469 F.3d 67 (3rd Cir. 2006), 05-1757, Huber v. Taylor

Docket Nº:05-1757.
Citation:469 F.3d 67
Party Name:Ronald L. HUBER; William J. Airgood; Anthony Defabbo; John Dinio; Ernest Gishnock; John Bidlenscik; Hilma Mullins; William Deem, Appellants v. Robert G. TAYLOR, II; Robert G. Taylor, II, P.C.; Cletus P. Ernster, III; George E. Cire, Jr.; Taylor & Cire; Taylor & Ernster PC; Robert A. Pritchard; Christopher Fitzgerald; Law Offices of Robert A. Pritch
Case Date:October 31, 2006
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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469 F.3d 67 (3rd Cir. 2006)

Ronald L. HUBER; William J. Airgood; Anthony Defabbo; John Dinio; Ernest Gishnock; John Bidlenscik; Hilma Mullins; William Deem, Appellants


Robert G. TAYLOR, II; Robert G. Taylor, II, P.C.; Cletus P. Ernster, III; George E. Cire, Jr.; Taylor & Cire; Taylor & Ernster PC; Robert A. Pritchard; Christopher Fitzgerald; Law Offices of Robert A. Pritchard; Pritchard Law Firm, PLLC; Joseph B. Cox, Jr.; Joseph B. Cox, Jr., Ltd.; Cox And Cox, L.L.P.; R.G. Taylor, II, P.C.; J. Robert Davis, Jr.; Taylor, Davis & Ernster, P.C.

No. 05-1757.

United States Court of Appeals, Third Circuit.

October 31, 2006

Argued on January 12, 2006

On Appeal from the United States District Court for the Western District of Pennsylvania District Court No. 02-cv-00304 District Judge: Honorable Arthur J. Schwab

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Samantha L. Southall, Esquire Nicole Tuman, Esquire Esther S. Trakinski, Esquire (ARGUED) Cohen Pope Counsel for Appellants

Howard M. Klein, Esquire Stephen R. Weaver, Esquire Jeannette M. Brian, Esquire Conrad, O'Brien, Gellman & Rohn Counsel for Appellees Robert G. Taylor, II, Robert G. Taylor, II, P.C. and R. G. Taylor, II, P.C.

William M. Wycoff, Esquire J. Alexander Hershey, Esquire Thorp, Reed & Armstrong, LLP Counsel for Appellees Ernster, Cire and Davis

Kevin L. Colosimo, Esquire Thorp, Reed & Armstrong, LLP Counsel for Appellees Pritchard, Fitzgerald, Law Offices of Robert A. Pritchard and Pritchard Law Firm, PLLC

Thomas C. DeLorenzo, Esquire (ARGUED) Marshall, Dennehey, Warner, Coleman

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& Goggin Counsel for Appellees Joseph B. Cox, Jr. and Joseph B.Cox, Jr., Ltd.

Anita B. Weinstein, Esquire Cozen O'Connor Counsel for Appellee Cox and Cox L.L.P.

Before: SCIRICA[*], Chief Judge, FUENTES and ROTH[**], Circuit Judges


ROTH, Circuit Judge

This case presents the ironic scenario of class action plaintiffs' attorneys who are being sued for breach of fiduciary duty and related counts by a putative class that the attorneys themselves formed for asbestos personal injury litigation. For the reasons stated below, we will vacate the District Court's grant of summary judgment to defendant attorneys and its denial of class certification, and remand this case for further proceedings consistent with this opinion.

I. Background and Jurisdiction

Our case begins in Jefferson County, Mississippi, where an asbestos personal injury case, captioned Cosey v. E.D. Bullard Co., No. 95-00069 (Miss. Cir. Ct. Jefferson Cty.), was commenced in 1995. Mississippi law does not provide for class actions, but it has liberal joinder rules and a reputation as a plaintiff-friendly jurisdiction. Accordingly, over the next four years, several thousand asbestos personal injury plaintiffs were joined in Cosey, along with more than two hundred defendants. In 1998, a trial was conducted in Cosey for the cases of twelve plaintiffs with malignant asbestos-related diseases. Those twelve Cosey plaintiffs were awarded approximately $48.5 million in damages. The sole attorneys of record for all the Cosey plaintiffs were Robert A. Pritchard and Christopher Fitzgerald.

At the time the Cosey verdict was delivered, there were more than 2,000 other asbestos cases pending in Jefferson County. The large award in Cosey 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, Rankin v. A-Bex Corp., No. 99-00086 (Miss. Cir. Ct. Jefferson Cty.), 1 in which the Plaintiffs in this suit were joined.

The Plaintiffs, Roland L. Huber, William J. Airgood, Anthony Defabbo, John Dinio, Ernest Gishnock, John Bidlencsik, 2 Hilma Mullins, and William Deem, are former steelworkers from Pennsylvania, Ohio, and Indiana. All eight Plaintiffs were exposed to asbestos at some point in their careers. None have developed malignant asbestos-related disease. All the Plaintiffs except Huber are or were smokers. Plaintiffs, along with 2,637 other asbestos-exposed individuals from Pennsylvania, Ohio, and Indiana (collectively the Northerners) retained counsel in their home states (Local

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Counsel) to prosecute their asbestos claims for a 40% retainer fee.

Local Counsel had previously entered into co-counsel agreements with Robert G. Taylor II, a Texas attorney involved in Cosey.3 Taylor had his own client base in Texas but was looking to expand his asbestos client "inventory." Taylor contracted with Local Counsel to serve as co-counsel for any future asbestos plaintiffs that Local Counsel would represent in exchange for Taylor receiving between 95% and 97.5% of Local Counsel's fees if suit were brought outside of Local Counsel's home state, and a smaller amount if suit were brought in the home state. The agreements between Taylor and Local Counsel provided that, if the asbestos suits were filed in a state other than Local Counsel's home state, Texas law would govern the contingent fee contract.

Taylor's fee arrangement is key for understanding Plaintiffs' case. First, it meant that employment as Local Counsel could only be profitable as volume, rote work because Local Counsel would keep only one to two percent of any client's recovery. Local Counsel had little incentive to focus on any particular case. Since many recoveries were in the range of a few thousand dollars, Local Counsel collected very little from any particular representation. Second, the fee arrangement meant that, all things being equal, co-counsel representations were less profitable to Taylor than representations of direct clients because of the fee-splitting involved. Third, the arrangement meant that the one to two percent Local Counsel cut, when aggregated among all Local Counsel, as it was from Taylor's perspective, represented a sizeable amount given the hundreds of millions of dollars of recoveries.

Taylor himself had 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., 4 to negotiate settlements, for which Cox would receive four percent of all gross settlements. Plaintiffs allege that they were never informed of the various co-counsel arrangements.

Cox negotiated settlements with asbestos defendants W.R. Grace, Owens Corning, Fiberboard, and the Center for Claims Resolution (CCR), an organization created by 19 asbestos defendants to settle asbestos claims. Under the terms of all the settlements, the payout varied both by level of injury and by the home state of the claimants. In all the settlements negotiated by Cox, Northerners received payouts that were between 2.5 and 18 times lower than those received by plaintiffs from Mississippi and Texas (Southerners). Northerners, who joined in the Mississippi actions nonetheless received a larger settlement than similar asbestos plaintiffs from Pennsylvania, Ohio, and Indiana usually receive in their home state courts.5

Defendants, in settling these cases for Southerners, did not have to share their

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fees with Local Counsel, as they had to do with Northerners. Plaintiffs allege that the difference in the settlement payouts to Northerners is attributable to this incentive of Defendants to allocate a greater percentage of aggregate settlements to Southerners in order to minimize Local Counsel's percentages. This marginal percentage difference becomes significant in light of the scale of the settlements. The record contains the approximate or maximum values of eleven of the nineteen settlement agreements negotiated by Defendants.6 W e calculate these eleven settlement agreements to total some $400 million. Therefore, on just this portion of the total settlements, Defendants stood to gain up to $10 million (2.5% of $400 million) at the expense of Northerners (and Local Counsel), depending on how the settlements were allocated between Northerners and Southerners.

Defendants reply to this allegation by asserting that the settlements were not aggregate settlements that they then allocated as they saw fit. Instead, Defendants claim that 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. Defendants claim that geographic origin is an appropriate factor in determining settlement value 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. For the purposes of this appeal, we need not resolve whether these settlements were aggregated, but we note that there is language in some of the settlement agreements that strongly supports the contention that they were aggregate settlements.7 Moreover, the very documents Defendants cite in their brief refer to the settlements as aggregate.8

After each of the settlement agreements was negotiated, the Northerners received various disclosures. These disclosures were made by Local Counsel and by Parapro Enterprises, Inc., a paralegal service

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associated with Taylor. The Northerners were presented with a release, a check, and a disbursement sheet. The release was explained orally to Northerners by Parapro paralegals. The disclosures did not reveal the settlements' material terms or the nature of Defendants' involvement in the cases. The written disclosures stated that further information about the settlements was available on request. The record does not state whether any of the Plaintiffs sought to avail themselves of this information.9...

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