THE BLOG
12/04/2012 03:27 pm ET | Updated Feb 03, 2013

The World's Biggest Hypocrites Are At It Again

While the judges who enable them look the other way.

Not a week goes by it seems in which class action lawyers are not filing lawsuits against companies (the bigger the better) throughout America and the world, alleging that these businesses failed to adequately disclose this, failed to fully disclose that, or failed to timely disclose the other. Or, that the companies made false and misleading statements about this, artificially inflated the price of that, or breached their fiduciary duty and were unjustly enriched by the other.

There is a case now percolating in a federal court in New Hampshire that is possibly the ultimate example of class action attorney skullduggery. This case has all the elements of the old pot-kettle aphorism, which boils down to plaintiff's class action lawyers suing companies for alleged wrongs that they are conspicuously guilty of themselves. The difference is that the misdeeds that lawyers commit take place in courts of law, and are protected by the legal system in a way that (mis)conduct by businesses in the marketplace is not.

Not long ago, plaintiff class action lawyers settled a massive securities class action lawsuit against Tyco International, a global manufacturing company. This was not just any lawsuit, but a lawsuit that wound up awarding them the second largest attorneys' fee ever awarded in a class action -- nearly half a billion dollars. That's with a "b."

According to the filings, at the outset of the litigation the class's attorneys signed a fee agreement with the plaintiff who represented the class. It called for a fee of 7.8 percent of any recovery. However, when it came time to request a fee, the lawyers sought 14.5 percent of the class's recovery, not the percentage which they had agreed to initially. Class Counsel never informed the court or the class that a fee agreement existed. Because of the size of the Tyco settlement fund, this percentage meant the difference between the lawyers getting $210 million and $464 million in fees. The court awarded the $464 million in spite of the fact that the judge stated before awarding the fee that he was interested in seeing a retainer agreement and wanted to know "whether lead plaintiffs did anything to oversee decisions about what fees would be incurred." But, the court never pursued the issue before awarding the fee.

A class member has now filed a lawsuit against the class' lawyers, claiming that their failure to disclose the fee agreement was, among other things, a breach of the lawyers' fiduciary duty to class members, and that the difference between the fee negotiated in the retainer agreement and the [inflated] fee awarded by the court should be given to the class as part of its recovery, else the lawyers are being unjustly enriched. Sound familiar?

Another interesting sidelight. In the papers submitted to the court seeking approval of the fee, the plaintiffs' lawyers justified their 14.5 percent fee request by citing to a case in which a court awarded a fee because it was based on a fee agreement negotiated at the beginning of the case. That case, they asserted, justified their own request which involved concealing the fee agreement negotiated at the beginning of the case.

But now for the worst part. At class counsel's request, the lawsuit was transferred to the judge who originally approved the fee award. Although their motion to dismiss the lawsuit was denied, the original trial court judge in denying the motion stated, "Had I known about the retainer agreement, it wouldn't have changed my opinion as to what fee to award." It is true that a trial judge is not required to enforce a fee agreement negotiated between plaintiff's counsel and lead plaintiffs. However, an important federal appellate decision holds that courts should defer to fee agreements negotiated by the lead plaintiff.

Class action lawyers collect billions of dollars in attorney's fees filing lawsuits against companies for failing to disclose this, making false and misleading statements about that, and breach of fiduciary duty for the other. Yet, in this case, the plaintiff's lawyers are alleged to have "failed to disclose" their negotiated fee agreement to the court, made "false and misleading statements" by failing to mention the existence of such a fee agreement, and "breached their fiduciary duty" to the class by asking the court to award double the negotiated fee amount. Yet, apparently, in our courts of law, a class member who points this out is told by the system that such attorney duplicity doesn't matter.

The world's biggest hypocrites are a law unto themselves. And the courts are their quite willing accomplices.