THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
FORMAL OPINION 2004-01
LAWYERS IN CLASS ACTIONS
Topic: Duties of Lawyers in Class Actions: Decision to Sue; Conflicts of Interest; Duties to Class Members; No-Contact Rule; Disputes Within Class
Digest: (a) A lawyer must obtain informed consent from individual clients before asserting class claims on their behalf; (b) When conflicts of interest arise, a class lawyer must obtain informed consent from individual clients before proceeding, but so far as other class members are concerned the court may authorize the representation; and a class lawyer may without consent undertake a representation adverse to a class member that the lawyer does not individually represent provided that representation is unrelated to the class action; ( c) A class lawyer has obligations of competence, diligence and confidentiality to class members; (d) When a class has been certified, the class lawyer or the court must consent before a lawyer opposing the class may communicate directly with class members about the action; (e) A class lawyer may support or oppose a settlement or take other steps in the action over the objections of named plaintiffs or other class members, but must act in the best interests of the class and with appropriate disclosure to the court.
Code: DR 4-101; DR 5-101; DR 5-105(C); DR 5-107; DR 6-101; DR 7-101(A); DR 7-104; DR 7-105
What are the ethical obligations relating to a lawyer’s representation of a class in a class action?
This Opinion discusses some of the ethical rules applicable to a lawyer
seeking to represent a plaintiff class in a class action. The action
will be assumed to be brought in a United States District Court, and
hence subject to Federal Rule of Civil Procedure 23. Extensive caselaw
under that rule affects the duties of lawyers in class actions, and in
certain respects modifies or supersedes the application of the Code of
1. Although the requirements of Rule 23 thus
constitute an indispensable background for understanding the duties of
class counsel, this Committee has no jurisdiction to advise on the proper
construction of that rule, or of other applicable legislation such as
the Private Securities Litigation Reform Act of 1995. Nor should this
Opinion be taken as intimating answers to the many questions concerning
class lawyers’ behavior that it does not discuss.
The special circumstances created by class actions sometimes affect the application of professional rules. The interests of some class members will sometimes diverge. Under Rule 23, that may call for denying class action certification, or for providing separate representation for subclasses; but if class actions are to be possible, it is sometimes necessary to proceed despite such divergences. In addition, it is usually not practical to consult with each class member in the same way as a lawyer should with a client. As a result, a lawyer speaking for a class often has substantial discretion to decide what position to advocate without much possibility of monitoring and control by class members, and in a situation in which the lawyer’s financial interest in obtaining a fee may be larger than the interests of class members. Lawyers must therefore be especially careful to seek the best interests of the class, and courts have a special obligation to ensure adequate representation by class counsel.
1. The Decision to Bring a Class Action
Before a class action complaint is filed, the prospective named plaintiffs are usually already clients of the lawyer who will file it. Depending on the circumstances, and on how those clients define their own interests, a class action can be a good, a bad, or a questionable way to advance those interests. For example, a class action might be desirable if a public-spirited client wishes to forward the interests of the other class members, or if relief limited to the client might be unsatisfactory, or if the expected recovery from an individual action would be too small compared to the action’s expenses to make such an action economically feasible. On the other hand, a class action might delay and complicate the client’s claim, or burden the client with the obligations of representing other class members. The lawyer should therefore consult with the clients about the advantages and disadvantages of a class action, and proceed only with their informed consent. See EC-7-7, EC 7-8, DR 7-101(A)(1); Restatement (Third) of the Law Governing Lawyers, § 125, cmt. f (2000).
2. Conflicts of Interest
A named plaintiff’s interests may sometimes conflict with interests of another named plaintiff, other class members or putative class members, the lawyer, or the lawyer’s present or past clients outside the class. If so, the lawyer may proceed only when the named plaintiff (as well as other relevant past or present clients) gives informed consent and such consent is permissible under the rule applying to the conflict in question. See DR 5-101, 5-1-5, 5-108. The rules governing fees (DR 2-106) also apply to the relationship between named plaintiff and lawyer, as do those governing payment of the lawyer by other persons (DR 5-107(A, B). In some situations, financing arrangements for class actions raise conflict of interest problems, or are subject to review by the court in which the action is pending. See Restatement (Third) of the Law Governing Lawyers, § 47, cmt. h & Reporter’s Note (2000).
The interests of class members who are not named plaintiffs may likewise
conflict with those of named plaintiffs, other class members, the lawyer,
or the lawyer’s past or present clients outside the class
It is rarely practical for a class lawyer to speak individually with
member subject to such a conflict in order to seek informed consent,
although in some instances nonconsenting class members may be able to
opt out of the action. See Fed. R. Civ. P. 23(c)(2), (e)(3). At least
in the ordinary class action, a lawyer is not required to seek such individual
consents. In practice, therefore, it is the court that decides whether
the action may proceed
3. The court has a continuing obligation to protect
the class members, and may not certify a class action unless it concludes
that the named plaintiffs and class counsel will fairly and adequately
represent the interests of the class. Fed. R. Civ. P. 23(a)(4), (g)(1)(B)
(as amended 2003). The standards used by courts in deciding whether to
approve class representation, to limit the size of the class or recognize
subclasses with independent representation, or to deny certification
altogether draw to a considerable extent on standards of professional
responsibility, but ultimately they are found in caselaw construing Rule
23, and hence matters of law beyond the Committee’s jurisdiction.
Although the court may thus in effect act for class members in deciding whether to consent to conflicts of interest involving them, a lawyer seeking to represent a class must nevertheless honor his or her own professional obligations to the extent consistent with court orders. For example, a lawyer may not seek the court’s approval “if the exercise of professional judgment on behalf of the client will be or reasonably may be affected by the lawyer’s own financial, business, property, or personal interests, unless a disinterested lawyer would believe that the representation of the client will not be adversely affected thereby.” DR 5-101(A). Similarly, a lawyer may seek court consent to a conflict among present clients only “if a disinterested lawyer would believe that the lawyer can competently represent the interest of each.” DR 5-105(C). A lawyer who is barred by these rules from seeking court approval should not undertake to represent a class. When the court is asked to designate a class lawyer, the lawyer must ensure that there has been “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” (DR 5-105(C); see DR 5-101(A), 5-108(A, B)); In re “Agent Orange” Prod. Liab. Litig., 800 F.2d 14, 18 (2d Cir. 1986); Piambino v. Bailey, 757 F.2d 1112, 1145 (11th Cir. 1985). And the lawyer must, as discussed below, provide adequate representation to all the class members in question.
Whether a class lawyer may undertake a representation adverse to a class member who has not individually retained the lawyer is a difficult issue. If such a class member is treated as a client for the purpose of applying the conflict of interest rules, it follows that, absent informed consent (when permissible), the lawyer may ordinarily not act adversely to the class member while the class action is pending, and after it ends may act adversely to the class member only in a matter that is not substantially related. DR 5-105, 5-108; see Fuchs v. Schick, No. 01 Civ. 10224, 2002 U.S. Dist. Lexis 6212 (S.D.N.Y. Apr. 10, 2002) (treating as a former client a class member who participated actively in the class action). We believe that, at least in one situation, that approach is inapplicable. If a class member has not individually retained the class lawyer or consulted with that lawyer and the lawyer has not acquired confidential information about that class member, the lawyer should be free to accept an unrelated matter against the class member while the class action is pending. Accord, Rules of Prof’l. Conduct, Rule 1.7, Cmt.  (2002). In such a situation, there is no danger that the lawyer will misuse the class member’s confidential information or yield to any incentive to provide inadequate representation to either client; and the relationship would not warrant the class membership in expecting the lawyer to be loyal to the class member’s interests in a matter unrelated to the class action. The language of DR 5-105, moreover, does not require a total prohibition of representations adverse to a class member. See, e.g., Brown & Williamson Tobacco Corp. v. Pataki, 152 F. Supp. 2d 276 (S.D.N.Y. 2001) (representation adverse to current client in unrelated matter is prima facie forbidden but may be justified on proper showing); Thomas D. Morgan, Suing a Current Client, 9 Geo.J. Legal Ethics 1157 (1996); Ted Schneyer, Nostalgia in the Fifth Circuit: Holding the Line on Litigation Conflicts Through Federal Common Law, 16 Rev. Litig. 537, 547-51 (1997).
3. The Lawyer’s Duties to Class Members: Competence, Diligence, and Confidentiality
There are almost always members of a plaintiff class who have never personally retained the class lawyer to represent them. We consider now some, but not all, of the duties a class lawyer or a lawyer seeking to be designated as a class lawyer owes such class members under the Code of Professional Responsibility.
Analytically, there are several ways in which this relationship might be classified. Each class member might be considered a client, owed all the usual duties of a lawyer to a client. Class members might be considered quasi-clients, owed those duties to the extent consistent with the law and practicalities of class actions. One might consider them nonclients, to whom the lawyer nevertheless owes certain duties because the lawyer represents named plaintiffs who owe fiduciary duties to class members. One might trace the lawyer’s professional obligations to the law of civil procedure, which has long recognized what Federal Rule of Civil Procedure 23(g)(1)(B) now declares: “An attorney appointed to serve as class counsel must fairly and adequately represent the interests of the class” (as amended effective Dec. 31, 2003). Or one might consider the class as an entity to be the lawyer’s client. See Debra L. Bassett, When Reform is Not Enough: Assuring More Than Merely “Adequate” Representation in Class Actions, ____ Ga. L. Rev. ____ (2004); Nancy J. Moore, Who Should Regulate Class Action Lawyers?, 2003 U. Ill. L. Rev. 1477 (2003); David L. Shapiro, Class Actions: The Class as Party and Client, 73 Notre Dame L. Rev. 913 (1998); Jack B. Weinstein, Ethical Dilemmas in Mass Tort Litigation, 88 Nw. U.L. Rev. 469 (1994). In addition, one could classify the lawyer’s obligations one way before the court has certified a class and another way afterwards.
For present purposes, we consider it more useful to address the obligations of lawyers issue by issue. We lack both the jurisdiction and the ability to promulgate an authoritative theory of class action representation. We also doubt that any theory can avoid the need to consider separately the concerns and practical problems relating to each duty a lawyer might owe to class members, as well as the varying factual situations that class lawyers confront.
A lawyer representing a class clearly owes class members the competence
and diligence ordinarily due to clients. He or she must not neglect the
action, proceed without competence or preparation, fail to seek the class’ lawful
objectives through reasonably available and lawful means, or prejudice
or damage class members. DR 6-101, DR 7-101(A). The limits and qualifications
noted in these rules to these duties likewise apply
A class lawyer’s duties of confidentiality likewise extend to information obtained from a class member in the course of the professional relationship that the class member “has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental” to the class member. DR 4-101(A). Whether confidences of a class member who has not individually retained the class lawyer are protected by the client-lawyer privilege is an issue of law on which we express no opinion. But we believe that a lawyer’s professional duty of confidentiality does apply to information provided by such a class member, because the policy of encouraging disclosure in order to promote effective representation is fully applicable, and because class members reasonably rely on class lawyers to protect their interests. Once again, the usual exceptions to the duty of confidentiality apply to information provided by class members. See EC 4-2, 4-3, 4-7; DR 4-101(C). For example, a class lawyer may reveal information “when necessary to perform the lawyer’s professional employment.” EC 4-2. Thus, if class members disagree on whether to accept a settlement, a class lawyer might appropriately disclose to the court at least some otherwise confidential information necessary to enable the court to decide whether to uphold the settlement. See infra pt. 5.
4. The No-Contact Rule
Complex problems arise when it is asked whether the class lawyer’s
consent is required before a lawyer representing someone else may communicate
with a class member who has not individually retained the class lawyer.
Disciplinary Rule 7-104 would bar communications without such consent
if the class member is considered “to be represented by” the
class lawyer unless some exception applies. When the lawyer proposing
to communicate represents a party opposing a class, the prohibition applies
when the class has been certified
5, although it does not apply before
6. Communications by such
lawyers risk the dangers, such as the negotiation of imprudent settlements,
against which the no-contact
rule guards. Disciplinary Rule 7-104’s prohibition is limited to “communications
on the subject of the representation” and does not prevent communications
about other matters that may be pending between the lawyer’s client
and the class member. When communications about the class action are
warranted, the class action court may authorize them, and they are then “authorized
by law” and therefore consistent with Disciplinary Rule 7-104.
And if the class member has retained his or her own lawyer, that lawyer
may consent to direct communication.
We express no opinion as to the application of Disciplinary Rule 7-104 in other situations, such as when the communication is made by a lawyer representing other class members. Under Federal Rule of Civil Procedure 23(d), the court has broad power over communications between parties and their lawyers and class members. As noted above, a communication authorized by the court is consistent with DR 7-104. The court likewise is empowered to prohibit some communications that might be allowed by DR 7-104. Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981); Carnegie v. H & R Block, Inc., 180 Misc.2d 67, 687 N.Y.S.2d 528 (Sup. Ct. 1999); 5 Conte & Newberg, Class Actions §§ 15:5-20; Debra L. Bassett, Pre-Certification Communication Ethics in Class Actions, 36 Ga. L. Rev. 353 (2002). A lawyer may not disregard such a prohibition, although the lawyer may take appropriate steps in good faith to test its validity. DR 7-106(a). And a lawyer may not make a communication that is misleading, coercive or otherwise improper. DR 7-102 (A)(1, 5, 7, 8), DR 7-104(A)(2), DR 7-105.
5. Disagreement Within the Class: Settlement Decisions
Perhaps the most troublesome ethical problems for class lawyers arise when there are divisions within the class. We discuss first divisions incident to proposed settlements purporting to bind the class.
The Code of Professional Responsibility must be applied in light of court decisions establishing that a class lawyer may properly advocate a settlement that the lawyer believes to be in the best interests of the class, or oppose a settlement the lawyer believes to contravene those interests, even though named plaintiffs or other class members disagree. The lawyer is not required to withdraw, as might be the case in the event of disagreement among joint clients in other circumstances. See, In re “Agent Orange” Prod. Liab. Litig., 800 F.2d 14 (2d Cir. 1986); Bash v. Firstmark Standard Life Ins. Co., 861 F.2d 159 (7th Cir. 1988); Lazy Oil Co. v. Witco, 166 F.3d 581 (3d Cir. 1999); In re M & F Worldwide Corp. S’holder Litig., 799 A.2d 1164 (Del. Ch. 2002). These decisions may be reconciled with DR 5-108 in several ways: the class action court may be considered to consent to the representation on behalf of the various class members; Rule 23 may be thought to override conflicting state rules; or, the lawyer’s client might be considered to be the class as a whole rather than its individual members. In any event, the practicalities of class action litigation preclude any requirement that class counsel must withdraw whenever class members disagree.
A class lawyer who decides to oppose positions taken by class members must take “steps to the extent reasonably practical to avoid foreseeable prejudice to the rights of” those members. “[T]he lawyer must inform the tribunal of the differing views within the class or on the part of a class representative.” Restatement (Third) of the Law Governing Lawyers, § 128, cmt. d(iii)(2000); accord, Hazard & Hodes, The Law of Lawyering § 12.16 (3d ed. 2003). If the disagreeing class members have not already arranged to present their views to the court, the class lawyer should inform them of their right to intervene and to seek the appointment of counsel. See Fed. R. Civ. P. 23(c)(2), (e)(4)(as amended effective December 31, 2003); Devlin v. Scardelletti, 536 U.S. 1 (2002). Should the disagreement reflect a genuine conflict of interests within what has hitherto been considered a single class, the lawyer may be obliged to inform the court and clients that a single lawyer or group of lawyers can no longer properly represent the class as a whole, so that appointment of additional counsel, subclassing, or redefinition of the class is appropriate.
A class lawyer’s decision to support or oppose a settlement must be made in the best interests of the class. This may at times require the lawyer to balance the interests of different groups within the class in light of the strength of their claims and other relevant factors. The lawyer may not favor the claims of some class members because they are named plaintiffs, have individually retained the lawyer, or threaten to block a desirable settlement. See, e.g., County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1325 (2d Cir. 1990); Parker v. Anderson, 667 F.2d 1204, 1210-11 (5th Cir. 1982); 5 Conte & Newberg, Class Actions § 15:27 (2002) (citing cases).
A class lawyer’s decision, likewise, may not be influenced by
the lawyer’s desire to increase the fees he or she will receive.
Thus, the lawyer negotiating a class action settlement may not seek more
favorable fee provisions in exchange for less favorable relief for the
7. A class lawyer may properly favor
fee provisions that tend to align the lawyer’s incentives with
those of class members, for example by linking the fee with what class
members actually receive
Whatever fee arrangement is reached should be fully disclosed to the
court. See Fed. R. Civ. P. 23(e)(2); In re “Agent Orange” Prod.
Liab. Litig., 818 F.2d 216 (2d Cir. 1987); Bowling v. Pfizer, Inc., 102
F.3d 777 (6th Cir. 1996). This is necessary as a matter of civil procedure
so that the court can perform its duty of ascertaining whether the settlement
is a fair one, and in particular, whether the interests of class members
have been sacrificed to those of lawyers. See e.g., Reynolds v. Beneficial
Nat’l Bank, 288 F.3d 277 (7th Cir. 2002). The disclosure is also
required as a matter of professional responsibility. In effect, because
the class members are not in a position to evaluate the settlement and
attorney fees themselves, the court acts on their behalf, and is therefore
entitled to disclosure comparable to what would be appropriate when a
lawyer submits a proposed settlement to a client. See EC 7-7, 7-8.
What we have said here about settlement decisions is generally applicable to other issues on which class members may disagree during a class action, such as what relief to request from the court. In such situations as well, disagreement with named plaintiffs or other class members does not require a class lawyer to withdraw. After consultation, the lawyer should follow the course that is in the best interests of the class, without playing favorites or pursuing the lawyer’s own interests. The lawyer should facilitate the presentation of other viewpoints to the court and when appropriate propose the appointment of additional counsel, subclassing, or redefinition of the class.
Court decisions rendered under the authority of Federal Rule of Civil Procedure 23 specify or affect many of the obligations of lawyers in class actions. The Code of Professional Responsibility must be applied in the context of such decisions. Nevertheless, class lawyers may not proceed on the assumption that the Code is simply irrelevant to class representations. This Opinion has considered the application of the Code to some but not all issues confronting class lawyers.
In brief, and subject to the fuller discussion above, our conclusions are as follows. A lawyer must obtain informed consent from individual clients before asserting class claims on their behalf. When conflicts of interest arise, a class lawyer must obtain informed consent from individual clients before proceeding, but so far as other class members are concerned the court may authorize the representation; and a class lawyer may without consent undertake a representation adverse to a class member that the lawyer does not individually represent provided that representation is unrelated to the class action. A class lawyer has obligations of competence, diligence and confidentiality to class members. When a class has been certified but not before, DR 7-104 requires the consent of the class action lawyer or the court before a lawyer opposing the class may communicate directly with class members about the action. A class lawyer may support or oppose a settlement or take other steps in the action over the objections of named plaintiffs or other class members, but must act in the best interests of the class and with appropriate disclosure to the court.