Mesothelioma and Asbestos News
3rd Circuit revives case against asbestos class action lawyersThe 3rd U.S. Circuit Court of Appeals has revived a proposed class action suit against a group of lawyers from southern states brought by more than 2,600 former clients from northern states who say they were cheated out of their fair share of $400 million in asbestos personal injury settlements in the Mississippi state courts when the lawyers gave larger payouts to southern plaintiffs. Reversing a lower court's decision that dismissed the suit, Senior U.S. Circuit Judge Jane R. Roth issued a stern lecture to lawyers about the duty of loyalty. "We are embarrassed to have to explain a matter so elementary to the legal profession that it speaks for itself: All attorneys in a co-counsel relationship individually owe each and every client the duty of loyalty. For it to be otherwise is inconceivable," Roth wrote in Huber v. Taylor. The case provides a rare glimpse into the high-stakes world of asbestos litigation in which plaintiffs are termed "inventory" and settlements often involve hundreds or even thousands of cases. The plaintiffs in Huber v. Taylor are steelworkers from Pennsylvania, Ohio and Indiana who joined a massive Mississippi asbestos suit. The defendants are lawyers from Mississippi, North Carolina and Texas. The suit, filed by attorneys Esther S. Trakinski and Irving Cohen of Cohen Pope in New York, alleges that the northern plaintiffs were never made aware of a complex series of agreements between and among the lawyers that, they say, ultimately led to their receiving smaller payouts than southern plaintiffs. The northern plaintiffs had all retained lawyers in their home states -- referred to in the case as "local counsel" -- who had in turn struck deals with a Texas lawyer who served as co-counsel. But when the lawyers struck a series of settlements worth more than $400 million, the northern plaintiffs claim that their share was reduced because the southern lawyers wanted to allocate a greater percentage of aggregate settlements to southerners in order to minimize the percentages paid to the northern plaintiffs' local counsel. The suit alleges that, by cheating the northern plaintiffs of their fair share, the southern lawyers saved more than $10 million that would have been paid to their local counsel. The stakes are even higher than that because the northern plaintiffs are seeking "disgorgement" of all the fees earned by the southern lawyers -- 40 percent of $400 million, or $160 million. In the first round of the litigation, the plaintiffs suffered two major setbacks when U.S. District Judge Arthur Schwab of the Western District of Pennsylvania refused to certify the suit as a class action and later dismissed the entire case. Finding no conflict among the laws of Pennsylvania, Ohio and Indiana, Schwab held that the plaintiffs could not prove their breach of fiduciary duty claims because they had no proof of "causation" or "actual injury." Now the 3rd Circuit has ruled that Schwab erred by failing to apply Texas law that includes no such requirement. But a dissenting judge said he would have upheld Schwab's dismissal of the suit on the grounds that the plaintiffs had waived their right to complain about the choice-of-law issue. "In my view, plaintiffs' failure to brief and argue the choice of law issue before the district court and in their opening brief on appeal constitutes waiver of that issue," U.S. Circuit Judge Julio M. Fuentes wrote. Roth disagreed, saying the plaintiffs had never waived the choice-of-law issue. "The issue of which state's law to apply is inherent in the parties' positions throughout this case. Defendants claim that the law in all the relevant jurisdictions requires a showing of actual harm for breach of fiduciary duties, while plaintiffs assert that it does not when the remedy sought is disgorgement, citing to Texas law," Roth wrote. Roth also found that, even if the plaintiffs had technically waived the issue, the exceptions to the waiver doctrine would apply because "plaintiffs' repeated and insistent citation to Texas law as providing the governing standard alerted this court to the choice-of-law issue." A lengthy section of Roth's majority opinion is devoted to describing the complex relationships and fee agreements at the heart of the case. Before that, Roth outlined the circumstances that made Mississippi an attractive venue for asbestos plaintiffs in the mid-1990s. In 1995, a case captioned Cosey v. E.D. Bullard Co. was filed in Jefferson County, Miss., and over the next few years it grew to include several thousand plaintiffs due, Roth said, to Mississippi's "reputation as a plaintiff-friendly jurisdiction" and the state's "liberal joinder rules." In 1998, a jury awarded $48.5 million to 12 of the Cosey plaintiffs with malignant asbestos-related diseases. The sole attorneys of record for all the Cosey plaintiffs were Mississippi lawyers Robert A. Pritchard and Christopher Fitzgerald. Roth said the big verdict "prompted many companies with potential asbestos liability to explore settlements." In May 1999, before any settlements were reached, Pritchard brought a second asbestos personal injury mass action in Mississippi state court in which the Huber plaintiffs were joined. The northern plaintiffs joined the Mississippi suit through a co-counsel agreement their northern lawyers had struck with Texas attorney Robert G. Taylor II who had become involved in the Cosey case. As Roth described it, Taylor's fee arrangements with the northern lawyers is key to understanding the claims. According to the opinion, Taylor had contracted with the local counsel to serve as co-counsel for any future asbestos plaintiffs in exchange for Taylor's receiving about 95 percent of their fees if suit were brought outside of local counsel's home state, and a smaller amount if suit were brought in the home state. Roth found that the arrangement meant that local counsel would find the work profitable only as "volume, rote work" since their percentage was so low, but that even such a small percentage was ultimately "a sizeable amount given the hundreds of millions of dollars of recoveries." Taylor also entered into "upstream co-counsel agreements" with Fitzgerald and Pritchard, who in turn entered into an upstream co-counsel agreement with Joseph B. Cox Jr. of North Carolina, to negotiate settlements, for which Cox would receive 4 percent of all gross settlements. The Huber plaintiffs claim in the suit that they were never informed of the various co-counsel arrangements. Taylor, Pritchard and Cox are the lead defendants named in the suit. But lawyers defending the southern lawyers argued that none of the northern plaintiffs was cheated in any way. The size of the settlement payouts, they said, was calculated on the basis of numerous factors including the level of injury and the home state of the claimants. Although the northern plaintiffs were paid less than their co-plaintiffs from Mississippi and Texas, the defense also noted that the northerners nonetheless received larger settlements than similar asbestos plaintiffs from Pennsylvania, Ohio and Indiana usually receive in their home state courts. The plaintiffs insist that their payouts were reduced to avoid paying fees to their local counsel. But defense lawyers insisted that the settlements were not aggregate settlements that they then allocated as they saw fit. Instead, they said, the plaintiffs in the settled cases were presented with offers that varied for different individuals based on factors such as the type of injury or asbestos exposure, lifestyle habits like smoking, and geographic origin. Geographic origin was an appropriate factor in determining settlement value, the defense lawyers said, because jury verdicts in northern states are traditionally lower than in southern states and because, in southern courts, jury verdicts for northerners are typically lower than for southerners in their home state. But Roth found there was evidence that the settlements were, in fact, aggregate, and that the plaintiffs may have a valid claim under Texas law for breach of fiduciary duty that could entitle them to a disgorgement of the southern lawyers' fees. At the heart of the claim, Roth found, is the duty of loyalty every lawyer has to every client. That duty exists, Roth said, "even when clients are viewed as mere 'inventory.'" "This is the cost of doing business as an attorney at law, and we will not countenance shortcuts," Roth wrote. "Disclosures to clients must be meaningful, by which we mean something beyond form disclosures, as clients must understand a conflict to give their informed consent to an intelligible waiver. ... There is no question that defendant attorneys owed plaintiffs fiduciary duties," Roth wrote. Taylor's lawyer, Howard M. Klein of Conrad O'Brien Gellman & Rohn, said he was "very disappointed" by the ruling and is studying the opinion with an eye toward seeking re-argument before the full 3rd Circuit. Klein also said that Taylor and the other defendants "acted in compliance with their ethical and legal obligations." |
