Misleading Communications in Class Action Lawsuits

October 10, 2018

The U.S. Supreme Court has held that courts have both the duty and authority to exercise control over class, collective, and representative proceedings due to potential abuse, and that authority includes the duty to enter appropriate orders governing the conduct of counsel and parties. Gulf Oil v. Bernard (1981) 452, U.S. 89, 100; see also CCP § 187 (providing judges all means necessary to effectuate its jurisdiction); Cal. Rule of Court 3.767. This duty extends to the supervision of communications with Putative Class Members (“PCMs”) even before a class is certified. See Cheverez v. Plains All American Pipeline, LP (C.D.Cal. Mar. 3, 2016) 2016 WL 861107, at *2, 4-6 (citing In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on Apr. 20, 2010 (E.D.La. Fe. 2, 2011) 2011 WL 323866 at *2, 6). The Court’s duty is necessitated because “communications that misrepresent the status or effect of the pending action, or which may cause confusion, adversely affect the administration of justice.” Howard Gunty Profit Sharing Plan v. Superior Court (2001) 88 Cal.App.4th 572, 582. “An order under Gulf Oil ‘does not require a finding of actual misconduct’ –rather, ‘the key is whether there is potential interference with the rights of the parties in a class action.’” Retiree Support Group of Contra Costa County v. Contra Costa County (N.D.Cal. July 29, 2016) 2016 WL 4080294 at *5-7 (Citing O’Connor v. Uber Technologies, Inc. (N.D.Cal. Dec. 6, 2013) 2013 WL 6407583 at *4-5). Hence, the Court has a duty to order curative notice to the putative class following improper or misleading ex parte communications, may impose conditions on the parties to a class action or their counsel, and may address any other procedural matters to ensure the proper administration of justice. Cal. Rule of Court 3.767(a)(1)-(2), (5). California courts have also recognized such duty and authority, in their powers of “fundamental inherent equity, supervisor, and administrative powers, as well as inherent power to control litigation.” Slesinger, Inc. v. Walt Disney Co. (2007) 155 Cal..App.4th 736, 758.

Misleading communications “pose a serious threat to the fairness of the litigation process, the adequacy of representation, and the administration of justice generally.” Cheverez, supra, at *4-6; Howard Gunty, supra, 88 Cal.App4th at 582. The “responsibility to monitor communications is heightened where potential class members are unrepresented by their own counsel.” Cheverez at *6. Courts have found that this responsibility is also heightened when an employer engages in unsupervised communications with its workers regarding a settlement offer. See Marino v. CACafe, Inc. (N.D.Cal. April 28, 2017) 2017 WL 1540717 (“in the context of class action litigation, whether pre- or post-certification, unsupervised communications between an employer and its workers present an acute risk of coercion and abuse.”)

Courts have repeatedly invalidated settlement agreements obtained through misleading communications where critical information is omitted. See Retiree Support Group, supra at *7. Courts have found communications to be misleading when they do not provide putative class members sufficient information about a pending class action to allow them to make an informed decision about the waiver of their rights or fully evaluate their likelihood of recovery through the representative action. See Cheverez, supra at *6-7; County of Santa Clara v. Astra USA, Inc. (N.D.Cal. July 8, 2010) 2010 WL 2724512 (releases deemed invalid because defendant failed to provide an explanation of the claims of the plaintiffs, the plaintiffs’ counsel’s contact information, or the current status of the case, ultimately failing to provide enough information to the putative class to allow them to choose whether to accept settlement checks); Retiree Support Group, supra, at *3-4 (same); Gonzalez v. Preferred Freezer Services LBF LLC (C.D.Cal. Sept. 27, 2012) 2012 WL 4466605 (releases invalidated due to failure to inform PCMs as above, even though waiver stated that a former employee had filed a lawsuit); Marino, supra, at *2 (failure to provide enough information about pending lawsuit—see fn 2 above); Camp v. Alexander (N.D.Cal. 2014) 300 F.R.D. 617, 625-626 (curative letter issued and releases invalidated because defendant’s settlement packet “omitted key information, such as contact information for plaintiff’s counsel’s and a full description of the claims or the complaint.”); Slavkov v. Fast Water Heater I, LP (N.D.Cal. Nov. 2, 2015) 2015 WL 6674575 (gathering cases). “[E]vidence that the putative class members may have learned about the lawsuit in other ways does not mitigate the misleading nature of the communication.” Marino, supra, at *3.

Courts have also found communications misleading where the information contained therein is unclear or incorrect. For example, in Johnson v. Serenity Transportation, Inc. (N.D.Cal. Sept. 25, 2017) 2017 WL 4236798, Mag. Judge Corley invalidated releases where, inter alia, they did not state that Fair Labor Standards Act (“FLSA”) settlements require court approval, and where by signing the release the employee agreed not to participate in any future litigation because such language improperly suggests that by signing the release, the employee is prohibited from participating as a witness voluntarily or otherwise, not just that she or he will not be a class member.

Courts also recognize that coercion to accept a settlement proposal is present when made at the workplace. Id.; Marino, supra at *3 (collecting cases); Guifu Li v. Perfect Day Franchise, Inc.(N.D.Cal. 2010) 270 F.R.D. 509, 517 (employment relationship presents acute risk of coercion and abuse); Camp, supra, at 624 (“The case law nearly universally observes that employer-employee contact is particularly prone to coercion.”).

“A court may ‘take action to cure the miscommunication and to prevent similar problems in the future where potential class members have received inaccurate, confusing, or misleading communications.” Cheverez, supra, at *2. Indeed, courts applying the Gulf Oil standard have repeatedly determined that improper ex parte communications “require curative action by the court.” See, e.g. Marino, supra, at *2.

Author: Richard Hoyer
Category: Class Actions, Legal Procedure
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