Class Action Ethics: Navigating Settlements with Individual Class Members

Why is a non-lawyer writing about legal ethics? Simply put—curiosity. As a forensic expert witness involved in class action lawsuits, I find myself wondering about the settlement process happening behind the scenes.

Defense Counsel's Ethical Restrictions on Individual Settlements

When a class action lawsuit is filed, defense counsel may be tempted to settle with named plaintiffs or absent class members on an individual basis, potentially to minimize liability or undermine the class's cohesion. However, such efforts are fraught with ethical concerns.

The primary ethical restriction for defense counsel is avoiding conduct that could be seen as interfering with the class action process. Rule 4.2 of the ABA Model Rules of Professional Conduct prohibits lawyers from communicating with represented parties without the consent of their counsel. This means that defense counsel cannot directly approach named plaintiffs or absent class members who are represented by class counsel to negotiate individual settlements.

Moreover, courts generally frown upon defense efforts to "pick off" named plaintiffs with individual settlements that leave the broader class without representation. Such actions can be seen as undermining the class action mechanism and may be deemed unethical or improper by the court. Defense counsel must be cautious in their approach and ensure that any settlement efforts do not compromise the integrity of the class action as a whole.

Plaintiffs' Counsel's Ethical Restrictions on Individual Settlements

Plaintiffs' counsel, who represents the interests of the class, also faces ethical restrictions when it comes to settling on behalf of individual named plaintiffs. One of the key ethical concerns is ensuring that any settlement is fair and reasonable for the entire class, not just for the named plaintiffs. Rule 1.7 of the ABA Model Rules, which addresses conflicts of interest, requires lawyers to avoid representing clients with conflicting interests. This rule is particularly relevant in class actions, where the interests of named plaintiffs may diverge from those of the absent class members.

For example, if a defendant offers a generous settlement to the named plaintiffs but provides little or no compensation to the rest of the class, plaintiffs' counsel may face a conflict of interest. Accepting such a settlement could violate their duty to the absent class members, who are entitled to fair representation. In such cases, plaintiffs' counsel must carefully evaluate the settlement offer and, if necessary, seek court approval to ensure that the settlement is in the best interests of the entire class.

Furthermore, any settlement agreement that releases the defendant from liability to the entire class must be approved by the court under Rule 23(e) of the Federal Rules of Civil Procedure. This rule requires that the settlement be "fair, reasonable, and adequate," providing a safeguard against unethical settlements that favor individual plaintiffs at the expense of the class.

Ethical Restrictions on Representing Absent Class Members

In class actions, absent class members are those individuals who are part of the class but are not directly involved in the litigation. These individuals may have the opportunity to seek recovery as part of a class settlement, but they may also face ethical challenges if they seek separate representation.

One key issue is whether non-lawyers or lawyers who are not appointed as class counsel can represent absent class members in seeking recovery. Rule 5.5 of the ABA Model Rules prohibits the unauthorized practice of law, which could arise if non-lawyers attempt to advise absent class members on legal matters related to the settlement. Additionally, lawyers who are not appointed as class counsel must be careful not to create conflicts of interest or undermine the court-approved settlement process.

Courts have generally held that the actions of the class representatives and class counsel bind absent class members unless they opt out of the class. Therefore, any attempts by non-lawyers or outside lawyers to represent absent class members in negotiating individual settlements may be viewed as unethical, particularly if they conflict with the interests of the class as a whole.

Conclusion – So Who Wants an Honest Lawyer Anyway?

Class action ethics present unique challenges, particularly when it comes to settling with individual class members. Both defense and plaintiffs' counsel must navigate a complex web of ethical obligations to ensure that their actions are fair, transparent, and in the best interests of all parties involved. By adhering to professional standards and seeking court approval, when necessary, lawyers can uphold the integrity of the class action process and ensure that justice is served for both named plaintiffs and absent class members alike. In the end, an honest lawyer is essential for maintaining trust and fairness in the legal system.