By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth SynopsisIn a class action lawsuit alleging multiple fraud claims, a federal court in Illinois granted the plaintiff’s motion to sanction the defendants for interfering with the class notice process by encouraging class members to opt-out, and sanctioned their attorney for communicating directly with a represented party.

For employers (and their defense counsel) who are embroiled in class action lawsuits, this ruling serves as a cautionary tale of “what not to do” in terms of communicating with class members.

Case Background

In Mullen v. GLV, Inc., No. 18-C-1465, 2020 U.S. Dist. LEXIS 43705 (N.D. Ill. Mar. 13, 2020), the plaintiff alleged that a youth volleyball program and its owners and operators, Rick Butler and Cheryl Butler, concealed Rick Butler’s history of sexual abuse of underage girls from her and other parents who enrolled their children in the programs.  The Court granted the plaintiff’s motion to certify a class of similarly-situated parents, and in February 2019, the Court approved a class notice to be distributed.

On March 19, 2019, the class administrator published the class website and distributed class notices via e-mail.  Later that day, Cheryl Butler e-mailed the defendants’ employees alerting them that they were “starting to get phone calls” about the class action.  Id. at *2.  She told the employees that, “Opt out is crucial!”  Id.  Further, when the defendants’ vice president received an email from a class member asking whether it would affect the next season, he responded, “ . . . [i]f there is a groundswell of parents that opt out of the lawsuit, which I think will happen, then it most likely will get dismissed. If you have any questions please let me know.”  Id. at *3.  The next day, he sent a mass email to class members describing the suit and the implications of opting out.  Cheryl Butler and the vice president thereafter continued to communicate with class members about the lawsuit, and even referred one class member to a Facebook page, “Parents against the Sports Performance Class Action Lawsuit,” explaining the opt-out process.  Id. at *4.

During a March 29, 2019 status hearing, class counsel informed the Court that they suspected the defendants were improperly communicating with class members and encouraging them to opt out.  The defendants’ attorney denied the allegations, noting, “ . . . [t]hey received e-mails from class members regarding the opt-outs, regarding their opinions on the lawsuit, and every e-mail I’ve seen them respond with is, I’m very sorry, I can’t talk about this right now, you know, thank you, something along those lines.”  Id. at *5.  After the March 29, 2019 hearing, the defendants continued to communicate with class members about the suit, despite what the defendants’ attorney told the Court.  On April 11, 2019, the defendants’ attorney directly e-mailed a class member who had forwarded an email to the defendants.  Id. at *6.

Subsequently, the plaintiff moved for sanctions against the defendants for improperly interfering with the class notice process.  Further, the plaintiff moved for sanctions against the defendants’ counsel on the basis that she violated her ethical responsibilities by communicating directly with represented parties, and knowingly misrepresenting her clients’ conduct during the opt-out period when questioned about it by the Court.  The defendants separately moved for summary judgment.

The Court’s Decision

Although the Court held it would be largely granting the defendants’ motion for summary judgment in a separate opinion, it granted plaintiff’s motion for sanctions and held the summary judgment, “ruling does not render moot the motion for sanctions.”  Id. at *2.  The Court explained that when a party communicates with class members during the notice period in a way that is potentially misleading or may discourage class participation, it disrupts the Court’s authority over the class notice process.  Id. at *8.

The defendants argued that there was nothing improper about their communications with class members since they allegedly did not discourage class participation.  The Court rejected this argument, opining that this logic disregarded the potential for coercion arising from the context and source of a part’s communications with class members.  Id. at *9.  Accordingly, the Court held the Court that the defendants’ communications with class members during the notice period were potentially coercive and therefore undermined the notice process set forth in Rule 23.

Turning to the issue of sanctions, the Court explained that it may only do so if it found the abuse of Rule 23 to be willful.  Applying this standard here, the Court found that the defendants intentionally interfered with the class notice and opt-out process, and therefore granted the plaintiff’s motion for sanctions.  After noting that the sanctions must be proportionate to the gravity of the offense, the Court held that the plaintiffs were entitled to recover from the defendants their reasonable attorney’s fees and expenses for bringing the sanctions motion, and individually assessed each named defendant a civil sanction of $5,000 fine as a penalty for their misconduct.

Finally, the Court held that the defendants’ counsel violated Model Rule 4.2, which prohibits attorneys from directly contacting parties they know to be represented by counsel, by ceasing to immediately terminate communications with class members.  Further, the Court held that the representation made by the defendants’ attorney at the March 29 court hearing constituted a misrepresentation to the Court and prejudiced the class.  Accordingly, the Court reprimanded the defendants’ attorney for her false statement to the Court.  The Court further directed her to complete for her next continuing legal education cycle imposed by the state bar twice the required amount of professional responsibility hours.  Id. at *19-20.

Implications For Employers

For employers, the class notice process can be difficult to stomach as it involves adverse attorneys directly communicating with their employees.  Nonetheless, the sanctions issued by the Court here should remind employers to avoid communicating with class members about the lawsuit.  Finally, outside defense counsel should proactively educate their clients on the pitfalls of class member communications, and be sure to avoid such communications themselves.