Law Firm Class Action Lawsuits: Ethical Or Not?

A class-action lawsuit is a type of civil lawsuit that allows a group of people with similar complaints to collectively file and pursue legal action against the same entity. This collective action is often the most economical way for individuals to seek compensation for shared injuries and losses. Law firms can solicit for class-action lawsuits, but they must adhere to ethical rules and regulations, such as those outlined by the American Bar Association's Model Rules, which vary across states. These rules govern the contents of written solicitations, prohibit certain forms of communication, and aim to protect consumers from misleading or unethical practices.

Ethical issues in developing a class action case

Developing a class action case can present several ethical issues that attorneys must navigate carefully. One of the primary challenges is maintaining confidentiality and avoiding conflicts of interest when representing multiple clients in a single case. Plaintiff-side class-action attorneys often receive confidential information from several different clients, and ethical rules dictate that this information cannot be disclosed to other clients without the individual client's consent. To address this, attorneys may include a provision in their representation agreements, allowing the sharing of confidential information with other clients in the same case, with any exceptions clearly stated in writing.

Another ethical concern arises when attorneys communicate with potential witnesses who are also potential plaintiffs. In such cases, caution is necessary to avoid the perception of solicitation, which is defined as offering professional employment with a significant motive for pecuniary gain. To comply with ethical standards, attorneys can create scripts for telephone contacts, ensuring that their statements are accurate, ethically compliant, and do not imply the availability of professional employment.

Written communications with prospective clients also have specific standards. Rules, such as the California Rule of Professional Conduct (CRPC) 1-400 and Model Rule 7.3(c), require that written solicitations bear words like "Advertisement" or "Advertising Material" on the envelope and at the beginning and end of the communication. Attorneys must also refrain from making guarantees or predictions about case outcomes and be cautious when discussing fee structures to avoid misleading potential clients.

Additionally, when contacted by a potential client seeking legal advice, attorneys should consider ethical guidelines before disclosing any information shared by the potential client or revealing that the contact took place. This situation may arise when a potential class member provides valuable information for a case, and the attorney must then decide whether to seek the individual's consent before using the information.

Overall, developing a class action case requires attorneys to carefully navigate confidentiality, solicitation, and disclosure of information to ensure they act ethically and in the best interests of their clients.

Rules for advertising and solicitation

Advertising and solicitation are both used by lawyers and law firms to try to retain business. However, advertising and solicitation differ in how direct they are in targeting prospective clients. While advertising is allowed as long as it is compliant with the rules, solicitation is generally prohibited.

• Advertising communications should not be directed at specific individuals or groups. According to the ABA Rule 7.3 regarding Solicitation of Clients, lawyers cannot direct any advertising communication to a specific person who needs legal services for a certain matter, and offer to provide legal services for that particular matter.
• Advertising communications can be directed at the general public and are not considered solicitation. Lawyers can advertise their services to a general audience online or through traditional advertisements.
• Communications that are “transmitted by mail or equivalent means” must “bear the word ‘Advertisement,’ ‘Newsletter’ or words of similar import in 12-point print on the first page,” and if the communication is transmitted in an envelope, the same word(s) must appear on the envelope.
• Lawyers should not make false or misleading statements. For example, using superlatives like “the best,” “the most,” or “the lowest” when advertising could be construed as deceptive.
• Lawyers should not give guarantees, warranties, or predictions regarding the outcome of the representation.
• Testimonials about the attorney are allowed but must be accompanied by a specific disclaimer.
• Lawyers should disclose whether the client will be liable for costs.
• In-person solicitation is banned in some states.

What is a class action lawsuit?

A class action lawsuit is a type of civil lawsuit that allows a group of people with similar claims to sue one or more defendants as a collective. This type of lawsuit is typically pursued when individuals have been wronged or injured in a similar way by the same company, organisation, or entity, and they seek compensation or restitution.

Class action lawsuits originated in the United States and are still predominantly an American phenomenon. However, some other countries, like Canada and a few European nations, have made changes to allow consumer organisations to bring claims on behalf of consumers. In the US, the rules governing class action suits vary from state to state.

Class actions are an economical way to pursue justice and compensation for small injuries and losses. They aggregate many individualised claims into one representational lawsuit, making it feasible for consumers to come together to hold corporations accountable. Each plaintiff has an equal share in the outcome, and they do not need to invest personal time or money into the case beyond completing a short claim form. This power in numbers ensures that even when a defendant engages in widespread harm that minimally affects each individual plaintiff, they must compensate those individuals for their injuries.

Common issues addressed in class action litigation include illegal hiring or salary practices, dangerous or defective drugs or products, environmental or health concerns, deceptive advertising, hidden fees, insurance claim disputes, and financial fraud.

Finding plaintiffs for a class action lawsuit

Finding plaintiffs for a class-action lawsuit can be challenging for lawyers. In class actions, plaintiffs' lawyers often need to find, select, or replace named plaintiffs. When identifying named plaintiffs, class action attorneys must navigate the requirements of Rule 23 and their ethical duties.

One way to find plaintiffs is to establish a reputation for handling specific types of cases. This way, other individuals and attorneys can refer potential clients to you. For example, defense attorneys who only represent defendants may receive calls from individuals seeking a plaintiffs' class action attorney and refer them to plaintiffs' class action attorneys they know and respect. Similarly, attorneys who are not class action attorneys may discover that their clients' problems are not unique and refer them to a class action attorney.

Organizations may also refer potential clients. Attorneys can create relationships with organizations that may have an interest in the issues raised in their proposed class actions and have access to persons who may fall within the proposed classes. Depending on the subject matter of the case, such groups might include labor unions, nonprofit advocacy organizations, community groups, professional associations, and tenant and homeowners' associations.

Another way to find plaintiffs is to use a plaintiff finder service. These services specialize in finding plaintiffs for class actions and other types of lawsuits. They have helped law firms find tens of thousands of plaintiffs for cases against various companies.

It is important to note that there are ethical considerations when finding and communicating with potential plaintiffs. For example, the California Rule of Professional Conduct (CRPC) and Model Rule 7.3(c) have specific requirements for written solicitations, including including the word "advertisement" or "newsletter" in a specific font size and location. Attorneys should also be careful not to give guarantees or make predictions about the outcome of the case.

Lawyer-client compensation ratio

In a class-action lawsuit, a group of people who have been wronged or injured by the same individual, organisation, corporation, or event join together and file a lawsuit seeking compensation from the defendant(s). Class action lawsuits are typically handled by one law firm, making them less expensive and time-consuming than multiple firms handling multiple cases.

Class action litigators usually work on a contingency basis, meaning they will receive a portion of the award if the lawsuit is successful but will charge no fees if it fails. The lawyer-client compensation ratio in class-action lawsuits depends on several factors, including the specific case details, the class size, and the court presiding over the case. The presiding judge reviews the settlement offer and, if deemed fair and adequate, the settlement amount is divided. The lead plaintiff, who is the public face of the lawsuit, receives their percentage first, followed by the lawyers, who receive a restricted and reasonable percentage for their legal fees and related costs. The rest of the settlement money is then divided among the remaining class members. It is important to note that the settlement is not divided evenly among class members, and some plaintiffs may receive larger or smaller percentages based on their level of involvement and the nature of their injuries.

In the United States, the rules governing class action suits vary from state to state, and ethical considerations must be made to ensure that any solicitation for clients is conducted appropriately. For example, the California Rule of Professional Conduct (CRPC) and Model Rule 7.3(c) include guidelines for advertising and solicitation, such as including specific wording to indicate that a communication is an advertisement.

Frequently asked questions