United States: Charges By Law Firm-Owned Vendors Challenged In Putative Client Class

Last Updated: December 4 2017
Article by Gary M. Pappas and Johanna Wills Clark

Plaintiffs signed engagement letters with the law firm Finkelstein & Partners (the "law firm") to represent them in two separate personal injury lawsuits on a contingency basis. The contract specifically identified several litigation support vendors who may perform work on the cases, including service of subpoenas, writing client biographies, investigations, photo and video gathering, locating expert witnesses, research, conducting focus groups, and creating trial exhibits. The contract described the vendors as "independent contractors" and "not part of the law firm" but did disclose that the vendors were owned in whole or in part by partners of the firm.

After settling plaintiffs' cases, the law firm deducted the vendors' charges from the settlement funds. Plaintiffs disputed the deductions and filed a class action lawsuit on behalf of similarly situated former clients against the law firm, the vendors, and individual partners on numerous theories including breach of fiduciary duty and violations of New York General Business Law. The gravamen of the complaint was that the vendor charges were for work that should have been performed by the law firm and that the charges were too high.

Plaintiffs moved for class certification under Rule 23(b)(3). Defendants challenged commonality, typicality, predominance and damages. The court denied plaintiffs' motion without prejudice on the ground that it suffered from a fundamental defect: the lack of critical evidence to support plaintiffs' legal theories. According to the court, plaintiffs failed to proffer any expert testimony as to whether: (i) the vendors' services constituted improper "legal work" that should have been performed by the law firm; (ii) whether the law firm should have handled certain services internally without assessing additional charges; and (iii) whether the charges for the litigation support services were unreasonable.

Plaintiffs argued that they satisfied both the commonality and typicality prongs of 23(a) because all putative class members signed the same or similar retainer agreement and all claims were based on the same legal theory stemming from a common course of misconduct by defendants. The court disagreed. Due to the evidentiary void, the court was unable to form, much less answer, a common question as to which vendor services were improper and/or overpriced and which of their claims were typical of all other law firm clients. The court observed that even in their own cases, plaintiffs failed to provide evidence as to which of the vendors' services were actually "legal" services, should have been performed in-house by the law firm, and/or were overpriced. According to the court, plaintiffs, as lay persons, could not satisfy either element with their own testimony and required expert opinions.

Plaintiff also argued that it satisfied the predominance prong. The court disagreed again. The court noted that the predominance requirement under 23(b)(3) is more stringent than the commonality requirement of 23(a) and found that it must necessarily "formulate some prediction as to how specific issues will play out to determine whether common or individual issues predominate in a given case." Because plaintiffs fell short on commonality, they likewise failed to meet their burden as to predominance.

Finally, the court held that plaintiffs had not presented evidence of a reliable methodology for calculating damages on a class-wide basis because, once again, it was unclear what services were at issue in plaintiffs' claim much less the services at issue for the putative class members.

Nancy Harding et al. v. Jacoby & Meyers, LLP, et al., No.14-5419 (D.N.J. Oct. 30, 217)

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