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Fee fight exposes seamy side of class actions

It always comes down to the cash. That point was illustrated in a decision handed down last week by a New Jersey federal judge who had to decide whether two warring law firms should share $2.45 million in fees allocated as part of a class action settlement.

The dramatis personae in the fee fight were Bruce Nagel and David Mazie, two of New Jersey’s most heralded personal injury attorneys. At one time, the lawyers were partners in the same firm, Nagel, Rice & Mazie.

In 2006, they became embroiled in what has been described as a “bitter” which resulted in the dissolution of the firm. Each lawyer started his own firm. Nagel formed Nagel Rice, and Mazie formed Mazie Slater Katz & Freeman. Both law firms are located in Roseland, New Jersey.

While Nagel and Mazie were in the process of dissolving their old firm, they were also contemplating class actions against insurance providers that had denied health insurance coverage for the treatment of eating disorders.

Neither attorney was about to be deterred by the implosion of their old firm, so in 2006 Nagle Rice and Mazie Slater each filed virtually identical ERISA claims on behalf of identical classes against Horizon Blue Cross Blue Shield of New Jersey and Magellan Health Services.

The cases landed before Judge Faith S. Hochberg of the U.S. District Court for the District of New Jersey, who didn’t appreciate the fact that Nagel’s and Mazie’s firms couldn’t work together.

According to the judge, Mazie declined an invitation by Nagel to cooperate in the litigation. Instead, Mazie threatened to sue Nagel for tortiously interfering with his right to be lead counsel in the Horizon case.

Judge Hochberg would later write that the “intense, palpable hostility” between the Mazie and Nagel legal teams resulted in “an enormous and unnecessary duplication of work and expense as the two firms litigated the same case in parallel actions. Judicial economy took a back seat to the law firm war.”

While Mazie Slater was “vehemently” rejecting the insurance companies’ settlement offers, Nagel Rice ultimately settled its case in 2008. Under the terms of the settlement, Horizon and Magellan agreed to provide $1.2 million in reimbursements for past denied claims and parity status for eating disorder treatment in the future.

In addition, the insurers agreed to the payment of up to $2.45 million in attorney fees.

The court approved the settlement secured by Nagel Rice and virtually all members of the class joined the settlement. Left with no class, Mazie dismissed his case without raising any objections to the final settlement.

Noting Mazie’s passive acceptance of the Nagel Rice settlement, Judge Hochberg would observe that the “venom between these two attorneys was so strong that the absence of any objection by Mr. Mazie to the substance of Mr. Nagel’s settlement speaks eloquently that it was fair and in the best interests of the class suffering from eating disorders.”

But Mazie still wanted a cut of the pie and filed an application for 50 percent of any attorney fees awarded Nagel Rice.

Last week, Judge Hochberg slapped down that request, determining that Nagel Rice would be entitled to keep whatever is ultimately determined to be a reasonable fee in the case.

First, the judge rejected Mazie Slater’s contention that it was entitled to a portion of the fees under ERISA’s fee-shifting framework.

“Mazie Slater did not proceed to litigate [its case] to completion even though it surely could have; rather, it decided to dismiss that action with prejudice after the Class Settlement was finally approved and its class abandoned it. …

“Mazie Slater became a law firm with neither a client nor a class. In short, Mazie Slater did not achieve ‘some degree of success’ on the merits, and is therefore not entitled to fees under a fee-shifting analysis,” the judge said.

In addition, the court decided that Mazie Slater was not entitled to fees under a common fund approach.

“Mazie Slater’s litigation tactics did not, as it asserts, drive Defendants to the bargaining table. Rather, the firm’s vehement opposition to [a settlement template followed in a similar case] drove the Defendants to negotiate a full and fair resolution with Nagel Rice instead. …

“This Court ‘credit[s] Class Counsel’s achievement in procuring a favorable settlement, something [Mazie Slater] ha[s] not done.’ Mazie Slater does not earn a fee for ‘contributing’ to a type of settlement that it declared it would ‘never, ever’ entertain. Rhetoric has consequences,” Hochberg wrote. (Drazin v. Horizon Blue Cross Blue Shield of New Jersey)

– Pat Murphy

patrick.murphy@lawyersusaonline.com

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