Opinion
No. 96-2473-CIV-MIDDLEBROOKS
January 29, 2001
Attorney for Linden Adams Texella Adams Virginia Adams Sheila Andrews Darlene Baker Kyra Baptiste Rapheel Baptiste Doris Benjamin Linda Boatwright Kevin Boothe Willa Brown Garnet Carter Canta Chestnut Kenneth Covin Eileen Davidson Tracy Davis Jessie Dyelt Teresa Facyson Alice Fields Windell Foote Carl Forbes Jacqueline Fuller-Rhaheed John Fuller Juanita Jackson Sandra Jackson John Johnson Lynda Johnson Vicky Jones Edith Kelson Melvin Kendrick James Latham Shendrick Little Laura Lucas Donald McGuckian Cynthia Mincey Olga Moore Sharwyn Noble Theresa Patterson James Rachel Linda Radford Jacqueline Rhaheed James Robinson James Scott Derrick Smart Bernette Snead Douglas Stanton Lorenzo Stewart Willie Stovall Prudence Taylor Shirley Washington Joseph Williams Lydia Youngs Ivory Young Jacqueline Young Vicky Lee Young: Danielle K. Brewer with Becker Poliakoff from West Palm Beach, FL.
Attorney for all plaintiffs: Jonathan T. Colby with Leeds Colby Paris from Miami, FL.
Attorney for Bellsouth Telecom.: Edwin Earl Edenfield, Jr.
Attorney for Linden Adams Texella Adams Virginia Adams All Plaintiffs Darlene Baker Rapheel Baptiste Doris Benjamin Linda Boatwright Beverly Britt Vivian Britt Willa Brown Garnet Carter Canta Chestnut Kenneth Covin Monique Daughtry Eileen Davidson Tracy Davis Shekina Donaldson-Del Mar Jessie Dyett Mary Edmond Teresa Facyson Alice Fields Windell Foote John Fuller Afran Hamin Jan Harris Juanita Jackson Sandra Jackson John Johnson Lynda Johnson Vicky Jones Edith Kelson James Latham Laura Lucas Yvonne Marsh Betty Merricks Cynthia Mincey Olga Moore Brenda Oliver Theresa Patterson James Rachel Linda Radford Jacqueline Rhaheed Sharwyn Rhyant James Robinson Teresa Robinson Derrick Smart Arfonzo Smith Bernette Snead Willie Stovall Prudence Taylor Shirley Washington Robbie Watson Joseph Williams Monica Williams Ann Wofford Pauline Wright: Norman Edward Ganz from Fort Lauderdale, FL.
Attorney for Jessie Dyett: Mario Danilo German from Pompano Beach, FL.
Attorney for Bellsouth Telecom. Keith Kochler Francis B. Semmes: Martin B. Goldberg with Lash Goldberg from Miami, FL.
Attorney for Bellsouth Telecom.: Richard G. Gordon with Heinrich Gordon Hargrove Weihe James from Fort Lauderdale, FL.
Attorney for Virginia Adams Darlene Baker Doris Benjamin Eileen Davidson Shekina Donaldson-Del Mar Alice Fields Jan Harris Ronald J. Jackson Edith Kelson Brenda Oliver Willie Stovall Robbie Watson Joseph Williams: Maurice Graham with Maurice Graham P.A. from Oakland Park, FL.
Attorney for Jonathan T. Colby Leeds Colby, P.A.: Michael A. Hanzman with Hanzman Criden Chaykin Rolnick from Coral Gables, FL.
Attorney for Bellsouth Telecom.: John R. Hargrove with Heinrich Gordon Hargrove Weihe James from Fort Lauderdale, FL.
Attorney for Bellsouth Telecom. Keith Kochler Francis B. Semmes: Jessica Lima Leyva with Lash Goldberg from Miami, FL.
Attorney for All Plaintiffs: Barry A. Mandelkorn with Ruden McClosky Smith Schuster Russell from Fort Lauderdale, FL.
Attorney for Bellsouth Telecom. Keith Kochler Francis B. Semmes: Miriam R. Nemetz with Mayer Brown Platt from Washington, DC.
Attorney for Bellsouth Telecom. Keith Kochler Francis B. Semmes: Lawrence S. Robbins with Robbins Russell Englert Orseck Untereiner from Washington, DC.
Attorney for Linden Adams Texella Adams Virginia Adams All Plaintiffs Sheila Andrews Darlene Baker Kyra Baptiste Rapheel Baptiste Doris Benjamin Linda Boatwright Kevin Boothe Willa Brown Garnet Carter Canta Chestnut Kenneth Covin Eileen Davidson Tracy Davis Jessie Dyett Teresa Facyson Alice Fields Windell Foote Carl Forbes Jacqueline Fuller-Rhaheed John Fuller Juanita Jackson Sandra Jackson John Johnson Lynda Johnson Sara Jones Edith Kelson Melvin Kendrick James Latham Shendrick Little Laura Lucas Donald McGuckian Wanda Melhado Cynthia Mincey Ola Moore Sharwyn Noble Theresa Patterson James Rachel Linda Radford James Robinson James Scott Derrick Smart Arfonzo Smith Bernette Snead Douglas Stanton Lorenzo Stewart Willie Stovall Prudence Taylor Shirley Washington Joseph Williams Zadie Wimberly Ann Wofford Lydia Youngs Ivory Young Jacqueline Young Vicky Lee Young: Thomas L. Romeo with Becker Poliakoff from Fort Lauderdale, FL.
Attorney for Linden Adams Texella Adams Virginia Adams Sheila Andrews Darlene Baker Kyra Baptiste Rapheel Baptiste Doris Benjamin Linda Boatwright Kevin Boothe Willa Brown Garnet Carter Canta Chestnut Kenneth Covin Eileen Davidson Tracy Davis Jessie Dyett Teresa Facyson Alice Fields Windell Foote Carl Forbes Jacqueline Fuller-Rhaheed John Fuller Juanita Jackson Sandra Jackson John Johnson Lynda Johnson Vicky Jones Edith Kelson Melvin Kendrick James Latham Shendrick Little Laura Lucas Donald McGuckian Cynthia Mincey Olga Moore Sharwyn Noble Theresa Patterson James Rachel Linda Radford Jacqueline Rhaheed James Robinson James Scott Derrick Smart Arfonzo Smith Bernette Snead Douglas Stanton Lorenzo Stewart Willie Stovall Prudence Taylor Shirley Washington Joseph Williams Lydia Youngs Ivory Young Jacqueline Young Vicky Lee Young: Daniel S. Rosenbaum with Becker Poliakoff from West Palm Beach, FL.
Attorney for Bellsouth Telecom. Earl J. Edenfield Heinrich Gordon Keith Kochler Francis B. Semmes Valerie Shea: Thomas Emerson Scott, Jr. was Assigned 07/10/00 and Terminated 06/06/01.
Attorney for Bellsouth Telecom.: Francis B. Semmes with BellSouth Telecommunications Legal Department from Atlanta, GA.
Attorney for Bellsouth Telecom. Earl J. Edenfield Heinrich Gordon Keith Kochler Francis B. Semmes Valerie Shea: Michael Ross Tein with Shook Hardy Bacon from Miami, FL.
Attorney for Bellsouth Telecom. Earl J. Edenfield Heinrich Gordon Keith Kochler Francis B. Semmes Valerie Shea: Eileen Louise Tilghman with Shook Hardy Bacon from Miami, FL. was Assigned 07/10/00 and Terminated 06/06/01.
OMNIBUS ORDER ON MAGISTRATE'S REPORTS AND RECOMMENDATIONS
THIS CAUSE came before the Court upon the receipt of Magistrate Stephen T. Brown's Consent Report and Recommendation, dated August 31, 2000 (DE#326), and Report and Recommendation Re: Order to Show Cause, dated November 21, 2000 (DE#356). This Court has reviewed the entire record including the Objections of the parties to these R Rs, has heard oral argument on BellSouth's Objections to the November 21, 2000 Report and Recommendation, and is advised in the premises.
This matter arises from allegations of attorney misconduct in the settlement of this case levied at a November 3, 1997 status conference by one of the 56 named plaintiffs, Ms. Bettye Merricks. At this conference, Ms. Merricks represented to this Court that at a meeting with a Mr. Brian Neiman, paralegal for plaintiffs' counsel Mr. Norman Ganz, she was told that Bellsouth had offered her $10,000 to settle her claim. Ms. Merricks stated that when she refused to accept, the offer to settle was raised to $13,500 with Mr. Neiman advising that the additional amount was to be paid by Plaintiffs' counsel. Ms. Merricks refused to accept the renewed offer and Plaintiffs' counsel moved to withdraw from representing her. In addition, Ms. Merricks stated that she never was informed about the total amount of the settlement, the method of allocation of the settlement proceeds, or the total amount of attorneys' fees and costs.
From these charges, this Court began an inquiry into the settlement agreement in this case. As explained in prior orders, this Court found serious problems with both the procurement of the settlement and the manner in which monies were allocated to individual plaintiffs. As a result, this Court appointed Magistrate Judge Stephen T. Brown as a special master to investigate allegations of attorney misconduct during the settlement of this action. Previously, Judge Brown determined, among other things, that "probable cause" existed to further pursue whether what, if any, sanctions are appropriate, and whether Florida Bar Rules 4-5.6, 4-1.7, 4-1.4, 4-8.4, and 4-5.5 had been violated. In light of this recommendation, this Court directed that Judge Brown issue an Order to Show Cause and conduct a hearing on this matter. Judge Brown has now submitted two reports and recommendations as a result of his further investigation of this matter.
Local Rule 11.1(c) states that "the standards of professional conduct of members of the Bar of this Court shall include the current Rules Regulating the Florida Bar. For a violation of any of these canons in connection with any matter pending before this Court, an attorney may be subjected to appropriate disciplinary action."
Judge Brown's investigation included a hearing on the Order to Show Cause which was conducted on August 29-30, 2000.
In his November 21, 2000 Report, Judge Brown made the following findings. In a letter dated January 21, 1997, Counsel for Plaintiffs, attorney Norman Ganz, suggested to Counsel for Defendant, BellSouth, that in exchange for a settlement, his firm would agree not to represent any current or former employee of BellSouth against the company for a period of one year. BellSouth attorney Francis Semmes then confirmed in a letter that settlement was contingent upon such an agreement from Ganz. Ultimately, a settlement conference was held on July 28, 1997, and an offer of $1.5 million was made to settle all claims. Again, the subject of an agreement not to represent persons against Bellsouth was discussed. An associate of Ruden, McCloskey (a member of Plaintiffs' counsel) opined that such an agreement was unethical. It then was suggested that perhaps Bellsouth could hire Plaintiffs' counsel via a consulting arrangement to prevent their future representation of persons against the company. In response, Plaintiffs' counsel insisted that if such a consulting agreement were to be made, additional monies would need to be allocated specifically for the arrangement. However, Bellsouth's attorneys insisted the monies be taken directly out of the $1.5 million "global" settlement or else there would be no settlement at all. Eventually, after the meeting, additional negotiations ensued and a settlement was approved for $1.6 million. Subsequently, Plaintiffs' counsel prepared a closing statement that deleted several items from Plaintiffs' portion of the settlement, including $120,000 for the consulting agreement, a $230,000 "engagement fee" to Ganz, and a fee of $51,500 for non-economic expenses. Plaintiffs never were told of the consulting arrangement nor the full terms of the settlement such as the total amount of the settlement or a breakdown of attorneys' fees and costs. Instead, Plaintiffs' counsel simply told each Plaintiff the specific amount they would receive under the settlement and then coerced at least one plaintiff (if not many more) to accept the settlement by threatening to withdraw representation if the settlement were not accepted. of the $1.6 settlement, $505,275 went to Ganz (as both fees and costs), $350,225 to Ruden McKlosky (fees and costs), $70,000 went to Seltzer (fees and costs), and $50,000 to Colby (fees) — while all of the Plaintiffs together received a little more than $600,000.
Judge Brown found based on the totality of the evidence that this type of coercion may have occurred on a more widespread basis.
Based on these findings, Judge Brown concluded that the collective conduct of the lawyers involved in this settlement agreement violated five separate Florida Bar Rules. Specifically, Judge Brown concluded that the following rules of the Florida Bar were violated by the previously-discussed conduct: (1) Florida Bar Rule 4-5.6 governing restrictions on the right to practice, (2) Florida Bar Rule 4-1.7 on conflicts of interest, (3) Florida Bar Rule 1.4 governing proper communication with a client, (4) Florida Bar Rule 4-8.4(a) which prohibits inducing someone to violate bar rules, (5) Florida Bar Rule 4-8.4(b) which provides that lawyers not engage in fraud, deceit, or misrepresentation, and (6) Florida Bar Rule 4-5.5 prohibiting the unauthorized practice of law. After reviewing Judge Brown's findings, conclusions, and the parties' objections thereto and conducting an independent review of the entire record (including the transcript of the August 29-30, 2000 hearing before Judge Brown), this Court agrees with Judge Brown that the settlement agreement arrived at in this case violated numerous Florida Bar Rules and was highly improper. As a result, this Court agrees with most of Judge Brown's recommendations regarding sanctions. First, it is ORDERED AND ADJUDGED that the Consent Report and Recommendation Concerning Ruden, McKlosky and attorney Mandelkorn is hereby ADOPTED in its entirety, including all sanction recommendations. Second, it is ORDERED AND ADJUDGED that the Report and Recommendation Re: Order to Show Cause be ADOPTED with respect to the discussion and sanction recommendations regarding Jonathan Colby, Valerie Shea, James Seltzer, and Norman Ganz. However, this Court DECLINES TO ADOPT the sanction recommendations pertaining to BellSouth's attorneys and Brian Neiman for the following reasons.
A. BellSouth's Attorneys
In the November 21, 2000 Report, Judge Brown concluded that BellSouth attorneys Keith Kochier and Francis Semmes had violated Florida Bar Rules 4-5.6(b) and 4-8.4(a) by their conduct with respect to the settlement agreement. Based on this finding, Judge Brown recommended imposing the following sanctions: (1) prohibiting Kochler and Semmes from appearing in the United States Southern District of Florida for at least two years, (2) requiring their reappearance in the District to be conditioned on certified evidence that they have taken at least five hours of courses on Florida ethics, and (3) imposing a monetary sanction of $100,000 against BellSouth. As discussed below, this Court finds that Kochler and Semmes's conduct did violate Florida Bar Rule 4-5.6 but concludes that a lesser sanction than those recommended by Judge Brown is warranted.
Judge Brown also found that Kochler had violated Florida Bar Rules prohibiting the unauthorized practice of law by not being admitted pro hac vice. However, Judge Brown did not recommend any sanctions based on this rules violation. This Court does not find this issue to be of any legal moment other than to observe that this Court has jurisdiction over Kochler (as Kochler concedes) for purposes of imposing sanctions.
Judge Brown also concluded that Kochler and Semmes violated Florida Bar Rule 8.4(a). That rules reads: "[a] lawyer shall not violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another." Id. Kochler and Semmes argue that they had no notice of this rules violation inquiry from Judge Brown as the Order to Show Cause specifically referenced Plaintiffs' counsel's conduct with regard to Rule 8.4(a). This Court points out that its Order of Reference did include potential violations of Rule 8.4(a). However, the focus of this Order is Rule 4-5.6. While this Court believes certain features of Kochler and Semmes's conduct violated Rule 8.4(a)'s plain language prohibition on knowingly assisting another in violating Florida Bar Rules, any discussion of Rule 8.4(a) is an adjunct to the larger issues raised by Rule 4-5.6.
Florida Bar Rule 4-5.6(b) states that a lawyer shall not participate in offering or making "an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties." The commentary to the Rule explains that "[s]ubdivision (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client." Id. Rule 4-5.6 is modeled after the American Bar Association's Model Rule of Professional Conduct 5.6(b) which prohibits "an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties." Id. The commentary to the Model Rule informs that "[p]aragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client." Id. Florida Bar Rule 4-5.6(b) and its attendant commentary is in all pertinent respects identical to Model Rule 5.6(b).
Disciplinary Rule DR 2-108(b) of the Model Code of Professional Responsibility similarly states as follows:
In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts his right to practice law.Id.
Kochler and Semmes argue that their conduct did not violate Florida Bar Rule 4-5.6. First, they contend that Rule 4-5.6 does not prohibit the inclusion of a "consulting agreement" between Plaintiffs counsel and Defendant as a condition of an overall settlement between Plaintiffs and Defendant because such an agreement is a "limited" restriction on a lawyer's right to practice. In their view, Florida law, at the time of the settlement, supported this viewpoint. For support of this proposition, they point to a discussion of Rule 4-5.6 in Lee v. Florida Dep't of Ins. and Treasurer, 586 So.2d 1185 (1DCA, 1991), which allegedly condones the use of "limited" practice agreements restricting a lawyer's right to practice in circumstances analogous to this case. They also assert that no governing Florida ease has discussed this issue other than the Lee case. Finally, they claim that even if their conduct did violate Rule 4-5.6. sanctions are unwarranted as their conduct was not in bad faith or egregious.
Before addressing the merits of these arguments, it is instructive to outline the conduct of Kochler and Semmes in this matter. First, as the Magistrate Court found, it is clear that while Plaintiffs' counsel originally suggested a practice restriction as part of an overall settlement, BellSouth's attorneys seized on the concept and aggressively negotiated for its inclusion in any overall settlement of Plaintiffs's claims. The motive for this conduct is obvious from the record. Responding to litigation tactics this Court previously has described as "terrorist" and "tantamount to extortion," BellSouth's attorneys sought "finality" for their client by preventing the filing of similar future suits by Plaintiffs' counsel. While Kochler and Semmes's motives for pursuing the practice restriction were not disreputable or detrimental to the interests of their client, this Court does believe that their overzealousness in protecting their client led them to pay short shrift to the very real possibility that the proposed practice restriction/consulting arrangement violated Florida bar rules. This possibility was raised directly by a Plaintiffs' lawyer, Mr. Reyes, during the settlement talks of July 28, 1997. Despite this fact, Kochler and Semmes took very few steps in investigating the ethical propriety of such a practice restriction. Their primary act was to assign their local counsel, Ms. Shea, to read a previously-prepared, in house memo that touched on practice restrictions under Georgia and Florida law and determine if such an agreement could be implemented in this case. The five-page memo confirmed that Florida law prohibited a general restriction on a lawyer's right to practice as part of a settlement but noted that there was language in the Lee case suggesting that a more limited practice restriction would be acceptable. Ms. Shea read the memo and the Lee case briefly and concluded that "we can restrict the Ganz firm from representing clients on any related matter." Ms. Shea, who was about to leave for a summer vacation, instructed an associate to update the research on this issue and she forwarded the materials and her opinion to Kochler and Semmes.
These tactics included threats to increase defense costs through the continuous addition of "unnamed," "unfiled" plaintiffs as well as threats to join the local NAACP chapter as a party with undefined claims.
These efforts are outlined in more detail in Judge Brown R R at pages 11-14.
Hearing the answer they wanted, Kochier and Semmes relied on Ms. Shea's opinion and made no further inquiries into the matter. They then pursued a practice restriction as a necessary condition to any settlement. According to their own testimony, when Plaintiffs' counsel sought additional monies for a practice restriction/consulting agreement, Kochler and Semmes insisted that Plaintiffs' counsel take the consulting agreement from the already-offered settlement sum of $1.5 million — without any apparent concern that this arrangement might pit Plaintiffs and their lawyers in a direct conflict of interest.
The record evidence indicates that Kochler and Semmes did little to verify Shea's reading of Florida law besides a brief review of the materials and memo she sent.
While Kochler and Semmes now assert that the consulting agreement never was memorialized in a writing signed by both sides and was only a "loose understanding," it is clear that the parties acted as if a consulting agreement had been reached as part of the final settlement. For example, Plaintiffs' counsel Mandelkorn sent Semmes a letter on September 12, 1997 advising BellSouth to prepare an appropriate consulting agreement for Plaintiffs' counsel. Mandelkorn then put BellSouth in his firm's conflict database and his firm then behaved as if BellSouth was a client of theirs — informing BellSouth in writing as to potential case conflicts and alike. Neither Semmes or Kochier ever wrote Plaintiffs' counsel to tell them that there was no finalized consulting agreement in their view. In fact, Semmes confirmed the existence of the consulting agreement to a fellow BellSouth attorney almost a year later, sending him a copy of Mandelkorn's September 29, 1997 letter. Further, before this Court during a November 15, 1997 Status Conference Hearing, Semmes admitted that a practice restriction agreement had been reached with Plaintiffs' counsel as part of the overall settlement.
While this legalese might be relevant to a contract law question of whether the consulting agreement is enforceable or not, it has little import to this present inquiry.
Plaintiffs' counsel Mandelkorn sent BellSouth a letter on August 1, 1997 containing a settlement offer for $1,720,000 which included a four-year consulting arrangement and the statement that "the total fee for this consulting agreement is already included within the settlement." The offer was valid until August 4, 1997. On August 5, 1997, Plaintiffs' counsel Ganz sent BellSouth a letter confirming the settlement by conference call on August 4, 1997 for $1,600,000, an increase of $100,000 from the July 28, 1997 meeting, and stating in Paragraph 10 that a "consulting arrangement will be made with counsel for plaintiffs as discussed during our settlement conference. The consulting arrangement encompasses a four-year period. The total fee for this consulting agreement is already included within the settlement."
In addition, Mandelkorn sent a second letter several weeks later confirming that BellSouth had no objection to his firm handling transactional matters adverse to BellSouth. Further, in August 1998, a partner in Ruden, McClosky sent a letter to BellSouth to determine if they felt there was a conflict in Ruden handling a particular matter indirectly related to BellSouth. On August 3, 1998, George Hanna, a BellSouth attorney, wrote back that the claim did not appear to pose a conflict but Ruden still refrained from taking the case based on potential conflict concerns. A copy of Hanna's letter was sent to Semmes.
Moreover, Plaintiffs' counsel has averred that the additional $100,000 added to BellSouth's initial settlement offer of $1.5 million was earmarked specifically for the consulting agreement. BellSouth's counsel denies this account, insisting that the extra monies were the result of negotiations over a final amount for Plaintiffs' claims.
Frankly, Kochler and Semmes's post hoc assertion that the consulting/practice restriction agreement was only a weak understanding seems part of a pattern of behavior during these proceedings to defend their conduct at the expense of a full accounting of the pertinent case facts. Kochler and Semmes's testimony before Judge Brown at the Show Cause Hearing, particularly Semmes's testimony, is not very credible on certain key matters. For instance, Semmes denied, to the best of his recollection, that at the July 28, 1997 settlement meeting there was a discussion as to whether Plaintiffs' counsel would have to take their compensation for the consulting agreement out of the offered settlement monies. This denial flies in the face of the testimony of the other principals at the meeting. Semmes and Kochler also "could not recall" whether the ethical propriety of the consulting agreement ever was discussed at the meeting. Semmes also "could not recall" whether he had read a key portion of the Lee case or ABA Model Rule 5.6(b) or whether anyone had compared the Georgia and Florida rules on right to practice restrictions.
Putting aside this canard, I now turn towards the two critical questions raised by Kochler and Semmes's conduct: first, whether in pursuing and consummating a consulting/practice limitation agreement they violated Rule 4-5.6; and, if so, whether this conduct warrants sanctions. The natural starting point for this inquiry is with the Lee case — Kochler and Semmes's principal defense as to their non-violation of Rule 4-5.6.
In Lee, the First District Court of Appeals reviewed whether an administrative court judge properly refused to disqualify a Florida Department of Insurance lawyer, Mr. Porter, from a license revocation proceeding against a Mr. Lee. in a related civil action, the National Council on Compensation Insurance ("NCCI") had sued Lee and a settlement agreement was negotiated. In that agreement, NCCI's law firm, the law offices of Leo Bateman Jr., agreed to not represent the Department of Insurance ("Department") in any future proceedings to revoke or suspend Lee's insurance license. However, in subsequent license revocation proceedings against Lee, the Department was represented by L. William Porter, a former associate of Bateman's who had appeared and signed papers in the NCCI case. Lee also alleged that Porter had received and gained substantial information and knowledge through his firm's former representation against Lee. Lee then argued that the settlement agreement disqualified Porter from the proceedings. However, the administrative judge disagreed — ruling that Rule 4-5.6 voided the settlement agreement and that therefore Porter was not disqualified from the case. The Lee Court reversed the administrative judge, holding:
[T]he application of rule 4-5.6 to invalidate or render void a provision in a private contract between two parties is beyond the scope and purpose of the Rules and constitutes error. As the preamble to the Rules states, they "simply provide a framework for the ethical practice of law." . . . Violation of a rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. . . . To use rule 4-5.6 as the basis for invalidating a private contractual provision is manifestly beyond the stated scope of the Rules and their intended legal effect.Id. at 1188. The Court then made plain that the ethical propriety of the practice restriction agreement was not the issue before it:
Whether attorney Bateman acted unethically in violation of the Rules by participating in the negotiation of a settlement agreement that included the provisions in paragraph 8 and should be disciplined therefore is not the issue in this proceeding. Rather, the critical issue is whether Porter, as an associate lawyer employed in Bateman's law office who worked on NCCI's case, can be ethically and legally disqualified from representing the Department in respect to the same transactions and events as those in which he had previously represented NCCI in view of the presumptively valid contractual provision in paragraph 8 between Lee and NCCI.Id. at 1188-89 (emphasis added).
Despite this language, Kochler and Semmes contend that Lee stands for the proposition that limited practice restriction agreements do not violate Rule 4-5.6. They rely on some dicta in the opinion which reads as follows:
That Rule [4-5.6], as we construe it, is intended to prevent lawyers from entering into agreements that operate to restrict a lawyer's right to practice generally, for example, in the sense that an attorney agrees as part of a settlement not to represent any persons who may have interests adverse to the client regardless of the events and issues involved; that Rule does not reach agreements with or by the client to preclude the lawyer's representation of other persons with respect to cases that involve the same facts, transactions, and events as does the case settled for the client. Failure to give effect to this distinction would defeat the protections of confidential information provided in rules 4-1.6 and 4-1.9.Id. at 1190 (emphasis added). While it is true that this passage indicates that a particular type of limited practice agreement may not violate Rule 4-5.6, it is clear from this section and other portions of the Lee opinion that the exception envisioned in Lee is not at all the type of consulting agreement negotiated in this case. As the Lee opinion makes plain, the exception it contemplates is one in which a client may want to restrict her lawyer's future representation in a limited manner so that the lawyer does not disclose or take advantage of confidential information learned in the course of the case in the prosecution of a future related case. Relying on Rules 4-1.6 and 4-1.9, which govern conflict of interest situations involving former and current clients respectively, the Lee Court observed that "it has been ruled that a lawyer is bound to respect the request of a client or former client not to use or disclose information or confidences learned during that representation, and is forbidden to use such information for the advantage of himself or of a third person." Id. at 1189. The Lee Court then found that because there was a presumption of a conflict of interest as to Porter's former client (NCCI) in the revocation proceeding against Lee, Porter was disqualified from representing the Department to safeguard the potential disclosure of confidential information related to NCCI. Id. (noting that "[t]he client's restriction on the use or disclosure of such information could very well place Bateman or those in his firm in a conflict of interest position under rule 4-1.7 if and when confronted with the need to use or disclose it in the subsequent representation of another client").
Footnote six of the opinion makes it clear that the perspective from which conflict of interest and the disclosure of confidential information is viewed for purposes of 4-5.6 is from the client's rather than from the opposing party's. There, the Lee Court explains that the key factor is whether Porter gained confidential information which, if used, would be to the "disadvantage of NCCI." Id. (emphasis added); see also id. at 1189 (stating Bateman and his firm's representation of NCCI gave rise to an irrefutable presumption that confidences were disclosed during the relationship). The confidential information/conflict of interest issue is never framed with respect to Lee, the opposing party. As the Court elaborated:
Furthermore, we do not give the same construction to rule 4-5.6 as did the hearing officer. The Department contends that Porter's representation of the Department is not sufficiently adverse to the interests of NCCI to give rise to any conflict of interest. However, NCCL's agreement in paragraph 8 to prevent such representation manifests its intent to withhold consent and thereby preclude the use or disclosure of information gained during his representation of NCCI. That fact alone demonstrates sufficient adversity of interests to apply the rules on conflict of interests. . . .Id. at 1190. While in Lee, the opposing party involved in the settlement agreement (Lee) was trying to enforce the agreement in a later proceeding (rather than the former client), the validity of the agreement pursuant to Rule 4-5.6, under the Lee Court's confidential disclosure rationale for a limited form of practice agreement, was constructed with respect to the client and not an opposing party.
For several reasons, this Court therefore does not believe that Lee condones the practice restriction negotiated and agreed to in this case. First, there is no evidence that the practice restriction was designed in any way or constructed in any limited fashion to prevent the disclosure of confidential information. No party has revealed to this Court any serious argument along these lines. Rather, it is clear from the record and the testimony of the lawyers that BellSouth sought a practice restriction on Plaintiffs' counsel to prevent Plaintiffs' counsel from bringing future similar cases against BellSouth with the same kind of terrorist tactics used against BellSouth in this case. In short, the practice restriction was a payoff to Plaintiffs' counsel to make them go away and never come back. As I explain infra, this type of arrangement is a violation of Rule 4-5.6 for well-grounded public policy reasons.
Second, the practice restriction was not written to protect the clients of Plaintiffs' counsel but rather to protect the opposing party, BellSouth. In fact, the evidence in this case makes clear that Plaintiffs never were informed of the existence, terms, or content of the practice restriction agreement by any of the lawyers. The Lee exception is designed to safeguard a client's confidential disclosures to her lawyer and avoid a potential violation of conflict of interest rules through a lawyer's subsequent representation of a different client in a related case. Here, the practice agreement was constructed for the benefit of the opposing party (without the knowledge of Plaintiffs' clients) in a manner that placed Plaintiffs' counsel in a direct conflict of interest with their clients — a scenario inconsistent with the reasoning of Lee and the spirit of the bar rules. I therefore find the Lee dicta inapposite. Further, I also believe that had BellSouth's lawyers engaged in the appropriate level of research into the issue, it would have been clear to them (if it already was not clear on its face) that the negotiated consulting arrangement was unethical.
This narrowly tailored exception to Rule 4-5.6 makes sense to prevent any conflict between the applications of the conflict of interest rules (Rules 4-1.6, 4-1.9) and Rule 4-5.6 — thereby avoiding any disjunction between the operation of these rules inconsistent with their overall purposes.
This argument is elaborated infra.
For starters, any research into ABA Model Rule 5.6(b), whose language is identical to Rule 4-5.6 and was the model for Rule 4-5.6, would have led to this conclusion. The commentary to the ABA rule states in no uncertain terms "under Rule 5.6(b), it has been deemed unethical and impermissibly restrictive of a lawyer's right to practice for a lawyer to offer, or enter, an agreement settling a client's case if the agreement includes a restriction on the lawyer's ability to represent other plaintiffs against the same defendant." Id. (emphasis added). It continues:
Rule 5.6(b) prohibits lawyers from making or entering agreements that restrict a lawyer's right to represent certain clients or to sue specified parties as part of the settlement of a controversy between private parties. Settlement agreements of this sort are particularly common in class actions or cases involving mass product liability or disaster claims. These agreements attempt to prevent the plaintiffs lawyer from representing future claimants with similar claims against the same defendant.Id. (emphasis added). The Commentary then quotes a 1993 ABA Ethics Committee Formal Opinion, ABA Formal Op. 93-371, which outlines three public policy goals behind this particular construction of Rule 5.6(b).
The rationale of the Model Rule 5.6 is clear. First, permitting such agreements restricts the access of the public to lawyers who, by virtue of their background and experience, might be the very best available talent to represent these individuals. . . . Second, the use of such agreements may provide clients with rewards that bear less relationship to the merits of their claims than they do to the desire of the defendant to buy off plaintiffs counsel. Third, the offering of such restrictive agreements places the plaintiffs lawyer in a situation where there is conflict between the interests of present clients and those of future clients.Id. In addition, the Commentary then cites to a plethora of state ethics opinions which have found practice restriction agreements as part of a final settlement, in various permutations, to be unethical. Id. Moreover, if BellSouth's attorneys had read the 1993 ABA Formal Opinion (which addressed this subject in the context of concluding that these agreements in the mass tort area were unethical), they would have learned that "it is instructive to note that when Model Rule 5.6 is read in conjunction with Model Rule 8.4(a) the scope of the prohibition applies, not only to a lawyer agreeing to the restriction, but also to a lawyer offering or requiring the restriction." ABA Op. 93-371 (emphasis added). And finally, if they had read an informal ABA opinion from 1968 (referred to in previously-cited ABA opinions), they would have learned the following:
See also ABA Comm. on Ethics and Professional Responsibility, Formal Op. 94-381 (1994) (explaining for similar reasons that in-house counsel may not offer, and outside counsel may not accept, an agreement in which the outside lawyer agrees never to represent anyone against the corporation, even on unrelated matters); ABA Comm. on Ethics and Professional Responsibility, Formal Op. 95-394 (1995) (ruling that Rule 5.6(b) applies not only when controversy is between private parties, but also when party is governmental entity).
That opinion concluded:
Given the important public policies reflected in Rule 5.6, the Committee believes that the injunction of Rule 1.2 that the lawyer shall abide a client's decision regarding settlement must be read as limited by the provisions of Rule 5.6(b) and, as a result, a lawyer cannot agree to refrain from representing present or future clients against a defendant pursuant to a settlement agreement on behalf of current clients even in the mass tort, global settlement context.Id.
Rule 8.4(a) like Florida Bar Rule 4-8.4(a) states "[i]t is professional misconduct for a lawyer to . . . violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another." Id.
(4) Is it ethical for a defense lawyer to communicate or implement his client's desire to require an opposing attorney to agree to refrain from representing any such client against such client?
The Committee concluded:
The covenant that you refer to (an agreement which settles the client's litigation when the settlement agreement contains a covenant that the lawyer will not represent other plaintiffs against the defendant . . . imposes an undue restriction upon the plaintiffs' attorney and also affects the right of the client to obtain the benefit of the services to which he is entitled from his own lawyer. Because of the foregoing it is improper for the attorney representing the defendants to demand this kind of a covenant and by way of corollary it is improper for plaintiffs attorney to abandon the interests of other clients, who have depended upon his services through periods that may be invaluable and of long standing.
The legislative history of the predecessor Code provision of Model Rule 5.6. also counsels against the propriety of such settlement agreements. The Model Code of Professional Responsibility was adopted by the House of Delegates in August 1969. DR 2-108(B) of the Code read as follows:
In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that broadly restricts his right to practice law, but he may enter into an agreement not to accept any other representation arising out of a transaction or event embraced in the subject matter of the controversy or suit thus settled.Id. (emphasis added). In February 1970, just six months later, the Standing Committee on Ethics and Professional Responsibility proposed an amendment to DR 2-108(B) to the House of Delegates, repealing the italicized language. That amendment was adopted by the House, yielding the current text of DR 2-108(B): In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts his right to practice law. Id. (emphasis added). During the debate over the amendment, Walter P. Armstrong, Jr., chair of the Committee on Ethics and Professional Responsibility, explained the need for deleting the offending language: "a covenant of that type would, in effect, restrict . . . a lawyer's ability to engage in the practice of law by agreeing in advance before he had considered any of the merits, that he would not represent certain types of clients. Secondly, we [the Committee] felt that a covenant of that type would inevitably involve a conflict of interests." Op. 93-371.
Moreover, the public policy rationales undergirding Model Rule 5.6(b) counsel even more strongly against the propriety of the practice restriction agreement formulated here than in other more conventional settlement agreement situations where a total settlement includes a limited practice restriction. A central purpose of both Model Rule 5.6(b) and Florida Bar Rule 4. 5.6 is to prohibit corporate "buyouts" of plaintiffs attorneys. The traditional rationale for this prohibition is that there is a strong public interest in having available plaintiff's attorneys for future clients — an interest which outweighs allowing lawyers to restrict their future representation autonomy even where it would increase the overall size of a settlement (and thereby maximize a present client's recovery). While some have criticized this approach as anachronistic in varying forms, it is still the prevailing ethical standard as articulated by the ABA and state ethics opinions. However, whichever way you feel about this debate, the agreement in this case is much more of an ethical affront. Rather than a simple practice restriction negotiated into a final settlement, Plaintiffs' lawyers were to receive a specific consulting fee from BellSouth and that fee was to come from an already-tendered settlement offer in any amount Plaintiffs' counsel thought appropriate.
For instance, in the mass tort context, the ABA's Committee on Ethics and Professional Responsibility determined that a restriction on the right of plaintiffs' counsel to represent present and future claimants against the defendant, as part of a global settlement of some of counsel's existing clients' claims against that same defendant, represents an impermissible restriction on the right to practice and may not be demanded or accepted without violating Model Rule 5.6(b). See Formal Opinion No. 371.
See generally Blue Cross Blue Shield v. Phillip Morris, Inc., 53 F. Supp.2d 338, 341-46 (E.D.N.Y. 1999); Stephen Gillers, A Rule Without a Reason, A.B.A. J., Oct. 1993 at 118.
BellSouth's lawyers insist this type of arrangement is perfectly ethical. They argue that because a practice restriction was discussed from the beginning of settlement talks and because their settlement offer was a substantial overpayment of Plaintiffs' claims (so that they could get the practice restriction and be rid of Plaintiffs' counsel for four years), there was nothing improper about their insistence that Plantiffs' counsel take their financial consideration for the consulting arrangement from the $1.5 million offer BellSouth already had made to ostensibly settle all of Plaintiffs' claims. I strongly disagree. In fact, I find this insistence to be the most disturbing facet of Kochler and Semmes's conduct since it pitted Plaintiffs' counsel into a direct conflict of interest with their clients by encouraging and/or enabling Plaintiffs' counsel to take monies previously offered as part of a settlement of their clients' claims for their own "consulting arrangement" and personal remuneration. I believe this type of consulting agreement — negotiated contemporaneously with the settlement of Plaintiffs' claims and requiring Plaintiffs' counsel to dip into already-offered settlement funds for their financial consideration — is a clear violation of Rule 4-5.6(b).
Simply put, this situation thrust Plaintiffs' counsel into a direct conflict of interest with their clients. It enabled them to take a direct cut of the settlement money (in any amount) — a paradigmatic payoff to a plaintiffs' lawyer if there ever was one. I find this scenario different from a lawyer who agrees to a practice restriction in exchange for a settlement in his client's interest. In the latter case, the client's interests are kept in the forefront as the bargained-for benefit (i.e., practice restriction for more settlement money) directly increases the client's settlement recovery (and only indirectly increases the attorney's financial share via his normal contingency fee structure). Here though, Plaintiffs' counsel were offered an arrangement in which they received a direct, non-contingency payment from the total pot of money offered to their clients. The conflict of interest was further exacerbated when BellSouth's attorneys, after offering $1.5 million to settle Plaintiffs' claims, refused Plaintiffs' counsel's request for separate and additional financial consideration for the practice restriction agreement itself. Instead, BellSouth's counsel's response was in effect "take the money out of the settlement offer." By co-mingling the financial consideration of the consulting agreement with the settlement monies already offered, BellSouth pitted the financial interest of Plaintiffs' counsel against their clients' interests. This stance also gave a clear financial motive to Plaintiffs' counsel to undercut their clients' interests by taking as large a percentage of the settlement as they wanted as consideration for the practice restriction — consulting agreement.
Of course, there are discrepancies between counsel on this point. Plaintiffs' counsel claim that the additional $100,000 was earmarked for the consulting agreement. BellSouth disagrees, stating that the extra money was simply a final settlement offer after additional negotiations.
Kochler and Semmes's response is that there is no conflict because the 1.5 million settlement offer was not based on the merits of Plaintiffs' claims. Rather, they assert the offer was a reflection of the nuisance value to BellSouth of ending Plaintiffs' counsel dilatory legal tactics and threats once and for all. Therefore, Plaintiffs did not lose anything from the consulting agreement but instead gained much more (in the form of an inflated settlement offer) than they had any right to expect. But this admission goes precisely to the core of what is so wrong with this type of settlement in the first place. Settlement offers should be primarily about the merits of the claims asserted. They should not be payoffs to Plaintiffs' lawyers. The very purpose of an adversarial system is to determine the financial value of a claim through a process of arm's length negotiations. It is not the business of this Court to engage in subjectivity analyses of whether BellSouth's settlement offer to Plaintiffs was or was not a true approximation of the worth of settling Plaintiffs' claims to them. Certainly, the Plaintiff themselves believe their claims had merit and that BellSouth wronged them in some way. So, how can this Court, with a wink and a nod, conclude that the settlement offer is ethical (despite the facial appearance of a conflict of interest) because the offer, like the case, was really a sham? At the very least, BellSouth's counsel's actions have created an appearance of impropriety by forcing Plaintiffs' counsel to dip into their client's settlement pie for their consulting fee. Further, the subsequent actions of Plaintiffs' counsel attest to the ethical dangers of allowing these kinds of contemporaneous negotiations over settlement and consulting fee terms. For instance, in this case, the consulting agreement between counsel (both its existence and terms) was never disclosed to Plaintiffs, and the consulting fee was deleted from the closing statement by Plaintiffs' counsel. Though this Court does not hold BellSouth's attorneys responsible for this clear ethical transgression, I do believe that BellSouth's offer and negotiation terms did contribute to a situation where Plaintiffs' counsel and their clients were placed in a direct conflict of interest. In short, BellSouth's offer enabled Plaintiffs' counsel to act as they did, and moreover, their negotiating tactics incentivized Plaintiffs' counsel's subsequent misconduct by financially rewarding the non-disclosure of the existence or amount of the consulting fee.
That is why I believe a bright line rule in this context is essential. While the use of ex post "consulting" agreements between Plaintiffs' attorneys and former opposing parties are becoming more common, ethical rules should hold firm against allowing contemporaneous negotiations over settlement and consulting agreement terms. Further, settlement and consulting fees should never be co-mingled together into a singular pool. I believe these steps are necessary to avoid any appearance of ethical wrongdoing in this area. As Justice Frankfurter famously wrote, "justice must satisfy the appearance of justice." Offutt v. United States, 348 U.S. 11, 13, 75 S.Ct. 11, 99 L.Ed. 11 (1954). Public confidence in the integrity of our legal process is essential to conferring the rule of law with moral and political legitimacy. It is therefore incumbent on the legal bar to refrain from actions which erode at this confidence and engender the belief that lawyers are placing self-interest above their client's interest. See In re Yarn Processing Patent Validity Litig., 530 F.2d 83, 89 (5th Cir. 1976) (noting that "[p]ublic perception of [misconduct] will tend to undermine public confidence in the legal profession and the judicial process even if the former client is not in fact damaged").
This corporate co-option of the Plaintiffs bar is also unsettling. Plaintiffs lawyers should be available to represent clients. First and foremost, the practice of law ought to be about the needs of clients (both current and future) rather than the private enrichment of lawyers.
Having elucidated my views of Rule 4-5.6(b), I must now turn towards the appropriate sanction, if any, for BellSouth's attorneys. Local Rule 11.1(c) states "the standards of professional conduct of members of the Bar of this Court shall include the current Rules Regulating the Florida Bar. For a violation of any of these canons in connection with any matter pending before this Court, an attorney may be subjected to appropriate disciplinary action." Here, based on Kochler and Semmes's violation of Florida Bar Rule 4-5.6(b) and therefore ipsi dici Local Rule 11.1(c), Judge Brown recommends a $100,000 monetary sanction against BellSouth, a two-year ban on Kochler and Semmes's appearing in the United States Southern District of Florida, and a requirement that Kochler and Semmes provide certified proof that they have taken at least five hours of courses on Florida ethics to be allowed to reappear in the District. I believe these recommended sanctions to be too harsh — particularly in light of the consent sanctions recommended against Plaintiffs' counsel. As explained earlier, BellSouth's counsel's conduct in this case was motivated by a desire to protect their client's interests in the face of reprehensible legal tactics from the other side which bordered on the extortionate. Kochler and Semmes did not act for self-gain unlike opposing counsel. However, instead of reporting Plaintiffs' counsel's tactics to the Florida Bar pursuant to their duty as officers of the legal bar, Kochler and Semmes engaged in an ill-advised form of self-help that violated Florida Bar Rules. In this way, they zealously pursued their client's interests without proper regard for their ethical responsibilities as lawyers. While this Court takes note of the evidence suggesting that a brief review of the ethics of a limited practice restriction was conducted by local counsel, I find that Kochler and Semmes failed to take adequate steps to check the validity of local counsel's opinion on this matter and that these omissions amounted to a willful blindness of the ethical implications of their chosen course of conduct. Making matters worse, Kochier and Semmes completely failed to construct any form of narrow practice restriction to safeguard client confidences which could be at least argued to coincide with the Lee dicta. Going well beyond the parameters of the Lee rationale, counsel blended a consulting fee agreement with Plaintiffs' counsel with settlement funds previously offered to Plaintiffs, forming a perverse hybrid of the two. It is inconceivable to this Court that the lawyers involved in this agreement could in reasonable good faith believe that paying Plaintiffs' counsel a consulting fee out of funds already offered to settle Plaintiffs' claims would be ethical under Rule 4-5.6, the Lee dicta notwithstanding. Accordingly, I believe some sanction is appropriate for Kochler and Semmes.
It also is well-established that federal courts "possess the inherent power to protect the orderly administration of justice and to preserve the dignity of the tribunal" through the implementation of disciplinary sanctions for misconduct without resort to the powers of civil or criminal contempt. Kleiner v. First Nat. Bank of Atlanta, 751 F.2d 1193, 1209 (11th Cir. 1985) (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-65, 100 S.Ct. 2455, 2463, 65 L.Ed.2d 488 (1980)); see also Flaksa v. Little River Construction Co., 389 F.2d 885, 888 (5th Cir. 1968) (noting that "[t]he inherent power of a court to manage its affairs necessarily includes the authority to impose reasonable and appropriate sanctions upon errant lawyers practicing before it"); see generally Ex parte Robinson, 86 U.S. (19 Wall.) 505, 512, 22 L.Ed. 205 (1873). Such sanctions may include anything from the assessment of attorneys' fees and costs to the disqualification of counsel to monetary penalties and alike. See Kleiner, 951 F.2d at 1209, Flaksa, 389 F.2d at 887. BellSouth's attorneys point to this Court's discussion of the inherent power to sanction in Lee to argue that sanctions are not warranted here. See Lee v. American Eagle Airlines, Inc., 93 F. Supp.2d 1322, 1331 (S.D. Fla. 2000) (stating that "[a] finding that counsels' conduct constituted or was tantamount to bad faith' must precede any sanction levied pursuant to a court's inherent powers. . . . Before imposing a severe sanction based on principles of deterrence, a district court must consider whether a lesser sanction is more proportionate to the misconduct."). As explained above, this Court concludes that the sanctions recommended by the Magistrate Judge are more severe than warranted.
It is therefore
ORDERED AND ADJUDGED that Kochier and Semmes must provide certified proof that they have completed at least five hours of courses on Florida ethics prior to their reappearance in this District. Moreover, they are directed to provide a copy of this Order to the regulating authority of any state bar to which they are admitted.
B. Brian Neiman
With respect to Mr. Neiman, Judge Brown has recommended that he pay $25,000 to the Plaintiffs via this Court, not work for two years as a paralegal/investigator, and take a paralegal ethics course as sanctions for his conduct in this case. in addition, Judge Brown has offered a Stipulation from Neiman as his factual findings for this Court's acceptance. In that Stipulation, it is stated that Mr. Neiman's "poor judgment" in this case was a result of his Bipolar Disorder — a disorder for which Mr. Neiman has been hospitalized. I do not accept these findings or recommendations.
I reach this conclusion for several reasons. First, Mr. Neiman's objectionable conduct as a paralegal has occurred over a sustained period of time — resulting in numerous complaints and investigations related to his misconduct. Second, Mr. Neiman's Affidavit, submitted to this Court along with the proposed Stipulation, contains several statements believed by me to be false, including statements that he was always only paid an hourly paralegal rate between $75 and $100 dollars, and that he never received a percentage of a case settlement. These statements are contradicted by the Report of the Referee in The Florida Bar v. Brian Neiman et. al., which has been filed into the case record. In that report, among other things, the Referee found that Neiman played a principal role in a number of lawsuits, often assuming the responsibilities of a lawyer in violation of the Florida Bar's prohibition on the unauthorized practice of law, and that he personally grossed over $1.4 million in 1995, approximately $500,000 in 1996, and over a $1 million in 1997. Given the evidence of this case, Neiman's prior criminal conduct, and the Referee Report detailing Neiman's role in other cases during the relevant time period, this Court finds Neiman's Affidavit not credible, and refers this matter to the United States Attorneys Office for the Southern District of Florida for investigation of possible false statements made to this Court in Neiman's Affidavit. In addition, this Court still believes that the allegations of misconduct which have surfaced in this case against Nieman are serious enough to warrant referral to the Florida Bar for possible disciplinary action and the United States Attorneys' Office for the Southern District of Florida for investigation into possible criminal violations, including violation of federal extortion, wire fraud, and mail fraud statutes. As a result, I find the sanction recommendations of Judge Brown to be too lenient in light of Mr. Neiman's serious misconduct over the past few years. While this Court harbors doubt about its jurisdiction to sanction Neiman in this case because of his status as a paralegal (a doubt which may have led Judge Brown to recommend acceptance of Mr. Neiman's Stipulation and the agreed-upon sanctions), I cannot in good conscience accept these findings or sanction recommendations.
C. Settlement Opt-Outs by Plaintiffs
Finally, because of the improper manner in which this case was settled and the fact that Plaintiffs were not informed of the total settlement agreement, the consulting fee agreement, or the specific breakdowns of the amounts awarded to other Plaintiffs, this Court reiterates its prior ruling that individual plaintiffs may set aside their settlement in this case. However, in order to opt out of their prior settlement, it is ORDERED that a plaintiff must first disgorge all benefits either already received or due to be received under the terms of the settlement. Plaintiffs are cautioned that they should seek the advice of independent counsel before setting aside their settlement in this case since they have no guarantee of a favorable outcome at trial, and the case facts revealed thus far cast doubt on whether many of Plaintiffs' individual claims have much legal merit, if any.
D. Conclusion
For the reasons stated above, the following is ORDERED:
1. The Consent Report and Recommendation Concerning Ruden, McKlosky and attorney Mandelkorn is hereby ADOPTED in its entirety, including all sanction recommendations;
2. Pursuant to the provisions of 28 U.S.C. § 636 and pursuant to Rule I of the Magistrate Rules for the United States District Court, Southern District of Florida, all matters related to the administration of the $250,000 Ruden, McCloskey is to make available for possible distribution to former clients is referred to Magistrate Judge Stephen T. Brown;
3. The Report and Recommendation Re: Order to Show Cause be ADOPTED with respect to the discussion and sanction recommendations regarding Jonathan Colby, Valerie Shea, James Seltzer, and Norman Ganz;
4. Kochler and Semmes must provide certified proof that they have completed at least five hours of courses on Florida ethics prior to their reappearance in this District;
5. The Report and Recommendation Re: Order to Show Cause with respect to Brian Neiman is NOT ADOPTED.
6. All lawyers, whom are the subjects of this Order and the Reports and Recommendations thereto, are hereby ORDERED to mail a copy of this Order to all Bar authorities to which they are either a member or subject to the jurisdiction of so that these appropriate authorities may take any action they deem warranted by the facts of this case.
DONE AND ORDERED.