Johnson v. Nextel Commc'ns, Inc.
| Decision Date | 26 September 2011 |
| Docket Number | Docket No. 09–1892–cv. |
| Citation | 113 Fair Empl.Prac.Cas. (BNA) 714,660 F.3d 131 |
| Parties | Michael S. JOHNSON, individually and on behalf of the class, Donna Dymkowski, individually and on behalf of the class, Patricia Long Correa, individually and on behalf of the class, Antonio Samuel, individually and on behalf of the class, Vincent Hall, individually and on behalf of the class, and Angelette Waters, individually and on behalf of the class, Plaintiffs–Appellants, v. NEXTEL COMMUNICATIONS, INC., a Delaware Corporation, Leeds, Morelli & Brown, Lenard Leeds, Steven A. Morelli, Jeffrey K. Brown, James Vagnini, Federic David Ostrove, Bryan Mazolla, Susan Fitzgerald*, John Doe 1–10, a fictitious designation for presently unknown defendants, and Jane Doe 1–10, a fictitious designation for presently unknown defendants, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
OPINION TEXT STARTS HERE
Kenneth S. Thyne, Roper & Twardowsky, LLC, Totowa, NJ, for Plaintiffs–Appellants.
Michael McConnell (Traci Van Pelt, Robert W. Steinmetz, McConnell, Fleischner, Houghtaling & Craigmile, LLC, Denver, CO, Janice J. DiGennaro & Shari Claire Lewis, Rivkin Radler LLP, Uniondale, NY, on the brief), McConnell, Fleischner, Houghtaling & Craigmile, LLC, Denver, CO, for Defendants–Appellees Leeds, Morelli & Brown, Lenard Leeds, Steven A. Morelli, and Jeffrey K. Brown.
Lawrence R. Sandak (Thomas A. McKinney, on the brief), Proskauer Rose LLP, Newark, NJ and New York, NY, for Defendant–Appellee Nextel Communications, Inc.Jason S. Feinstein, Sterns & Weinroth, Trenton, NJ, for Defendants–Appellees Bryan Mazolla and Susan Fitzgerald.Before: WINTER and HALL, Circuit Judges, and CEDARBAUM, District Judge.**WINTER, Circuit Judge:
This is an appeal from Judge Daniel's dismissal of appellants' class action complaint against Nextel Communications, Inc., the law firm of Leeds, Morelli & Brown, P.C. (“LMB”), and seven of LMB's lawyers (also “LMB”). Appellants are former clients of LMB who retained the firm to bring discrimination claims against Nextel. The class is composed of approximately 587 clients who retained LMB for the same purpose. The complaint asserts a number of claims, including one alleging that LMB breached its fiduciary duty of loyalty to them and the class by entering into an agreement with Nextel in which Nextel agreed to pay: (i) $2 million to LMB to persuade en masse its approximately 587 clients to, inter alia, abandon ongoing legal and administrative proceedings against Nextel, waive their rights to a jury trial and punitive damages, and accept an expedited mediation/arbitration procedure; (ii) another $3.5 million to LMB on a sliding scale as the clients' claims were resolved through that procedure; and (iii) another $2 million to LMB to work directly for Nextel as a consultant for two years beginning when the clients' claims had been resolved. None of the payments were conditioned on recovery by any of LMB's clients. We conclude that appellants have alleged facts sufficient to state a claim against LMB for, inter alia, breach of fiduciary duty and against Nextel for aiding and abetting breach of fiduciary duty. We therefore vacate and remand for further proceedings.
Because this is an appeal from a dismissal under Fed.R.Civ.P. 12(b)(6), we view the facts alleged in the complaint in the light most favorable to appellants. See Faulkner v. Beer, 463 F.3d 130, 133 (2d Cir.2006).
The complaint alleges that LMB conducted a meeting at which appellants and some 587 individuals (collectively, the “claimants”) hired LMB to pursue employment discrimination claims against Nextel, a Delaware corporation. The retainer agreement with LMB, a New York law firm, was executed in New Jersey. It is alleged that extravagant promises of recoveries against Nextel were made at the meeting. The agreement specified a one-third contingency fee to go to LMB.
The complaint alleges that LMB never intended to bring, and never brought, any discrimination actions against Nextel. Instead, LMB intended to follow a prior LMB practice of seeking direct payments, including payments as a legal consultant, from putative defendant-employers, in this case, Nextel. On September 28, 2000, LMB and Nextel met in New York and signed an agreement styled the Dispute Resolution and Settlement Agreement (“DRSA”). Under the DRSA, LMB was to be paid $2 million if it persuaded the claimants to: (i) drop all pending lawsuits and administrative complaints against Nextel within two weeks (excluding already filed worker's compensation claims); and (ii) sign within ten weeks individual agreements in which each claimant agreed to be bound by the DRSA. The DRSA was to become effective on the date upon which those conditions were met (the “Effective Date”). The $2 million was to be paid to LMB within 3 days of that date.
The DRSA set forth a three-stage Dispute Resolution Process (“DRP”) that was designated as the exclusive means of settlement for all claimants then represented by LMB. The first stage consisted of an interview and direct negotiation between Nextel and each individual claimant. The second stage called for non-binding mediation of any unresolved claims. The third stage called for binding arbitration of any remaining unresolved claims.
The DRSA provided that Nextel would pay another $1.5 million to LMB upon the resolution of half of the claimants' claims and a final $2 million upon resolution of the remaining claims. All claims had to be either resolved or submitted to binding arbitration within 45 weeks of the Effective Date, or Nextel would be entitled to withhold final payment from LMB and deduct $50,000 for each month that claims remained to be resolved or submitted to arbitration. The DRSA also stated that each claimant would agree to be represented by LMB throughout the DRP, to be bound by the result of the DRP and not to pursue any other relief in any other forum for any claim against Nextel, to waive punitive damages and non-monetary relief, to execute a general release as a prerequisite for receiving any award, and to adhere to a confidentiality agreement concerning the DRSA.
LMB also promised not to accept any new clients with claims against Nextel, not to refer any non-claimant individual with claims against Nextel to another lawyer or law firm, and not to accept compensation for any prior referrals. Finally, the DRSA provided that Nextel would retain LMB as a legal consultant (the “consultancy agreement”) for a period of two years following the resolution of all claims for an additional consultancy fee of $83,333.35 per month, or $2 million, bringing the total value of the DRSA to LMB to $7.5 million.
The complaint alleges that, in the weeks following the execution of the DRSA, LMB approached the claimants to obtain signed Individual Agreements and Pledges of Good Faith. In the Individual Agreement, the particular claimant had to state that he or she “reviewed the [DRSA]; had the opportunity to discuss that Agreement with [LMB] or any other counsel of [his or her] choosing; and agree to comply fully with the terms of that Agreement.” With respect to the payment of legal fees, the Individual Agreements stated only that “I acknowledge and understand that ... Nextel has agreed to pay an amount of money to [LMB] to cover the attorneys' fees and expenses, other than expert fees, that Claimants might otherwise pay to [LMB]....” The Pledges of Good Faith stated that, for purposes of keeping the DRSA confidential, each claimant consented to
The six appellants, along with all but fourteen of the claimants, signed Individual Agreements and Pledges of Good Faith. The complaint alleges that, notwithstanding the statements in the Individual Agreements and Pledges of Good Faith, LMB did not allow the claimants to review the full DRSA, but rather provided only the signature page of the DRSA, the Individual Agreements, and a document entitled “Highlights of Settlement Agreement” (the “Highlights Document”). The Highlights Document outlined the major provisions of the DRSA, including the DRP, the requirement that claimants drop all pending lawsuits and complaints, the confidentiality requirement, and the consultancy agreement. The Highlights Document specifically stated that the consultancy agreement posed a conflict of interest for LMB, which the claimant agreed to waive by signing the Individual Agreement. With respect to the contractual payments to LMB, the Highlights Document stated only that “Nextel is paying each Claimant's attorneys' fees, costs, and expenses (other than expert witness fees) in consideration for each Claimant participating in the DRP and honoring all of the conditions.” The document did not make any mention of the amounts LMB was to be paid or the various conditions on those payments, as described above.
In February 2001, LMB and Nextel executed a second amendment 1 to the DRSA to account for the fourteen non-participating claimants (“Amendment 2”). In Amendment 2, LMB agreed that Nextel would reduce LMB's final payment from $2 million to $1,720,000, a reduction of $20,000 per non-participating claimant. The sum of $280,000 was to remain in an escrow account until the end of the consultancy period, at which point it would be paid to LMB minus any amount Nextel paid to defend, settle, or satisfy judgments in lawsuits by the fourteen non-participating claimants, up to $20,000 for each claimant. Between August and December 2001, all six appellants settled their disputes with Nextel through the DRP for relief not specified in the complaint.
On October 12, 2006, appellants filed this action,...
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