The Hon. Miriam Goldman Cedarbaum of the United States District Court for the… v. Nextel Communications, Inc. UNITED STATES COURT OF APPEALS 1 FOR THE SECOND CIRCUIT…

* The Hon. Miriam Goldman Cedarbaum of the United States
District Court for the Southern District of New York, sitting by
designation.
1
09-1892-cv
Johnson v. Nextel Communications, Inc.
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2009 3
4
(Argued: June 8, 2010 Decided: September 26, 2011) 5
Docket No. 09-1892-cv 6
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MICHAEL S. JOHNSON, individually and on behalf of the class, 8 DONNA DYMKOWSKI, individually and on behalf of the class, 9 PATRICIA LONG CORREA, individually and on behalf of the class, 10 ANTONIO SAMUEL, individually and on behalf of the class, VINCENT 11 HALL, individually and on behalf of the class, and ANGELETTE 12 WATERS, individually and on behalf of the class, 13
14 Plaintiffs-Appellants, 15
16 v. 17
18 NEXTEL COMMUNICATIONS, INC., a Delaware Corporation, LEEDS, 19 MORELLI & BROWN, LENARD LEEDS, STEVEN A. MORELLI, JEFFREY K. 20 BROWN, JAMES VAGNINI, FEDERIC DAVID OSTROVE, BRYAN MAZOLLA, SUSAN 21 FITZGERALD, JOHN DOE 1-10 a fictitious designation for presently 22 unknown defendants, and JANE DOE 1-10 a fictitious designation 23 for presently unknown defendants, 24
25 Defendants-Appellees. 26
27 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 28
29 B e f o r e: WINTER and HALL, Circuit Judges, and CEDARBAUM, 30 District Judge.*
31
32
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34
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36

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2
Appeal from a dismissal by the United States District Court 1
for the Southern District of New York (George B. Daniels, Judge) 2
of appellants’ complaint pursuant to Fed. R. Civ. P. 12(b)(6). 3
Appellants claim that the law firm of Leeds, Morelli & Brown, 4
P.C., violated, inter alia, its fiduciary obligations by entering 5
into an agreement with Nextel, the putative defendant in 6
discrimination actions the law firm was hired to bring, which 7
involved unconsentable conflicts of interest. Principally, we 8
hold that the complaint states a claim against the law firm for 9
breaching its fiduciary obligations to appellants. We also hold 10
that the complaint states a claim against Nextel for aiding and 11
abetting a breach of fiduciary duty. We therefore vacate the 12
dismissal and remand for further proceedings. 13
KENNETH S. THYNE, Roper & 14 Twardowsky, LLC, Totowa, New 15 Jersey, for Plaintiffs-Appellants. 16
17 MICHAEL MCCONNELL (Traci Van Pelt, 18 Robert W. Steinmetz, McConnell, 19 Fleischner, Houghtaling & 20 Craigmile, LLC, Denver, Colorado; 21 Janice J. DiGennaro & Shari Claire 22 Lewis, Rivkin Radler LLP, 23 Uniondale, New York, on the brief), 24 McConnell, Fleischner, Houghtaling 25 & Craigmile, LLC, Denver, Colorado, 26 for Defendants-Appellees Leeds, 27 Morelli & Brown, Lenard Leeds, 28 Steven A. Morelli, and Jeffrey K. 29 Brown. 30
31 LAWRENCE R. SANDAK (Thomas A. 32 McKinney, on the brief), Proskauer 33 Rose LLP, Newark, New Jersey and 34 New York, New York, for Defendant- 35 Appellee Nextel Communications, 36 Inc. 37
38
39

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3
Jason S. Feinstein, Sterns & 1 Weinroth, Trenton, New Jersey, for 2 Defendants-Appellees Bryan Mazolla 3 and Susan Fitzgerald. 4
5
6 WINTER, Circuit Judge: 7
8 This is an appeal from Judge Daniel’s dismissal of 9
appellants’ class action complaint against Nextel Communications, 10
Inc., the law firm of Leeds, Morelli & Brown, P.C. (“LMB”), and 11
seven of LMB’s lawyers (also “LMB”). Appellants are former 12
clients of LMB who retained the firm to bring discrimination 13
claims against Nextel. The class is composed of approximately 14
587 clients who retained LMB for the same purpose. The complaint 15
asserts a number of claims, including one alleging that LMB 16
breached its fiduciary duty of loyalty to them and the class by 17
entering into an agreement with Nextel in which Nextel agreed to 18
pay: (i) $2 million to LMB to persuade en masse its 19
approximately 587 clients to, inter alia, abandon ongoing legal 20
and administrative proceedings against Nextel, waive their rights 21
to a jury trial and punitive damages, and accept an expedited 22
mediation/arbitration procedure; (ii) another $3.5 million to LMB 23
on a sliding scale as the clients’ claims were resolved through 24
that procedure; and (iii) another $2 million to LMB to work 25
directly for Nextel as a consultant for two years beginning when 26
the clients’ claims had been resolved. None of the payments were 27
conditioned on recovery by any of LMB’s clients. We conclude 28
that appellants have alleged facts sufficient to state a claim 29
against LMB for, inter alia, breach of fiduciary duty and against 30

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4
Nextel for aiding and abetting breach of fiduciary duty. We 1
therefore vacate and remand for further proceedings. 2
BACKGROUND 3
Because this is an appeal from a dismissal under Fed. R. 4
Civ. P. 12(b)(6), we view the facts alleged in the complaint in 5
the light most favorable to appellants. See Faulkner v. Beer, 6
463 F.3d 130, 133 (2d Cir. 2006). 7
a) The Hiring of LMB and the Dispute Resolution and Settlement 8
Agreement 9
The complaint alleges that LMB conducted a meeting at which 10
appellants and some 587 individuals (collectively, the 11
“claimants”) hired LMB to pursue employment discrimination claims 12
against Nextel, a Delaware corporation. The retainer agreement 13
with LMB, a New York law firm, was executed in New Jersey. It is 14
alleged that extravagant promises of recoveries against Nextel 15
were made at the meeting. The agreement specified a one-third 16
contingency fee to go to LMB. 17
The complaint alleges that LMB never intended to bring, and 18
never brought, any discrimination actions against Nextel. 19
Instead, LMB intended to follow a prior LMB practice of seeking 20
direct payments, including payments as a legal consultant, from 21
putative defendant-employers, in this case, Nextel. On September 22
28, 2000, LMB and Nextel met in New York and signed an agreement 23
styled the Dispute Resolution and Settlement Agreement (“DRSA”). 24
Under the DRSA, LMB was to be paid $2 million if it persuaded the 25
claimants to: (i) drop all pending lawsuits and administrative 26

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5
complaints against Nextel within two weeks (excluding already 1
filed worker’s compensation claims); and (ii) sign within ten 2
weeks individual agreements in which each claimant agreed to be 3
bound by the DRSA. The DRSA was to become effective on the date 4
upon which those conditions were met (the “Effective Date”). The 5
$2 million was to be paid to LMB within 3 days of that date. 6
The DRSA set forth a three-stage Dispute Resolution Process 7
(“DRP”) that was designated as the exclusive means of settlement 8
for all claimants then represented by LMB. The first stage 9
consisted of an interview and direct negotiation between Nextel 10
and each individual claimant. The second stage called for non- 11
binding mediation of any unresolved claims. The third stage 12
called for binding arbitration of any remaining unresolved 13
claims. 14
The DRSA provided that Nextel would pay another $1.5 million 15
to LMB upon the resolution of half of the claimants’ claims and a 16
final $2 million upon resolution of the remaining claims. All 17
claims had to be either resolved or submitted to binding 18
arbitration within 45 weeks of the Effective Date, or Nextel 19
would be entitled to withhold final payment from LMB and deduct 20
$50,000 for each month that claims remained to be resolved or 21
submitted to arbitration. The DRSA also stated that each 22
claimant would agree to be represented by LMB throughout the DRP, 23
to be bound by the result of the DRP and not to pursue any other 24
relief in any other forum for any claim against Nextel, to waive 25

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6
punitive damages and non-monetary relief, to execute a general 1
release as a prerequisite for receiving any award, and to adhere 2
to a confidentiality agreement concerning the DRSA. 3
LMB also promised not to accept any new clients with claims 4
against Nextel, not to refer any non-claimant individual with 5
claims against Nextel to another lawyer or law firm, and not to 6
accept compensation for any prior referrals. Finally, the DRSA 7
provided that Nextel would retain LMB as a legal consultant (the 8
“consultancy agreement”) for a period of two years following the 9
resolution of all claims for an additional consultancy fee of 10
$83,333.35 per month, or $2 million, bringing the total value of 11
the DRSA to LMB to $7.5 million. 12
b) The Individual Agreements and Settlements 13
The complaint alleges that, in the weeks following the 14
execution of the DRSA, LMB approached the claimants to obtain 15
signed Individual Agreements and Pledges of Good Faith. In the 16
Individual Agreement, the particular claimant had to state that 17
he or she “reviewed the [DRSA]; had the opportunity to discuss 18
that Agreement with [LMB] or any other counsel of [his or her] 19
choosing; and agree to comply fully with the terms of that 20
Agreement.” With respect to the payment of legal fees, the 21
Individual Agreements stated only that “I acknowledge and 22
understand that . . . Nextel has agreed to pay an amount of money 23
to [LMB] to cover the attorneys’ fees and expenses, other than 24
expert fees, that Claimants might otherwise pay to [LMB] . . . .” 25

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7
The Pledges of Good Faith stated that, for purposes of keeping 1
the DRSA confidential, each claimant consented to “selecting two 2
(2) representatives in my area to maintain a copy of the [DRSA]. 3
Upon request to either of the area representatives, claimants 4
will be allowed to review the [DRSA].” 5
The six appellants, along with all but fourteen of the 6
claimants, signed Individual Agreements and Pledges of Good 7
Faith. The complaint alleges that, notwithstanding the 8
statements in the Individual Agreements and Pledges of Good 9
Faith, LMB did not allow the claimants to review the full DRSA, 10
but rather provided only the signature page of the DRSA, the 11
Individual Agreements, and a document entitled “Highlights of 12
Settlement Agreement” (the “Highlights Document”). The 13
Highlights Document outlined the major provisions of the DRSA, 14
including the DRP, the requirement that claimants drop all 15
pending lawsuits and complaints, the confidentiality requirement, 16
and the consultancy agreement. The Highlights Document 17
specifically stated that the consultancy agreement posed a 18
conflict of interest for LMB, which the claimant agreed to waive 19
by signing the Individual Agreement. With respect to the 20
contractual payments to LMB, the Highlights Document stated only 21
that “Nextel is paying each Claimant’s attorneys’ fees, costs, 22
and expenses (other than expert witness fees) in consideration 23
for each Claimant participating in the DRP and honoring all of 24
the conditions.” The document did not make any mention of the 25

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1 LMB and Nextel executed Amendment 1 on September 28, 2000, in which
Nextel agreed to a limited waiver of the DRSA’s confidentiality provisions in
order to “obtain administrative approval of the withdrawal of all Agency
Complaints. . . .”
8
amounts LMB was to be paid or the various conditions on those 1
payments, as described above. 2
In February 2001, LMB and Nextel executed a second 3
amendment 1 to the DRSA to account for the fourteen non- 4
participating claimants (“Amendment 2”). In Amendment 2, LMB 5
agreed that Nextel would reduce LMB’s final payment from $2 6
million to $1,720,000, a reduction of $20,000 per non- 7
participating claimant. The sum of $280,000 was to remain in an 8
escrow account until the end of the consultancy period, at which 9
point it would be paid to LMB minus any amount Nextel paid to 10
defend, settle, or satisfy judgments in lawsuits by the fourteen 11
non-participating claimants, up to $20,000 for each claimant. 12
Between August and December 2001, all six appellants settled 13
their disputes with Nextel through the DRP for relief not 14
specified in the complaint. 15
c) The Present Action 16
On October 12, 2006, appellants filed this action, both 17
individually and as class representatives of the remaining 18
claimants, against LMB and Nextel in the Superior Court of New 19
Jersey, Passaic County. Based on diversity of citizenship, LMB 20
and Nextel removed the case to the district court for the 21
District of New Jersey, and then filed motions to dismiss the 22
complaint. LMB also moved to change venue to the Southern 23

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9
District of New York. The motion was granted and the case 1
transferred to the Southern District on September 21, 2007. 2
Appellants’ complaint alleges that the DRSA amounted to a 3
conspiracy between LMB and Nextel by which Nextel secretly bought 4
LMB’s loyalty through payment of the designated amounts. The 5
complaint asserted a host of claims against LMB, including breach 6
of fiduciary duty, commercial bribery, fraud, unjust enrichment, 7
legal malpractice, breach of contract, unauthorized practice of 8
law, conversion, and violation of the New Jersey RICO statute. 9
The complaint also asserted claims against Nextel for tortious 10
interference with contract, commercial bribery, and aiding and 11
abetting or conspiring with LMB in its breach of fiduciary duty, 12
fraud, legal malpractice, and breach of contract. 13
On March 31, 2009, the district court granted appellees’ 14
motions to dismiss for failure to state a claim against either 15
LMB or Nextel. The court applied New York’s choice of law rules 16
and concluded that New York law governed the matter. The court 17
held that, by signing the Individual Agreements and Pledges of 18
Good Faith, appellants confirmed as a matter of law that they had 19
the opportunity to review the DRSA. It concluded, therefore, 20
that appellants failed to state a claim under New York law for 21
breach of fiduciary duty or fraud because both claims rested on 22
appellants’ allegations that LMB failed to disclose the DRSA’s 23
compensation agreement. With respect to appellants’ malpractice 24
claim, the court found that the complaint did not contain any 25

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10
“factual allegations regarding how [LMB] ineffectively or 1
inadequately represented [appellants]” during the DRP. To the 2
extent that the malpractice claims rested on the DRSA’s 3
compensation structure, the court found that appellants failed to 4
state a claim because they did not allege that the money paid by 5
Nextel to LMB would otherwise have gone to appellants. The court 6
found the remainder of appellants’ claims to be without merit. 7
This appeal followed. 8
DISCUSSION 9
Appellants have briefed on appeal the dismissal of their 10
claims of breach of fiduciary obligation, breach of contract, 11
fraud, malpractice, and New Jersey RICO claims. We deal with 12
those claims after a brief discussion of choice of law. 13
With regard to the choice of law issues, we “review the 14
district court’s choice of law de novo.” Abdullahi v. Pfizer, 15
Inc., 562 F.3d 163, 190 (2d Cir. 2009) (internal quotation marks 16
omitted). In this case, the district court erroneously applied 17
New York’s choice of law rules. In fact, New Jersey’s choice of 18
law rules apply because New Jersey law would have governed had 19
there been no change of venue. See Van Dusen v. Barrack, 376 20
U.S. 612, 639 (1964); see also Abdullahi, 562 F.3d at 190. New 21
Jersey applies a two-step “flexible governmental-interests 22
analysis.” Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615, 621 23
(2007). 24
The first step in the analysis is to 25 determine whether a conflict exists between 26

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2 Nextel’s letter brief does not go into whether there is a difference
between New York and New Jersey law, but rather maintains that New York law
applies under the New Jersey choice of law rules because New York has a
greater governmental interest.
11
the laws of [New York and New Jersey]. Any 1 such conflict is to be determined on an 2 issue-by-issue basis. 3 If there is no actual conflict, then the 4 choice-of-law question is inconsequential, 5 and the forum state [here New York] applies 6 its own law to resolve the disputed issue. 7 If there is an actual conflict, the second 8 step seeks to determine the interest that 9 each state has in resolving the specific 10 issue in dispute. The Court must identify 11 the governmental policies underlying the law 12 of each state and determine whether those 13 policies are affected by each state’s 14 contacts to the litigation and to the 15 parties. We must apply the law of the state 16 with the greatest interest in governing the 17 particular issue. 18
19 Id. at 621-22 (internal citations and quotation marks omitted). 20
The parties appear to agree that there is no difference between 21
New York and New Jersey law as to all of appellants’ claims, save 22
for the New Jersey RICO claim. 2 We vacate and remand that claim 23
for reconsideration in light of this opinion’s conclusion that 24
New Jersey’s choice of law rules apply and its discussion of the 25
events giving rise to this action. 26
We turn now to the merits of the other claims briefed on 27
appeal. “We review the district court's dismissal of a complaint 28
for failure to state a claim de novo . . . .” Faulkner, 463 F.3d 29
at 133. “The court accepts all well-pleaded allegations in the 30
complaint as true, drawing all reasonable inferences in the 31
plaintiff’s favor. In order to survive a motion to dismiss under 32

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12
Rule 12(b)(6), a complaint must allege a plausible set of facts 1
sufficient ‘to raise a right to relief above the speculative 2
level.’” Operating Local 649 Annuity Trust Fund v. Smith Barney 3
Fund Mgmt. LLC, 595 F.3d 86, 91 (2d Cir. 2010) (quoting Bell Atl. 4
Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 5
a) Fiduciary Obligation 6
The elements of a claim for breach of a fiduciary obligation 7
are: (i) the existence of a fiduciary duty; (ii) a knowing breach 8
of that duty; and (iii) damages resulting therefrom. See Barrett 9
v. Freifeld, 883 N.Y.S.2d 305, 308 (N.Y. App. Div., 2d Dep’t 10
2009); accord F.G. v. MacDonell, 150 N.J. 550, 563-64 (1997). 11
The existence of a fiduciary duty between LMB and appellants 12
is beyond dispute. It is also plain that, if there was a breach, 13
it could not have been due to negligence but rather, given the 14
nature of the DRSA and the complaint’s allegations, had to be 15
knowing and intentional on LMB’s part. 16
Appellants contend that LMB breached its fiduciary duty to 17
the claimants by signing the DRSA because the terms of the DRSA 18
created a conflict of interest between LMB and its claimant 19
clients -- a conflict that was not consentable, that is, one that 20
could not be obviated by procuring the clients’ consent. 21
Moreover, they allege that even if the conflicts were 22
consentable, LMB failed to properly disclose them. Appellants 23
further argue that as a result of LMB’s undisclosed conflicts of 24
interest, their settlement awards were “unreasonably low and did 25

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13
not approximate the true value of the[ir] claims.” LMB and 1
Nextel contend that any conflicts of interest created by the DRSA 2
were consentable and that, as a matter of law, appellants cannot 3
claim to have been unaware of the terms of the DRSA in light of 4
their signatures on the Individual Agreements, which stated that 5
appellants had reviewed the DRSA. We conclude that the conflicts 6
were unconsentable. 7
The DRSA created overriding and abiding conflicts of 8
interest for LMB and thoroughly undermined its ability to “deal 9
fairly, honestly, and with undivided loyalty to [appellants].” 10
Elacqua v. Physicians’ Reciprocal Insurers, 860 N.Y.S.2d 229, 232 11
(N.Y. App. Div., 3d Dep’t, 2008) (quoting Matter of Cooperman, 83 12
N.Y.2d 465, 472 (1994)). 13
The DRSA on its face created enormous incentives on LMB’s 14
part to obtain from each and every one of its clients waivers of 15
important rights. If LMB were to cause all claimants to (i) waive 16
their rights to jury trials and various kinds of monetary damages 17
and non-monetary relief, (ii) drop all existing legal or 18
administrative proceedings, (iii) agree to submit all claims to 19
the DRP, and (iv) waive the right to hire new counsel during the 20
DRP, LMB would be paid $2 million by Nextel even though not a 21
single claimant had recovered anything or even begun any of the 22
DRP steps. LMB had ten weeks to obtain these waivers. 23
The overriding nature of the conflict is underscored by the 24
fact that, when fourteen of the 587 clients failed to agree, 25

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14
Nextel’s final, but pre-consultancy, payment to LMB was reduced 1
from $2 million to $1,720,000, or $20,000 per non-agreeing 2
client. Under the DRSA, after obtaining the waivers, LMB would 3
be paid $1.5 million when half of the claimants’ claims were 4
resolved through the DRP, regardless of the individual outcomes. 5
Another $2 million ($1,720,000 after Amendment 2) would be paid 6
to LMB when the remaining claims were resolved, again without 7
regard to individual outcomes. However, the $2 million would be 8
reduced on a sliding scale if less than all the claims were 9
resolved within forty-five weeks from the effective date. To 10
become entitled to the $2 million, LMB would have to process over 11
thirteen claims per week starting on the effective date, or over 12
two claims per work day. 13
Once all the claims were processed, LMB would formally go to 14
work for Nextel as a consultant for two years at $1 million per 15
year. LMB also promised in the DRSA not to accept new clients 16
with claims against Nextel, not to refer any such client to 17
another lawyer or firm, and not to accept compensation for any 18
prior referral. 19
It cannot be gainsaid that, viewed on its face alone, the 20
DRSA created an enormous conflict of interest between LMB and its 21
clients. Such a conflict is permissible only if waivable by a 22
client through informed consent. See Int’l Bus. Machs, Corp. v. 23
Levin, 579 F.2d 271, 282 (3d Cir. 1978); Filippi v. Elmont Union 24
Free Sch. Dist. Bd. of Educ., 722 F. Supp. 2d 295, 310-11 25

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15
(E.D.N.Y. 2010). However, there may be circumstances in which a 1
conflict is not consentable. See GSI Commerce Solutions, Inc. v. 2
BabyCenter, L.L.C., 618 F.3d 204, 212 n.2 (2d Cir. 2010); CenTra, 3
Inc. v. Estrin, 538 F.3d 402, 412 (6th Cir. 2008); Cohen v. 4
Strouch, No. 10 Civ. 7828, 2011 WL 1143067, at *2-3 (S.D.N.Y. 5
Mar. 24, 2011). For two reasons, this is such a case. 6
First, because LMB was not lead counsel in a class action, 7
the class-protective provisions of Fed. R. Civ. P. 23 were not 8
triggered. See In re Agent Orange Prod. Liab. Lit., 818 F.2d 9
216, 222 (2d Cir. 1987) (“Fed. R. Civ. P. 23(e) . . . places the 10
court in the role of protector of the rights of the class when 11
such a settlement is reached and attorneys’ fees are awarded.”). 12
Therefore, LMB’s clear duty as counsel to the parties seeking 13
relief from Nextel was to advise each client individually as to 14
what was in his or her best interests taking into account all of 15
the differing circumstances of each particular claim. See 16
Ziegelheim v. Apollo, 128 N.J. 250, 260-61 (1992); Jones Lang 17
Wootton USA v. LeBoeuf, Lamb, Greene & MacRae, 674 N.Y.S.2d 280, 18
284-85 (N.Y. App. Div., 1st Dep’t. 1998). The DRSA was flatly 19
antagonistic to that duty. 20
On the face of the DRSA, its inevitable purpose was to 21
create an irresistible incentive -- millions of dollars in 22
payments having no relation to services performed for, or 23
recovery by, the claimants -- for LMB to engage in an en masse 24
solicitation of agreement to, and performance of, the DRSA’s 25

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3 The first payment to LMB was to be made within three business days of
the effective date of the agreement, and the DRSA stated that the agreement
would become effective once all pending legal and administrative actions were
withdrawn or dismissed and all claimants had signed the Individual Agreements.
4 We do not necessarily preclude clients from giving informed consent to
some form of group treatment where manageable numbers of claimants are
involved and putative defendants are not paying the claimants’ lawyer to
aggregate the claims. Nor do we preclude the ordinary arms-length settlement
agreement in which one party agrees to pay the costs and fees of another. For
the reasons stated, the DRSA is a far cry from such an agreement,
notwithstanding transparently cosmetic language portraying it as such.
16
terms from approximately 587 claimant clients. The effectiveness 1
of the DRSA, and therefore the payments to LMB, depended on 2
Nextel’s conclusion that a sufficient number of clients had 3
agreed to it. 3 Any number short of all 587, and Nextel would 4
have no obligation to pay anything, as Amendment 2 demonstrated 5
by reducing the final, pre-consultancy $2 million payment to LMB 6
to $1,720,000, a reduction of $280,000, or $20,000 apiece for the 7
fourteen clients LMB failed to deliver. By entering the DRSA, 8
agreeing to be bound by its terms and accepting the financial 9
incentives available therein, LMB violated its duty to advise and 10
represent each client individually, giving due consideration to 11
differing claims, differing strengths of those claims, and 12
differing interests in one or more proper tribunals in which to 13
assert those claims. 4 See Elacqua, 860 N.Y.S.2d at 232-33; 14
accord Matter of Educ. Law Ctr., Inc., 86 N.J. 124, 133 (1981). 15
This already abiding conflict was severely aggravated by two 16
other provisions in the DRSA: (i) the sliding scale of payments 17
from Nextel to LMB depending on how quickly LMB’s clients’ claims 18

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5 Although the fact is in no way dispositive, we do note that the amount
deducted from the final, pre-consultancy payment was to cover not only
Nextel’s costs and attorneys’ fees, but amounts paid in settlements and
judgments to the 14 non-signing claimants. Moreover, any part of the deducted
amount not paid to resolve the claims of those claimants was to be paid to
LMB. A trier of fact might infer from this that the $2 million payment (and
all other payments for that matter) was intended to reduce Nextel’s monetary
exposure to settlement payments and judgments.
17
were resolved; and (ii) the commencement of the $2 million 1
consulting contract and the payment of those fees, which would 2
occur only after all the claims were resolved. Moreover, the 3
DRSA required the claimants, LMB’s clients, to waive the right to 4
hire unconflicted counsel to pursue the claimant’s recovery in 5
the DRP. Again, LMB was being paid by Nextel in effect to ignore 6
its duty to represent clients as individuals with differing 7
claims and interests that might require differing amounts of time 8
and preparation vigorously to pursue a recovery. 9
Finally, although Nextel agreed to pay $5.5 million with 10
regard to the processing of LMB’s clients’ claims according to 11
the DRSA’s provisions, and agreed to pay LMB another $2 million 12
to serve as Nextel’s consultant, none of the payments to LMB was 13
in any way contingent on claimant clients receiving a recovery. 14
Any assertion by appellees, therefore, that the payments were 15
part of a settlement that simply included LMB’s clients’ 16
attorneys’ fees does not meet the straight-face test. 5 See Note 17
4, supra. 18
Indeed, we express our candid opinion that the DRSA was an 19
employment contract between Nextel and LMB designed to achieve an 20
en masse processing and resolution of claims that LMB was 21

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18
obligated to pursue individually on behalf of each of its 1
clients. The only sensitivity shown to potential conflicts of 2
interest by the DRSA is in the provisions in which LMB promises 3
not to represent new clients, or refer new claims, against 4
Nextel. Tellingly, this sensitivity appears aimed only at 5
avoiding conflicts that could have an impact on LMB’s new-found 6
relationship with Nextel. 7
Second, we believe that, under the above circumstances, the 8
opportunity for the claimants to give informed consent was so 9
burdened that the DRSA is not consentable for that reason as 10
well. Certainly, given the conflicts described above, any advice 11
from LMB to its claimant clients could not possibly be 12
independent advice untainted by the counter-incentives of the 13
DRSA such that the resulting consent would be valid. The 14
magnitude, and -- from a lay client’s perspective -- complexity 15
of LMB’s conflict of interest is such that informed consent would 16
require the hiring of an independent lawyer to review the twenty- 17
nine page DRSA and to explain the multiple conflicts embraced by 18
LMB, including the scheduling and amount of payments to LMB, the 19
waiver of multiple rights, and the important and often difficult- 20
to-analyze consequences of abandoning ongoing legal or 21
administrative proceedings. To be sure, the claimants were 22
allowed to consult with another attorney, but an initial attorney 23
hired to bring a discrimination action does not fulfill his or 24
her representational obligations by presenting a client with a 25

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19
proposal that can be considered in an informed manner only by 1
hiring a second attorney. 2
The elements of a breach of fiduciary duty are therefore met 3
by the complaint’s allegations. There was: (i) a duty; (ii) a 4
knowing breach of the duty; and (iii) damages resulting 5
therefrom. Barrett, 883 N.Y.S.2d at 308; MacDonell, 150 N.J. at 6
563-64. The existence of a fiduciary duty on LMB’s part toward 7
the claimants is undeniable. For reasons stated, there was a 8
knowing breach. As for damages, the nature of the DRSA itself 9
creates a presumption of damages. Neither Nextel nor LMB would 10
have entered into it unless each believed that it would profit 11
more by that arrangement than by one in which a law firm 12
vigorously represented claimants as individuals. See Note 5, 13
supra. Appellants have, therefore, plausibly alleged injury in 14
the difference between what they received with representation by 15
LMB under the DRSA and what they would have received if 16
represented by unconflicted counsel. Whether other measures of 17
damages, such as disgorgement, are available must await further 18
proceedings. 19
Appellants also allege that Nextel is liable for aiding and 20
abetting LMB in the breach of its duties to appellants. Both New 21
Jersey and New York authorize civil liability for aiding and 22
abetting the commission of a tort. “The elements of aiding and 23
abetting [under New Jersey law] are: (1) the commission of a 24
wrongful act; (2) knowledge of the act by the alleged 25

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20
aider-abettor; and (3) the aider-abettor knowingly and 1
substantially participated in the wrongdoing.” Morganroth & 2
Morganroth v. Norris, McLaughlin & Marcus, P.C., 331 F.3d 406, 3
415 (3d Cir. 2003). “A claim for aiding and abetting a breach of 4
fiduciary duty [under New York law] requires: (1) a breach by a 5
fiduciary of obligations to another, (2) that the defendant 6
knowingly induced or participated in the breach, and (3) that 7
plaintiff suffered damage as a result of the breach.” Kaufman v. 8
Cohen, 760 N.Y.S.2d 157, 169 (N.Y. App. Div., 1st Dep’t, 2003). 9
Both jurisdictions look to the Restatement (Second) of Torts, 10
which does not require wrongful intent by the third party, but 11
only “that the third party knew of the breach of duty and 12
participated in it.” S & K Sales Co. v. Nike, Inc., 816 F.2d 13
843, 848 (2d Cir. 1987); Morganroth, 331 F.3d at 415 n.3; 14
Restatement (Second) of Torts § 876(b). Like New Jersey, New 15
York requires that the third party provide “‘substantial 16
assistance’ to the primary violator.” Kaufman, 760 N.Y.S.2d at 17
170. Because there is no actual conflict between the two 18
definitions, New York law applies. See Lautenberg Found. v. 19
Madoff, No. 09-816 (SRC), 2009 WL 2928913, at *16 (D.N.J. Sept. 20
9, 2009) (finding “no true conflict” between New York and New 21
Jersey regarding aiding and abetting breach of fiduciary duty). 22
For reasons stated, appellants have adequately alleged a 23
breach of fiduciary obligations by LMB. To sustain their claim 24
against Nextel for aiding and abetting, they must allege facts 25

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21
sufficient to show that Nextel knowingly provided substantial 1
assistance to LMB by “affirmatively assist[ing], help[ing] 2
conceal or fail[ing] to act when required to do so, thereby 3
enabling the breach to occur.” Kaufman, 760 N.Y.S.2d at 170. 4
Appellants have easily met that burden, for reasons stated. 5
Viewed in the light most favorable to appellants, therefore, 6
they have sufficiently alleged that Nextel negotiated and signed 7
the DRSA with the knowledge, and intent, that it would undermine 8
LMB’s ability to fairly represent appellants. We therefore 9
vacate the district court’s dismissal of appellants’ claim 10
against Nextel for aiding and abetting LMB’s breach of fiduciary 11
duty. 12
b) Breach of Contract 13
The district court also erred in holding that plaintiffs 14
failed to state a claim for breach of their original retainer 15
agreement. In order to state a claim of breach of contract, the 16
complaint must allege: (i) the formation of a contract between 17
the parties; (ii) performance by the plaintiff; (iii) failure of 18
defendant to perform; and (iv) damages. Eternity Global Master 19
Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 177 20
(2d Cir. 2004); accord Murphy v. Implicito, 392 N.J. Super. 245, 21
265 (App. Div. 2007). We have no difficulty holding that these 22
elements have been pled. 23
The district court held that LMB did not fail to perform 24
their obligations under the contract because they negotiated the 25

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22
DRSA with Nextel and carried out the DRP proceedings. In the 1
court’s view, those acts constituted the legal representation 2
that LMB was obligated to provide under the retainer agreements 3
with the appellants. But signing the DRSA is the very conduct 4
that appellants assert was a breach of contract. Appellants 5
allege that the retainer agreements provided that LMB would 6
represent appellants individually but, according to the 7
complaint, LMB simply aggregated the plaintiffs to gain a group 8
settlement that ultimately benefitted LMB rather than the 9
claimants. Thus, assuming the facts in the complaint to be true 10
and relying on our earlier discussion of the DRSA and LMB’s 11
fiduciary obligations, LMB never provided the type of 12
representation required by the retainer agreements. 13
The district court also stated that the settlement agreement 14
superceded the retainer agreements, extinguishing appellants’ 15
claims for breach of the original agreements. As discussed 16
supra, the settlement agreement was not valid because it was 17
obtained while LMB suffered from an unconsentable conflict of 18
interest. 19
c) Fraud 20
Appellants also claim fraud in the inducement of the 21
retainer agreement. To state a claim for fraud in the 22
inducement, the party must allege: (i) a material 23
misrepresentation of a presently existing or past fact; (ii) an 24
intent to deceive; (iii) reasonable reliance on the 25

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6 Appellants also assert a fraud in the inducement claim with regard to
the Individual Agreements. However, the harm to appellants from that alleged
fraud is in the Individual Agreements to abide by the DRSA. Because we have
invalidated the DRSA as a breach of LMB’s fiduciary duty, there is no need to
address this fraud claim.
23
misrepresentation by appellants; and (iv) resulting damages. 1
Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 488 (2007); 2
accord Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 3
(2005). In addition, the plaintiff must allege specific facts as 4
to the fraud, including the misleading statements, speaker, time, 5
place, individuals involved, and specific conduct at issue. Fed. 6
R. Civ. P. 9(b); Acito v. IMCERA Grp., Inc., 47 F.3d 47, 51 (2d 7
Cir. 1995). We believe that appellants’ allegations state a 8
claim for fraud. 9
The complaint alleges that the retainer agreements stated 10
that LMB would investigate and pursue appellants' claims 11
individually, but never intended to provide such representation. 12
Instead, LMB intended to aggregate the claimants to negotiate a 13
group settlement with Nextel benefitting LMB. Rule 9(b) is 14
satisfied by the allegations that: (i) LMB conducted a specific 15
meeting with the claimants, at which rosy promises of recovery 16
were made and agreement to the individual retainer agreements was 17
obtained; and (ii) LMB’s actual intent was demonstrated by past 18
agreements like the DRSA between LMB and putative defendant- 19
employers providing for direct payments, including consulting 20
agreements, to LMB that interfered with LMB’s professional 21
responsibilities in representing earlier clients. 6
22

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24
d) Malpractice 1
For reasons stated, appellants have also sufficiently stated 2
a claim for malpractice. 3
e) Claims Against Nextel 4
Finally, the district court dismissed appellants’ claims 5
against Nextel for aiding and abetting fraud, aiding and abetting 6
breach of contract, aiding and abetting malpractice, and tortious 7
interference of contract, relying on the dismissal of the 8
underlying claims against LMB and appellants’ consent to the 9
terms of the DRSA. The dismissal of these claims is also 10
vacated, and the district court shall in the first instance 11
reconsider any motions to dismiss those claims in light of the 12
discussion above. 13
CONCLUSION 14
For the reasons stated we vacate and remand. 15
16
17

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