Opinion ID: 7016470
Heading Depth: 2
Heading Rank: 3

Heading: The Merits of the Forfeiture Claim

Text: An initial issue concerning the merits of the forfeiture claim is the identity of the counsel who are even arguably within the scope of any plausible claim. Zeisl broadly seeks forfeiture of the fees paid to the 17 attorneys and law firms who are listed as “Class Counsel” in the Austrian Settlement. However, as previously noted, only 11 attorneys and law firms signed that agreement on behalf of the Austrian Settlement Class. Because the members of that Class did not hold the Assigned Claims until execution of the Austrian Settlement and the contemporaneous certification of the Class, the attorneys and law firms that did not sign the Austrian Settlement owed no duty of representation to these claim holders distinct from these lawyers’ general duty to represent all of their Holocaust victim clients. Thus, Zeisl has no basis for claiming forfeiture of the fees paid to the six attorneys and law firms who did not sign the Austrian Settlement. 14 The erroneous listing of an attorney as counsel cannot establish an attorney-client relationship. Cf. Sao Paulo v. American Tobacco Co., 535 U.S. 229, 122 S.Ct. 1290, 152 L.Ed.2d 346 (2002) (impartiality of judge could not be reasonably questioned based on his erroneous listing as attorney on motion to file amicus curiae brief). Further complicating consideration of the merits of Zeisl’s claim is the imprecision of his complaint. On the one hand, he contends that Austrian Class Counsel breached their duties to the Austrian Settlement Class when they “agreed to the German Compact in which they impaired the Austrian Bank[s] Settlement Class members’ rights in favor of the rights of their other clients.” 15 Brief for Appellant at 38. However, he also argues that the breach occurred earlier, when the lawyers found themselves representing different clients with potentially conflicting interests against the same defendant. Id. at 49-52, 60-61. Thus, his grievance alternates between attacking the Austrian Settlement Class Counsel for agreeing to arrangements that allegedly prejudiced the holders of the Assigned Claims and attacking them for initially undertaking representation of the Class. Whatever the basis of Zeisl’s grievance, nothing occurred that could possibly justify forfeiture of the fees that have been awarded. Fee forfeiture is an equitable remedy that requires careful consideration of all the relevant circumstances. See Burrow v. Arce, 997 S.W.2d 229, 240 (Tex.1999); Gilchrist v. Perl, 387 N.W.2d 412, 417 (Minn.1986); 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering, § 8.21 n. 2 (Supp.2002). To the extent that the grievance is based on counsel’s agreement to the German Compact, Zeisl ignores the realities of the context in which counsel were working. The negotiations that led to the creation of the German Foundation were very different from those that often occur between counsel for plaintiffs and defendants endeavoring to settle a typical class action. Even in the latter context, we have recognized that the traditional rules concerning conflict-free representation, applicable in non-class lawsuits, “should not be mechanically applied to the problems that arise in the settlement of class action litigation.” In re “Agent Orange” Product Liability Litigation, 800 F.2d 14, 19 (2d Cir.1986). The context of the negotiations leading to the German Compact far transcended even complicated class action litigation. This was an effort, ultimately extraordinarily successful, to persuade both defendants and non-defendants to create a massive fund for the benefit of Holocaust victims scattered throughout the world, some of whom were in some sense represented by counsel and many of whom were not. Major participants in the negotiations were the United States and Germany, acting through senior governmental officials. In a complicated and multilateral negotiation such as this, some claimants inevitably fare better than others. Once the terms of the proposed Compact emerged, tbe DM 10 billion (about $5 billion) was committed, and the strong backing of the United States and Germany was made clear, it would have been completely unrealistic to expect any attorneys to jeopardize the success of the Compact because a particular claim of their clients was not fully vindicated. 16 Indeed, despite the view expressed at the time of the Austrian Settlement that the Assigned Claims were possibly worth as much as $300 million, many knowledgeable observers during the negotiation of the German Compact considered the claims worthless, especially in view of the substantial argument that they appeared to be barred by the Austrian State Treaty of 1955. See Multilateral Austrian State Treaty, T.I.A.S. 3298, 6 U.S.T. 2369 (signed May 15, 1955). Zeisl never quite says that the Austrian Settlement Class Counsel should have worked to defeat the German Compact because it made no provision for the Assigned Claims, but in faulting the attorneys for agreeing to the Compact, he effectively takes that extreme position. The reality is that the members of the Austrian Settlement Class along with Holocaust victims worldwide who were victims of Nazi era outrages will all be eligible to seek some redress (on their individual claims though not as assignees of the Austrian banks’ claims) from a fund created in significant part through the tireless efforts of many of the attorneys who now stand accused of unprofessional conduct. It is not difficult to imagine the attack that would have been made had their insistence on some compensation for the Assigned Claims undermined the entire Compact. To the extent that Zeisl’s grievance concerns Class Counsel’s undertaking a representation with a potential conflict among counsel’s other clients, the matter merits further consideration. When the Austrian Settlement was reached, the eleven firms and attorneys who agreed to act as Class Counsel were placed in a position of potential conflict. One group of clients became holders of the Assigned Claims against the German banks, and another group of clients, including some within the first group, continued to hold individual claims against these banks. A potential conflict existed as both sets of claims were pursued in the Consolidated Class Action and in the extra-judicial negotiation that led to the German Compact: there was the risk, ultimately realized, that those offering to provide funds would favor individual claims and disfavor the Assigned Claims. Where potential conflicts are reasonably apprehended, the appropriate response from counsel will vary with the circumstances. Sometimes the conflict is so likely to occur and so serious if it does occur that counsel may not undertake the representation that creates the conflict. See N.Y.Code of Professional Responsibility DR 5-105(a), N.Y. Comp.Code R. & Regs, tit. 22, § 1200.24(a); cf. Fiandaca v. Cunningham, 827 F.2d 825 (1st Cir.1987) (court required to disqualify class counsel who represented separate class with materially adverse interests). In other circumstances, an appropriate response is to call the matter to the attention of the court so that the court may determine whether a subclass needs to be certified and counsel need to be identified to represent solely the members of the subclass. See Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1176 (5th Cir.1978) (“when a potential conflict arises between the named plaintiffs and the rest of the class ..., the attorney’s duty ... requires him to point out [the] conflict[ ] to the court....”); Silbiger v. Prudence Bonds Corp., 180 F.2d 917, 921 (2d Cir.1950) (“We agree that Silbiger failed in his duty when he did not present [the conflict] matter to the court and learn its pleasure....”) 17 . In some circumstances a court itself might well have an obligation on its own motion, especially when called upon to approve a class action settlement, to designate a subclass and assure proper representation for the subclass, or to take other appropriate steps to lessen if not eliminate the potential for a conflict among class members. See Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir.1995) (“The ultimate responsibility to ensure that the interests of class members are not subordinated to the interests of either the class representatives or class counsel rests with the district court.”). In the pending matter, it does not appear that anyone raised the possibility that the Austrian Settlement Class Counsel might be conflicted until several months after the Austrian Settlement was concluded in March 1999. The first reference to a conflict we can locate in the record is the submission to the District Court by Zeisl’s counsel, E. Randol Schoenberg, on January 6, 2000. He pointed out that in the, negotiations that would lead to the German Compact “various classes of claimants, with widely different types of claims, will be competing with each other for shares of the German settlement.” Schoenberg made no request for any specific relief concerning counsel, merely urging the District Court to “pay very close attention.” Prior to the time the German Compact was concluded in July 2000, no request had been made to the District Court to take any action to avoid or minimize a potential conflict of Class Counsel. On September 7, 2000, after the Compact was approved, Judge Kram took specific action endeavoring to protect the interests of holders of the Assigned Claims. Acting on her own motion, she appointed a co-counsel for the Austrian Settlement Class “with respect to the prosecution and administration of the Assigned Claims.” When the counsel she selected resigned for reasons unrelated to this litigation, she then designated new co-counsel for the Class with the same duties concerning the Assigned Claims. Thereafter Judge Kram continued to express concern about a potential conflict. On January 29, 2001, before the Rule 23(e) hearing on the plaintiffs’ motion to dismiss the Consolidated Complaint, Judge Kram ordered the parties to prepare materials considering, among other things, the “steps taken to ensure that there was no conflict of interest for counsel representing both plaintiffs with claims against German banks and members of the Austrian bank settlement class.” On March 7, 2001, Judge Kram’s initial denial of the plaintiffs’ motion to dismiss was partly based on her finding that “the instant application prejudices the sub-class because plaintiffs’ counsel thereby consent to the applicability of the Statement of Interest to the Assigned Claims (a detriment only to the sub-class) in order to achieve a desired result for other plaintiffs, while the desired result (the Compact) excludes the sub-class.” She reiterated this concern on March 20, 2001, in denying a motion for reconsideration of the March 7, 2001, ruling. We appreciate the District Court’s concern about the risk of conflicted counsel and its efforts to alleviate that risk. In hindsight, it would have been preferable for putative Class Counsel to have recognized the problem themselves and alerted the Court at the time the Austrian Settlement Class was certified. Had that occurred, the Court would have been in a position to designate counsel specifically to assert the interests of the holders of the Assigned Claims before those interests could be affected by the agreements of the German Compact. At this point, however, our concern is not with what might better have been done in the past. The issue before us is whether the undertaking of representation of the Austrian Settlement Class by counsel with clients whose interests were potentially adverse to the holders of the Assigned Claims provides a basis for forfeiture of the fees fairly earned by those counsel for their role in the establishment of the German Foundation. Whatever deficiency might be thought to arise from that undertaking or from Class Counsel’s failure to alert the Court to the potential conflict, the circumstances of this case would not warrant the equitable remedy of fee forfeiture. There is not the slightest indication that any of the Class Counsel who were engaged in this enormously complicated undertaking acted with anything less than the utmost good faith. They achieved extraordinarily beneficial results for their clients. To whatever extent their representation of the Austrian Settlement Class placed them in a position of potential conflict, they have thus far not even applied to the District Court for any compensation for that representation. In sum, no basis exists for obliging counsel for the Austrian Settlement Class to forfeit the fees awarded to them by the German Foundation for their efforts, in cooperation with many other lawyers, to achieve an extraordinary extrajudicial remedy for victims of the Holocaust.