by Cathy T. Moses
Ethics rules ordinarily prohibit counsel from communicating directly with an adverse party who is represented by counsel. See Cal. R. Prof. Code 2-100. In the case of putative class members, however, defense counsel can communicate directly with those class members before the class is certified, as these individuals are considered unrepresented parties.1 See ABA Formal Op. 07-445 (“A client-lawyer relationship with a potential member of the class does not begin until the class has been certified and the time for opting out by a potential member of the class has expired.”).
Pre-certification communications between defendants and putative class members can be very useful. Among other things, defendants and their attorneys can reach out to potential class members to gather information about the claims, provide the defendant’s “side of the story,” or even attempt to settle claims before the class has been certified. However, there are limits on what defendants and their counsel may say. As the Supreme Court has recognized, because class actions present “opportunities for abuse as well as problems for courts and counsel in the management of cases,” a district court “has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.” Gulf Oil v. Bernard, 452 U.S. 89, 100 (1981). Towards that end, courts have made clear that defendants and their counsel may not send class members communications that are coercive or misleading, or that undermine Federal Rule of Civil Procedure 23 (which governs class actions) by encouraging class members not to join or participate in the suit.2 If a court finds it necessary to limit or correct a defendant’s communication to putative class members, any order must be grounded in good cause and should be carefully drawn in a way that “limits speech as little as possible, consistent with the rights of the parties under the circumstances,” so as not to run afoul of the First Amendment. Gulf Oil, 452 U.S. at 102.
Whether a particular communication to class members runs the risk of potentially being coercive or chilling the class action is not an easy question. Several California federal district courts have recently examined whether defendants or their counsel overstepped their bounds in reaching out pre-certification to putative class members. These decisions reveal that myriad factors shape whether a communication will be found improper, including the content and context of what is being said, the background of the audience receiving the message, and why the communication is being made. While the outcome in each case hinged on the specific communications at issue, the cases set forth several guiding principles.
Provide Full Access to the Other Side’s Positions
Although it may seem counterintuitive, a defendant who is communicating with putative class members should provide information concerning the other party’s claims as well as plaintiff’s attorney’s contact information. Courts frown upon class defendants’ failures to provide access to the other side’s story, as a putative class member should be permitted to evaluate fully his or her likelihood of recovering through the class action. This is particularly important when defendants seek to send settlement agreements and releases to putative class members, as an individual in that situation may be tempted to agree to terms without understanding the merits of the case. In Cheverez v. Plains All Am. Pipeline, LP, No. CV15-4113PSG, 2016 WL 861107 (C.D. Cal. Mar. 3, 2016), the court invalidated releases sent to putative class members where the releases simply stated that a consolidated class action existed, but did not provide additional information about the case, such as an explanation of the plaintiffs’ claims or contact information for plaintiffs’ counsel. The court noted that several other cases in the Northern District of California had similarly condemned releases that did not allow class members to assess “the strength or extent of the class claims.” Id. at *4 (citation omitted).
In contrast, defendants who are forthcoming about the class’s positions can be rewarded for their attempts to communicate in good faith. In Slavkov v. Fast Water Heater Partners I, LP, No. 14-cv-04324, 2015 WL 6674575 (N.D. Cal. Nov. 2, 2015), the defendants sent to putative class members, who were former and current employees of the defendants, a letter accompanied by a proposed settlement agreement, a check, and a copy of the operative complaint, which included plaintiffs’ counsel’s contact information. The defendants explained in their letter the nature of the plaintiffs’ claims and how to accept the settlement agreement. The letter also included carefully crafted, neutral disclaimers concerning the settlement offer such as, “The choice of whether to accept the enclosed check is entirely up to you. It is completely your choice. You will not be rewarded and there will be no negative consequence to your relationship with Fast Water based on your choice.” The court described these communications as “good-faith efforts at fair and neutral communications.” The defendants’ good-faith efforts ultimately paid off. While the court found that other aspects of the defendants’ communications were improper and ordered a curative notice to correct those “serious deficiencies” (described in the next section), the court denied the plaintiffs’ request to enjoin the defendants from further communications to the class. In light of the defendants’ other good-faith efforts, there was no “serious risk that [d]efendants will again mislead the absent class members in future communications.” Id. at *7.
Avoid Misleading Statements (and Consider Your Audience)
While defendants and their counsel can provide information concerning the defendants’ positions and defenses to class members, and even include “self-serving advocacy,” any information provided should not be misleading. A party’s understanding as to what might be “misleading” should take into account the legal qualifications and other relevant experience (or lack thereof) of the class members receiving the communication. In Slavkov, the defendants sent releases to class members which stated that class members who accepted payment would agree to not disclose information concerning the dispute unless required to do so by law or in a legal proceeding, and would not participate as a member in any class action asserting any claims released. The plaintiffs argued that these sections could be misleading because they could be construed as barring class members from participating as witnesses if they agreed to settle.
The court noted that if the putative class “consisted of legal individuals with legal training and experience in negotiating settlements,” the defendants’ reading of the provisions might be “more persuasive.” Id. at *4. However, the court ultimately agreed with the plaintiffs’ interpretation, as “the putative class in [that] case consists of a group of plumbing and water heater installers who are unlikely to have legal expertise and who may not have been aware of their possible claims against [d]efendants until they received these letters.” The court further emphasized that the critical consideration was not whether the provisions in fact would bar class members from speaking with plaintiffs’ counsel, but would be perceived as doing so, and in turn, “whether that perception would cause ‘potential interference’ with the putative class’s rights under Gulf Oil.” Id. Because these statements might cause readers to believe that they could not speak to class counsel if they agreed to terms, whether as a witness or otherwise, the potential harm of such language was “obvious,” because, for example, it might harm plaintiffs’ counsel from important fact gathering efforts. Thus, the court held that any releases that were signed were invalid and ordered a curative notice sent to all recipients notifying them that the agreements were invalid.
Even “Truthful” Statements Can Be Coercive
Recent cases have also clarified that certain buzz words should be avoided as they can be construed to suggest punishment for participating in the class action. For example, employers should avoid making statements indicating that the continuance of the class action will harm the business because such statements may cause employees to believe that their jobs are at risk if they participate in or assist the class action. In Camp v. Alexander, 300 F.R.D. 617 (N.D. Cal. 2014), the plaintiffs filed a wage-and-hour class action against a pediatric dental practice. Before the class was certified, the dental practice and its owners sent a letter to all employees explaining their positions and providing an opt-out declaration for the employees to sign. As part of that letter, the defendants noted that the cost of defending against the class action had had a significant adverse effect on business and that a long legal battle would “jeopardize the ongoing viability of the practice.” Id. at 620. The letter also stated that the lawsuit “could result in the closure of this long-running business.” Id.
The court ordered that a curative notice be sent to all employees. The court noted that the letter’s “repeated warning” that the practice would close and that employees would lose their jobs was “highly inflammatory,” so there might be a “realistic danger that the communications will chill participation in the class action.” Id. at 625; see also In re M.L. Stern Overtime Litig., 250 F.R.D. 492 (S.D. Cal. 2008) (requiring deletion of language from employer’s letter to account managers stating, “Frankly, settling for the amount that the [p]laintiffs currently demand would . . . make it difficult for M.L. Stern to stay in business and out of bankruptcy.”). Regardless of whether the defendants’ letter was “well-intentioned, the communications’ one-sidedness discourages participation in the collective action.” Camp, 300 F.R.D. at 625. Thus, the court ordered that the defendants mail a corrective notice to all relevant employees noting that the letter was simply “a statement of [d]efendants’ opinion.” Id.
Other words may be found to have a similar chilling effect. In Talavera v. Leprino Foods Co., No. 1:15-cv-105-AW-BAM, 2016 WL 880550 (E.D. Cal. Mar. 8, 2016), a company manager held six meetings at different plants in which he stated to employees that the plaintiffs’ counsel might be contacting them concerning the class action and that if employees chose to speak with those attorneys, they should tell the truth. The manager also stated that “if false written or oral statements are made to the court, that can be considered perjury.” Id. at *2.
The court found that the manager’s use of the term “perjury” was troubling for two reasons. First, the context in which the manager delivered his statements mattered. He allegedly made the statement during mandatory meetings conducted at the workplace during working hours. Moreover, the court found his position to be important, as “his role as the head onsite manager can transform suggestions, requests or observations into directives or threats.” Id. at *5.
Second, the court found that the word itself—perjury—was potentially coercive. While the defendants argued that the manager’s statements were neutral, the manager did not define what perjury was or explain that perjury prosecutions arising out of civil lawsuits are rare. In sum, the “negative connotation associated with the term perjury here essentially nullifies any benign motivations [the manager] may have had while giving his speech.” Id. at *5. “No matter [the manager’s] intent, the [c]ourt cannot ignore the grave concerns raised by [the manager’s] foreshadowing of potential criminal action particularly in the employer-employee context.” Id. Thus, even if the manager’s statements about the potential for perjury “were not necessarily untrue,” his statements created a risk of coercion and potential for chilling participation. Id. at *6.
The court ordered that a corrective notice be posted stating that, with respect to the manager’s alleged perjury statements, the employer had “no authority to charge workers with perjury,” and that witnesses would “not be charged with perjury for merely talking with the plaintiff’s attorney” or making a mistake of fact in a declaration or in testimony. Id. at *9.
As these recent California district court decisions illustrate, courts will not hesitate to place limits on a party’s pre-certification communications to class members where there is a potential for coercion or a chilling effect on the action. A party’s assurance that it had good intentions in reaching out to the class likely will not sway the court. Parties and their counsel thus should be careful in considering not only what they say to putative class members, but also how they say it (by avoiding language that may be construed as inaccurate or coercive), and whether they have said enough (including information about the other side’s allegations and positions).
ENDNOTES
Cathy T. Moses is a litigation associate in the Newport Beach office of Irell & Manella LLP. She can be reached at CMoses@irell.com .