A bronze statue of Lady Justice holding scales is displayed indoors.
LOS ANGELES – Lawyers can’t hide behind arbitration agreements when sued by their clients if the alleged activity at the center of the dispute is a violation of ethics rules, a California appeals court has ruled.
Clients of McGrath Kavinoky filed suit after being underwhelmed by their settlements in sexual abuse lawsuits against UCLA, alleging the firm failed to disclose conflicts of interest to them. The McGrath firm represented more than 300 alleged victims of gynecologist James Heaps, who recently pleaded guilty to sexually assaulting five patients and received an 11-year prison sentence.
The Second Appellate District said this week arbitration clauses in the firm’s contract are unenforceable because it failed to tell clients that it represented multiple plaintiffs. Two women say they were longtime patients of Heaps’ and should have recovered more from an aggregate settlement, which totaled $374.4 million.
One woman recovered $1.4 million and the other $1.7 million. As a result of the Second District’s ruling, their cases against the firm will stay in open court.
“At the outset of the representation… there was a significant likelihood that McGrath Kavinoky would enter into an aggregate settlement, that some clients might want to settle while others might not, that the defendants’ willingness to settle might be conditioned on a certain percentage of McGrath Kavinoky’s clients participating in the settlement, and that McGrath Kavinoky’s clients would necessarily compete against each other for their share of the settlement,” Justice John Segal wrote.
“Thus, there was a significant risk McGrath Kavinoky’s representation of Doe 1 and Doe 2 would be materially limited by its responsibilities to its other clients. McGrath Kavinoky’s failure to obtain the informed written consent of Doe 1 and Doe 2 violated rule 1.7(b), which… made McGrath Kavinoky’s engagement agreements unenforceable.”
Doe 1 says lawyers at the firm told her she would recover “a multiple of” another client’s $2.25 million, while Doe 2 alleges she was informed her case was possibly worth eight figures. But the relatively low amounts they received caused them to question whether McGrath Kavinoky agreed to the settlement in order to get all of its clients money at the expense of their claims.
The UCLA cases were coordinated and resolved with a 2022 settlement, and the two women sued their lawyers two years later in Los Angeles state court.
A judge there denied McGrath Kavinoky’s motion to compel arbitration, which would have put the issue out of a judge’s or juries’ hands. The trial judge wrote “although the cases were filed separately, they were litigated in the aggregate with the aim of obtaining a global settlement.”
“Accordingly,” the judge said, “each Plaintiff would be in competition with each other plaintiff as to the allotted settlement amount.”
McGrath Kavinoky argued that at the time it signed Does 1 and 2, there was no evidence any form of settlement had been contemplated. Courts have disagreed.
“When a lawyer represents multiple clients who will share in a single settlement fund, the lawyer’s ability to advocate for the largest possible share for each client is materially limited by the lawyer’s obligations to his or her other clients,” Segal wrote.
