Opinion ID: 3018799
Heading Depth: 4
Heading Rank: 3

Heading: Under What Law Were the Fiduciary Duties

Text: Created? 27 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). 28 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. 29 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 30 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.