One of my favorite cases, Huber v. Taylor, filed 2002, loaded with allegations against the plaintiffs former attorneys and all kinds of fun remedies like disgorgement, just finished its second round on appeal, back down to the District Court for the third time.
The prior opinion, Huber v. Taylor, 469 F.3d 67 (3d Cir. 2006), was one of the more important recent opinions for "lawyer’s lawyers" in the Third Circuit. The case is also a great example of how the paperwork these cases, e.g. attorney malpractice or disputes between lawyers, can quickly mushroom, and why they get so expensive.
Most importantly, it shows just how far the Third Circuit (and I’d say most appellate courts, federal or state) is willing to go to police the professional by enabling clients to recover from attorneys.
Let’s start with the facts, as recounted by the second appeal:
Plaintiffs, all of whom have asbestosis, were previously represented by Defendants in asbestos personal injury actions in Mississippi state court. Asserting multiple claims on behalf of themselves and a putative class of asbestosis victims, Plaintiffs alleged that Defendants failed to disclose both the material terms of settlement offers as well as the fee-sharing arrangements among co-counsel during the course of the Mississippi litigation. They also alleged, among other things, that Defendants (1) distributed less of the settlement funds–totaling hundreds of millions of dollars–to them than to other similarly situated clients, all to the benefit of Defendants; and (2) charged expenses that were inflated, inappropriate, and, in some instances, fictitious. Plaintiffs asked for compensatory damages, disgorgement of attorneys’ fees, as well as punitive damages.
In the first appeal:
On appeal, this Court vacated the District Court’s denial of class certification as well as its grant of summary judgment to Defendants on Plaintiffs’ breach of fiduciary duty claims. Huber, 469 F.3d at 83. The majority determined that the District Court failed to apply the appropriate law, namely Texas law, which does not require a showing of actual injury in order to maintain a claim for breach of fiduciary duty when the remedy sought is disgorgement of attorneys’ fees. The Court accordingly remanded the case for adjudication of Plaintiffs’ breach of fiduciary duty claims in light of Texas law.
The first appeal took a stab at guessing Pennsylvania law on proving damages where only disgorgement is requested, too:
At first blush, Pennsylvania, Indiana, and Ohio law seem to indicate that claims for breach of fiduciary duty require actual harm. Mullen v. Cogdell, 643 N.E.2d 390, 401 (Ind. App. 1994); McConnell v. Hunt Sports Enters., 132 Ohio App. 3d 657, 725 N.E.2d 1193, 1215 (Ohio App. 1999); Pa. S.S.J. I. 13 § 4.15 (1991). Whether these states would require a showing of actual harm in a situation in which only disgorgement is requested is, however, an open question. The issue has never been resolved by these states’ courts. Arguably, they might adopt the well-considered position of every jurisdiction that has considered the issue, which is to require harm only for damages, not for the equitable remedy of disgorgement.
The Third Circuit also blasted the defendants for trying to duck their professional responsibility:
It is well-settled law, regardless of jurisdiction, that attorneys owe their clients a fiduciary duty. Akron Bar Ass’n v. Williams, 104 Ohio St. 3d 317, 320, 2004 Ohio 6588, 819 N.E.2d 677 (Ohio 2004) ("The attorney stands in a fiduciary relationship with the client and should exercise professional judgment solely for the benefit of the client and free of compromising influences and loyalties."); In re Tsoutsouris, 748 N.E.2d 856, 859 (Ind. 2001); Office of Disciplinary Counsel v. Monsour, 549 Pa. 482, 486, 701 A.2d 556 (Pa. 1997) ("This public trust that an attorney owes his client is in the nature of a fiduciary relationship involving the highest standards of professional conduct."); Arce v. Burrow, 958 S.W.2d 239, 246 (Tex. Ct. App. 1997), rev’d on other grounds, 997 S.W.2d 229, 42 Tex. Sup. Ct. J. 932 (Tex. 1997). The duty includes undivided loyalty, candor, and provision of material information. Willis v. Maverick, 760 S.W.2d 642, 645, 31 Tex. Sup. Ct. J. 569 (Tex. 1998) (provision of information material to the representation).
Defendants argue that "the fiduciary duties of disclosure at issue in this case were properly assumed and performed by each plaintiff’s individually retained local counsel in Pennsylvania, Ohio, or Indiana." The performance of the duty is a question of fact for the jury, although some acts, as a matter of law, cannot constitute performance. If Local Counsel did not perform their fiduciary duty, it does not matter that they assumed the duty because the fiduciary duty of co-counsel is a joint obligation. Even if the duty of disclosure is itself delegable, the duty of loyalty is inherently not, and in this case disclosure was necessary to fulfill the duty of loyalty. Thus, Local Counsel’s alleged failure to fulfill the fiduciary duty of disclosure could hardly excuse the Defendants.
In the second round before the District Court:
On remand, Plaintiffs sought leave to file a proposed third amended complaint, asserting breach of fiduciary duty claims under Texas law and again seeking certification of a class. The District Court denied Plaintiffs’ motion for leave to file their third amended complaint, then dismissed Plaintiffs’ six-year-old claims for want of jurisdiction. Specifically, the District Court was persuaded that no single plaintiff could satisfy the statutory minimum amount in controversy. The District Court also decided–sua sponte–that Plaintiffs’ local counsel ("Local Counsel") were necessary and indispensable parties who had not been named in Plaintiffs’ complaint. Plaintiffs now appeal the District Court’s order of dismissal.
The Third Circuit reversed on the amount in controversy, reaffirming that diversity jurisdiction is based on the face of the complaint, so that later revelations may retroactively divest jurisdiction but subsequent events, even including dismissal of the original claims that were of a sufficient amount, do not:
We are unpersuaded that Plaintiffs’ original complaint was so patently deficient as to reflect to a legal certainty that no Plaintiff could recover the jurisdictional amount ($ 75,000) alleged. Nothing in this record suggests that the damages alleged were feigned to satisfy the jurisdictional minimum or that Plaintiffs had no good faith basis for their claims, including not only their breach of fiduciary duty claims but also their claims of fraud, conversion, conspiracy to convert and defraud, professional malpractice, and violation of the Pennsylvania Deceptive Trade Practices and Consumer Protection Law.
We are further unpersuaded that there were subsequent revelations requiring dismissal. To be sure, Plaintiffs ultimately failed to prevail on their claims of fraud, conversion, conspiracy to convert and defraud, professional malpractice, and violation of the Pennsylvania Deceptive Trade Practices and Consumer Protection Law. They also failed to establish actual harm. These failures, however, are in the nature of subsequent events that do not oust the court of subject matter jurisdiction.
The Third Circuit also reversed on joinder, reaffirming that Federal Courts still don’t have compulsory joinder:
That Defendants and Local Counsel may have "jointly owed fiduciary duties to their mutual clients" does not mean that they shared an "interest relating to the subject of the action" for
purposes of Rule 19(a) analysis. Indeed, an Advisory Committee Note to Rule 19(a) explicitly states that subdivision (a) of the rule "is not at variance with the settled authorities holding that a tortfeasor with the usual ‘joint-and-several’ liability is merely a permissive party to an action against another with like liability." Courts, moreover, have long recognized that "it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit." Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7, 111 S. Ct. 315, 112 L. Ed. 2d 263 (1990) (per curiam); see also PaineWebber, Inc. v. Cohen, 276 F.3d 197, 204 (6th Cir. 2001) (noting that "a person’s status as a joint tortfeasor does not make that person a necessary party, much less an indispensable party").
Naturally, res judicata and issue preclusion wouldn’t apply to the joint tortfeasors, since they were not in privity with the original suit.