After a Dispute Among Counsel for a Putative Class Regarding the Sharing of Attorneys Fees, the Northern District Denied a Motion to Terminate Counsel of Record

by charlesjung

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The United States District Court for the Northern District of California denied plaintiffs’ motion to terminate its counsel of record and appointed a special master in Red v. Unilever PLC, No. C 10-00387 JW, 2010 WL 3629689 (N.D. Cal. Sept. 14, 2010).  Certain plaintiffs in a class action filed a notice of termination of Beck & Lee and Reese Richman LLP as counsel.  Id. *1.

Background

Plaintiffs allege in the class action that Defendants engaged in false advertising for the product “I Can’t Believe It’s Not Butter!”  Id. Three law firms undertook representation of the named Plaintiffs and the putative class, pursuant to a Joint Prosecution Agreement.  Id. *2.  On August 16, 2010, Mr. Weston, one of Plaintiffs’ attorneys of record, filed a Notice of Termination, effectively moving to terminate the Reese Richman and Beck & Lee firms as co-counsel for Plaintiffs. Id. *1. Two days later, Beck & Lee filed an Opposition to the Notice, charging the Weston Firm with engaging in “a shocking course of unethical and bad faith conduct.” Id. Beck & Lee’s Opposition contended, inter alia, that:

(1) Mr. Weston offered a “kickback” to at least one individual in return for serving as a named plaintiff in class actions;

(2) Mr. Weston promised one of his paralegals, a “finder’s fee” in exchange for “signing up” an individual as a named plaintiff; and

(3) The Weston Firm has agreed to compensate its non-lawyer employees on a percentage basis from settlement proceeds.

Id.

In its Supplemental Brief, the Weston Firm denied any misconduct, and alleges a pattern of interference and bad faith conduct on the part of certain attorneys at Beck & Lee. Id. The Weston Firm also submitted declarations from the individual and paralegal at issue, denying the alleged misconduct. Id.

Settlement and Notice of Termination

On behalf of Plaintiffs, some of the attorneys commenced settlement negotiations with Defendants, which resulted in a “term sheet” that the parties believed settled the case. Id. *2. Apparently, the parties contemplated moving the Court to approve the settlement, certify a class for purposes of the settlement, and approve the payment of attorney fees. Id. But before such a motion was made, a dispute developed between and among the attorneys with respect to the sharing of attorney fees.

The Weston firm took the position that the Joint Prosecution Agreement was void, filed a lawsuit in a court seeking a declaration to that effect, [FN3] and demanded that Defendants deposit all settlement funds for attorney fees into the Weston client trust account. The other attorneys objected to Mr. Weston’s position that the Joint Prosecution Agreement was void and objected to depositing the funds for attorney fees into the Weston trust account. Defendants also objected to proceeding with the settlement under these circumstances. Ultimately, on behalf of Plaintiffs, the Weston firm filed the present Motion to Terminate the other attorneys.

The court concluded that “notwithstanding the dispute between Plaintiffs’ attorneys, Plaintiffs, all three Plaintiffs’ law firms and Defendants desire to proceed with the settlement.” Id. The court noted that its “primary duty is to ensure that the named Plaintiffs and their lead counsel adequately represent the class.” Id. The court concluded that the accusations being made by the attorneys against their colleagues did not concern conduct directly related to this case and its settlement.  Id. “The Court is therefore satisfied that the alleged conduct in Beck & Lee’s Opposition has not tarnished the ability of the named Plaintiffs to adequately represent the class.” Id.

With respect to the adequacy of class counsel, the Court finds insufficient cause to terminate Beck & Lee and Reese Richman from this case. [FN4] The Court finds that granting the Motion to Terminate two of the law firms who were involved in negotiating the settlement could jeopardize the settlement. Their termination would deprive Plaintiffs of the knowledge of these attorneys about the provisions of the term sheet.

The court rejected the Weston firm’s reliance on a line of cases for the proposition that “[a] client’s power to discharge an attorney, with or without cause, is absolute.” Id. (quoting Fed. Sav. & Loan Ins. Corp. v. Angell, Holmes & Lea, 838 F.2d 395, 395 (9th Cir. 1988)).  The court held that these “cases are inapplicable, as they do not deal with the representation of a class, nor the Court’s countervailing obligation to protect the interests of that class.” Id.

Thus, because of the unanimous interest in proceeding with the settlement, the Court concludes that it would be in the best interest of the class if the Court established a procedure that would permit the settlement to proceed and that would defer the attorney fees division to a later proceeding.

Id.

The court thus denied the motion to terminated Beck & Lee and Reese Richman as counsel of record and ordered that these attorneys proceed to bring the settlement to a conclusion. Id. *3.

The court also found that it is in the interest of the class and the firms involved for a neutral third party to administer and allocate any attorney fees from the settlement funds pending the resolution of the firms’ disputes or any subsequent fees motion in this action.  Id. According, pursuant to Rule 53 of the FRCP, the Court appointed a Special Master to receive and make a recommendation with respect to the portion of any settlement funds for attorney fees.  Id. The Special Master will bill at $400.00 per hour, with the fees paid from the settlement fund allocated for attorney fees.  Id.

Judge

District Judge James Ware.

By CHARLES JUNG

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