Class action ethics, an issue barely broached by academic circles, the legal profession and even by regulatory authorities or bar associations, has now surfaced following a series of rulings that underscore the tension between the singular nature of class action litigation and the traditional position that ethical guidelines governing single plaintiff proceedings also apply to class actions.
In the absence of rules of professional conduct tailored for class action litigation, the courts have begun filling in the gap and providing guidance, albeit on a case-by-case basis, on the ethical minefields that line the class action landscape, the latest of which was Smith Estate v. National Money Mart Company, 2011 ONCA 233, in which the Ontario Court of Appeal voiced concerns the courts have over an uncontested motion for class counsel fees in the face of an adversarial vacuum.
“We’re relying on judges to do the job,” remarked University of Windsor law professor Jasminka Kalajdzic.”And it’s always of course on a case-by-case basis. That’s the nature of the job. They can pronounce upon a specific problem, and fashion a specific solution to the problem before them but it’s very difficult to create rules that have broad application when you are a judge sitting on one case dealing with a particular set of facts.”
Class actions are a unique procedural tool that foster singular ethical conundrums since plaintiffs are not ordinary clients, lawyers are expected to be in “equal measure” zealous advocates, private attorney general and venture capitalists while the courts are often thrust into uncomfortable and non-traditional roles, adds Kalajdzic. Aside from the ethical pitfalls class counsel face when they represent groups within the class who have different types of claims, some of who may be “stronger than others,” the legal community is beginning to grapple with the ethical challenges posed by the entrepreneurial nature of class actions, the adversarial void often alluded to by the courts when class counsel and defence agree on a settlement or remain mute over the reasonableness of class counsel fees, and the atypical dynamic between representative plaintiffs and class counsel.
In arguably one of the most important decisions to date in Canada on class action ethics, Justice Paul Perell of the Ontario Superior Court observed Perell in Fantl v. Transamerica Life Canada, 2008 CanLII 17304 (ON SC) that “it is necessary to adjust carefully the historical rules” that govern the relationship between lawyer and client for the “imperatives” of a class proceeding. He added that one of the challenges facing the courts is to “prune the bad and harvesting the good of the dynamic among lawyer, representative plaintiff, and absent class members.”
But some lawyers, particularly class action defense counsel, believe that the courts haven’t gone far enough in pruning the bad and harvesting the good. While acknowledging that the entrepreneurial nature of class actions is clearly recognized in statute and in cases as an incentive for class counsel to “take these cases,” Vancouver commercial litigation lawyer Brad Dixon considers that the recruitment of plaintiffs for class actions has gone overboard, with class counsel going so far as to routinely announce investigations of public company conduct before there is even a commencement of a claim. He is calling for self-restraint, and failing that restraint should be imposed by the courts or professional regulators.
“Recruitment of plaintiffs is in and of itself not prohibited conduct,” noted Dixon, a partner with Borden Ladner Gervais LLP. “Therein lies the difficulty. An entrepreneurial incentive for plaintiff’s counsel has been created but there needs to be some limits on circumstances where lawyers are publicly announcing investigations of potential defendants with all of the implications that from that even before a client has identified an issue that they want addressed. There needs to be some rules or constraints on ethical conduct.”
Class counsel, not surprisingly, don’t buy into that line of reasoning. On the contrary. Though acknowledging that there is a general rule in place that forbids lawyers from conducting themselves in a way that brings the practice in disrepute, securities class action lawyer Dimitri Lascaris believes it is “entirely appropriate” in a modern economy for lawyers to play an educative role. Alerting the public at large when their rights have been violated, and conveying the need for someone to act as a representative plaintiff is “not only not unethical” but something that should be encouraged, argues Lascaris.
Otherwise, “there are going to be a great many wrongs that don’t go unremedied in our society,” said Lascaris, a partner with Siskinds LLP. “There’s a huge power imbalance in our society between corporations, and consumers and investors, and the only way to rectify that is to allow lawyers who understand people’s rights and are able to identify situations in which those rights have been violated to communicate to members of the public.”
But then who is the client in a class proceeding, wonders Kalajdzic, an issue she describes as a fundamental but often overlooked question. The problem manifests itself in many ways, beginning with the fundamental ethical rule that lawyers communicate with their clients and seek instruction, points out Kalajdzic. But in a class action, it’s simply not possible to consult with each class member, and nor can class members perform the traditional client’s role of monitoring the lawyer’s conduct. Kalajdzic, who interviewed seven judges who currently are or were formerly designated class action judges for an article she wrote about class action ethics, notes that even judges themselves expressed skepticism over the ability of a recruited plaintiff to represent the interests of the class independently. However, Kalajdzic notes that in spite of their leeriness and recognition that some representative plaintiffs are not active in the way that the traditional client in individual litigation is expected to be, case law highlights a disjuncture.
“All discussions about ethics and rules of conduct flow from how we view the client in the class action context,” said Kalajdzic. “I think judges have touched on the question in a number of decisions but haven’t confronted it fully. At the end of the day judges still return to the premise that the rules of conduct which were fashioned in a very different context to govern a very different solicitor-client relationship apply to the class action context. That’s where I find the case law to be disjointed.”
The need for a “genuine plaintiff” has surfaced in case law, and is a bone of contention with defence counsel. In Chartrand v. General Motors Corporation, 2008 BCSC 1781, Justice Donna J. Martinson held in dismissing the class action certification that “what is needed is a genuine plaintiff with a real role to play and not a placeholder plaintiff for the entrepreneurial interests of lawyers who have so much at stake.” In Fantl, Judge Perell said that there are “many good reasons” for a class proceeding to have a genuine plaintiff with a genuine claim, not least of which it reduces frivolous claims, acts as a check and balance to the “excesses of entrepreneurial law firms, and provides a voice to protect the interests of the absent class members.
Except, points out Dixon, that while it is “pretty well established” in case law, in reality courts rarely deny class action certification because the plaintiff was recruited and not playing an active role. “The absent client problem is really another way of articulating this whole point about lawyers driving the suit. But the courts are applying a pretty high threshold before they conclude that someone is a placeholder. There are very few cases that have failed on that ground,” said Dixon, who successfully argued the Chartrand case.
Class counsel, however, are not convinced that it is an issue that must be grappled with. While expecting representative plaintiffs to be reasonably informed, reasonably engaged and exercising a reasonable degree of oversight, Lascaris believes it is unrealistic to expect them to be “passionately” pursuing the litigation as if it was the most important thing in their lives. Indeed, Lascaris describes the notion of representative plaintiffs as placeholders as a cliché bandied about by defense counsel.
“We want representative plaintiffs to be engaged,” said Lascaris. “We want them to exercise reasonable oversight. It’s entirely right that our courts should require that but in most situations where a class action is appropriate no one in the class will have suffered so great a loss that this is going to be the primary concern in their lives. We have to recognize the realities of the situation.”
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