Blank Rome Obtains Dismissal of Putative Class Action for Legal Malpractice against Texas Law Firms

On behalf of four Texas law firms, Blank Rome on March 24, 2020, successfully obtained a dismissal of a putative legal malpractice class action in Gore, et al. v. Bruce Nagel, et al., filed in the United States District Court for the District of New Jersey, alleging that the law firms violated New Jersey Court Rule 1:21-7 by charging excessive contingency fees. Plaintiffs did not allege that the Texas law firms provided incorrect advice. In underlying personal injury litigation, the Texas law firms represented Debbie Gore, a Texas resident, and Doris Lance-Smith, an Alabama resident, against Ethicon, the manufacturer of pelvic mesh products for injuries sustained after surgical implantation of these products. On May 21, 2013, and June 2, 2012, respectively, Texas resident Gore and Alabama resident Lance-Smith, entered into retainer agreements with Texas counsel to pursue their mesh claims against Ethicon. Both Plaintiffs agreed to pay a 40 percent contingency fee, and allowed their counsel to associate with other law firms without increasing the required fee. Gore’s Retainer Agreement stated that Texas law governs and that any claims “arising under [the Gore Retainer] must be filed only in a court of competent jurisdiction in Harris County, Houston, Texas.” Lance-Smith’s Retainer Agreement did not have a choice of law provision. The Plaintiffs had sustained injuries in their home states after being implanted with the allegedly defective mesh products.

In July 2014, Gore and Lance-Smith filed Master Short Form Complaints against Ethicon in the Superior Court of New Jersey, in Multi County Litigation in which hundreds of claimants filed separate suits. Co-Defendants New Jersey lawyer Andrew O’Connor and his firm, Nagel Rice, LLP, were listed as attorneys for Plaintiffs, and Texas Defendants Potts and the Potts Firm were listed as co-counsel. The New Jersey dockets for the Plaintiffs’ cases reflected no litigation activities after the complaints were filed, except an entry indicating the matters were closed.

In 2016, Ethicon and the Texas law firms entered into an aggregate settlement agreement (“Agreement”) to resolve several thousand of these pelvic mesh claims—including Plaintiffs’ claims, under the auspices of litigation pending in the state court of Hardin County, Texas (the “Texas Court”). The Agreement was negotiated and executed in Texas. Following execution of the Agreement, the Texas Court established a Qualified Settlement Fund (“QSF”) and appointed a Texas trustee to administer the settlement and disburse settlement funds from the QSF. The Texas Court also appointed a Special Master, who developed and established criteria, audit procedures, and values for individual claimants participating in the aggregate settlement pursuant to the Agreement. The Texas Court approved the Special Master’s settlement criteria, as well as each individual settlement determined pursuant to the settlement matrix. The individual settlement determinations were made by the Texas Special Master after a review of each claimant’s injuries, medical conditions, treatment, attorneys’ fees, and expenses. The Texas Special Master also reviewed all claimants’ “employment agreements” with their counsel, including Plaintiffs’ agreements which are at issue in this action. Plaintiffs gave informed consent to participate in the process established by the Texas Settlement Court; through this process, Plaintiffs’ settlement amounts were reviewed and approved using this procedure by the Texas Court.

Because New Jersey’s rules require that contingency fees can be no more than one-third of a plaintiff’s recovery, Plaintiffs sued on the theory that they were overcharged for attorneys’ fees in connection with their Texas settlements. The Texas law firm Defendants moved to dismiss the complaint on the basis that Texas, not New Jersey, law applied to the retainer agreements at issue.

Applying New Jersey’s choice of law analysis, the Honorable Madeline Cox Arleo, United States District Judge for the District of New Jersey, agreed with the Texas law firms, determining that Texas law applied to the retainer agreements between the Texas law firm Defendants and Texas Plaintiff Gore and Alabama Plaintiff Lance-Smith. Under Texas law, there is no cap on permissible contingency fees (which must otherwise be “reasonable”), and these retainer agreements and the fees charged by the Texas lawyers were approved by the Texas Special Master and the Texas state court judge overseeing the elaborate settlement process administered through that court.

Judge Arleo found that the only connection to New Jersey was that Nagel Rice, LLP, a New Jersey law firm, filed two Master Short Form Complaints in New Jersey state court on behalf of out-of-state Plaintiffs, also represented by out-of-state lawyers. Texas lawyer Derek Potts, and his firm, were listed as co-counsel on the complaints. Otherwise, no litigation activities occurred in New Jersey. Instead, the complex settlement process, which Plaintiffs consented to after ample opportunity for objection, was reached after negotiations between Ethicon and the Texas law firms and was administered by the Texas State Court and a Texas Special Master. Nagel Rice LLP did not receive any contingency-based attorneys’ fees as part of Plaintiffs’ settlements. As such, the Court found that the state with the most-significant relationship to the substantive claims at issue is Texas. The Court found the contingency fee charged was lawful under Texas law, and therefore Plaintiffs failed to state a claim for legal malpractice, and dismissed the complaint against all Defendants.

The four Texas law firms are represented by Stephen M. Orlofsky, Adrienne C. Rogove, and Michael R. Darbee.

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