Sunday, August 12, 2007

Florida Appeals Court "Bitch-Slaps" Miami Law Firm For Class Action Conduct

I preface this post by saying that, while the topic of this post may appear to have nothing to do with the issues covered in this blog, it does deal with class action lawsuits. Inasmuch as my personal belief is that the lawsuits brought as class actions in the future against foreclosure rescue operators will become a bit more common, this post does have some connection (however slight) to the issues covered in this blog.


The Miami Herald reports:

  • "Prominent attorney Hank Adorno -- already under Florida Bar investigation for his role in Miami's fire-fee scandal -- on Wednesday was blasted by the Third District Court of Appeal for what the judges called his ''reprehensible conduct'' in the now infamous case. In a unanimous opinion that upheld a lower-court decision invalidating Miami's $7 million fire-fee settlement with just seven people, the appeals court ripped into Adorno, who had represented the so-called ''lucky seven.'' The Adorno & Yoss firm stood to earn a $2 million share of the $7 million payout, while some 80,000 taxpayers got nothing."
In this case, attorney Henry Adorno and his Miami law firm, Adorno & Yoss, filed a lawsuit on behalf of seven Miami residents for a refund of a "fire fee" that the City of Miami imposed on its property owners and that was ultimately ruled to be an illegal fee. The lawsuit requested for class action status, thereby allowing the named plaintiffs to represent approximately 80,000 similarly situated Miami taxpayers. According to the court case, the amount of the claims of the original seven taxpayers was approximately $84,000.

Prior to the granting of class action status, the parties involved (the seven taxpayers and the defendant, the City of Miami) settled the $84,000 in plaintiffs' claims for $7 million (no, this is not a "typo" - rather than clumsily try explain, I'll do what I usually do on this blog - I'll "copy & paste" the pertinent text directly from the court case itself):
  • "It is undisputed that the original class representatives’ claims totaled less than $84,000. Nevertheless, the original lawyers, aided by the complicity of two different City of Miami Attorneys and a City Manager, "settled" $84,000 in claims for $7 million, out of which $2 million would go to Henry N. Adorno’s law firm. The City of Miami Commission was persuaded to approve the $7 million scheme, after being advised by the City Attorney that their exposure was $24 million."

  • "The settlement of $84,000 in claims for $7 million was palatable to the settling parties because of their mutual, albeit mistaken, belief that the statute of limitations was fast approaching and its expiration could be used to deprive the vast majority of property owners of a refund. Thus, the $7 million settlement was conditioned on the supposed expiration of the statute of limitations in October 2004, at which time it was believed that the four-year statute of limitations would have precluded the other property owners from obtaining a refund.

The majority opinion ends as follows:

  • "The evidence adduced at trial shows that the original plaintiffs misled the City’s taxpayers into donating money for a class action that merely enriched seven individuals, who received a grossly disproportionate settlement amount. The amount the original plaintiffs settled upon bears no relation to the extent of any damages they paid in the form of assessments during prior years. The original plaintiffs admitted that they received a windfall from the settlement. The original plaintiffs, together with Adorno & Yoss, then conspired to keep silent about the settlement terms, to the detriment of the other taxpayers.

  • Adorno & Yoss’ conduct further solidified the compromise of the class claims. The firm oversaw the settlement of $7 million which the parties agree could have otherwise resulted in a refund of $24 million to $70 million for the class. Additionally, Adorno & Yoss failed to move the class refund claims along, allowing the City to raise statute of limitations issues that were not otherwise available prior to the inequitable settlement. The language of the settlement actually called for a standstill of the litigation. Furthermore, at no time did Adorno & Yoss exercise candor before the trial court to explain the nature of the settlement. This reprehensible conduct alone is more than sufficient to establish a breach of fiduciary duty.

To add insult to injury, one judge apparently felt so strongly about the facts of the case that she tacked on her own concurring opinion in which she gives attorney Hank Adorno an additional spanking, which ended as follows:

  • "Plainly and simply, this was a scheme to defraud. It was a case of unchecked avarice coupled with a total absence of shame on the part of the original lawyers. The attorneys manipulated the legal system for their own pecuniary gain and acted against their clients’ interests by attempting to deprive them of monies to which they might otherwise be entitled. More unethical and reprehensible behavior by attorneys against their own clients is difficult to imagine. Under these unique circumstances, the trial court properly set aside the $7 million settlement agreement based on breach of fiduciary duties to the class."
The simple question of Florida law that appears to have been answered in this case, in my view, was that an attorney representing the named representatives in a class action lawsuit, as well as the representatives themselves, have a fiduciary duty to the class members that begins before the lawsuit is certified by the court as a class action. In this case, both the named plaintiffs and attorney Hank Adorno apparently believed they owed the potential class members nothing until class action status was granted.

For the case, see Masztal, et al. v. the City of Miami.

For the Miami Herald article, see Judges: Miami fire-fee attorney acted reprehensibly (The Third District Court of Appeal has upheld a lower-court ruling invalidating Miami's $7 million fire-fee settlement. The appeals court also had choice words for attorney Hank Adorno.).

See also, WPLG-TV Channel 10: Problem Solvers Ask Many Questions, Get No Answers In $7 Million Class-Action Judgment for a local South Florida story that ran prior to the decision by the Florida appeals court.