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The 3d U.S. Circuit Court of Appeals has revived a proposed class action against a group of lawyers from Southern states brought by more than 2,600 former clients from Northern states who say they were cheated out of their fair share of $400 million in asbestos personal injury settlements in the Mississippi state courts when the lawyers gave larger payouts to Southern plaintiffs. Reversing a lower court’s dismissal of the suit, Judge Jane R. Roth issued a stern lecture to lawyers about the duty of loyalty. “We are embarrassed to have to explain a matter so elementary to the legal profession that it speaks for itself: All attorneys in a co-counsel relationship individually owe each and every client the duty of loyalty. For it to be otherwise is inconceivable,” Roth wrote in Huber v. Taylor, No. 05-1757. The plaintiffs in the case are steelworkers from Pennsylvania, Ohio and Indiana who joined a massive Mississippi asbestos action. The suit, filed by attorneys Esther S. Trakinski and Irving Cohen of Cohen Pope in New York, alleges that the Northern plaintiffs were never made aware of a series of agreements between the lawyers that ultimately led to their receiving smaller payouts than Southern plaintiffs. The Northern plaintiffs had retained lawyers in their home states-referred to in the case as “local counsel”-who had in turn struck deals with a Texas lawyer who served as co-counsel. But when the lawyers struck a series of settlements worth more than $400 million, the Northern plaintiffs claim that their share was reduced because the Southern lawyers wanted to allocate a greater percentage of aggregate settlements to Southerners in order to minimize the percentages paid to the Northern plaintiffs’ local counsel. The suit alleges that by cheating the Northern plaintiffs of their fair share, the Southern lawyers saved more than $10 million that would have been paid to the local counsel. The stakes are even higher than that because the Northern plaintiffs are seeking disgorgement of all the fees earned by the Southern lawyers: 40% of $400 million, or $160 million. U.S. District Judge Arthur Schwab of the Western District of Pennsylvania refused to certify the suit as a class action and later dismissed the entire case. Finding no conflict among the laws of Pennsylvania, Ohio and Indiana, Schwab held that the plaintiffs could not prove their breach of fiduciary duty claims because they had no proof of “causation” or “actual injury.” The 3d Circuit ruled that Schwab erred by failing to apply Texas law that includes no such requirement. The lead defendants are attorneys Robert G. Taylor II of Texas, Robert A. Pritchard of Mississippi, and Joseph B. Cox Jr. of North Carolina. Their lawyers argued that no Northern plaintiff was cheated in any way. The settlement payouts, they said, were calculated on the basis of numerous factors, including the level of injury and the home state of the claimants. Although the Northern plaintiffs were paid less than their co-plaintiffs from Mississippi and Texas, the defense noted that the Northerners nonetheless received larger settlements than similar asbestos plaintiffs from Pennsylvania, Ohio and Indiana usually receive in their home state courts. At the heart of the claim, Roth wrote, is the duty of loyalty every lawyer has to every client. “This is the cost of doing business as an attorney at law, and we will not countenance shortcuts,” she wrote. “Disclosures to clients must be meaningful, by which we mean something beyond form disclosures, as clients must understand a conflict to give their informed consent to an intelligible waiver . . . .There is no question that defendant attorneys owed plaintiffs fiduciary duties,” Roth wrote.

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