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January 18, 2011

Kullar v. Foot Locker Retail, Inc. (2011) 191 Cal.App.4th 1201

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The First District holds attorneys representing putative class members in one case, and objecting class members in a related case, were not disqualified for representing conflicting interests in the two cases. 

Qualls & Workman, L.L.P. (Q & W) successfully prosecuted an appeal on behalf of three objectors, including Crystal Echeverria, of a trial court order approving a settlement in the case of Kullar v.  Foot Locker Retail, Inc., a class action.  Q & W represented Echeverria in a partially overlapping putative class action against Foot Locker and others in another county, as well as a third action in the same county, both of which were stayed.  After remand and the presentation of additional evidence, the Kullar trial court again approved the settlement over Echeverria’s objections.  Echeverria dismissed her first action and the stay was lifted on her second action.

Foot Locker unsuccessfully moved to disqualify Q & W as counsel for the objectors in Kullar and Echeverria in her second action.  The disqualification motion asserted Q & W had a conflict of interest pursuant to Rule of Professional Conduct 3-310 because members of the putative class in Echeverria are also members of the class covered by the proposed settlement agreement in Kullar.  Foot Locker asserted that by representing objectors in Kullar, Q & W were taking actions to block distribution of settlement money to current and former Foot Locker employees who were putative class members in Echeverria.  The trial court held that Q & W were advocating consistent positions in both cases and found no reason to believe the attorneys were acting out of any improper motives.

The Court of Appeal noted that no class was ever certified in either case filed by Echeverria, and no attorney-client relationship had arisen between Q & W and the members of the putative class.

The Court rejected Foot Locker’s citations to cases that involve situations where preliminary consultations between the individual and the attorney give rise to fiduciary obligations.  There are ethical obligations class action attorneys owe to putative class members once a class action complaint is filed, but there is no attorney-client relationship.  Although Q & W did assume some fiduciary obligations to members of the putative class, there is no authority suggesting that Q & W could not urge that a proposed settlement in related litigation is not in the best interests of the class.

Q & W asserted that the Kullar parties had not demonstrated their settlement was fair or reasonable.  If Q & W prevailed, it would prevent the Kullar class members from recovering under the proposed settlement.  Putative class members did not object or opt out, but they did not expressly indicate that the settlement was in their best interests or that they were not entitled to a greater recovery.  The objection filed by Q & W could be in class members’ best interests if they are likely to obtain a greater recovery by pursuing the litigation.

Thus, there is no more of a conflict between Q & W’s clients and the unnamed members of the class who favor the settlement, than there is between Kullar and unnamed class members who do not favor the settlement, but have refrained from expressing their views, yet do not want to be excluded from the recovery if the settlement is approved.  Disqualification is no more justified than the automatic disqualification of class counsel whenever a dispute arises among class members or class representatives as to the advisability of settlement.

Putative class members favoring the proposed Kullar settlement may disagree with Q & W about the adequacy of the settlement and their desire to have it approved, but their common interests in the outcome of the litigation are unaffected by that disagreement.  Q & W did not obtain confidential information from the putative class members who favor the settlement.  Nor had Q & W engaged in disloyal conduct towards putative class members.

This is distinct from a situation where attorneys represented members of the putative class opposing the settlement of a related class action, and members who favored settlement of the other case.  The class members favoring settlement were known to the attorneys, had provided declarations in the class action, and were represented by the attorneys at deposition.  The class members had approved the settlement in the related case and submitted claims forms, expressly indicating their approval of the settlement.  The attorneys had withheld information from the three putative class members who favored the settlement, and had committed two other ethical breaches.  In that situation, disqualification was proper.

Comment: This case suggests that determining whether an attorney representing putative class members has an attorney client relationship sufficient to warrant disqualification is a matter of degree.  The more contact and representative activities undertaken by the attorney on behalf of the putative class member, the more likely that traditional attorney – client duties apply to the representation of the putative class member.  In addition, the court will analyze whether the positions taken by the attorney on behalf of putative class members actually conflict or merely indicate disagreement.

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