Did you really not know that selling out your clients could get you in trouble?

A law firm that agreed to take many millions — up to $7.5 millions — from a defendant in return for getting plaintiff-clients to settle cheap seems not to have thought that far ahead.

The firm hired on to represent 587 people who claimed that Nextel discriminated against them in the terms or conditions of employment. But it also agreed with Nextel to get its clients to accept a Dispute Resolution and Settlement Agreement (DRSA), which forced them to mediate and then arbitrate but also promised the firm a big pay day.

Some of the clients sued the firm. The district court granted a motion to dismiss for failure to state a claim. But the Second Circuit reversed. It said:

On the face of the DRSA, its inevitable purpose was to create an irresistible incentive — millions of dollars in payments having no relation to services performed for, or recovery by, the claimants — for LMB to engage in an en masse solicitation of agreement to, and performance of, the DRSA's terms from approximately 587 claimant clients. The effectiveness of the DRSA, and therefore the payments to LMB, depended on Nextel's conclusion that a sufficient number or clients had agreed to it. . . . By entering the DRSA, agreeing to be bound by its terms and accepting the financial incentives available therein, LMB violated its duty to advise and represent each client individually, giving due consideration to differing claims, differing strengths of those claims, and differing interests in one or more proper tribunals in which to assert those claims.

Johnson v. Nextel Communications, Inc., No. 09-1892-CV (2d Cir. Sept. 26, 2011) (footnotes omitted). The panel thus upheld the complaint and sent the case back to the district court to deal further with the claims that the law firm breached fiduciary duties to its clients.

Blawgletter offers no view on whether the law firm in fact did wrong. Ahem.