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Eleventh Circuit rules that class counsel does not owe any heightened duty of loyalty to their named-class-representative clients.

| Jan 19, 2021 | Firm News

In Med. & Chiropractic Clinic, Inc. v. Oppenheim, No. 18-13714, (11th Cir. Dec. 1, 2020), the court reviewed summary judgment entered for class counsel in an action brought by a class representative against its former attorney and his new employer law firm for an alleged breach of fiduciary duty. The case arose out of a bevy of class actions filed against the Tampa Bay Buccaneers for the alleged facsimile messages that allegedly violated the Telephone Consumer Protection Act (“TCPA”).

The TCPA prohibits fax advertisements and encourages private class action lawsuits to stop such activity by providing statutory damages of $500 per violation. In the context of fax broadcasting activities that run afoul of the TCPA, this statutory bounty creates very lucrative cases for enterprising plaintiffs’ lawyers. In the Med. & Chiropractic Clinic case, the Buccaneers had been alleged to have sent 343,000 messages in violation of the statute creating a potential exposure of $170,000,000 under the TCPA.

Multiple class actions were filed against the Buccaneers by lawyers specializing the in area of Plaintiff’s-side TCPA class litigation. One such class action against the Buccaneers (the “Cin-Q Class Action”) had been filed by an entity named Cin-Q Autos, Inc. (“Cin-Q”). Cin-Q was represented by a law firm named Anderson & Wanaca (the “AW Firm”). The AW Firm employed an attorney named Oppenheim. An company named Medical & Chiropractic Clinic, Inc. (“M&C”) was later added by the AW Firm as an additional named class representative in the Cin-Q Class Action.

During settlement negotiations in the Cin-Q Class Action, one of the lawyers for the AW Firm allegedly wanted to set a record for the settlement to exceed a previous $75 million class action settlement in another matter. The AW Firm and M&C refused to settle the Cin-Q Class Action for less than a $99,000,000 settlement fund. This would have resulted in a contingent attorneys’ fee oof more than $24 million. The settlement stalled because the Buccaneers refused to settle at that amount.

Oppenheim then left the AW Firm and joined a different law firm, the Bock Law Firm, LLC (the “Bock Firm”). Thereafter, the Bock Firm brought a TCPA claim against the Buccaneers on behalf of a different class representative but alleging the same underlying claims as was at issue in the Cin-Q Class Action. That state court action was voluntarily dismissed, but led to negotiations between the Bock Firm and the Buccaneers eventually resulting in a proposed class settlement of the underlying TCPA liability for a class fund of $19.5 million and a contingent attorneys’ fee to the Bock Firm of $4.875 million. The parties then filed a federal lawsuit in which they sought to obtain court approval of the proposed class settlement, which would have presumably mooted out the Cin-Q Class Action and the AW Firm’s contingent interest in that action.

M&C and the AW Firm brought suit in state court against Oppenheim and the Bock Firm alleging that Oppenheim had breach his duty of loyalty to M&C by undercutting its negotiating position in the Cin-Q Class Action resulting in what is known as a “reverse auction” settlement of the TCPA claims against the Buccaneers for an amount that was collusively low. The Bock Firm and Oppenheim removed the case to the Middle District of Florida and the district court eventually entered summary judgment for the Bock Firm and Oppenheim finding that they owed no duty of loyalty to the class representative that was different and apart from the duty of loyalty they owed to the class and that there were, in any event, no damages from the alleged breach.

The Eleventh Circuit affirmed finding that “One cardinal rule defines the scope of counsel’s ethical obligations in class actions: class counsel owes a duty to the class as a whole and not to any individual member of the class.” The Eleventh Circuit saw that a different rule – – one where class counsel would “owe a particular duty to any group comprised of class members, such as class representatives, distinct from the duty owed to the class” – – would inevitably lead to conflicts between and among the class and “splinter class actions, lead to costly litigation between class members, and encourage class members to opt-out.”

This decision will have interesting implications for plaintiff’s counsel in future complicated class action cases. The settlement of putative class actions can, and often does, create an ethical thicket for these lawyers to traverse in pursuit of the large contingent fees that lay glittering on the other side. This fascinating case also has interesting strategic lessons for the informal cadres of lawyers who work together in semi-formal groups pursuing such bounties.