A stir recently erupted in the securities class action bar after Baer issued an order in a case against Gildan Activewear Inc., directing two of the largest firms in the field, Labaton Sucharow and Robbins Geller Rudman & Dowd, to "make every effort" to put at least one woman and one minority lawyer on the case. The ensuing press about the order caused Edward Labaton, a senior partner at his firm, to make a rare court appearance earlier this month to publicly state that his firm was committed to equal opportunity (See Labaton's letter to Baer).
In a follow up order last Friday in In re Gildan Activewear Inc. Securities Litigation, 08 cv 5048, Baer said his initial order "was not intended to be critical in any way" of how the two firms promote diversity or prosecute and staff a case. But he said the diversity considerations "were goals I would urge be met in similar cases that come before me."
The judge is basically saying that if you don't meet my quota, you may not be appointed as lead counsel in a securities case.
Under the the Private Securities Litigation Reform Act of 1995 (“PSLRA”),the court hearing a securities class action is empowered to appoint a lead plaintiff and to approve the lead plaintiff’s selection of lead counsel. The idea was to avoid having the class action lead by whatever plaintiff and his lawyer won the race to the courthouse.
The statutory language is pretty sparse: 15 USC § 78u-4(a)(3)(B)(v) simply provides that “The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.”
Despite this statutory ambiguity, I don't see how Baer's order is consistent with the intent of the PSLRA lead plaintiff and lead counsel provisions. Those provisions were not intended to serve as a vehicle for affirmative action quotas or promoting diversity among law firms. Instead, they were intended to deal with the problem that it was the plaintiff's lawyer who was (and still is) the real party in interest in securities class actions. At the same time, however, the court's discretion in approving lead counsel is limited. The Ninth Circuit observed in Cohen v. U.S. Dist. Court for Northern Dist. of California, 586 F.3d 703 (9th Cir 2009) that:
Consistent with congressional intent in enacting the PSLRA to vest authority for selecting class counsel in the lead plaintiff and our reasoning in Cavanaugh, the district court should not reject a lead plaintiff's proposed counsel merely because it would have chosen differently. See 306 F.3d at 732, 734 & n. 14 (explaining that selection of lead counsel “is not a beauty contest,” that selection of counsel is an “important client prerogative,” and that a contrary rule would “eviscerate” the PSLRA's assumption that the lead plaintiff is as or more capable than the court to select class counsel) (quoting Cendant, 264 F.3d at 276). Rather, like the Third Circuit, we hold that if the lead plaintiff has made a reasonable choice of counsel, the district court should generally defer to that choice.
Hence, imposition of an affirmative action quota-or even a preference--is not justified by the statutory language or its purpose.
Besides which, aren't quotas supposed to be unconstitutional? At the uber-liberal blawg Balkanization, Jason Mazzone writes that:
In an interview published yesterday in the New York Law Journal, Judge Baer said that, given the discretion that Rule 23(g) gives to judges, he saw no reason why diversity could not be taken into account.
I see a reason: the Constitution.
If Rule 23(g) really did authorize a judge to take account of the race (or gender) of lawyers in certifying class counsel, the Rule would likely be unconstitutional. There is only one context in which the Supreme Court has held that, consistent with the Constitution’s equal protection requirements, the government may take account of an individual’s race in order to promote diversity: admission of students to universities. Grutter v. Bollinger (2003), involving a challenge to affirmative action at the University of Michigan Law School, held that government is allowed to pursue the compelling interest in obtaining the educational benefits that flow from a diverse university student body through an admissions process, geared to promoting multiple forms of diversity, that takes account of an applicant’s race as part of a holistic review of the applicant’s file.
Class action litigation is not higher education. It is difficult to see how government would have a compelling interest (or even an important interest, the standard for gender classifications) in promoting diversity among the lawyers appointed to represent a class of litigants. Even if ensuring some level of performance by class action lawyers is a compelling (or important) government interest (rather than just a rational interest), such an interest has little or nothing to do with the demographic characteristics of the lawyers themselves.
(Consider also the desirability of federal judges looking up lawyers on websites to determine--like the train conductors in Plessy v. Ferguson--their race and gender.)
In the New York Law Journal interview, Judge Baer invoked an additional reason for his approach: giving members of racial minority groups and women greater courtroom experience. It is equally doubtful that that’s an interest that rises to the level of a compelling (or important) government interest and there are surely ways for the government to pursue any such interest besides the use of a lawyer’s race (or gender).
Mazzone goes on to note that Baer's logic undermines the central justification for Grutter:
If the claim about broad educational benefits made to the Court in Grutter was correct, then there should be no need under Rule 23(g) to ensure class action lawyers match the racial and other characteristics of the class members. Lawyers who have been trained in a Grutter-endorsed law school should already have the requisite skills to understand, interact with, and properly represent people unlike themselves. The whole point of Grutter was to enable law schools to ensure its graduates have these qualities. On the other hand, if, as Judge Baer reasons, lawyers do not have these qualities, then the key justification for consideration of race by law school admissions offices vanishes.