When a lawsuit crosses a general counsel’s desk, two words stand out more than any other: “class action.” The company faces a lawsuit from not just one person, but from hundreds, perhaps thousands or more. Already, the media may have wind of the story, and the CEO and other top executives will soon be barraged with requests for interviews and comments. Company stock is likely to take a hit before the close of the market and may be down for weeks or months. With the product under attack, the entire company is on the defensive, fighting for its life. Everyone is looking to the general counsel to save the day.
In today’s legal environment, new products and services get tested in courtrooms as often as in living rooms. When a prescription drug, medical device, tire, or laptop fails in similar ways for several consumers, a company may face a class-action lawsuit. An astute corporate general counsel must consider a class action as a “when” rather than an “if,” and work toward the goal of defeating class certification. The first step in being prepared is a “class-action checklist” that anticipates legal arguments and trumps them. This 20-item checklist describes the keys to a successful outcome.
1. Get the facts—all of them. In defending any case, particularly a class action, gather all the relevant facts. Jenner & Block Partner Molly J. Moran is a firm believer in knowing what one is getting into. “The first thing to do is learn all the facts to get a sense of the magnitude of the situation and to give the client a proper evaluation,” she says. “How big a class are we talking about? Have the facts changed about the product? Are the key players who developed the product still around? How much money has the client made from the product?”
Sylvia H. Walbolt, partner at Carlton Fields, agrees. “First, sit down with the client and get as many facts as you possibly can. You do that in any case, but in particular class-action lawsuits.” Thus, the first job is to gather the details, organize them, and compile them in an internal memo so that they are at your fingertips. This process is surprising and revealing. Often, the actual facts are very different from what you believe they happen to be.
2. Grasp the legal issues. Next, examine the legal issues raised by the allegations in the complaint. “After looking at the facts, look for legal issues,” recommends Walbolt. “Always have them in the back of your mind, because if you have to appeal, you want the appellate court reviewing legal issues, not factual ones. Factual issues are reviewed under an ‘abuse of discretion’ standard, which is very high. Legal issues are reviewed de novo.”
3. Know the players. Be familiar with opposing counsel, the judge, and most important, outside counsel. Class actions are complex, sophisticated matters, and the wrong defense counsel can make a bad situation worse. Hire defense counsel who specialize in class actions, preferably in the type of class action that is the subject of the complaint. “Class-action lawsuits arise in a wide array of practice areas, including consumer, securities, antitrust, employment, healthcare, ERISA, and environmental. The best and most efficient representation will likely be provided by outside counsel with expertise in the substantive area underlying the class action and the procedural rules and strategies that govern class-action litigation,” notes Tiffani Lee of Holland & Knight. In addition, search for outside counsel who have defended claims brought by the firm that filed the class action. Their insight will prove invaluable.
Recruit outside counsel to learn everything possible about the plaintiff’s counsel, particularly his or her level of experience in handling class-action suits. Is the plaintiff’s counsel competent to tackle such a complex matter? Inexperience of the plaintiff’s counsel may enable a company to mount a defense to the lawsuit on the basis of inadequacy of counsel.
Kenneth E. Payson, partner at Heller Ehrman, emphasizes this point. “Study who the plaintiff’s counsel is, because it is essential. There are a number of plaintiff’s firms who handle exclusively class-action suits. And then there are firms who should not be handling them. You must always evaluate whether plaintiff’s counsel is adequate. A class cannot proceed with inadequate counsel.”
Knowing the opponent is also important when evaluating strategy and settlement options. “I want to know who the plaintiff’s attorney is. If you get a sophisticated lawyer, they will walk away if you are able to show this isn’t a good case.” Moran explains. An inexperienced attorney will likely make unreasonable demands and may drag out litigation longer than necessary.
And, of course, you need to know the judge. Some judges are more likely than others to grant class certification. A given judge can have an impact on how a company values a case and its settlement negotiations.
4. Hire experts. Right now. Do not wait to hire experts. Yes, they are expensive, but the value they bring to a case may be priceless. Then, talk to experts and get their sense of the case to learn how to best approach it. Joanna J. Cline, partner at Pepper Hamilton, shares this view. “Experts help you undermine the substance of plaintiffs’ claims. They are also good at the certification stage, in showing how plaintiffs don’t have things in common, so as to help undermine a class. Often, experts will be able to see nuanced issues among class members to help defeat or narrow the scope of a class.”
5. Ensure that outside counsel understand the business. For outside counsel to be effective, they need to understand the company’s business. Commit the time and resources to ensure that outside counsel understand the product or service in dispute. To that end, Walbolt suggests, “It is very helpful if the client can assign you a businessperson—who knows the business—who can work with you. No one knows the business like the client does.” Elizabeth Hernandez, the City Attorney for Coral Gables, Fla., agrees. She believes this advice is particularly relevant when representing government bodies or entities. “It is always incumbent on outside counsel to understand not just the wide-ranging impacts of a particular issue on an entire industry (or municipalities), but also that there may be factually distinguishing features region to region. What we always try to do is educate the outside counsel on the intent behind the regulation (or decision). We make certain that city attorneys from each of the affected regions—we create a grid—are on an oversight committee so that we have everyone’s input. Finally, we make certain outside counsel provides recommendations on how to make changes, minimal or major, that will accomplish the same goals. This keeps costs and issues to a minimum.”
6. Develop a litigation plan with the end in mind. As with any other case, talk through with outside counsel a litigation plan that delivers the desired result. According to Troy M. Yoshino, partner at Carroll Burdick & McDonough, “It is important to get on top of class-action matters very quickly and develop a game plan so that it is you who dictates the course of litigation. You need to get aggressive early.”
For example, one of the first things the defense team must determine is whether the case can be removed to federal court. “Defendants facing purported class-action complaints filed in state court should immediately assess whether there is a basis for removal to federal court. Notably, the Class Action Fairness Act (CAFA) of 2005 expanded federal jurisdiction for diversity class actions, while reserving for the states certain actions of a local nature. Thus, CAFA provides some options for the defense that did not previously exist. Those should be thoroughly explored at the outset of the case,” notes Lee.
7. Define what “victory” means. When developing the game plan, spell out goals and specifically define what constitutes a win. Jones Day Partner Patricia J. Villareal defends securities class actions. Villareal notes that defeating class certification in these class actions is difficult. But a victory is often something short of defeating class certification. “You have to define what victory is. Usually, the goal is more strategic. I have achieved victories of delay or distraction that can be important to how the case is viewed by the plaintiff’s counsel. Although it is likely we will not win the battle to prevent class certification in the securities setting, there will be advantages and strategic reasons to fight class certification vigorously.” Cline agrees that victory is defined by the type of case. “It often is tough to fight certification in antitrust price-fixing cases. It may not be worth fighting the class issue. A win may be defined by reducing the size of the class or the length of the class period.”
8. Get a handle on the damages. Evaluate what the company’s exposure may be to help set reserves and marshal resources. Counsel needs to know the size of a problem that the company is facing so that the company can appreciate the scope of the problem. Knowing what is at risk will help a company prepare an appropriate legal budget and develop a game plan.
9. Defend the product. To defeat class certification, attorneys must be prepared to defend the company’s product to the bitter end. If the company cannot stand behind the product, then it is time to consider settlement. “If you believe in a product, you have to defend it, and you have to find people in the company who are going to defend it. If you cannot defend the product, and you know it is going to be a problem, then you have to start thinking about finding a way to resolve the case,” says Moran.
10. Manage the company’s documents. When thinking about class actions, think documents—lots of them. “Documents produced can number in the millions. I handled a case where the client produced 10 million documents. This is a huge cost—not only to gather and produce these documents, but to prepare the corporate witnesses with these documents,” Villareal of Jones Day explains.
A plan is necessary to gather, sort, and organize all these documents and manage the technological tools to do so. “How are you going to review all the documents? Code them? Which ones are the hot documents? How are you going to use them?” Villareal asks. “Because it is such a costly item for the client, you need to devise a plan that will manage the production process.”
Yoshino’s firm relies in part on proprietary software to keep track of all those documents. “It is very important to stay on top of all the information that is out there. Our firm has a lot of technological tools that help us with document management.”
But before sorting through piles of documents, ensure that they have been preserved. Destruction of relevant records, even if done in the normal course of business, may subject a company to sanctions. Any litigation will require a documentation preservation directive to make sure that counsel has not added the issue of spoliation. Steve Y. Koh, a partner at Perkins Coie, agrees. “You want to ensure that the company stops purging documents in its normal course of business. You want to avoid any hint that the company did not preserve records.”
11. Limit discovery. With the enormous amount of documents out there, make every effort to limit discovery. “Try to get discovery limited during the precertification phase to discovery relevant to the issues raised by certification,” Koh says. “It is good to try to get discovery focused to reduce the burden on the defendant.” In short, press discovery on class certification before discovery on the merits.
12. Kill the case early. Search for the rifle shot that can kill the case early in the process. Is the case susceptible to a motion to dismiss? Summary judgment? Does an arbitration provision come into play? “Even though a lawsuit may be categorized as class action, it is still an individual lawsuit, before class certification, which is vulnerable to a dispositive motion,” Payson notes. It can be a huge benefit for a client to get out of a case before incurring the substantial burden and expense of class-related discovery and motions practice on class certification. David M. Orta, partner at Arnold & Porter, says that if he can knock out a suit on a dispositive motion, he does just that. If that is not feasible, he will try to get the case knocked out at the summary judgment stage. Likewise, Moran believes early motions can be a very effective way to derail a class action. “It’s not unheard of for class-action suits to get dismissed on substantive issues such as lack of personal jurisdiction over defendants or plaintiffs’ lacking standing. It’s also not unheard of to get a ruling enforcing arbitration clause.” says Moran.
13. Attack the representatives’ claims. Knocking out the prospective class representatives can discharge the entire case. “Look very hard for potential attacks on the individual claims of the class representatives,” suggests Koh. “If you can come up with good reasons why individual claims fail, you go a long way in showing why the entire action fails.” To that end, suggests Yoshino, work to get plaintiffs’ theories of the case pinned down through pleading practice or contention discovery, and then depose the named plaintiffs early, to evaluate whether they are adequate representatives and whether their claims are typical of the class. Villareal says that a plaintiff’s deposition could be the watershed event in a case. “Sometimes the plaintiff never bought the product in question. Or he did not know he was being put forth as a class representative.”
Eliminating the prospective representatives may eliminate the case for good. “Once we get dismissed on the individual claims, plaintiff attorneys may not be able to find new class representatives,” says Payson. A recommended strategy is to discharge class-action representatives who do not support the class, and in so doing, knocking out the cases.
14. Undermine the class. Strike at the heel of the prospective class by showing that individual issues predominate. In his cases, Orta tries to establish that individual issues prevail more than common issues. “A lot of class actions falter on this point,” he says. “Through the depositions of class representatives, we try to show that there are a lot more individual issues than common issues.” Certain types of cases, such as pharmaceutical or medical devices, are less suitable to class certification because personal injury matters focus on individual issues.
15. Have a public relations plan. Class actions are often front-page news in the Wall Street Journal and in other newspapers. Because class actions attract media attention, it is important to have a public relations plan to deal with the issues. Koh states, “Alert the company’s public relations and communications groups to be ready to respond to media inquiries.
16. Be prepared to fight the battle on more than one front. In addition to a class action filed in one jurisdiction, a company may face similar actions filed in other jurisdictions, with a government investigation to boot. A company needs an overall strategy to fight these different battles to ensure consistency. “Decide on a strategy in case you are defending the same set of facts in various jurisdictions in different settings,” says Moran. “You need to have a plan so that your witnesses are not being deposed multiple times in different jurisdictions, so that you are not responding to the same written discovery more than once.” Coordination is key. “You have to coordinate defending the different causes of action and the different parties prosecuting their claims,” Moran recommends. “You have to manage large groups of people to handle these matters.”
17. Be creative. Class actions are complex and unique. To respond to them, creativity is key. Jury consultants may help in developing themes for defending the case. Reviewing the web sites and blogs of different plaintiff class-action attorneys may provide insight into what to expect next from opposing counsel.
18. Treat the class certification hearing as a trial. A class action generally rises or falls on the court’s ruling on class certification. Therefore, it is imperative to treat the hearing as a court proceeding. Walbolt says, “We treat the evidentiary hearing on class certification as if it were the final trial. We prepare for it accordingly.”
19. Have a plan if the class is certified. If the class is certified, all is not lost. Have a plan on how to deal with it, whether through an appeal, a fight on the merits, or a settlement. Often, a settlement is the best resolution. “If you lose on class certification, focus on limiting the damages. Generally, if a class is certified, then counsel has to start laying the groundwork for an eventual, mutual settlement if your client does not have strong defenses on the merits,” says Orta. “Sticking points during settlement discussions revolve around an effort to structure a settlement that will withstand judicial scrutiny, which includes a determination of what is a reasonable fee for the plaintiffs’ counsel.”
20. Make sure the settlement sticks. If you are structuring a settlement, keep in mind that it will need court approval. A settlement that is too favorable to the defense may not withstand judicial scrutiny. “The settlement needs court approval, and courts will not rubber-stamp what the parties bring to them,” says Moran. “For example, coupons are just about dead. They got a bad name after the Class Action Fairness Act. You have to understand well in advance what it will take to get a settlement. Your settlement is only good if it gets final approval and is not appealed.”
In-house counsel can no longer expect to dodge class-action lawsuits, or the media exposure that accompanies these cases. Today, they are as much a part of the job description as employment claims, lease agreements, and regulatory issues. Knowing that, you should develop a plan of attack and have it ready the next time the company’s product or service becomes the subject of scrutiny. These 20 recommendations are a good place to start. DB
Francisco Ramos Jr., Esq. is a freelance writer and partner at the Miami-based offices of Clarke Silvergate Campbell.
From the November/December 2007 issue of Diversity & The Bar®
