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Group Says Lawyer Made Secret Deal

Product Liability Claim Became Ethics Case


By David Segal
Washington Post Staff Writer
Wednesday, November 4, 1998; Page B12

Hoping to curb a product they considered dangerous, two Richmond mothers last year decided to launch a class action lawsuit against the makers of a lice-fighting shampoo. In early 1997, they retained lawyer Mark M. Hager, a professor at American University, to champion their cause.

But according to the D.C. Office of Bar Counsel, the group that prosecutes lawyer misconduct, Hager didn't file suit against Warner-Lambert Co., the maker of Nix lice shampoo. Instead, he met with Warner-Lambert's attorneys and cut a deal for himself and his co-counsel: In exchange for $225,000, Hager agreed to drop the matter and hand over the names of 90 consumers interested in joining the suit, the Bar Counsel alleges.

Those allegations are part of ethics charges filed recently against Hager, who teaches torts and labor law at American's Washington College of Law. A hearing on the matter is scheduled for Nov. 23. Hager referred calls to his attorney, Mark Foster, who declined to comment. D.C. Bar Counsel officials also declined to elaborate on their charges, citing a policy against discussing cases before they are resolved.

It's common for law professors to moonlight as litigators, so Hager, who is a frequently quoted expert on product-liability matters, must have seemed like an ideal attorney for Debra Duke and a neighbor. In early 1997, the two retained Hager and another lawyer -- who is not named by the Bar Counsel -- to investigate potential grounds for a class action suit in federal court against Warner-Lambert.

The mothers believed that Nix was both ineffective and dangerous to children, and they sought to sue on behalf of consumers to win refunds and other damages from the company.

Americans spend about $100 million annually on lice-treatment products, and Nix is among the most popular brands in the business, according to the National Pediculosis Association.

The case was to cite breach of warranty, among other claims. Warner-Lambert says the product is both safe and effective. In April 1997, Hager was collecting the names of consumers willing to join the plaintiffs' case, according to the Bar Counsel. By June, roughly 50 people had signed up and 40 more were ready to join the potential class, close to the 100 required by law. But the following month, the Bar Counsel contends, Warner-Lambert heard about the proposed class action and initiated discussions with Hager. Though the Bar Counsel's charges don't explain how, Duke and her neighbor soon learned about their agreement and filed a grievance.

The Bar Counsel has alleged that Hager violated 10 of its Rules of Professional Conduct. Among the violations, the group said, were failing to abide by a client's decisions, knowingly using a secret to a client's disadvantage and engaging in "conduct involving dishonesty, fraud, deceit." With appeals likely, a resolution in the case could be as much as three years away, Bar Counsel officials said. Staff researcher Richard Drezen contributed to this report.

© Copyright 1998 The Washington Post Company

American University Professor Faces Ethics Charges

By Siobhan Roth
Legal Times Staff Writer
Week of January 18th, 1999; page 2

An American University law professor defended himself in a two-day disciplinary hearing last week against charges that he sold out his clients in an aborted class action.

Last June, the D.C. Office of Bar Counsel, which prosecutes ethics cases here, accused Mark Hager, a tenured professor at the Washington College of Law, with 11 violations of the D.C. Rules of Professional Conduct.

The case, which apparently raises novel ethics issues under the D.C. rules, stems from a confidential deal, which included $225,000 in attorney fees, that Hager and his Boston co-counsel reached in 1997 with the Warner-Lambert Co., the pharmaceutical giant that was the target of their clients' complaints.

It is undisputed that Hager achieved for his clients the full relief that they could have won in court. Bar counsel's primary charge, however, is that Hager violated ethics rules by resolving the matter, before a complaint was filed, without informing his clients.

At last week's hearing before a three-person committee of the D.C. Board on Professional Responsibility, it appeared that the outcome of the ethics case was likely to turn on the arcane issue of whether the deal struck between Hager and Warner-Lambert lawyers was a "settlement agreement."

Senior Assistant Bar Counsel Elizabeth Herman, prosecuting Hager, argued at the hearing that Hager violated ethics rules by entering into the agreement, which included refunds, a money-back guarantee on the product, and a pledge by Hager not to sue the company without his clients' consent. She also charged that it was dishonest of Hager to withhold information from his clients when they inquired about the agreement.

Hager's lawyer, Mark Foster, told the panel that his client couldn't have done anything wrong because there are no rules against the actions he undertook.

"I argue that there is no rule that applies in this situation," said Foster, a former board chairman who is now a partner at D.C.'s Zuckerman, Spaeder, Goldstein, Taylor & Kolker. "These are uncharted waters."

If that assessment proves correct, the bar might act to rectify the situation.

"If as a result of this proceeding it appears that there is some gap in the rules, we have a committee whose job it is exclusively to think about changes to the rules and recommend changes to the bar," says Daniel Joseph, chairman of the Rules of Professional Conduct Review Committee of the D.C. Bar and a partner at Akin, Gump, Strauss, Hauer & Feld. Joseph declines to comment on the specifics of Hager's case.

And tort reformers seize the case as another example of overreaching by lawyers at the expense of their clients.

"The absence of disclosure by the attorney breaks down the one-on-one relationship of the client and the lawyer, and increases the imbalance of power," says Victor Schwartz, a partner at Crowell & Moring who is also general counsel of the American Tort Reform Association.

If the committee finds that Hager did violate ethics rules, the sanctions would almost certainly not reach the level of suspension, given Hager's clean record. Instead, reprimand or public censure is the more likely penalty.

It also is unclear what repercussions, if any, Hager might face at AU. "The Washington College of Law places highest importance on issues of ethical and professional responsibility," says law school spokesperson Kathy Etemad. "Because it's a pending matter before the disciplinary board, it would be inappropriate to comment at this time."  But at other law schools, bar discipline against a faculty member often results in an internal proceeding to decide whether the school should also take action against the professor.

The matter has its roots in early 1997, when Erika Littlewood, a Richmond, Va.,  resident and an acquaintance of Hager's, asked him to look into filing suit over the alleged ineffectiveness of NIX, Warner-Lambert's anti-lice shampoo.

NIX was advertised as "99 percent effective," but Littlewood found that it had failed to eradicate lice contracted by her children.

After learning of studies that identified strains of lice that are resistant to permethrin, the pesticide found in NIX, Littlewood called Warner-Lambert. The company allegedly dismissed the possibility of permethrin-resistant lice and advised her that the chemical's effectiveness might be compromised by using certain hair conditioners or swimming in chlorinated water, information not included in the product packaging.

Littlewood asked the company to include more complete information in the packaging, but Warner-Lambert declined, offering to refund her money. Without receipts, however, she could only claim a fraction of the money she'd spent on NIX.

Hager, who has maintained a mostly pro bono, part-time practice since joining AU's faculty in 1988 as a professor of constitutional law and torts, told Littlewood that he would be interested in pursuing a class action against Warner-Lambert. Hager testified that he had never handled a class action before.

Littlewood, Hager, and Boston solo practitioner John Trafficonte, a classmate of Hager's at Harvard Law School, then set about to find the 100 plaintiffs they would need to qualify for class certification.

Sixty consumers signed a contingent fee agreement that stated, "The attorneys will investigate potential bases for a class action . . . seeking refund of the purchase price, and other damages, based on certain claims, including breach of warranty."  The agreement also states that attorney fees may be paid "directly by the defendants to the attorneys."

By July, there still were not enough plaintiffs to seek certification as a class, and the lawyers were becoming concerned.

"We never imagined that it would be so difficult and take so long," Hager testified at the hearing.

The attorneys also were worried that they lacked the requisite scientific background to succeed in the case.

"For every product failure, there are three or four factual explanations," Hager testified. "Because the other explanations are always out there, we were afraid of not getting [certified] on a factual basis."

What's more, there was the possibility that the suit would be dismissed even if the court did certify the class. Under the Magnuson-Moss Act, which Hager and Trafficonte planned to invoke, Warner-Lambert would have the right to "cure" the dispute by issuing refunds to the plaintiffs, thus ending the case.

By July 1997, the company had already removed the claim of 99 percent effectiveness from the NIX box. At about the same time, Hager testified, Warner-Lambert found out that a suit was brewing, and company counsel Karel Zaruba contacted Trafficonte to see if there was a way to resolve the matter before litigation.

On Aug. 8, Hager and Trafficonte reached the deal with Warner-Lambert that became the focus of the ethics case.

In the resolution, entitled "Settlement Agreement," Warner-Lambert granted unlimited refunds for the lawyers' 90 clients, agreed to create a scientific panel to investigate pesticide-resistant lice, offered a money-back guarantee to future purchasers of NIX, and agreed to pay Hager and Trafficonte $225,000 in fees. In return, the lawyers agreed not to sue Warner-Lambert and not to divulge the fact or the amount of the attorney fees to anyone, including their clients, Hager testified.

Hager and Trafficonte furnished Warner-Lambert with the names of the 90 would-be plaintiffs, while insisting that they retained the right to sue if the company reneged on the bargain.  The lawyers then sent a letter to each of their clients outlining the basic elements of the agreement, omitting the fact that they had been paid the $225,000.

"Without the confidentiality, we would not have had a resolution," Hager testified. "We wanted to answer that question. We were obligated not to answer that question."  Hager also testified that while negotiating the deal, he informed Littlewood of the agreement's basic terms, and that she was not satisfied with Warner-Lambert's concessions.

The next day, she withdrew from the class and requested the list of 90 names.  Hager refused but offered to pay her for the time she had invested in creating a web-site for the case.

Debra Duke, a friend of Littlewood's and one of the potential plaintiffs, says that when Hager offered so readily to pay Littlewood, she began to think something was wrong.

Duke confronted Hager and Trafficonte  with her concerns, but they would not reveal anything about their fees. In December 1997, she filed complaints against both lawyers with their respective bar associations.

"In the beginning," Duke says, "Hager said he thought this could be the suit of the century."

But as the case progressed, Duke believes, the attorneys found the hurdles too high.

"My belief is that John and Mark did not have the resources to fight that kind of a battle," says Duke. "When John was approached by Warner-Lambert, I think they set aside our needs to make some money off the company."

Senior Assistant Bar Counsel Herman stated at the hearing that the agreement Hager and Trafficonte signed with Warner-Lambert was not just a settlement, but "a secret deal" with tragic results.

"The client lost trust in her attorney. Lost trust in the system. And lost momentum to go forward," Herman said.

But even if that is true, it is not clear whether the lawyers' deal violated any rules.

Hager is charged with three violations of the ethics rules that rely on the definition of "settlement": Rule 1.2 (a), failing to abide by his clients' decisions concerning the settlement of a matter; Rule 1.4 (c), failing to inform his clients of an offer of settlement; and Rule 5.6, participating in offering or making an agreement in which a restriction on his right to practice was part of the settlement of a controversy between parties.

If a settlement is defined simply as an agreement that ceases hostilities before the end of litigation, Hager's conduct may have violated the rules.

But Foster, Hager's lawyer, offered a narrower definition of the term. "Normally, a settlement is a contract or an agreement between a plaintiff and the defendant. There is no agreement between the plaintiff and the defendant here," he says. Rather, the settlement involved only Hager, his co-counsel, and Warner-Lambert.

Bar counsel also accuses Hager of crafting the deal without his clients' consent or consultation, and of disregarding their right to know about the fees he received. The petition also asserts that his silence on the fee matter amounted to dishonesty.

Foster maintains that the contingent fee agreement rebuts any charge that the attorneys received compensation from a third party without their clients' consent.

But bar authorities are not the only ones skeptical of Hager's defense.

"The argument that this wasn't a settlement is certainly novel," says Joseph Mayer, president and general counsel of the Copper & Brass Fabricators' Council, Inc.

Mayer, who formerly served as assistant bar counsel and executive attorney for the Board on Professional Responsibility, also notes, "You can put anything you want in a contingency fee agreement. That doesn't mean it passes muster."

And advocates of legal reform say what happened in the NIX case is yet another example of the problems endemic in the legal arena.

"Just because you don't want to go forward with the case if you don't have enough people, it doesn't mean you can go sell the case," says James C. Turner, executive director of HALT-An Organization of Americans for Legal Reform.

"The overriding ethical principle is that you owe your loyalty to your clients."

Final disposition of Hager's case is not expected for several months.



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