Opinion ID: 2275905
Heading Depth: 1
Heading Rank: 3

Heading: The initiation of the class action lawsuit

Text: In August of 1998, David Bax, William Glaser, and William Myers, brokers for certain bondholders (hereinafter the brokers), initially hired Gerald P. Greiman to represent them in objecting to the sale of collateral in the 1998 Action. The firm's fees were paid out of a $20,000 retainer that was provided exclusively by the brokers. [1] On December 18, 1998, the brokers and Liss met with Greiman to hire his firm (Class Counsel) to investigate the possibility of filing a class action on behalf of the bondholders. The initial exploration into the possibility of suit was funded by the remainder of the $20,000 retainer the brokers had paid in the 1998 Action. Underwriter and the brokers agreed to loan an additional $100,000, $60,000 of which came from Liss, to retain Class Counsel to pursue the class action. [2] Underwriter and the brokers provided assistance to Class Counsel in piecing together the facts about the alleged wrongdoing in the bond transaction, and consequently, an implicit understanding arose that Class Counsel would not pursue any claims against Underwriter or the brokers on behalf of the bondholders. At that point, the firm had no clients to form the class, and no bondholders were consulted about the agreement. [3] After the issue of funding was resolved, the brokers began to assist Class Counsel in identifying bondholders who might be interested in serving as class representatives. The first official engagement letter concerning the instant matter was not sent until July 6, 1999. That letter was sent to several potential class representatives, including Norma Ducommun, Susan Deuver, Dorothy Earle, East Maine Baptist Church, Rona Hodes, Penny Hogfeldt and Anthony D'Agostino of Commercial Mortgage and Finance Company, John Schultheis, and Gary and Jeane Yamine. Hodes had a Series 6 NASD license that was held by Underwriter, received commissions from the sale of the bonds, was employed by Underwriter as a registered representative and broker during the period at issue in the lawsuit, and is part of the group of brokers Class Counsel agreed not to sue. The initial engagement letter stated, in relevant part: At the outset of our representation, certain bondholders, as well as certain brokers involved in selling the bonds, have contributed to a fund to pay certain of our fees and expenses as set forth above. That fund aggregates $120,000. .... While the funding third parties will not be our clients, we expect to obtain ongoing assistance from them in pursuing your claims. Accordingly, it may be necessary at times to share privileged or otherwise confidential information with them, and we assume we have your approval to do so. Similarly, in light of the ongoing assistance we anticipate, as well as the funding they have contributed, we will not be in a position to consider or pursue any potential claims against any such parties or any entity with which any of them is affiliated. We assume this meets with your approval as well. The letter advised potential class members that they were free to obtain independent counsel to investigate claims against Underwriter and/or the brokers, but noted that the fees and expenses associated with individual bondholders retaining their own separate counsel could be quite substantial. Finally, the letter asked potential plaintiffs to approve an arrangement whereby, in the event of any recovery, the unidentified persons who contributed to the fund would be reimbursed for their contributions first, before any recovery would be distributed to the class. After the first engagement letter was sent, Class Counsel had telephone conversations with Gary Yamine and Hodes, during which Liss was discussed in some disparaging context. On October 6, 1999, Class Counsel sent a second engagement letter to the same individuals, which stated: As stated in the engagement letter [of July 6, 1999], we are not in a position to consider or pursue any claims against various brokers involved in selling the bonds, including but not limited to J.E. Liss & Company, Inc., as they are assisting with this case and have provided some of the funding for it. The letter also alluded to a class action filed in Wisconsin against Underwriter, but did not indicate that the class action concerned a different transaction than the bond sale at issue in the present matter. Commercial Mortgage & Finance Company, Ducommun, Duever, Earle, East Maine Baptist Church, Hodes, Schultheis, and the Yamines initially agreed to serve as the named plaintiffs and class representatives.