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Class Action Defense Cases–Sharp v. Next: California Court Affirms Trial Court Order Refusing To Disqualify Plaintiffs’ Class Action Counsel And Refusing To Remove All Plaintiffs From Serving As Class Action Representatives

Potential Conflict Between Labor Organization Financing Class Action Litigation and Individual Named Plaintiffs in Class Action Lawsuits did not Disqualification of Plaintiffs’ Class Action Counsel, Funded by Labor Organization, because Conflict Waivers Signed by Plaintiffs and Labor Group were Effective and Trial Court did not Err in Refusing to Disqualify Named Plaintiffs from Prosecuting Class Actions as Motion was Premature California State Court Holds

The Writers Guild of America is a labor organization that represents film, television, news and other media writers; the Guild held several meetings with writers of reality television programs because it believed that reality TV show employees were not provided breaks or overtime pay as required by California law. Sharp v. Next Entertainment, Inc., ___ Cal.App.4th ___ (Cal.App. May 28, 2008) [Slip Opn., at 4]. The Guild believed that class action litigation “would create economic pressure on those who paid illegal wages” and “could facilitate the Guild’s unionizing campaign.” Id., at 4-5. Ultimately, two class action lawsuits were filed (the Sharp class action against Next Entertainment and others, and the Shriver class action against Rocket Science Laboratories and others); the class action complaints were filed on behalf of 21 individuals, 16 of whom had attended the meetings referenced above, by a law firm that “had represented the Guild in a significant number of matters for many years.” Id., at 5. The class action plaintiffs signed conflict waivers, acknowledging that “the Guild would subsidize the attorney fees for the class action lawsuits and that the firm represented the Guild in other matters”; however, the named plaintiffs demanded, and received the Guild’s assurance, that they control the litigation, not the Guild. Id. Defense attorneys eventually moved to dismiss plaintiffs’ law firm arguing that the Guild’s interests and the law firm’s interests conflicted with the interests of the named plaintiffs, and that the law firm had divided loyalties. Id., at 9. The trial court denied the motion to disqualify plaintiffs’ counsel, but expressed concern about potential conflicts of interest and the possibility that the Guild would seek to control the litigation, and it issued verbal and written orders to plaintiffs and their counsel seeking to address this concern. Id., at 10-11. The trial court also ordered that four of the class action plaintiffs be removed from the litigation based on their deposition testimony that “one of their personal goals was to assist the Guild’s unionizing efforts.” Id., at 11. The trial court refused, however, to dismiss all 21 of the class action plaintiffs, id., at 12. Defense attorneys appealed the denial of the motions to disqualify and to remove all of the named plaintiffs from the class action litigation; plaintiffs cross-appealed, challenging certain of the verbal and written orders by the trial court, id. The appellate court affirmed the orders appealed by the defense, and reversed the orders appealed by the plaintiffs.

The vast majority of the Court of Appeal opinion concerns defendants’ appeal. See Sharp, at 13-32. The appellate court disagreed that the entire law firm representing plaintiffs had to be disqualified because the firm’s “duty of loyalty to the Guild creates actual and potential conflicts of interest because the Guild’s interest in furthering its organizing efforts is antithetical to the sole interests of absent class members, which is to maximize the recovery on the wage and hour claims.” Id., at 13. After providing a detailed summary of the law surrounding motions to disqualify and conflicts of interest, see id., at 13-21, the Court of Appeal’s comprehensive analysis led it to conclude that the conflict waivers signed by the named plaintiffs in the two class action lawsuits were effective, see id., at 21-30. The appellate court stressed, however, that “the class action procedures already include a system by which the court determines if the named class representatives can adequately represent the class,” and that “when plaintiffs seek to have the classes certified, they will have the burden of meeting these requirements.” Id., at 23. The Court of Appeal was also mindful that the motion to disqualify had been filed not by one of the class action plaintiffs, who allegedly suffer as a result of the purported conflict, “but by opposition parties who are not directly touched by the purported conflict.” Id., at 24.

The appellate court more easily disposed of defendants’ claim that the trial court erred in failing to remove all of the plaintiffs from serving as representatives in the class actions. Again, the class action procedures require that plaintiffs establish their suitability to prosecute the class action lawsuits on behalf of the defined class, but “defendants preemptively raised the issue of plaintiffs’ qualification to serve as representative parties.” Sharp,. at 31. At the time of the defendants’ motion, the plaintiffs “only represent[ed] themselves,” id.; and the mere fact that they attended meetings organized by the Guild was insufficient to compel their removal at this stage of the class action litigation, id., at 31-32.

Turning to the cross-appeal, which focused on verbal and written orders from the trial court that instructed plaintiffs’ law firm “to ask questions of the plaintiffs who have not been removed from their representative roles,” the Court of Appeal reversed, holding the orders to be vague and unenforceable. Sharp, at 32. We do not summarize that portion of the Court’s opinion here; the interested reader may find the discussion at pages 32 through 34 of the slip opinion.

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