Legal Ethics

2nd Circuit Revives Suit Against Leeds Morelli, Says Clients Couldn't OK 'Enormous' Nextel Conflict

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Saying that an “enormous conflict” inherent in a law firm’s agreement with an opposing party couldn’t be waived by a law firm’s clients, a federal appeals court has reinstated a malpractice suit against Leeds Morelli & Brown.

Filed by a group of clients the New York law firm represented in an employment discrimination class action against Nextel Communications Inc. (now part of Sprint Nextel Corp.), the Southern District of New York suit contends that LMB accepted payments from Nextel for acting in a manner that was detrimental to the interest of the law firm’s own clients, reports Reuters.

A federal judge had dismissed the malpractice suit, finding that the plaintiff clients had agreed to LMB’s pact with Nextel as part of a written representation agreement in the employment discrimination class action.

But the 2nd U.S. Circuit Court of Appeals reversed, saying in a written opinion (PDF) today that the conflict was so severe it was impossible for the law firm’s clients to consent to it.

“LMB was being paid by Nextel in effect to ignore its duty to represent clients as individuals with differing claims and interests,” the appellate panel wrote.

It also found that the plaintiffs had “easily met the burden” of pleading a cause of action against Nextel for aiding and abetting the law firm’s alleged breach of fiduciary duty.

At issue in the malpractice case is an agreement between the law firm and Nextel, in which Nextel allegedly agreed to pay Leeds Morelli up to $7.5 million. Of that amount, $2 million was to be paid to LMB if the firm persuaded 587 clients to waive their right to a jury trial and punitive damages and accept arbitration. Another $3.5 million would be paid to LMB as its clients’ claims were resolved in arbitration. And a final $2 million was to be forthcoming, under a consulting contract, after the entire matter was resolved, the opinion explains.

Related coverage: “Plaintiffs Claim Law Firm Took $5M from Prudential to Steer Them to ADR”

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