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Middlesex County, NJ – After Marks & Klein represented 8,000 franchise owners in litigation and spearheaded a $206 million class action settlement, an appellate court ruled last week to disqualify the firm in representing another Quiznos franchisee. The high court cites a conflict in attorney-client privilege when the law firm hired one of the franchisor’s lead attorneys.
The lawyer at the center of the Marks & Klein conflict of interest issue is Andrew P Bleiman, previously with Cheng Cohen. The Chicago firm, along with Perkins Coie in Denver, defended Quiznos as its outside counsel against four class action lawsuits brought by store owners. Bleiman played an integral role in that litigation.
Just months after the settlement was approved in August 2010, Bleiman crossed over to the other side, joining Marks & Klein’s legal team, despite his long history of defending Quiznos in litigation. The attorney had racked up 952 billable hours to Quiznos in 2006 and 2007, in connection with the four class lawsuits of Brunet, Siemer, Westerfield and Bonanno. He also billed another 1631 hours representing Quiznos and its affiliates in other matters.
After Marks & Klein filed the Mody v. The QUIZNOS Franchise CO complaint on May 12, 2011, raising similar allegations made against Quiznos in past lawsuits, Leonard MacPhee of Perkins Coie sent a letter to Justin Klein, raising the issues related to his firm hiring Bleiman in early 2011. The letter stated that the defecting attorney “was entrusted with confidential, proprietary, attorney-client and work product privileged documents and information.” He said that included litigation strategies and defense theories utilized to defend against claims such as those asserted by the Mody case.
Quiznos counsel demanded that Marks & Klein immediately stop representing the store owner. When the New Jersey franchisee law firm did not withdraw, Quiznos filed a motion to have the complaint dismissed. But the trial court judge was not persuaded that Bleiman had a primary responsibility in the previous class action litigation under Cheng Cohen, and ruled that Marks & Klein should not be disqualified from the case.
On appeal, Quiznos attorneys asserted that Bleiman admittedly had an “impermissible conflict” according to the Rules of Professional Conduct. And, they emphasized that Marks & Klein did not properly screen Bleiman according to the professional rules of the bar, and did not promptly provide written notice of its findings to Quiznos, also required by the lawyers’ code of ethics rule.
Appellate Judges Paulette Sapp-Peterson and Joel Ostrer emphasized how serious their ruling was to be taken. “We begin our discussion by recognizing that disqualification of counsel is a harsh discretionary remedy, which must be used sparingly. They then explained, “It thus requires a court to balance competing interest, weighing the need to maintain the highest standards of the profession against a client's right freely to choose his counsel." The judges said if there was any doubt as to the propriety of an attorney’s representation of a client, such doubt must be resolved in favor of disqualification.
The appellate ruling stated that “primary responsibility” for the Mody case “merely requires actual participation in the management and direction of the matter at the policy-making level,” which Bleiman had done. The judges said the lower court finding that Bleiman was not properly screened is not supported by the record. Therefore they concluded it wasn’t necessary for them to address whether Bleiman was properly screened, and instead took Marks & Klein to task on not having written screening procedures in place. “Because Marks & Klein was already representing the plaintiffs [Mody] when Bleiman joined the team, it is inexplicable that written [screening] procedures were not established at the outset.”
The Rules of Professional Conduct 1.10 states “written denotes a tangible or electronic record of a communication or representation, including handwriting, typewriting, printing, photostating, photography, audio or video recording and e-mail."
Judges Sapp-Peterson and Ostrer reversed the lower court decision, disqualifying Marks & Klein in representing Jasvant Mody, now deceased.
Tensions inside the $206 million settlement
In their appellate court ruling, the judges noted that on August 13, 2010 the court granted Marks & Klein’s motion to approve the class action settlement and issued a final judgment. They stated that the plaintiff-franchisee in the present matter of Mody, although representative of the class that was certified, opted out.
As background, the past litigation began in 2000 when Quiznos store owners accused the Denver-based private company of deceptive business practices. They alleged that the sub sandwich chain defrauded franchisees by inducing them into a broken business model designed to exploit its control and power in order to extract exorbitant and unjustifiable payments from franchisees.
When settlement talks finally began in 2009, U.S. District Judge Rebecca Pallmeyer in Chicago granted the consolidation of all four class action lawsuits against Quiznos under Siemer v The Quiznos Franchise Co. Other attorneys were brought in to mediate the deal.
But most franchise owners found the settlement arrangement to be disconcerting.
Absent from the settlement negotiation talks were actual Quiznos store owners. One source, who did not want to be identified, said that when the franchisee spokespersons balked at the notion of converting the four class suits into a single one nation-wide, the temperament of their attorneys changed. When the franchisees asked to sit in on the settlement talks, their counsel denied their request, shutting them out. Another former owner expressed that combining the lawsuits into one class action failed to address or resolve any of the issues for which the lawsuit was originally filed.
While the settlement did offer certain benefits to store owners, everyone was given the opportunity to opt out of it and express their objections prior to the deadline date. According to Quiznos’ outside counsel Ric Cohen of Cheng Cohen, there was only a single objection, which was unsubstantial. When asked if the majority of franchisees did not respond one way or the other to the settlement offer, which automatically placed them as approving the settlement, Cohen responded: “That is always the case in class action litigation. However, in our case the participation rate was significantly higher than what is typical in these types of cases.”
When the negotiations were all said and done, franchisee and franchisor attorneys touted the $206 million settlement a success, one of the largest in franchise history.
As part of the settlement, Quiznos agreed to reimburse certain costs to defrauded franchisees, according to their class status at the time of the settlement. The company agreed to recognize an independent franchisee association and allow franchisees to participate in marketing decisions and the purchasing of supplies.
While the monetary compensation was less than $25 million, which included forgiveness of unpaid fees by owners, store owners received little money from the deal. Another $100 million was made up of contributions by Quiznos for various programs. Franchisee attorneys received $11 million in fees.
Following the settlement, Marks & Klein opened two additional law offices, one in Chicago and another in nearby Northfield. The firm’s newly hired attorney, Bleiman, was put in charge of managing the two Illinois offices.
Klein speaks to the absurdity of the decision
Justin Klein said the appellate court got the decision wrong. “The absurdity of the appellate court’s ruling, which we think ignored much of the relevant facts that the trial court analyzed, is that Bleiman obviously had nothing to do with this particular case. He is located a thousand miles away, managing our Chicago office. We think the appellate decision overreached in trying to find a conflict.” Klein said just because Bleiman was involved in previous litigation with Quiznos does not mean he is involved in this latest one. “The trial court agreed with us and the appellate court agreed with Quiznos. That’s why we are trying to figure out what we want to do,” Klein explained.
Klein said he and partner Gerald Marks had not decided whether they would appeal the court decision to the New Jersey Supreme Court. If they don’t, the case will go forward for the deceased New Jersey franchisee. “Mr. Mody’s estate and the other plaintiffs will hire a new lawyer and the case will proceed,” he explained. Klein said there were other franchise owners who opted out of the settlement, but his firm was not handling those.
Attorneys for Quiznos, Leonard MacPhee of Perkins Coie and Fredric “Ric” Cohen of Cheng Cohen did not return phone calls to make comment.
Minneapolis attorney Michael Garner weighed in on the franchisee firm being disqualified from the case. “It is surprising that Marks & Klein hired someone who clearly had a potential conflict with matters they were working on.” He said it was foreseeable that Quiznos would object and raise the conflict, and that Marks & Klein might be disqualified. “To me, It seems the firm was biting the hand that feeds them,” Garner quipped.