$8 Billion Class Action Against MetLife Stalled as Members Press to Disqualify Debevoise

$8B Suit Stalled as Members Press to Disqualify Debevoise

Daniel Wise

New York Law Journal

Moving swiftly, a two-judge panel of the 2nd U.S. Circuit Court of Appeals on Thursday heard an appeal of an order issued on the eve of trial disqualifying Debevoise & Plimpton as counsel for MetLife in an $8 billion class action.

Eastern District of New York Judge Thomas C. Platt on Tuesday issued the order disqualifying Debevoise, which represented MetLife during its conversion in 2000 from a mutual company to a publicly traded stock company, and has handled litigation arising from the conversion ever since.

Jury selection in In re MetLife Demutualization, 00 cv 2258, had been scheduled to start next Tuesday. But the panel Thursday, after a half-hour argument, gave lawyers for the 8.6 million holders of MetLife policies before the conversion until noon on Sept. 11 to file a more thoroughly prepared brief.

John Calagna, a spokesman for MetLife, stated in an e-mail that the company expects the disqualification issue "to be decided in its favor on appeal, so that the case can proceed promptly to trial." Neither the company nor Debevoise will have any further comment because the litigation is pending, the statement advised.

MetLife filed a 21-page brief appealing Platt's one-sentence Tuesday ruling before the start of the next work day. The lawyer for the class who argued the appeal, Jared B. Stamell, said in an interview that his firm, Stamell & Schager, had filed a brief with the circuit on only four hours' notice.

Under the schedule set by 2nd Circuit Judges Jose A. Cabranes and Peter W. Hall, the start of the trial will be pushed back at least one week until the court considers MetLife's reply briefs, which must be filed by 3 p.m. on Monday, Sept. 14. The third member of the panel, Judge Guido Calabresi, recused himself.

In disqualifying Debevoise, Platt agreed with the class's arguments that the firm had an impermissible dual representation because it was counsel to MetLife and the policyholders prior to the conversion, but afterwards, when the two became adversaries, it continued to represent MetLife.

The class also contended that disqualification was required because the class had listed four Debevoise lawyers, three of whom had worked on the conversion litigation, as possible witnesses.

Debevoise has been MetLife's counsel for more than nine years. It has handled nine lawsuits raising claims arising from the conversion. Seven of those lawsuits have been dismissed. Aside from the case before Platt, there is one other suit that raises claims based on violations of New York state insurance law, rather than federal securities laws, and is pending in state court in Manhattan. None of the plaintiffs in those suits had sought Debevoise's dismissal.

At Thursday's argument, Judge Hall pressed MetLife's senior litigation trial counsel, Teresa Wynn Rosenborough, who argued the appeal, with regard to the "lawyers-as-witnesses" argument.

Hall queried whether there is any case law permitting MetLife to waive any potential conflict that might arise during the Debevoise's lawyers' testimony.

Rosenborough parried the question by saying that there is "no likelihood" that any of the potential Debevoise witnesses would deliver testimony damaging to MetLife, but if the lawyers were "compromised" during trial, the problem could be "dealt with then."

That approach, Hall noted, might put attorneys "in a position where they would have problems with the disciplinary committee."

The class's attorney, Stamell, however, did not make much headway with his argument that Debevoise had represented both MetLife and its policyholders holders prior to the conversion.

At the outset of Stamell's argument, Hall pressed him whether the class's dual representation argument would require "every law firm that worked on a prospectus to take on the purchasers as clients?"

After summarizing Stamell's argument, the judge said "I am not convinced" and added "I have to be persuaded."

Hall did not indicate that his skepticism had been allayed when Stamell put the issue in the context of the sale of a small family-owned business in the judge's home state of Vermont.

Moving to the MetLife conversion, Stamell contended that Debevoise had an obligation to inform the policyholders that they should retain their own lawyers who would solely represent their interests.

In the MetLife conversion, "there were millions of policyholders that didn't know what was going on," he said.

The class, which consists mostly of holders of open-ended life insurance policies, claims that policyholders were damaged by the prospectus that Debevoise prepared to solicit their votes in favor of the conversion. The class contends that the prospectus fraudulently omitted information that would have made it clear that the policyholders would lose more than they would gain in the conversion.

DISCOVERY RULING

In their motion to disqualify Debevoise, filed on July 31, the class contended that a 2007 discovery ruling issued by Judge Platt rejecting MetLife's claims of attorney-client privilege requires the firm's disqualification (495 F. Supp.2d 310).

Platt ordered the release of communications between MetLife and Debevoise, finding that "at the time the purported communications were made, i.e prior to demutualization, MetLife's policyholders were clients for MetLife's in-house and outside counsel, because they were the MetLife's beneficiaries and the beneficiaries of MetLife counsel's advice."

After the ruling was issued, Debevoise turned over documents MetLife had claimed were privileged and four of its lawyers were deposed.

In 2008, MetLife asked Fordham Law School Professor Bruce A. Green, an ethics expert, whether Debevoise could continue as its counsel in light of the discovery ruling.

Green said that there was no potential violation of the conflict provision of the New York Code of Professional Conduct, (DR 5-108(A)), because Platt had erred in concluding that Debevoise had simultaneously represented MetLife's policyholders and the company itself prior to the conversion.

"Insofar as Judge Platt's opinions suggest that Debevoise literally represented the policyholders," Green wrote, they are "simply wrong."

"For the purpose of the ethics ruling governing lawyer client relationships," he explained, "when a lawyer represents a corporation or other legal entity, the entity is the client ... the client is not a shareholder or the shareholders collectively ... nor is the client the directors or another constituent of the corporation."

Green further concluded there was no reason that general rule would not apply to a mutual company.

While MetLife may owe a fiduciary duty to the policyholders, he wrote, "it does not follow" that they were also Debevoise's clients. "In general," he stated, a fiduciary's beneficiaries are not by operation of law, clients of the fiduciary's lawyer."

Meanwhile, after the panel pushed back the start of the trial, Platt began releasing jurors who had been summoned. MetLife's lawyers quickly went to Judge Hall Thursday, who issued a temporary stay at their request. The stay will remain in effect until he and Judge Cabranes rule on the issue.

For the start of jury selection, Platt had kept on hold 150 potential jurors who had completed a 24-page questionnaire on Aug. 18. According to an earlier filing by MetLife's associate general counsel, Kevin S. Finnegan, that group had been winnowed from a pool of 347 potential jurors. The two sides had agreed to strike for cause 180 individuals after reviewing their questionnaires, Finnigan said in a Tuesday declaration.