(Reuters) – Former clients of the personal injury law firms Jacoby & Meyers and Finkelstein & Partners filed a motion this week in federal court in Newark, New Jersey, requesting certification of a class to pursue allegations that the law firms used an alter-ego litigation support company, Total Trial Services, to extract fees for services that, according to plaintiffs, should have been covered by clients’ contingency fees.
The class certification motion follows a Jan. 28 summary judgment opinion by U.S. District Judge John Vazquez of Newark. Judge Vazquez tossed the ex-clients’ claim for unjust enrichment but otherwise denied the law firms’ motion for summary judgment, allowing plaintiffs to move ahead with claims for breach of fiduciary duty, breach of contract and deceptive business practices under New York’s consumer fraud law.
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The summary judgment ruling addressed only individual claims by three former clients, not class claims. And the ex-clients’ class certification memo that accompanies this week’s motion is sealed. But prospective class counsel Lee Squitieri of Squitieri & Fearon laid out his leading argument for class certification in a letter to the court in February. Squitieri said that the common issue uniting all of the thousands of J&M and F&P clients who were charged for work by Total Trial Services is whether the litigation support company was an alter ego of the law firms. If the plaintiffs can demonstrate that the law firms created Total Trial Services as a vehicle to boost their own profits, the letter said, then all of the clients who were charged for TTS services are owed damages.
“If TTS is the alter-ego of the legal defendants, individual questions of whether F&P and J&M reasonably engaged TTS to perform a particular service in a particular client’s case disappear,” the letter said.
Before I explain the alter-ego plaintiffs’ theory, you should know that J&M and F&P deny that TTS was an alter ego of the law firms – or that the law firms did anything wrong by using TTS’ services. The firms’ lawyers, Lindsey Taylor and James Cecchi of Carella, Byrne, Cecchi, Olstein, Brody & Agnello, did not respond to my email query about the new class certification motion or the underlying allegations. But their summary judgment motion for J&M and F&P argued that TTS was legally distinct from the law firms, despite the significant overlap in ownership. TTS acted as an independent contractor, the firms said, on non-legal case preparation such as writing client biographies; producing videos to depict the impact of clients’ injuries; serving subpoenas; and conducting focus groups. Moreover, according to the firms, clients’ retention agreements contained lengthy disclosures about the additional fees they can expect to be charged for work by TTS and other litigation support companies employed by Jacoby & Meyers and Finkelstein & Partners.
Their ex-clients, of course, argue otherwise. Barbara Smalls retained Jacoby & Meyers in 2008 to represent her in a personal injury suit stemming from a car accident. The firm withdrew from her case in 2015, asserting a lien of more than $31,000 on any future recovery. That included about $2,500 in fees to TTS for such services as a $300 Google Maps search and $1,075 for “focus group services.” Nancy and Jeffrey Harding, a mother and son, retained Finkelstein & Partners for their separate slip-and-fall suits. Nancy Harding’s case, according to a 2017 decision by Judge Vazquez, settled for $195,000. She paid a contingency fee of nearly $58,000 plus another $21,200 in litigation expenses, including nearly $4,000 to TTS. Jeffrey Harding’s case settled for about $99,000. $29,300 went to Finkelstein for fees. $11,300 went to litigation expenses, including nearly $3,000 to TTS. In both Harding cases, TTS prepared client biographies to be presented to defendants to maximize their settlements.
Smalls and the Hardings allege that Andrew Finkelstein, the lead partner of both Jacoby & Meyers and Finkelstein & Partners and a 70% owner of TTS, founded TTS in order to profit from work that was previously covered by the law firms’ contingency fees. Finkelstein, they said, has the final decision-making authority over TTS’ business. The plaintiffs alleged that TTS operated out of F&P’s headquarters and shared a 401(k) plan, a computer system and an online banking system with the law firm. F&P’s CFO, according to the ex-clients, oversaw TTS’s accounting and bookkeeping, including its payroll, invoices and general ledger.
The law firms’ lawyers said that although Finkelstein was the majority owner and final decision-maker for the firms and TTS, the businesses were separate corporate entities that maintained “proper corporate formalities,” including distinct books and bank accounts. “The entities dealt with each other at arm’s length,” the law firms’ said in their summary judgment motion. “TTS billed the law firms for services and the law firms paid the bills for those services.”
Judge Vazquez concluded that the ex-clients’ had raised material issues that could not be decided on summary judgment. “Plaintiffs provide sufficient facts through which a reasonable jury could conclude that there was a disregard of the corporate form,” he said in the February opinion.
Back in 2017, the judge denied the Hardings’ previous motion for class certification against F&P, holding, among other things, that the plaintiffs hadn’t offered expert testimony to back their argument that TTS’s services should have been encompassed in clients’ contingency fees. The ex-clients have since brought in an expert, legal malpractice specialist Andrew Lavoot Bluestone, who has said that many of the services provided by TTS are generally considered non-billable overhead or are legal services covered by contingency fees. Bluestone’s opinion is sealed, but plaintiffs have said that he concluded that if TTS is an alter ego of the law firms, then charging clients for its work is a per se ethics violation.
The defendants moved to strike Bluestone’s report, arguing that his opinions were not based on evidence but were based merely “upon unsubstantiated allegations cherry picked by counsel and pleaded in the complaints.”
Judge Vazquez said in February that he hadn’t relied on Bluestone in his summary judgment decision so put off a final ruling on the admissibility of his report until class certification was teed up. Presumably, that will be one of the issues raised in opposition briefing by Jacoby & Meyers and Finkelstein & Partners.