(Updates with excerpt from opinion in third paragraph.)
Sept. 26 (Bloomberg) -- A lawsuit claiming Nextel Communications Inc. conspired with the law firm Leeds Morelli & Brown PC against the interests of 587 Leeds Morelli clients was reinstated by a U.S. appeals court in New York.
A three-judge panel of the court ruled today that U.S. District Judge George Daniels in Manhattan was wrong in March 2009 when he dismissed the suit, filed by clients who hired Leeds Morelli to represent them in discrimination claims against Nextel, a unit of Overland Park, Kansas-based Sprint Nextel Corp.
“LMB was being paid by Nextel in effect to ignore its duty to represent clients as individuals with differing claims and interests that might require differing amounts of time and preparation vigorously to purse a recovery,” U.S. Circuit Judge Ralph Winter Jr. wrote in an opinion today.
The plaintiffs claim a 2000 agreement required Nextel to pay as much as $7.5 million to Leeds Morelli as part of a deal “by which Nextel secretly bought LMB’s loyalty.” The appeals court sent the case back to the lower court to prepare it for trial.
“It sends a strong message,” Angela Roper, a lawyer for the former Leeds Morelli clients, said in a telephone interview about the ruling today. “Maybe attorneys will think twice now before blessing transactions that are less than appropriate.”
Lawrence Sandak, a lawyer for Nextel, and Shari Lewis, a lawyer for Leeds Morelli, didn’t immediately return phone messages seeking comment on the ruling.
The agreement between Leeds Morelli and Nextel called for the company to pay $2 million to the law firm to persuade its 587 clients to agree to waive their rights to a trial and to claim punitive damages, according to Winter. The plaintiffs also were required to agree to mediate and arbitrate their claims. Leeds Morelli would get an additional $3.5 million as clients’ claims were settled.
Once all the claims were resolved, Nextel would hire Leeds Morelli as a consultant for two years for $2 million. The firm agreed not to file additional claims against Nextel.
The payments to Leeds Morelli weren’t tied to any legal services or money recovered for the firm’s clients. The agreement “created enormous incentives on LMB’s part to obtain from each and every one of its clients waivers of important rights,” Winter said in the opinion.
Winter said that the conflict of interest created by the arrangement was so serious, the clients couldn’t be permitted to agree to it.
The case was originally filed in state court in New Jersey in October 2006. The defendants moved the case to federal court and Leeds Morelli, based in New York, got the case transferred to Manhattan.
The case is Johnson v. Nextel Communications Inc., 09-1892, U.S. Circuit Court of Appeals (Manhattan).
--Editors: Mary Romano, Peter Blumberg
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