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Class Action Defense Cases-Wyly v. Milberg Weiss: New York Court Holds Members Of Class Action Are Not “Clients” Entitled To Class Action Plaintiff Counsel’s Files Because Absent Class Members Play Limited Role In Class Action Litigation

Absent Class Members Play Limited Role in Class Action Lawsuits and do not Enjoy Traditional Attorney-Client Relationship with Class Action Counsel, so Absent Class Members must Establish Right to Review Files Maintained by Law Firm Representing Plaintiffs in Class Action on a Case-by-Case Basis New York Court Holds

In connection with a motion seeking court approval of a proposed class action settlement, Sam Wyly, an absent class member in the consolidated class action lawsuits, petitioned the trial court for discovery of the law firms representing the plaintiffs in the class actions. Wyly v. Milberg Weiss Bershad & Schulman, LLP, 2007 N.Y. Slip Opn 10506, *1-*2 (N.Y.App. December 27, 2007). The class action complaints had been filed against Computer Associates International (CA) alleging violations of federal securities laws; after numerous class actions had been filed, the law firms of Milberg Weiss Bershad & Schulman, Stull Stull & Brody, and Schiffrin Barroway Topaz & Kessler were appointed as co-lead counsel for plaintiffs and the various class action lawsuits were consolidated for settlement. Id., at *2. A federal court approved the class action settlement in December 2003, id. In October 2004, Wyly advised Milberg Weiss that he believed the class action settlement had been obtained fraudulently by CA based, in part, on “a report in The Wall Street Journal which stated that CA’s outside counsel had in its possession 23 boxes of undisclosed documents demonstrating that CA’s employees, including its general counsel, had engaged in securities fraud.” Id. Milberg Weiss responded that it would not move to reopen the judgment so Wyly filed such a motion himself, id. As part of his motion, Wyly sought the class action plaintiff law firms’ “discovery materials and work product related to the CA actions based upon the attorney-client relationship that existed between himself, as a class member, and [the law firms] as co-lead counsel.” Id., at *2-*3. The trial court granted the discovery request, but the appellate court reversed.

Wyly purchased almost 1,000,000 shares of CA stock, Wyly, at *2, so he held a significant interest in the class action litigation even though he was not a named plaintiff. As part of his motion to reopen the class action lawsuits, Wyly sought access to class counsel’s files “pursuant to their attorney-client relationship.” Id., at *3. (Wyly also sought and obtained discovery of the 23 boxes referenced in The Wall Street Journal, but that is not part of this discussion.) The class counsel law firms refused to permit discovery, and Wyly initiated special proceedings to obtain access to the files on the grounds that he “‘enjoys all privileges and rights pursuant to the attorney-client relationship between [the law firms] and Settlement Class members,’ including the right to access ‘attorney work product that was received, created, or maintained for the benefit of the entire Settlement Class.’” Id. The trial court agreed, relying on Matter of Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, 91 N.Y.2d (N.Y. 1997). Id., at *4.

The appellate court reversed. The Court explained that Sage Realty “involved an attorney-client relationship in the traditional sense,” whereas absent class members do not enjoy the same attorney-client relationship. Wyly, at *4. The appellate court quoted U.S. Supreme Court authority explaining the limited involvement of absent class members in class action litigation, including the fact that “‘an absent class-action plaintiff is not required to do anything.’” Id., at *5 (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 810-11 (1985)). Accordingly, the Court concluded at page *6:

In sum, while petitioner herein, as an absent class members in the federal action, was entitled to some of the benefits of the attorney-client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants’ counsel to communicate with him, he had no right to direct the course of the litigation, testify at trial, participate in discovery, or dismiss class counsel. Moreover, petitioner was free to hire his own counsel to appear in the class action if he wished to employ a traditional attorney-client relationship….

Even so, the appellate court did not lay down a blanket prohibition against such discovery, concluding that “the better practice is to require absent class members to establish their entitlement to class counsel’s file on a case-by-case basis.” Wyly, at *6. In this case, the appellate court found, Wyly had not met his burden; accordingly, it reversed the trial court order permitting him discovery to class counsel’s files. Id., at *6-*7.

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