Johnson v. Nextel Communications, Inc.

Michael Johnson was one of 587 clients (claimants) (plaintiffs) who retained law firm Leeds, Morelli & Brown (LMB) to bring employment-discrimination claims against Nextel Communications, Inc. (Nextel) (defendant). It was agreed that LMB would get a one-third contingency fee. Instead of bringing claims against Nextel, LMB entered into an agreement called the Dispute Resolution and Settlement Agreement (DRSA) with Nextel under which LMB would be paid (1) $2 million if it persuaded the claimants to drop all lawsuits and administrative complaints and sign individual agreements to be bound by the DRSA and accept an arbitration procedure, (2) $3.5 million as the claims were resolved, and (3) $2 million to work for Nextel as a consultant for two years upon the resolution of all claims. The DRSA was designated as the exclusive settlement vehicle for claimants. LMB had the claimants sign individual agreements in which they represented they had reviewed the DRSA, had the opportunity to discuss it with LMB or other counsel, and agreed to fully comply with its terms. LMB did not allow claimants to review the full DRSA. Fourteen of the claimants did not agree to the DRSA, and LMB’s $2 million payment was reduced by $20,000 per client. The claimants filed a class-action complaint against LMB, alleging that LMB breached its fiduciary duty of loyalty to the claimants by entering into the DRSA. The district court dismissed the complaint for failure to state a claim. The claimants appealed.