Friday, January 27, 2006
Well-known plaintiffs class action law firm Milberg Weiss is the lead counsel in a settlement with KPMG regarding the tax shelters sold to individuals that the accounting firm has admitted were bogus. The settlement calls for KPMG to pay $225 million to the taxpayers who bought the shelters, from which the attorneys will receive $30 million. A Wall Street Journal article (here) discusses an offer by Milberg Weiss to attorneys for tax shelter purchasers who have opted out of the class that they can receive a portion of the attorney's fees, conditioned, of course, on their clients joining the settlement. When the settlement, which has not yet been approved by the federal district court, was first disclosed in 2005, lawyers for some of the tax shelter purchasers asserted that it was collusive and undervalued the potential claims against KPMG. Milberg Weiss has pushed forward, but a significant number of class members -- over 20% -- have opted out, which means that the settlement may not cover enough potential claims to make it worthwhile to KPMG, which would still have to litigate with a number of the remaining plaintiffs.
An interesting question is whether it is ethical the offer the attorneys for those who have opted out of the settlement a portion of the fee pool. It is always good to see that Milberg Weiss has retained the services of a law professor well-versed in the field of legal ethics to advise on the fee-sharing issue, and Professor Roy Simon from Hofstra is quoted in the Journal article as supporting the fee offer. The question for those attorneys who advise clients to opt into the settlement and accept a portion of the fees will be whether they had a conflict of interest by putting their interests in obtaining fees ahead of the client's goal of securing the largest award possible. I suspect the issue of timing will be key. For example, if an attorney recommends joining the Milberg Weiss-negotiated settlement after being offered a portion of the fee pool, and if later cases turn out to involve substantially higher awards to individual plaintiffs who purchased tax shelters, then those clients may argue that the conflict tainted the lawyer's advice and constituted a breach of the lawyer's fiduciary duty. All the disclosure in the world may not cure a situation in which the lawyer looks to be putting his or her own fee before the client's best interest, and it is not a claim in which you want to be on the receiving end. Even assuming Milberg Weiss' offer passes muster under Rule 1.5 for sharing fees among lawyers, and the lawyers disclose to their clients the amount they expect to receive, it may be a situation fraught with too much danger from the potentially serious conflict of interest the offer poses. As always, the admonition voiced at the end of roll call on Hill Street Blues certainly applies here: "Let's be careful out there." (ph)