United States: Another Federal Court Suggests That, To Meet Adequacy Requirements, Class Counsel Should Reflect The Diversity Of The Putative Class

Seyfarth Synopsis: On July 14, 2020, Judge James Donato of the U.S. District Court for the Northern District of California became the latest to deny appointment of class counsel in a class action based on lack of diversity, including lack of diversity in gender (all male) and experience (too much). He issued that order in the case entitled In Re Robinhood Outage Litigation, No. 20-CV-01626 (N.D. Cal. July 14, 2020). Although the latter reason may seem counter-intuitive, particularly because Judge Donato noted that such experience was likely to benefit the putative class, the ruling is part of a growing trend by federal judges to demand diversity in the lead counsel ranks and is, perhaps, the genesis of a new angle of attack for defendants.

Background

Robinhood provides an internet/cloud-based platform for users to trade in stocks, funds, and options through a mobile phone application. On March 2, 2020, the Dow Jones Industrial Average rose by over 1,294 points, the S&P 500 rose by over 136 points, and the Nasdaq rose by 384 points. On the same day, however, Robinhood experienced downtime across its platform that affected functionality, including users' ability to trade. See Taaffe v. Robinhood Markets, No. 8:20-CV-513, 2020 U.S. Dist. LEXIS 55980, at *1-2 (S.D. Fla. March 31, 2020). Robinhood thereafter became the target of numerous putative class action lawsuits.

On July 14, 2020, District Judge James Donato of the U.S. District Court for the Northern District of California entered an order consolidating 13 separate actions filed against Robinhood and considering the appointment of interim class counsel. Although the request for appointment of lead counsel was unopposed, Judge Donato denied the request without prejudice in In Re Robinhood Outage Litigation, No. 20-CV-01626 (N.D. Cal. July 14, 2020).

The Court's Ruling

Although it had "no doubt" that plaintiffs' firms Kaplan Fox and Cotchett Pitre, and the individual lawyers identified as lead counsel would provide "highly professional and sophisticated representation to plaintiffs," the Court ruled that it was "not prepared to appoint them at this time." Id. at 3. The Court explained that it was concerned about "a lack of diversity in the proposed lead counsel." It noted, for example, that "all four of the proposed lead counsel are men, which is also true for the proposed seven lawyers for the 'executive committee' and liaison counsel." Id.

The Court also noted that, in addition, the proposed counsel "appear to be lawyers and law firms that have enjoyed a number of leadership appointments in other cases." Although the Court opined that such experience was "likely to benefit the putative class," it found that the proposal "highlights the 'repeat player' problem in class counsel appointments that has burdened class action litigation and MDL proceedings." Id.

Thus, while counsel with "significant prior appointments" are "by no means disqualified from consideration," the Court held that "leadership roles should be made available to newer and less experienced lawyers, and the attorneys running this litigation should reflect the diversity of the proposal national class." Id. The following day, the two firms went back to Judge Donato with a revised roster that identified a female partner as a co-leader and included six women on the executive leadership committee.

A Growing Trend?

Other federal judges have exercised similar discretion. More than a decade ago in 2007, Judge Harold Baer noted in In Re JP Morgan Chase Cash Balance Litigation, 242 F.R.D. 265, 277 (S.D.N.Y. 2007), that a proposed class included "thousands of Plan participants, both male and female, arguably from diverse racial and ethnic backgrounds" and that, therefore, "it is important to all concerned that there is evidence of diversity, in terms of race and gender, of any class counsel I appoint."

Three years later, the same judge ruled in In Re Gildan Activewear Inc. Securities Litigation, No. 1:08 Civ. 05048 (S.D.N.Y. Sept. 20, 2010), that, because a proposed class included "thousands of participants, both male and female, arguably from diverse backgrounds," it was therefore "important to all concerned that there is evidence of diversity, in terms of race and gender, in the class counsel I appoint." Judge Baer directed the firms to "make every effort" to assign at least one minority lawyer and one woman lawyer with requisite experience" to the matter.

The Rules seemingly allow courts to exercise such discretion. Rule 23(g), for instance, requires that, in appointing class counsel, a court must consider factors such as "counsel's experience in handling class actions" and "knowledge of applicable law," and may consider "any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class." Fed. R. Civ. P. 23(g)(1). If more than one adequate applicant seeks appointment, "the court must appoint the applicant best able to represent the interests of the class." Fed. R. Civ. P. 23(g)(2).

Implications

As diversity is a key goal in all aspects of the business world, the ruling in In Re Robinhood Outage Litigation is a positive step in the right direction. The factors that a court deems pertinent to a lawyer's ability to fairly and adequately represent the interests of the class are subject to discretion. Whereas the rulings are currently few, we expect that more courts will begin to consider the makeup of proposed legal teams at increasing rates. This opens the door for defense counsel to point out the same shortcomings, including where for example proposed class counsel are repeat players, lack diverse membership, or fail to reflect the putative class, as potential grounds to challenge the adequacy of class counsel to effectively represent the interests of class members.

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