2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

10-31-2006

Huber v. Taylor

Precedential or Non-Precedential: Precedential

Docket No. 05-1757

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-1757

 

RONALD L. HUBER; WILLIAM J. AIRGOOD;

ANTHONY DEFABBO; JOHN DINIO;

ERNEST GISHNOCK; JOHN BIDLENSCIK;

HILMA MULLINS; WILLIAM DEEM,

 Appellants

v.

ROBERT G. TAYLOR, II; ROBERT G. TAYLOR, II, P.C.;

CLETUS P. ERNSTER, III; GEORGE E. CIRE, JR.;

TAYLOR & CIRE; TAYLOR & ERNSTER PC; 

ROBERT A. PRITCHARD; 

CHRISTOPHER FITZGERALD;

LAW OFFICES OF ROBERT A. PRITCHARD;

PRITCHARD LAW FIRM, PLLC; JOSEPH B. COX, JR.;

JOSEPH B. COX, JR., LTD.; COX AND COX, L.L.P.;

R. G. TAYLOR, II, P.C.; J. ROBERT DAVIS, JR.;

TAYLOR, DAVIS & ERNSTER, P.C.
2

 

On Appeal from the United States District Court

for the Western District of Pennsylvania

 District Court No. 02-cv-00304

District Judge: Honorable Arthur J. Schwab

 

Argued on January 12, 2006

Before: SCIRICA*, Chief Judge, FUENTES and ROTH**,

Circuit Judges

(Opinion Filed October 31, 2006)

Samantha L. Southall, Esquire

Nicole Tuman, Esquire

Esther S. Trakinski, Esquire (ARGUED)

Cohen Pope

1633 Broadway

New York, NY 10019

Counsel for Appellants

 

*This case was argued before the panel of Judges Roth,

Fuentes, and Rosenn. As Judge Rosenn passed away on

February 7, 2006, Chief Judge Scirica has been added to the

coram.

**Judge Roth assumed senior status on May 31, 2006.
3

Howard M. Klein, Esquire

Stephen R. Weaver, Esquire

Jeannette M. Brian, Esquire

Conrad, O’Brien, Gellman & Rohn

1515 Market Street, 16th Floor

Philadelphia, PA 19102-1916

Counsel for Appellees Robert G. Taylor, II,

Robert G. Taylor, II, P.C. and R. G. Taylor, II,

P.C.

William M. Wycoff, Esquire

J. Alexander Hershey, Esquire

Thorp, Reed & Armstrong, LLP

301 Grant Street

One Oxford Centre, 14th Floor

Pittsburgh, PA 15219

Counsel for Appellees Ernster, Cire and Davis

Kevin L. Colosimo, Esquire

Thorp, Reed & Armstrong, LLP

301 Grant Street

One Oxford Centre, 14th Floor

Pittsburgh, PA 15219

Counsel for Appellees Pritchard, Fitzgerald,

Law Offices of Robert A. Pritchard and

Pritchard Law Firm, PLLC
4

Thomas C. DeLorenzo, Esquire (ARGUED)

Marshall, Dennehey, Warner, Coleman & Goggin

1845 Walnut Street, 16th Floor

Philadelphia, PA 19103

Counsel for Appellees Joseph B. Cox, Jr. and

Joseph B.Cox, Jr., Ltd.

Anita B. Weinstein, Esquire

Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103-3508

Counsel for Appellee Cox and Cox L.L.P. 

 

 

OPINION

 

ROTH, Cicuit Judge:

This case presents the ironic scenario of class action

plaintiffs’ attorneys who are being sued for breach of fiduciary

duty and related counts by a putative class that the attorneys

themselves formed for asbestos personal injury litigation. For

the reasons stated below, we will vacate the District Court’s

grant of summary judgment to defendant attorneys and its denial

of class certification, and remand this case for further

proceedings consistent with this opinion.
1

 In December 1999, Rankin was removed to the federal

District Court for the Southern District of Mississippi as Rankin

v. A-Bex Corp., 1:99-cv-00558-WJG. 

5

I. Background and Jurisdiction

Our case begins in Jefferson County, Mississippi, where

an asbestos personal injury case, captioned Cosey v. E.D.

Bullard Co., No. 95-00069 (Miss. Cir. Ct. Jefferson Cty.), was

commenced in 1995. Mississippi law does not provide for class

actions, but it has liberal joinder rules and a reputation as a

plaintiff-friendly jurisdiction. Accordingly, over the next four

years, several thousand asbestos personal injury plaintiffs were

joined in Cosey, along with more than two hundred defendants.

In 1998, a trial was conducted in Cosey for the cases of twelve

plaintiffs with malignant asbestos-related diseases. Those

twelve Cosey plaintiffs were awarded approximately $48.5

million in damages. The sole attorneys of record for all the

Cosey plaintiffs were Robert A. Pritchard and Christopher

Fitzgerald. 

At the time the Cosey verdict was delivered, there were

more than 2,000 other asbestos cases pending in Jefferson

County. The large award in Cosey prompted many companies

with potential asbestos liability to explore settlements. In May

1999, before any settlements were reached, Pritchard brought a

second asbestos personal injury mass action in Mississippi state

court, Rankin v. A-Bex Corp., No. 99-00086 (Miss. Cir. Ct.

Jefferson Cty.),1

 in which the Plaintiffs in this suit were joined.

 The Plaintiffs, Roland L. Huber, William J. Airgood,
2

 We note that there is inconsistency between the case

caption and the documentary record as to the spelling of Mr.

Bidlencsik’s name. In the case caption it appears at

“Bidlenscik,” probably as a result of unfamiliarity with Slovak

names. 

3

 Taylor was practicing law as Robert G. Taylor II, P.C.

His firm employed defendant Cletus P. Ernster III. 

6

Anthony Defabbo, John Dinio, Ernest Gishnock, John

Bidlencsik,2

 Hilma Mullins, and William Deem, are former

steelworkers from Pennsylvania, Ohio, and Indiana. All eight

Plaintiffs were exposed to asbestos at some point in their

careers. None have developed malignant asbestos-related

disease. All the Plaintiffs except Huber are or were smokers.

Plaintiffs, along with 2,637 other asbestos-exposed individuals

from Pennsylvania, Ohio, and Indiana (collectively the

Northerners) retained counsel in their home states (Local

Counsel) to prosecute their asbestos claims for a 40% retainer

fee. 

Local Counsel had previously entered into co-counsel

agreements with Robert G. Taylor II, a Texas attorney involved

in Cosey.

3

 Taylor had his own client base in Texas but was

looking to expand his asbestos client “inventory.” Taylor

contracted with Local Counsel to serve as co-counsel for any

future asbestos plaintiffs that Local Counsel would represent in

exchange for Taylor receiving between 95% and 97.5% of Local

Counsel’s fees if suit were brought outside of Local Counsel’s

home state, and a smaller amount if suit were brought in the

home state. The agreements between Taylor and Local Counsel
4

 Cox was doing business as Joseph B. Cox Jr., P.C. and

as Cox & Cox, LLP. We refer to Taylor, Ernster, Pritchard,

Fitzgerald, Cox, and their respective firms collectively as

“Defendants.” 

7

provided that, if the asbestos suits were filed in a state other than

Local Counsel’s home state, Texas law would govern the

contingent fee contract. 

Taylor’s fee arrangement is key for understanding

Plaintiffs’ case. First, it meant that employment as Local

Counsel could only be profitable as volume, rote work because

Local Counsel would keep only one to two percent of any

client’s recovery. Local Counsel had little incentive to focus on

any particular case. Since many recoveries were in the range of

a few thousand dollars, Local Counsel collected very little from

any particular representation. Second, the fee arrangement

meant that, all things being equal, co-counsel representations

were less profitable to Taylor than representations of direct

clients because of the fee-splitting involved. Third, the

arrangement meant that the one to two percent Local Counsel

cut, when aggregated among all Local Counsel, as it was from

Taylor’s perspective, represented a sizeable amount given the

hundreds of millions of dollars of recoveries.

Taylor himself had entered into upstream co-counsel

agreements with Fitzgerald and Pritchard, who in turn entered

into an upstream co-counsel agreement with Joseph B. Cox, Jr.,4

to negotiate settlements, for which Cox would receive four

percent of all gross settlements. Plaintiffs allege that they were

never informed of the various co-counsel arrangements. 
5

 We note, however, that there was an incentive for

Defendants not to bring suit in Pennsylvania, Ohio, and Indiana.

If suit was brought in the home state of a Local Counsel,

Defendants received a smaller percentage of Local Counsels’

fees, 90% for Pennsylvania and 80% for Ohio and Indiana, as

opposed to 97.5% for Pennsylvania and 95% for Ohio and

Indiana if suit were brought outside of Local Counsels’ home

state. 

8

Cox negotiated settlements with asbestos defendants

W.R. Grace, Owens Corning, Fiberboard, and the Center for

Claims Resolution (CCR), an organization created by 19

asbestos defendants to settle asbestos claims. Under the terms

of all the settlements, the payout varied both by level of injury

and by the home state of the claimants. In all the settlements

negotiated by Cox, Northerners received payouts that were

between 2.5 and 18 times lower than those received by plaintiffs

from Mississippi and Texas (Southerners). Northerners, who

joined in the Mississippi actions nonetheless received a larger

settlement than similar asbestos plaintiffs from Pennsylvania,

Ohio, and Indiana usually receive in their home state courts.5

 

Defendants, in settling these cases for Southerners, did

not have to share their fees with Local Counsel, as they had to

do with Northerners. Plaintiffs allege that the difference in the

settlement payouts to Northerners is attributable to this incentive

of Defendants to allocate a greater percentage of aggregate

settlements to Southerners in order to minimize Local Counsel’s

percentages. This marginal percentage difference becomes

significant in light of the scale of the settlements. The record

contains the approximate or maximum values of eleven of the
6

 These eleven settlements are American Optical, CCR,

Combustion Engineering, Flintkote, Halliburton, IngersollRand, Kaiser, Met Life Insurance, Owens-Illinois, OwensCorning and Fiberboard, and Uniroyal. The record did not

permit us to calculate the settlement values in the agreements

with 3M, Babcock & Wilson, Garlock, W.R. Grace & Co.-

Conn., Georgia Pacific, Harbison-Walker, LAQ, and

Westinghouse. 

9

nineteen settlement agreements negotiated by Defendants.6 We

calculate these eleven settlement agreements to total some $400

million. Therefore, on just this portion of the total settlements,

Defendants stood to gain up to $10 million (2.5% of $400

million) at the expense of Northerners (and Local Counsel),

depending on how the settlements were allocated between

Northerners and Southerners.

 Defendants reply to this allegation by asserting that the

settlements were not aggregate settlements that they then

allocated as they saw fit. Instead, Defendants claim that the

plaintiffs in the settled cases were presented with offers that

varied for different individuals based on factors such as the type

of injury or asbestos exposure, lifestyle habits like smoking, and

geographic origin. Defendants claim that geographic origin is

an appropriate factor in determining settlement value because

jury verdicts in northern states are traditionally lower than in

southern states and because, in southern courts, jury verdicts for

Northerners are typically lower than for Southerners in their

home state. For the purposes of this appeal, we need not resolve

whether these settlements were aggregated, but we note that

there is language in some of the settlement agreements that
7

 See JA507 (American Optical settlement) (“AO agreed

to pay a total of” $34.25 million and “Met life agreed to pay a

total of” $20 million “in full and final settlement of all claims of

the Pritchard Plaintiffs”); JA528 (CCR settlement) (estimating

CCR’s potential funding obligation); JA630 (Combustion

Engineering settlement) (“In payment of 6,982 Taylor and/or

Pritchard claims, CE agrees to pay $22,438,563.00, allowing

substitutes for disqualified cases.”); JA810 (Kaiser settlement)

(“KACC agrees to settle the claims of all Present Claimants by

paying to Plaintiffs’ Counsel in trust for all the Present

Claimants a total not to exceed” $20.5 million); JA837 (Met

LifeInsurance settlement) (“The maximum funds paid pursuant

to this Agreement shall not exceed” $13.82 million); JA852

(Owens-Illinois settlement) (“. . . in no event shall OwensIllinois pay more than” $3 million); JA914 (Uniroyal settlement)

(“In no event shall Uniroyal pay more than a total of $150,000

in settlement of all such Ohio, Indiana, and Pennsylvania 

cases.” ).

8 Acknowledgment for Full Release/Non-MalignantPennsylvania, Signed by John Dinio (“. . . these settlements

were part of an aggregate settlement . . .”); Letter of March 31,

2000 from Local Counsel Aimee Manuel to Ernest Gishnock, (“.

. . these may be considered aggregated settlements . . .”); and

Letter of May 14, 2001 from Robert G. Taylor II to William

Deem (“. . . you have authorized settlement negotiations of your

claims in the aggregated.”).

10

strongly supports the contention that they were aggregate

settlements.7

 Moreover, the very documents Defendants cite in

their brief refer to the settlements as aggregate.8

 
9 An internal Parapro memorandum indicates that

Plaintiff Bidlencsik had asked whether plaintiffs in “other

states” were getting more than those from Ohio to which the

Parapro representative responded that she did not know. 

11

After each of the settlement agreements was negotiated,

the Northerners received various disclosures. These disclosures

were made by Local Counsel and by Parapro Enterprises, Inc.,

a paralegal service associated with Taylor. The Northerners

were presented with a release, a check, and a disbursement

sheet. The release was explained orally to Northerners by

Parapro paralegals. The disclosures did not reveal the

settlements’ material terms or the nature of Defendants’

involvement in the cases. The written disclosures stated that

further information about the settlements was available on

request. The record does not state whether any of the Plaintiffs

sought to avail themselves of this information.9

 Plaintiffs have

introduced evidence that neither the Parapro paralegals nor

Local Counsel were themselves aware of the full terms of the

settlements or even had access to the complete settlement

agreements. 

The Plaintiffs brought suit in the Western District of

Pennsylvania on behalf of a putative class of Northerners.

Plaintiffs have not sued their Local Counsel or Parapro.

Plaintiffs alleged several counts, including breach of fiduciary

duty, aiding and abetting breach of fiduciary duty, and

conspiracy to breach fiduciary duty. Specifically, Plaintiffs

have alleged that Defendants breached their fiduciary duties of

undivided loyalty and candor. Plaintiffs allege that Defendants

owed them a fiduciary duty as their counsel; that Defendants
12

engaged in an undisclosed, multiple representation; that

Defendants had a conflict of interest regarding their multiple

representation because of the fee arrangements that gave

Defendants a larger percentage of Southerners’ recoveries than

of Northerners’ and that this created an incentive for Defendants

to negotiate settlements that paid more for Southerners’ claims

than for Northerners’; and that Defendants never gave proper

disclosure of this conflict of interest or of the full terms of the

settlement offers.

The District Court denied Plaintiffs’ class certification

motion for four reasons. First, the District Court found that

individual questions about disclosures, reliance, causation,

damages, and choice of law predominated over issues common

to the class, so the motion for class certification failed to meet

the requirements of FED. R. CIV. P. 23(b). Second, the District

Court also concluded that, because of the predominance of

individual questions, a class action was not the most efficient

way to litigate the matter. Third, the District Court denied class

certification on the ground that the Plaintiffs were not typical of

the putative class of Northerners because six of the eight

Plaintiffs had not qualified for the CCR settlement offer.

Finally, the District Court held that the Plaintiffs were

inadequate class representatives because their interests were no

longer aligned with other Northerners due to the fact that they

were no longer represented by Defendants in asbestos litigation,

unlike other Northerners, and that this would create a conflict of

interests between them and the putative class. 

The parties cross-moved for summary judgment. The

District Court denied Plaintiffs’ motion and granted Defendants’
13

motion because it found that Plaintiffs had failed to present

evidence of actual harm or evidence that Defendants’ nondisclosures were the proximate cause of their harm, both

required elements in all of Plaintiffs’ claims. The District Court

defined the actual harm requirement as a showing of any

evidence that “‘but for’ defendant attorneys’ conduct,

[Plaintiffs] could or would have received more favorable

offers.” The District Court noted that there was record evidence

from representatives of the asbestos defendants that “even

though Pennsylvania, Ohio, and Indiana plaintiffs undoubtedly

received less money than the Mississippi plaintiffs, they still

received higher settlement offers than those normally paid to

asbestos claimants from those states because of the leverage

these northern claimants gained from being joined with the

Mississippi claimants in a Mississippi court.” The District

Court also noted that Plaintiffs’ claims that they would have

received higher settlements were only speculation, as “Plaintiffs

have adduced no evidence that they would have obtained more

favorable offers from any of the other asbestos defendants with

whom they settled their claims.” Finally, the District Court

found that plaintiffs have failed to present evidence from which

a reasonable person could conclude that defendants[’] alleged

non-disclosures proximately caused any plaintiff to accept

settlements they would not have otherwise accepted. Rather, the

evidence shows that plaintiffs either were given or had direct

access to such information but chose to remain unaware, and at

best did not recall basic facts surrounding when, where and if

they read the documentation presented to them explaining the

settlement. 

Plaintiffs have appealed both the denial of class
14

certification and summary judgment in respect to three claims:

breach of fiduciary duty, aiding and abetting a breach of

fiduciary duty, and civil conspiracy to breach of fiduciary duty.

Plaintiffs have not appealed from the grant of summary

judgment to Defendants on claims of fraud, conspiracy to

defraud and convert, legal malpractice, conversion, and

violation of deceptive trade practices laws.

The District Court had subject matter jurisdiction under

28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. §

1291. We undertake a plenary review of grants of summary

judgment. Gottshall v. Consol. Rail Corp., 56 F.3d 530, 533 (3d

Cir. 1995). Summary judgment is only appropriate if there are

no genuine issues of material fact and the movant is entitled to

judgment as a matter of law. FED.R.CIV.P. 56(c). In reviewing

the District Court’s grant of summary judgment, we view the

facts in a light most favorable to the non-moving party.

Gottshall, 56 F.3d at 533. 

II. Discussion

 A. Choice of Law

 The lynchpin of the District Court’s decisions on class

certification and summary judgment was its determination that

all of Plaintiffs’ causes of action required a showing of

causation and actual injury. The District Court noted that the

putative class had individualized injuries, which impeded class

certification, while the individual Plaintiffs had not shown any
15

personal injury, thereby defeating their action. We agree with

the District Court that, if Plaintiffs must show causation and

actual injury, they lose on both parts of their appeal. We

disagree with the District Court, however, as to whether the

relevant law requires a showing of causation and actual injury.

The District Court’s determination that actual injury was

required in all of Plaintiffs’ causes of action was not based on an

analysis of any particular state’s laws, even though this is a

diversity action. In a diversity action, the court “must apply the

choice of law rules of the forum state to determine what

substantive law will govern.” Klaxon Co. v. Stentor Elec. Mfg.

Co., 313 U.S. 487, 496 (1941). This action was commenced in

the United States District Court for the Western District of

Pennsylvania, so the District Court properly turned to

Pennsylvania’s choice of law rules.

Before a choice of law question arises, there must first be

a true conflict between the potentially applicable bodies of law.

On Air Entm’t Corp. v. Nat’l Indem. Co., 210 F.3d 146, 149 (3d

Cir. 2000). If there is no conflict, then the district court sitting

in diversity may refer interchangeably to the laws of the states

whose laws potentially apply. Id. If there is a conflict between

the potentially applicable laws, then Pennsylvania uses the

“significant relationship” test of the Restatement (Second) of

Conflicts of Laws. Griffith v. United Air Lines, Inc., 203 A.2d

796, 801-06 (Pa. 1964); Troxel v. A.I. duPont Inst., 636 A.2d

1179, 1180-81 (Pa. Super. 1994).

In this case, the District Court determined that there was

no conflict of laws between Ohio, Indiana, and Pennsylvania as
10 We are puzzled by this failure to consider Texas law

since one of Plaintiffs’ claims, not a part of this appeal, was for

violation of the deceptive trade practices laws of Texas, Ohio,

Pennsylvania, and Indiana, and Attachment I to Plaintiffs’

Supplemental Brief in support of their motion to the District

Court for class certification was entitled “Elements of Plaintiffs’

Causes of Action Under Texas Law.” Moreover, Plaintiffs

agreements with Local Counsel provide that the agreements “shall be

enforced and interpreted pursuant to the laws of Texas.” 

16

to the requirement of harm and thus stated that under

Pennsylvania’s choice of law rules it did not need to determine

which law applied. The District Court did not, however, give

any consideration to Texas law.10

 Plaintiffs did not object to the District Court’s choice of

law ruling either at trial or in their original appellate briefs.

Plaintiffs contended, however, that the District Court erred in

requiring causation (including reliance) and actual injury as

elements of their breach of fiduciary duty claims. In support of

this contention, Plaintiffs cited cases from Texas and other

jurisdictions. 

To resolve the confusion about whether actual injury is

required for a breach of fiduciary duty claim, we requested letter

memoranda from the parties. The letter memoranda addressed

the questions of fiduciary duty, what jurisdiction’s law governed

the fiduciary duty at issue here, and whether the law of that

jurisdiction or jurisdictions required a showing of actual injury

to sustain an action for breach of fiduciary duty.
17

 1. Plaintiffs Did Not Waive the Choice of Law Issue

Defendants contend that the District Court correctly

decided the choice of law question and that Plaintiffs have

waived the issue in any case. Generally, failure to raise an issue

in the District Court results in its waiver on appeal. Bagot v.

Ashcroft, 398 F.3d 252, 256 (3d Cir. 2005). There are

exceptions to this rule, however. First, there are certain issues,

such as subject matter jurisdiction, which cannot be waived.

E.g., United States v. Cotton, 535 U.S. 625, 630 (2002).

Second, even if an issue was not raised, “[t]his Court has

discretionary power to address issues that have been waived.”

Bagot, 398 F.3d at 256. Indeed, we have been reluctant to apply

the waiver doctrine when only an issue of law is raised. See,

e.g., id.; In re Am. Biomaterials Corp., 954 F.2d 919, 928 (3d

Cir. 1992). “This court may consider a pure question of law

even if not raised below where refusal to reach the issue would

result in a miscarriage of justice or where the issue's resolution

is of public importance.” Loretangeli v. Critelli, 853 F.2d 186,

189-90 n.5 (3d Cir. 1988). 

When considering waiver issues, we are also always

mindful of the prophylactic and prudential origins of the

doctrine. As the Supreme Court noted in Hormel v. Helvering,

the waiver doctrine is 

essential in order that parties may have the opportunity

to offer all the evidence they believe relevant to the

issues . . . [and] in order that litigants may not be

surprised on appeal by final decision there of issues upon

which they have had no opportunity to introduce
11 See, e.g., Appellants’ Brief at 39 n.11 (citing Model

Rule of Professional Conduct in text and then citing Mississippi,

Texas, Pennsylvania, Indiana, and Ohio rules of professional

conduct in footnote as in accord); Appellants’ Brief at 40 n.12

(same). See also Attachment I to Plaintiffs’ Supplemental Brief

in Support of Their Motion for Class Certification, “Elements of

Plaintiffs’ Causes of Action Under Texas Law,” filed before the

District Court on March 2, 2004, included in II Joint Appendix

474.

18

evidence. 

312 U.S. 552, 556 (1941). The corollary of Hormel is that we

are less inclined to find a waiver when the parties have had the

opportunity to offer all the relevant evidence and when they are

not surprised by issues on appeal. 

 In this case, we do not believe that Plaintiffs waived the

choice of law issue. We conclude instead that the District Court,

in determining that “Defendant attorneys assert, and plaintiffs do

not disagree that, for purposes of this summary judgment

motion, no true conflict of laws exists,” overlooked the fact that,

while the parties agreed that there was no true conflict of laws,

they disagreed as to what law should apply.11 The issue of

which state’s law to apply is inherent in the parties’ positions

throughout this case. Defendants claim that the law in all the

relevant jurisdictions requires a showing of actual harm for

breach of fiduciary duties, while Plaintiffs assert that it does not

when the remedy sought is disgorgement, citing to Texas law.
12 We have not adopted a consistent rule regarding

whether choice of law issues are waiveable. In Parkway Baking

Co., Inc. v. Freihofer Baking Co., 255 F.2d 641, 646 (3d Cir.

1958) and United States v. Certain Parcels of Land, 144 F.2d

626 (3d Cir. 1944) we held that choice of law questions cannot

be waived. As we noted in Certain Parcels, “The appropriate

law must be applied in each case and upon a failure to do so

appellate courts should remand the cause to the trial court to

afford it opportunity to apply the appropriate law, even if the

question was not raised in the court below.” Id. at 630. In

Neely v. Club Med Mgmt. Servs., 63 F.3d 166, 180 n.10 (3d

Cir. 1995) (en banc), however, we considered the choice of law

question waived. Neely, however, did not specifically overrule

Parkway Baking or even address that case. We need not resolve

the tension between Neely and Parkway because we do not

believe that Plaintiffs waived the choice of law issue.

19

 Moreover, even if choice of law issues are waiveable,12

and Plaintiffs failed to raise the issue before the District Court

and on appeal, the exceptions to the waiver doctrine would

apply here. Plaintiffs’ repeated and insistent citation to Texas

law as providing the governing standard alerted this Court to the

choice of law issue. Because of our concern about this issue,

prior to oral argument we requested letter memoranda on it from

all parties and at oral argument the issue was discussed by them.

Thus, the issue has been fully developed on appeal, and

Defendants have not suffered any unfair surprise or

disadvantage from our concern that we decide the case under the

correct law. Defendants would not have argued their case

differently if Plaintiffs had explicitly raised the issue on appeal.

Indeed, Defendants themselves cited Texas cases at several
20

points in their appellate brief for the point that Plaintiffs have

misinterpreted Texas law, rather than arguing that Texas law is

inapplicable. Moreover, the Plaintiffs’ clearly raised the issue

in the District Court as evinced by their Supplemental Brief to

the District Court in support of their motion for class

certification, which included a five-page attachment entitled

“Elements of Plaintiffs’ Causes of Action Under Texas Law.”

This Supplemental Brief was included on Appeal in Volume II

of the Joint Appendix. Accordingly, even if the issue were to be

considered waived, it still would be appropriate for us to

consider it. 

Turning to the conflict of law issue, it is necessary to

examine the law of all the relevant jurisdictions. The District

Court only discussed Pennsylvania, Ohio, and Indiana law in its

choice of law discussion. It did not consider Texas law, even

though Plaintiffs routinely cite Texas caselaw and Texas

Disciplinary Rules of Professional Conduct in their briefs, the

record includes the document entitled “Elements of Plaintiffs’

Causes of Action Under Texas Law,” one of Plaintiffs’ original

causes of action (which has not been appealed) was for breach

of Texas deceptive trade practices law, and Plaintiffs’ contracts

with Local Counsel state that they are to be enforced and

interpreted according to Texas law. Therefore, the most that we

can read from the District Court’s opinion is that Plaintiffs

agreed that there was no conflict among the laws of

Pennsylvania, Ohio, and Indiana, not what Plaintiffs believed

the law in those states to be, much less whether Plaintiffs

believed that the law of those states conflicted with Texas law

or which state’s law should govern. 
21

 Such a reading is consistent with the substance of the

parties’ arguments. Plaintiffs claim that Texas law should

govern and that Texas does not require a showing of actual harm

for a court to order disgorgement, rather than compensatory

damages, as a remedy for breach of fiduciary duty. Plaintiffs

also contend that, even if Pennsylvania, Ohio, or Indiana law

applies, those states have never addressed the particular scenario

of a suit seeking disgorgement rather than compensatory

damages for a breach of fiduciary duty, but that every other

jurisdiction that has addressed the issue has followed the Texas

rule. The Defendants, in contrast, claim that the law in all the

relevant jurisdictions requires a showing of actual harm. 

 In view of these positions, our first task is to ascertain

what jurisdiction’s law applies. Following Pennsylvania choice

of law analysis, we must determine if there is a conflict that

necessitates selection of a jurisdiction’s law. 

 2. There are Multiple Conflicts of Laws

 Plaintiffs contend that Texas law governs the fiduciary

duties. Defendants, on the other hand, assert that, if there is a

true conflict, Pennsylvania, Ohio, and Indiana law applies.

Thus, the first question in a Pennsylvania choice of law analysis

is whether there is a true conflict between Texas, Pennsylvania,

Ohio, and Indiana law. 

 The true conflict question is complicated by the fact that

some states differentiate actions for breach of fiduciary duty by
22

an attorney from legal malpractice and from violation of state

disciplinary rules, while other states equate two or all three

causes of action. There is undoubtedly substantial overlap

among the three, and state courts have not always been precise

in their language when discussing these matters. Nonetheless,

there is a conflict of law on each of Plaintiffs’ claims, although

the conflict and the result it causes varies from claim to claim.

a. Breach of Fiduciary Duty

 Under Texas law, “a client need not prove actual

damages in order to obtain forfeiture of an attorney’s fee for the

attorney’s breach of fiduciary duty to the client.” Burrow v.

Arce, 997 S.W.2d 229, 240 (Tex. 1999). Also Yaquinto v.

Sergerstrom, (In re Segerstrom, 247 F.3d 218, 226 n.5 (5th Cir.

2001). The Texas rule accords with the rule adopted in several

other states, the Restatement (Second) of Trusts § 243, the

Restatement (Second) of Agency § 469, and the Restatement

(Third) of the Law Governing Lawyers, §§ 37, 55. It also

comports with the two circuit level decisions on the issue,

Hendry v. Pelland, 73 F.3d 397 (D.C. Cir. 1996) (applying D.C.

law), Frank v. Bloom, 634 F.2d 1245, 1257-58 (10th Cir. 1980)

(applying Kansas law). 

 Defendants argue that Texas law does require actual

damages for a breach of fiduciary duty claim. This is incorrect.

Texas requires actual damages only if a plaintiff seeks to

recover damages for actual harm. Liberty Mut. Ins. Co. v.

Gardere & Wynne L.L.P., 82 Fed. Appx. 116, 118 (5th Cir.

2003) (under Texas law “[n]ot all forms of recovery require a

client who is suing his attorney to prove that the attorney’s
13 Suggested Sample Jury Instructions. 

14 Troublingly, the decisions cited by the District Court

for the proposition that the Plaintiffs must show actual injury,

Kituskie v. Corbman, 714 A.2d 1027, 1030 (Pa. 1998) and

Gilman v. Hohman, 725 N.E.2d 425, 428-29 (Ind. App. 2000),

are legal malpractice cases, a form of negligence actions, rather

than fiduciary breach actions. 

23

actions caused the client injury . . ..”); Two Thirty Nine Joint

Venture v. Joe, 60 S.W.3d 896, 910 (Tex. App. 2001), rev’d on

other grounds, 145 S.W.3d 150 (“Generally, the proper measure

of damages in a legal malpractice case is that amount of

damages that would have been collectible but for the wrongful

act or omission of the attorney.”) (emphasis added). Thus, in

Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 159

(Tex. 2004), the Texas Supreme Court required causation and an

injury for a legal malpractice claim based, inter alia, on an

alleged breach of fiduciary duty. When only fee forfeiture is at

issue, actual harm need not be proven because “[i]t is the agent’s

disloyalty, not any resulting harm, that violates the fiduciary

relationship and thus impairs the basis for compensation. An

agent’s compensation is not only for specific results but also for

loyalty.” Burrow, 997 S.W.2d at 238.

 At first blush, Pennsylvania, Indiana, and Ohio law seem

to indicate that claims for breach of fiduciary duty require

actual harm. Mullen v. Cogdell, 643 N.E.2d 390, 401 (Ind. App.

1994); McConnell v. Hunt Sports Enter., 725 N.E.2d 1193, 1215

(Ohio App. 1999); Pa. S.S.J. I.13 § 4.15 (1991).14 Whether these

states would require a showing of actual harm in a situation in
15In this case, disgorgement would likely result in a larger

recovery for Plaintiffs than compensatory damages.

Disgorgement could entail up to 39% of their total recovery

(Taylor’s 97.5% of the 40% contingent fee to Local Counsel),

whereas compensatory damages could be de minimis. 

24

which only disgorgement is requested is, however, an open

question. The issue has never been resolved by these states’

courts. Arguably, they might adopt the well-considered position

of every jurisdiction that has considered the issue, which is to

require harm only for damages, not for the equitable remedy of

disgorgement. 

 Plaintiffs are currently seeking “disgorgement of

Defendants’ legal fees collected with respect to the Cosey and

Raken actions, as well as compensatory and punitive

damages.”15 Thus, there is not a direct conflict of laws between

Texas and Pennsylvania, Ohio, and Indiana, but there is a

potential conflict of laws. We have found no authority as to

how to treat such a hypothetical conflict of laws, but we will

treat it as if there were an actual conflict. 

The end result is the same, however, whether or

not there is a conflict. If Pennsylvania, Ohio, and Indiana

should follow Texas law, there would not be a requirement of a

showing of actual harm in order to maintain an action for

disgorgement for breach of fiduciary duty. On the other hand,

if Pennsylvania, Ohio, and Indiana did not follow the Texas rule,

there would be a conflict, but, as analyzed below in Section

II.A.3, we conclude that Texas law would apply under the

Pennsylvania choice of law rules’ “significant relationship”
16 We note that under Pennsylvania choice of law rules’

“significant relationship” analysis, among Pennsylvania, Ohio,

and Indiana, there is not a state with a superior relationship to

this case. Therefore, if Texas law did not apply, we would still

have to determine if there was a conflict among these states’

laws and that seeking certification from three separate state

supreme courts, including two that are not within our Circuit,

could significantly delay resolution of this case. 

25

analysis.16 Either way, the same rule applies—no showing of

actual harm is required to maintain an action for disgorgement

for breach of fiduciary duty. Thus, even if there is a conflict

here, it does not affect the outcome. 

b. Civil Conspiracy to Breach Fiduciary Duties

 There might be a conflict of laws regarding the element

necessary to prove a civil conspiracy for breach of fiduciary

duties. In large part, this conflict depends on how one believes

a Texas court would apply Texas civil conspiracy law to Texas’s

limited requirements for breach of fiduciary duty when

disgorgement is sought. 

Texas requires both a conspiracy and a breach of

fiduciary duty to maintain a claim of civil conspiracy to breach

fiduciary duties. Finish Line P’ship. v. Kasmir & Krage, L.L.P.,

2000 Tex. App. LEXIS 7744 (Tex. App. 2000). Therefore,

Plaintiffs cannot proceed on their civil conspiracy claim under

Texas law unless they can also proceed on their breach of

fiduciary duty claim, as discussed above.
26

Texas generally requires actual injury for civil conspiracy

claims, Chon Tri v. J.T.T., 162 S.W.3d 552, 556 (Tex. 2005).

However, in light of the absence of an injury requirement for

breach of fiduciary duty and Texas’ definition of civil

conspiracy as “a combination by two or more persons to

accomplish an unlawful purpose or to accomplish a lawful

purpose by unlawful means,” Triplex Commc’ns v. Riley, 900

S.W.2d 716, 720 (Tex. 1995), we think it an open question

whether Texas law requires actual harm for a claim of civil

conspiracy to breach fiduciary duty. 

 Pennsylvania law appears to require injury for a civil

conspiracy. Goldstein v. Phillip Morris, Inc., 854 A.2d 585, 590

(Pa. Super. Ct. 2004) (listing injury as a necessary element), but

cf. Grose v. P&G Paper Prods. (In re Grose), 866 A.2d 437,

440-441 (Pa. Super. Ct. 2005) (not listing injury as a necessary

element although injury existed). Ohio requires proof of an

underlying claim and actual damages in a claim for civil

conspiracy. Williams v. Aetna Fin. Co., 700 N.E.2d 859, 868

(Ohio 1998). Indiana also requires harm for a civil conspiracy.

Indianapolis Horse Patrol, Inc. v. Ward, 247 Ind. 519, 522 (Ind.

1966); Winkler v. V.G. Reed & Sons, 638 N.E.2d 1228, 1234

(Ind. 1994). As noted above, though, these states have not

addressed the unique situation of a claim for disgorgement for

breach of fiduciary duties. This is an area of unsettled law, but

we believe it a fair presumption that civil conspiracy to breach

fiduciary duties will follow the law for breach of fiduciary

duties, so, as explained above, we will presume a conflict of

laws on the civil conspiracy claim too. 

 c. Aiding and Abetting Breach of Fiduciary Duties
27

 Proof of a breach of fiduciary duty is required to maintain

a claim of aiding and abetting a breach of fiduciary duty. Toles

v. Toles, 113 S.W.3d 899, 917 (Tex. App. 2003); Kline v.

O'Quinn, 874 S.W.2d 776, 786-87 (Tex. App.1994); State v.

Galloway, 2005 Ohio App. LEXIS 4861, **9 (Ohio Ct. App.

2005); Williams v. Aetna Fin. Co., 700 N.E.2d 859, 868 (Ohio

1998); State Bd. of Med. Educ. & Licensure v. Ferry, 94 A.2d

121, 123 (Pa. Super. Ct. 1953). Indiana does not appear to

recognize civil aiding and abetting; that term is used only in

Indiana criminal law. Comm’r v. RLG, Inc., 755 N.E.2d 556,

560-561 (Ind. 2001).

States vary on whether damages are required for such a

claim. Pennsylvania appears not to have such a requirement.

Thompson v. Glenmede Trust Co., 1993 WL 197031 (E.D. Pa.

1993) (aiding and abetting a breach of fiduciary duty does not

require actual harm); but see Koken v. Steinberg, 825 A.2d 723,

732 (Pa. Commw. Ct. 2003) (hesitantly adopting Thompson).

Similarly, Texas only requires an underlying breach of fiduciary

duty, Toles, 113 S.W.3d at 917, which does not require actual

injury. Burrow, 997 S.W.2d at 240. Ohio, however, appears

to require an injury. Williams, 700 N.E.2d at 868 (approving of

the discussion in Halberstam v. Welch, 705 F.2d 472 (D.C. Cir.

1983) (injury required for aiding and abetting claim).

Accordingly, there is a true conflict of laws between Texas and

Pennsylvania on the one hand and Ohio (and Indiana) on

the other as to aiding and abetting a breach of fiduciary duty.

 3. Under What Law Were the Fiduciary Duties 

 Created?
28

 Since, as we have noted, there is a conflict of laws,

Pennsylvania law requires us to undertake a “significant

relationship” analysis to determine which jurisdiction’s law

applies. Of the relevant jurisdictions, Texas has by far the most

significant relationship with the action. The legal representation

of the Plaintiffs (and class members) was conceived of in Texas,

solicited from Texas, and primarily controlled by lawyers

licensed to practice in Texas. Taylor and Cox are licensed to

practice law in Texas, and Texas is the primary locale of their

practices. None of the Defendants are licensed to practice law

in Ohio, Indiana, and Pennsylvania. As Defendants could not be

subject to disciplinary action in those states, it would be odd to

then subject them to related fiduciary duties in those

jurisdictions when there is another jurisdiction with more

significant interests in the matter.

Taylor sought to broaden his asbestos “inventory” by

hiring lawyers in Ohio, Indiana, and Pennsylvania to recruit

class members and serve as local counsel. Taylor served as lead

counsel for all of the Northerners’ asbestos claims, handled the

negotiation of the settlements in question, held himself out as

their counsel, and received 95% of their contingent fees. Most

of the communication with the Northerners was via Parapro, a

Texas corporation headquartered in Houston, Texas, and

Taylor’s contract with Parapro provided that Texas law would

govern that relationship. 

The Texas Supreme Court has expressed its concern

about the potential conflicted duty of loyalty when class action

lawyers negotiate settlements without judicial oversight. Gen.

Motors Corp. v. Bloyed, 916 S.W.2d 949, 954 (Tex. 1996).
29

This is in marked contrast to Mississippi. Mississippi courts do

not oversee settlements of class actions because that state does

not recognize such actions. USF&G Ins. Co. v. Walls, 911 So.

2d 463, 467 (Miss. 2005). Thus, the Texas Supreme Court’s

concern about regulation of attorneys is particularly pertinent in

this case. Fiduciary duties are designed not only to protect the

principal, but also to regulate the fiduciary agent. See

Restatement (Second) of Agency § 469. Ultimately, suits for

breach of fiduciary duty that seek disgorgement as opposed to

compensatory damages are focused on regulating the behavior

of the fiduciary, not remedying the harm to the client. This is

such a suit, and it is Texas, not Pennsylvania, Ohio, or Indiana,

that has an interest in regulating the behavior of Texas attorneys.

 Finally, Taylor’s contracts with Local Counsel required

Local Counsel to include provisions in their contingent fee

arrangements that Texas law would govern the contracts if suit

was not brought in Local Counsel’s home state. Local Counsel

dutifully complied and included provisions stating “this contract

shall be enforced and interpreted pursuant to the laws of Texas”

in their retainer agreements with Plaintiffs. Although we

generally enforce choice of law clauses, see Assicurazioni

Generali, S.P.A. v. Clover, 195 F.3d 161, 164 (3d Cir. 1999);

see also Restatement (Second) of Conflict of Laws, § 187,

Plaintiffs are not in fact litigating the provisions of the contract

in this action. Nonetheless, the fiduciary duty at issue arose

under the contracts. It follows then that the duty created by the

contracts should be enforced under the law chosen as applicable

by the contracts. We would reach the same conclusion without

the contractual choice of law provisions, but their existence

supports our reasoning. 
30

 Defendants note that Defendants reside currently in three

different states, Texas, Mississippi, and North Carolina, that “all

of the alleged misleading disclosures or non-disclosures

occurred in Pennsylvania, Ohio, and Indiana” and that

“[P]laintiffs’ relationship with the [D]efendants was centered in

Pennsylvania, Ohio, and Indiana, where [P]laintiffs engaged

[L]ocal [C]ounsel as their lawyers . . . [and] agreed pursuant to

their retainer agreements that [L]ocal [C]ounsel might associate

with lawyers from other states.” 

These factors are unconvincing. Defendants’ current

residencies are irrelevant to the issue of where the fiduciary duty

arose and was breached. The claim that Plaintiffs’ relationship

with Defendants centered in Pennsylvania, Ohio, and Indiana is

also specious, as Plaintiffs did not have any direct relationship

with Defendants. Defendants’ claim that the breach of the

fiduciary duty of candor occurred in the northern states is

debatable. The essence of Plaintiffs’ claim is non-disclosure.

There was no location in which the disclosure had to be made;

the only requirement is that it be made. Arguably, the nondisclosure itself looks at the party to whom the disclosure is

owed. Those plaintiffs were located in Pennsylvania, Ohio, and

Indiana. But, fiduciary duty is also designed to regulate the

fiduciary and to ensure that the fiduciary performs his duties.

The alleged conduct causing the non-disclosure occurred (or

rather failed to occur) in the Defendants’ law offices, i.e., Texas

for Taylor and Cox, and Mississippi for Pritchard. The location

of the breach of the duty of candor is not conclusive, and

Defendants neglect to mention Plaintiffs’ other allegation, which

is the breach of fiduciary duty of loyalty. Any such breach

clearly did not occur in Pennsylvania, Ohio, or Indiana, but in
31

Texas, which was where those owing loyalty could be found and

was the nexus of the alleged conflicted multiple representation.

In sum, the weight of a “significant relationship” analysis for

choice of law strongly favors the application of Texas law. 

 B. Defendants Owed Plaintiffs A Fiduciary Duty.

Defendants have argued that the choice of law issue is

superfluous because they do not owe the Plaintiffs a fiduciary

duty. We find such a suggestion preposterous. Defendants

acted as counsel for all the Northerners, including the Plaintiffs:

they held themselves out as the Northerners’ attorneys, they

entered into agreements regarding representation of the

Northerners, they signed and filed pleadings on the Northerners’

behalf, negotiated settlements for the Northerners’ claims, and

collected attorneys’ fees from the Northerners. Clearly, the

Defendants were acting as the Plaintiffs’ attorneys. 

 It is well-settled law, regardless of jurisdiction, that

attorneys owe their clients a fiduciary duty. Akron Bar Ass'n v.

Williams, 104 Ohio St. 3d 317, 320 (Ohio 2004) (“The attorney

stands in a fiduciary relationship with the client and should

exercise professional judgment solely for the benefit of the

client and free of compromising influences and loyalties.”); In

re Tsoutsouris, 748 N.E.2d 856, 859 (Ind. 2001); Office of

Disciplinary Counsel v. Monsour, 549 Pa. 482, 486 (Pa. 1997)

(“This public trust that an attorney owes his client is in the

nature of a fiduciary relationship involving the highest standards

of professional conduct.”); Arce v. Burrow, 958 S.W.2d 239,

246 (Tex. Ct. App. 1997), rev’d on other grounds, 997 S.W.2d

229 (Tex. 1997). The duty includes undivided loyalty, candor,
17 We note that even the examples of disclosure that

Defendants choose to cite in their brief are inadequate to

constitute disclosure in an attorney client situation. Defendants

cite a form called “Acknowledgment for Full Release/Non

Malignant” that states: “You have the right to find out the terms

of the Agreement . . . and a copy of same will be available for

your review.” Defendants also cite a letter dated March 31,

2000, that states “Again, these may be considered aggregated

settlements[,] and you are invited to schedule a time to come by

our offices to see and read the entire settlement agreement as

well as a list identifying the amount of money each client is

being offered under this settlement.” 

 While we recognize that additional facts in the record or

that may be adduced at trial could support a finding of adequate

disclosure, these statements alone do not constitute anything

close to adequate disclosure. 

32

and provision of material information. Willis v. Maverick, 760

S.W.2d 642, 645 (Tex. 1998) (provision of information material

to the representation). 

 Defendants argue that “the fiduciary duties of disclosure

at issue in this case were properly assumed and performed by

each plaintiff’s individually retained local counsel in

Pennsylvania, Ohio, or Indiana.” The performance of the duty

is a question of fact for the jury, although some acts, as a matter

of law, cannot constitute performance.17 If Local Counsel did

not perform their fiduciary duty, it does not matter that they

assumed the duty because the fiduciary duty of co-counsel is a
18We note that neither Texas’ Disciplinary Rules of

Professional Conduct nor the Model Rules of Professional

Conduct directly address the question of allocation of

professional duties in a co-counsel relationship, but in the case

of duty of loyalty, its non-delegability is so patent as to be

axiomatic. 

33

joint obligation.18 Even if the duty of disclosure is itself

delegable, the duty of loyalty is inherently not, and in this case

disclosure was necessary to fulfill the duty of loyalty. Thus,

Local Counsel’s alleged failure to fulfill the fiduciary duty of

disclosure could hardly excuse the Defendants. 

 The fiduciary duty that an attorney owes clients is not a

matter to be taken lightly. The duty may not be dispensed with

or modified simply for the conveniences and economies of class

actions. As then Judge Cardozo observed in In the Matter of

Rous, “[m]embership in the bar is a privilege burdened with

conditions.” 221 N.Y. 81, 84 (1917) (Cardozo, J.). Among

those conditions are the ethical obligations of giving clients full

and meaningful disclosure of conflicts of interest so that the

client may decide if the representation is in his or her best

interest and of the terms of proposed settlement agreements, as

it is the client’s, not the attorney’s, decision whether to settle a

case. TEX. DISCIPLINARY R. PROF’L CONDUCT 1.03 (duty to

keep client informed); 1.04(f) (fee division); 1.08(f) (disclosure

of aggregate settlements). Even when clients are viewed as

mere “inventory”, they are still owed the renowned “punctilio of

an honor the most sensitive.” Meinhard v. Salmon, 249 N.Y.

458, 464 (N.Y. 1928) (Cardozo, J.). As the Texas Disciplinary

Rules of Professional Conduct state the “obligation of lawyers
19 We note that, even if Plaintiffs authorized settlement

negotiations of their claims in aggregate, that alone does not

constitute consent to the settlement nor waiver of disclosure of

the complete settlement terms. 

34

is to maintain the highest standards of ethical conduct.” TEX.

DISCIPLINARY R. PROF’L CONDUCT, Preamble. 

 This is the cost of doing business as an attorney at law,

and we will not countenance shortcuts. Disclosures to clients

must be meaningful, by which we mean something beyond form

disclosures, as clients must understand a conflict to give their

informed consent to an intelligible waiver. Indeed, we are

embarrassed to have to explain a matter so elementary to the

legal profession that it speaks for itself: all attorneys in a cocounsel relationship individually owe each and every client the

duty of loyalty. For it to be otherwise is inconceivable. There

is no question that defendant attorneys owed Plaintiffs fiduciary

duties.19 

Because the District Court erred in its choice of law

ruling, we will reverse the grant of summary judgment and will

remand all of Plaintiffs’ claims for adjudication under applicable

Texas law. Certain Parcels of Land, 144 F.2d at 630 (remand

appropriate when District Court erred on choice of law). 

 C. Class Certification

 The District Court’s choice of law error does not affect

the legal standard used to determine class certification. Class

certification is a matter of federal statutory law, even when a
35

federal court sits in diversity. Nevertheless, a proper focus on

fiduciary duty in this case changes our view of typicality,

adequacy, predominance, superiority, and inconsistent standards

of care as these elements present themselves in our

consideration of class certification. Although class certification

is a matter of federal statutory law (even when a federal court

sits in diversity), a proper focus on fiduciary duty in this case

may affect the District Court’s view of typicality, adequacy,

predominance, superiority, and inconsistent standards of care as

these elements present themselves in its consideration of class

certification. Thus, we will vacate the District Court’s denial of

class certification and we will direct the District Court to

reconsider whether to certify the class in light of the application

of Texas law. 

III. Conclusion

 The District Court erred in its choice of law analysis,

which led it to require that Plaintiffs demonstrate actual harm in

a claim of breach of fiduciary duty when the remedy sought is

disgorgement. We will vacate the District Court’s grant of

summary judgment to the Defendants and we will vacate the

denial of class certification and we will remand the case for

adjudication in light of applicable Texas law.

FUENTES, Circuit Judge, dissenting.

In my view, plaintiffs’ failure to brief and argue the

choice of law issue before the District Court and in their opening
36

brief on appeal constitutes waiver of that issue. Although the

majority itself notes that “[p]laintiffs did not object to the

District Court’s choice of law ruling either at trial or in their

original appellate briefs,” part II.A, supra at ***, it concludes

that the choice of law issue was not waived. I believe the

majority’s conclusion is contrary to our existing precedent, and

I therefore respectfully dissent. 

In their opening brief on appeal, plaintiffs summarized

their points as follows: 

I. There is no genuine issue of material fact

that defendants committed serious and

substantial breaches of their fiduciary duties.

II. The District Court abused its discretion in

refusing to certify the class. 

Plaintiffs’ brief makes no mention of a choice of law issue, nor

was the issue raised in the opposition or reply briefs. Prior to

argument, at the Court’s direction, counsel were requested to

submit letter memoranda addressing the following issues: 

I. If [defendants] owe [plaintiffs] fiduciary duties,

under what jurisdiction’s law were these duties

created? 

II. Is actual harm a required element of a breach

of fiduciary duty claim in that jurisdiction? 
37

In response to these questions, for the first time, plaintiffs

argued that under Pennsylvania’s choice of law rules, Texas

substantive law should apply. Predictably, defendants argued in

favor of the District Court’s conclusion that the law of

Pennsylvania, Ohio, and Indiana should apply. As the majority

points out, Texas law is more favorable to the plaintiffs than the

law of the other relevant states because it explicitly provides for

disgorgement in a breach of fiduciary duty action without a

showing of actual harm. See Part II.A.2.a, supra at  . 

We have stated on numerous occasions that “an

appellant’s failure to identify or argue an issue in his opening

brief constitutes waiver of that issue on appeal.” United States

v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005). See also United

States v. Vazquez, 271 F.3d 93, 107 (3d Cir. 2001) (en banc)

(finding issue waived where appellant failed to raise it either in

the District Court or initially on appeal). And, although our

jurisprudence has not always been consistent on this point, our

full court stated in Neely v. Club Med Management Services,

Inc., that “choice of law issues may be waived.” 63 F.3d 166,

180 & n.10 (3d Cir. 1995) (en banc).

In the majority’s view, choice of law was “inherent in the

parties’ positions throughout this case” because plaintiffs cited

repeatedly to Texas law in arguing that they satisfied the

requirements for a breach of fiduciary duty claim. Although

plaintiffs did cite Texas law to this Court and to the District

Court, they also cited cases and rules from many other states in
20 In their brief to this Court, plaintiffs cited cases from

Texas, Pennsylvania, California, Georgia, New York, Delaware,

and Minnesota, among other jurisdictions, regarding breach of

fiduciary duty doctrine.

38

support of their position.20 The District Court could not

reasonably have been expected to interpret this endless stream

of citation as an indication that plaintiffs were raising a choice

of law argument, or as an assertion that Texas law applied.

See Brennan v. Norton, 350 F.3d 399, 418 (3d Cir. 2003)

(“‘[T]he crucial question regarding waiver is whether [plaintiff]

presented the argument with sufficient specificity to alert the

district court.’”) (quoting Keenan v. City of Philadelphia, 983

F.2d 459, 471 (3d Cir. 1993)). 

In my view, plaintiffs’ references to Texas law did not

satisfy our usual requirement that all issues be clearly articulated

in a party’s briefs to avoid waiver. See, e.g., Pa. Dep’t of Pub.

Welfare v. U.S. Dep’t of Health and Human Servs., 101 F.3d

939, 945 (3d Cir. 1996) (holding an issue waived despite a

“conclusory assertion” regarding the issue in a brief); Laborers’

Int’l Union of N. Am., AFL-CIO v. Foster Wheeler Corp., 26

F.3d 375, 398 (3d Cir. 1994) (“An issue is waived unless a party

raises it in its opening brief, and for those purposes a passing

reference to an issue . . . will not suffice to bring that issue

before this court.”) (internal quotation marks omitted). See also

Fed. R. App. P. 28 (requiring briefs on appeal to contain “a

statement of the issues presented for review” and “appellant’s

contentions and the reasons for them”). 
21 In fact, even if the choice of law issue had not been

waived, a close question would be presented as to which state’s

law applies under Pennsylvania’s choice of law analysis. That

analysis turns on “which state has the greater interest in the

application of its law,” and requires a consideration of the

“weight of a particular state’s contacts . . . on a qualitative rather

than quantitative scale.” Troxel v. A.I. duPont Inst., 636 A.2d

1179, 1181 (Pa. Super. 1994). The District Court reasonably

could have concluded that Pennsylvania, Ohio, and Indiana have

a greater interest in application of their laws than Texas, on the

ground that plaintiffs are from those three states and that the

alleged breach of the duty to disclose occurred in those states.

39

 While we have discretion to consider issues that have

been waived, we should do so only in “exceptional

circumstances,” such as where “‘the public interest requires that

the issues be heard or manifest injustice would result from the

failure to consider such issues.’” In re Gen. DataComm Indus.,

Inc., 407 F.3d 616, 624 n.13 (3d Cir. 2005) (quoting Brown v.

Philip Morris Inc., 250 F.3d 789, 799 (3d Cir. 2001)). Here, no

urgent public interest calls for special treatment, nor did

anything in the District Court’s handling of the case below

constitute such grievous error that a “manifest injustice” may

result.21 Cf. Bagot v. Ashcroft, 398 F.3d 252, 256 (3d Cir. 2005)

(finding exceptional circumstances to overcome waiver where

the Court’s failure to consider an argument “would result in the

substantial injustice of deporting an American citizen”). 

Accordingly, I would decline to review the District

Court’s conclusion that the laws of Indiana, Ohio, and

Pennsylvania are applicable in this case. Thus, I would affirm
40

the judgment of the District Court. As the majority

demonstrates, the courts of Pennsylvania, Ohio, and Indiana

appear to require a showing of actual harm for a breach of

fiduciary duty claim, and for the related claims of civil

conspiracy to breach fiduciary duty and aiding and abetting

breach of fiduciary duty. See Part II.A.2, supra p. ** *. Although

those courts have not specifically addressed whether the actual

harm requirement applies in a disgorgement action, there are no

grounds for presuming a disgorgement exception in those

jurisdictions. 

As the majority itself concedes, if plaintiffs are required

to show actual injury to succeed on their claims, they lose as to

both elements of their appeal. See Part II.A, supra p. ***.

Plaintiffs cannot demonstrate that, absent defendants’ alleged

conduct, they would have achieved a better outcome. For this

reason, I would affirm the District Court’s grant of summary

judgment and, consequently, would not reach the class

certification issue.