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Huber v. Taylor

January 25, 2010

RONALD L. HUBER; WILLIAM J. AIRGOOD; ANTHONY DEFABBO; JOHN DINIO; ERNEST GISHNOCK; JOHN BIDLENCSIK; HILMA MULLINS AND WILLIAM DEEM, INDIVIDUALLY AND ON BEHALF OF THOSE SIMILARLY SITUATED PLAINTIFFS,
v.
ROBERT G. TAYLOR, II; ROBERT G. TAYLOR, P.C.; R.G. TAYLOR II, P.C.; ESTATE OF ROBERT A. PRITCHARD; PRITCHARD LAW FIRM, PLLC; JOSEPH B. COX, JR.; JOSEPH B. COX, JR. LTD; AND COX AND COX, LLP DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Lisa Pupo Lenihan

Doc. No. 372

OPINION AND MEMORANDUM ORDER ON MOTION FOR LEAVE TO FILE THIRD AMENDED COMPLAINT

I. OVERVIEW

This 2002 action involves claims related to Defendants' representation of the eight (8) above-named Plaintiffs (the "Named Plaintiffs"), and of others similarly situated, in consolidated individual personal injury actions for exposure to asbestos, in the State Court of Mississippi (the "Mississippi Asbestos Exposure Consolidated Litigation" or "Mississippi AECL").

After many years of discovery and litigation before several different Judges in this Court, and multiple appeals to the Court of Appeals for the Third Circuit, the Named Plaintiffs' surviving claims are, at bottom, that in representing them in the Mississippi AECL, Defendants

(a) breached their fiduciary duties of candor/disclosure and loyalty under Texas law by (i) covertly allocating settlement funds disproportionately/inequitably in favor of other asbestos litigation clients in other states (to maximize the Defendants' revenue from the cases) and (ii) imposing and receiving excessive expenses; but

(b) caused them no actual harm as they failed to show they would have achieved a better outcome in the underlying actions but for counsel's conduct.*fn1

Pending before the Court is a Motion to File a Third Amended Complaint requesting class certification, extensive injunctive relief, accounting, disgorgement of fees, imposition of a constructive trust, and punitive damages. See Third Amended Complaint at 7. For the reasons set forth herein, the Court will grant Plaintiffs' Motion in part and deny it in part. More specifically, they will be granted leave to amend their Complaint in a manner consistent with the law of the case, as discussed below.

II. FACTUAL AND PROCEDURAL HISTORY

Plaintiffs' Complaint was filed in February, 2002. Their last filed, Second Amended, Complaint alleged that the Defendant lawyers and law firms "defrauded" Plaintiffs and other Pennsylvania, Ohio and Indiana clients (the "Northern Clients") in their asbestos exposure litigation in Mississippi by obtaining "colossal, aggregate settlements" and "sacrific[ing] their clients' rights and interests to the [Defendants'] greed". See Second Amended Complaint at 2. Named Plaintiffs are former steel mill workers now between 58 and 76 years old, who were exposed to asbestos-containing products during their employment and allege that they have been "diagnosed with an asbestos-related disease." Id. But compare Huber v. Taylor ("Huber I"), 469 F.3d 67 (3d Cir. 2006) (stating that "[n]one [of the eight Named Plaintiffs] have developed malignant asbestos-related disease" and that "[a]ll the Plaintiffs except Huber are or were smokers"); June 19, 2009 Memorandum Order at 1-2.

In 1995, Defendant Robert Pritchard, an asbestos lawyer practicing in Mississippi, commenced an asbestos personal injury case captioned Cosey v. E.D.Bullard Co. ("Cosey") in Mississippi State Court. Over the next four years, thousands of "asbestos personal injury plaintiffs were joined in Cosey, along with more than two hundred defendants."*fn2 A 1998 trial in Cosey for the cases of twelve (12) Plaintiffs with malignant asbestosis diseases resulted in an award of approximately $48.5 million. As a result, many companies "with potential asbestos liablity [explored] settlement" and in 1999 Pritchard brought a second asbestos personal injury action in Mississippi State Court captioned Rankin v. A-Bex Corp ("Rankin"), "in which the Plaintiffs in this suit were joined."*fn3

While the Mississippi cases were proceeding Plaintiffs herein (and other Northern Clients) had "retained counsel in their home states (Local Counsel) to prosecute their asbestos claims for a 40% retainer fee." Huber I, 469 F.3d at 69-70.*fn4 Their Local Counsel had "entered into co-counsel agreements with [Defendant Taylor], a Texas attorney involved in Cosey," who agreed to serve as co-counsel for the asbestos clients in exchange for receiving between 95%-97.5% of Local Counsel's fee if suit were brought outside of the Local Counsel's home state. See id. Taylor, in turn, had an "upstream co-counsel agreement" with Pritchard, who had one with Cox (a North Carolina lawyer). Under his agreement, Cox negotiated, and received four (4%) percent of, all group settlements. See Huber I, 469 F.3d at 70; June 19, 2009 Memorandum Order at 2.

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.

Huber I, 469 F.3d at 70 (emphasis added).*fn5 See also Second Amended Complaint at 16-17, 19-20 (discussing settlement reached in November, 1999, and noting that Defendants have also reached other settlements with other Mississippi AECL Defendants).*fn6

When settlements were negotiated, the Northern Clients "received various disclosures . . . made by Local Counsel and . . . a paralegal service associated with Taylor." Huber I at 71-72. They were provided a release (which was explained orally by the paralegal service), a check and a disbursement sheet. "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." Id. at 72.

The Named Plaintiffs brought this action in 2002, seeking compensatory damages, disgorgement of attorneys' fees and punitive damages. Following discovery and the filing of two Amended Complaints,*fn7 Judge Arthur J. Schwab, before whom the case was then pending, denied Plaintiffs' request for class certification and granted Defendants' Motion for Summary Judgment, concluding that "Plaintiffs failed to show actual harm, namely, that Plaintiffs would have achieved a better outcome in the Mississippi litigation but for Defendants' conduct" and that "actual harm was a required element of all of Plaintiffs' claims." Huber v. Taylor ("Huber II"), 532 F.3d 237, 242-43 (3d Cir. 2008). See also id. at 246 (discussing District Court's holding that relief was limited to disgorgement of fees, compensatory damages that were likely to be de minimis (as "the most a single plaintiff could recover in non-punitive damages was $13,000, representing the amount of fees subject to disgorgement"), and punitive damages).

Plaintiffs appealed only the denial of class certification and grant of summary judgment as to breach of fiduciary duty.*fn8 Those aspects of the District Court's Opinion were vacated on appeal, as the Third Circuit held that the District Court should have applied Texas law which does not require a showing of actual injury in order to maintain a claim for breach of fiduciary duty when the remedy sought is disgorgement of attorneys' fees rather than damages for actual harm. See Huber I, 469 F.3d at 77 (citing Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999) and rules in accord); id. (explaining that this is so because disloyalty itself "violates the fiduciary relationship and thus impairs the basis for compensation" because "[a]n agent's compensation is not only for specific results but also for loyalty") (quoting Burrow, 997 S.W.2d at 238).

On remand, this Court denied Plaintiffs leave to file a proposed Third Amended Complaint "asserting breach of fiduciary duty claims under Texas law and again seeking" class certification. It also dismissed Plaintiffs' claims for lack of jurisdiction, concluding that (a) no plaintiff could satisfy the statutory minimum amount in controversy and (b) local counsel were necessary and indispensable parties under Rule 19. See April 27, 2007 Memorandum Opinion; Huber II, 532 F.3d at 243. In concluding, on further appeal, that Plaintiffs' subsequent litigation failures did "not oust the court of subject matter jurisdiction",*fn9 the Third Circuit held that

(a) "Plaintiffs' original complaint was [not] so patently deficient as to reflect to a legal certainty that no Plaintiff could recover the jurisdictional amount", and "subsequent revelations" did not require dismissal, because: (i) Texas courts have permitted recovery of punitive damages based on an intentional breach of fiduciary duty,*fn10 (ii) there is no set rule or ratio regarding the "reasonable proportion" of punitive to actual damages, and (iii) Texas case law ...


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