Class-actions have evolved into a type of litigation that is pursued (and defended) by a limited number of specialized law firms. The targets of this brand of litigation are usually major corporations that are alleged to have caused widespread damage to some identifiable “class” of individuals.

The damages involved in class-actions range from serious personal injuries to people exposed to toxic contamination to customers being cheated out of a few dollars on rebates. Sometimes the class is a small one with each member suffering significant harm, and sometimes the class is enormous with each member claiming relatively inconsequential damages.
Whatever the case, however, class-actions are complex, expensive, and time-consuming and, as a result, only highly qualified and well-financed law firms have the ability to engage in these mammoth battles on the state or federal levels.

To be sure, when successful, the damages can add up to millions, or even billions, of dollars. The plaintiffs may each receive enormous payments and life-long benefits (such as medical monitoring and treatment) or something as trivial as a check or credit for less than a dollar.

In either case, the total recovery (by settlement or judgment after trial) is what makes a class-action significant. It is that possibility that makes major corporations shudder at the thought of being  named as a defendant in a class-action.

On the downside, however, many class-actions fail to be certified as such (and thus fizzle out), or are simply dismissed by the court as having no merit. These less than glorious ends often result in the law firms representing the class taking a substantial financial loss.

Consequently, maximizing the clients’ recovery is a duty that class-action attorneys must always keep in mind as they battle corporate giants.

To be sure, altruism is not what drives most class-action attorneys. Indeed, while the financial risks of a failed class-action are great, the rewards of a successful one are even greater. Legal fees can run into the tens of millions of dollars and the favorable publicity can be priceless.

It is in this risky and rarified atmosphere that the Seattle law firm of Hagens Berman made its mark over the past decade. Taking on and often defeating major companies earned countless clients vast sums of money and the firm millions of dollars in legal fees and an enviable reputation.

It now appears, however, that in one particular case, the firm may have placed its own financial interests above its duty to its clients.

Hagens Berman (now Hagens Berman Sobol Shapiro) itself was sued by three former clients that claimed the firm violated its duty of loyalty to them when it opted to pursue a group of ill-advised class-actions that caused a $39 million settlement offer to them to be withdrawn.

The clients were three small water bottling companies one of which is a non-profit company co-owned by Robert F. Kennedy, Jr.

The clients claimed that Hagens Berman had been working on a possible settlement with Switzerland-based Nestle Waters North America, which owns Poland Springs Water Co. That case involved allegations that Poland Springs was using well-water (not spring water) and that the water might be contaminated.

The companies wished to avoid any negative impact on the region’s bottled water industry by negotiating a settlement with Nestle to correct the problems without the need for public disclosure. Consumers were represented in the matter by an environmental advocate that was working with the bottlers.

As a result of negotiations Nestle was reportedly willing to settle the matter for $39 million and an agreement to review its water quality. The clients (and the environmental advocate) allegedly told Hagens Berman not to jeopardize the settlement.

What happened next, according to the clients and their current attorney, was that Hagens Berman decided to pursue a number of ill-advised class-actions that caused Nestle to withdraw its settlement offer thereby causing the clients “a significant financial loss.”

The complaint and the proof at trial followed the theory that Hagens Berman lost its moral compass and, motivated by greed, abandoned its “original” clients for a course of action that, if successful, would have netted the law firm million of dollars in legal fees.

The jury agreed and returned a $10.8 million verdict against Hagens Berman. They will return next week to take up the issue of punitive damages.

According to Jan Schlichtmann, the attorney who brought the clients to Hagens Berman in 2002 and who negotiated the settlement: “For their own reasons, they decided to sabotage that settlement, figuring they could do better. It was a power play by them. It was totally contrary to their obligations as an attorney, and to cover their betrayal of their clients, they started to trash their clients and me.”

Schlichtmann, no stranger himself to class-actions and the duties owed by an attorney to his clients in such litigation, is the same lawyer played by John Travolta in the 1999 film “A Civil Action.” He added that the verdict is a reminder that “lawyers are there to serve their clients’ interests, and clients are not there to serve their lawyers’ interest.”

One attorney we spoke with, who is currently involved in a legal malpractice action against two law firms accused of losing millions of dollars in settlement money as a result of failing to sue all available defendants in a class-action, told us that any law firm involved in class-action litigation must always keep its priorities straight. “A law firm must resist the temptation to make any decision based on its financial interest in any potential legal fee. While class-actions can generate enormous legal fees for the successful attorneys, they can also test an attorney’s loyalty to the interests of his or her clients.”

This entry was posted on Sunday, March 26th, 2006 at 2:35 pm and is filed under Consumer Fraud, Legal News.