Friday, November 20, 2009

Second District Holds Class Counsel’s Obligation to the Class Extends to Enforcement of Judgment Against Insolvent Defendant in Barboza v. West Coast Digital GSM, Inc

On November 19, 2009, the Second District (Division 4) issued an interesting opinion relating to class counsel’s post judgment obligations to the class when the defendant is essentially judgment proof. The opinion, Barboza v. West Coast Digital GSM, Inc., __ Cal. App. 4th __ (2009), involved somewhat unique facts, as class counsel was able to obtain a stipulated default judgment on behalf of the class specifically because the defendant had ceased operations, sold its assets to a third party, and stated its intent to file for bankruptcy. See Slip Opinion, at 4. An issue arose, however, when class counsel sought approval of the proposed class notice, which advised the class that class counsel would not be taking further steps to enforce the judgment. See id., at 4-5. The trial court denied approval, concluding that class counsel’s obligations to the class included a duty to actually enforce the judgment. See id., at 5.

The CAP agreed. The Court reasoned that unlike traditional single party litigation, class litigation, and specifically the element of adequacy, requires that the named plaintiff retain counsel that will adequately represent the interests of the class as a whole. See id., at 7. As explained by the Court, the fiduciary duty owed to the class under standards of adequacy does not end at judgment, but extends in scope to all stages of the litigation where class issues are implicated. See id., at 7-8. Moreover, the Court noted that class counsel’s position was deemed to rest upon an inherent conflict, as class certification was achieved based on the principle that individual claims were too small to justify individual actions, but by seeking to abandon the case at judgment, class counsel would effectively strand class members with an aggregated, class-wide judgment that no individual class member could enforce. See id. at 8.

In short, Barboza is a good example of the importance of evaluating cases thoroughly prior to certification and being selective in the type of class cases counsel elects to take on. However, in fairness to counsel in this case, the risk of having a case turn south on you post certification is a scenario that one cannot always foresee. While Barboza confirms that class counsel’s duty extends to enforcement of the class judgment against an insolvent defendant, the opinion largely leaves unresolved the ultimate question regarding the scope of that duty. At the close of its opinion, the Court proposes one potential resolution: associating in counsel experienced in enforcing judgment (at the expense of the class), and if unsuccessful, moving the Court to be relieved as class counsel.

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