scheduled the hearing for final review of the settlement.

Spencer then sent a letter to various members of the conditionally certified class identifying himself as counsel in Thompson and advising the recipients to “protect” themselves from the proposed settlement by opting out of the class and joining the Thompson action and request exclusion from the settlement.

He warned them that if they did not exclude themselves from the settlement “substantial compensation will be forfeited,” and solicited the class members to retain him as counsel, or to contact him for advice or assistance with respect to excluding themselves from the class. Spencer also enclosed his retainer agreement.

Upon learning about Spencer’s letter, class counsel and Vitamin Shoppe jointly applied for an order enjoining Spencer from further communications with any class members, and Sutro granted the application.

The judge specifically found Spencer’s letters were misleading, violated the Rules of Professional Conduct regarding communications with represented parties, and had attempted to interfere with the proper procedures governing the proposed settlement of the case. He ordered that a corrective notice be sent and directed Spencer to refrain from any further communications with class members that he did not represent.

As counsel for Hernandez, Spencer subsequently filed a verified statement of disqualification for Sutro arguing that the jurist’s rulings and remarks about Spencer at the application hearing demonstrated bias and prejudice towards his client.

Sutro struck the statement, but the appellate court issued an alternative writ of mandate and the statement was reinstated. The Judicial Council then assigned the matter to Santa Clara Superior Court Judge John J. Garibaldi, who ordered Sutro disqualified due to the appearance of probable bias toward a lawyer in the proceedings.

Garibaldi determined that “it would reasonably appear Judge Sutro formed such a negative opinion of Mr. Spencer that he would be unable to give him fair consideration in any future hearings in this case.”

The case was then reassigned to Marin Superior Court Judge Lynn Duryee, and class counsel and Vitamin Shoppe moved for an order formalizing Sutro’s rulings and for sanctions.

Duryee found that Sutro’s disqualification had not rendered his oral rulings void and enjoined Spencer from communicating with class members other than those who had retained him before the date of the preliminary approval of the class settlement.

Writing for the appellate court, Justice James R. Lambden explained that Garibaldi’s findings related to Sutro’s appearance of bias were expressly prospective in nature so that Sutro’s orders, as formalized by Duryee, were not void.

Even if Sutro’s orders were null, Lambden added that Duryee’s subsequent orders, based on her independent review and determinations regarding Spencer’s communications, could stand on their own.

Joined by Presiding Justice J. Anthony Kline and Justice James A. Richman, Lambden rejected Hernandez and Spencer’s challenges to the injunction as creating an irreconcilable conflict between compliance with that order and Spencer’s professional obligation to communicate with his clients and keep them informed of the status of their cases.

Lambden reasoned that the argument was waived by the failure of Spencer and Hernandez to establish that any class members Spencer had contacted had actually retained the attorney.

The argument was also unpersuasive on its merits because Spencer would not be entitled to maintain any such representation as it would have been obtained as a direct result of his violation of Rule 2-100, Lambden continued, reasoning that the members of the conditionally certified class were represented parties, as class counsel had been appointed.

Based on the trial court’s authority and obligation to protect the rights of all parties and prevent abuses, Lambden also concluded that the trial court had not abused its discretion in enjoining Spencer from communicating with class members.

The “biased, inflammatory, and misleading” content of Spencer’s letters “made plain the possibility that he would engage in further abuses if he were permitted to continue to unilaterally communicate with class members,” Lambden wrote. “It is difficult to imagine a more inappropriate ‘end run around the court’s supervisory powers.’”

Spencer’s constitutional free speech rights also did not entitle him to violate Rule 2-100 or interfere with the trial court’s authority to supervise the exclusion process after conditionally certifying a class, Lambden said.

In the unpublished part of the decision, the panel rejected the arguments of the sole objector to the settlement and affirmed the trial court’s final judgment.

Edward J. Wynne and J.E.B. Pickett of the Wynne Law Firm joined Spencer and Wilens in representing the plaintiffs and objectors while Margaret M. Grignon, John P. Zaimes and Brian P. McKeever of Reed Smith LLP represented Vitamin Shoppe.

The case is Hernandez v. Vitamin Shoppe Industries, Inc., 09 S.O.S. 3745.