In multi-district litigation arising out of the collapse of TelexFree, a company that signed up over one million promoters of a bare-bones Voice over Internet Protocol before ultimately declaring bankruptcy and admitting to operation of a pyramid scheme, a federal district court judge recently agreed to dismiss certain of the claims brought against TelexFree’s former lawyers, but allowed other claims to proceed to discovery.  In re TelexFree Securities Litigation, MDL No. 4:14-md-02566-TSH (D. Mass. January 29, 2019).  In its ruling, the court agreed with the lawyers that they had no express or implied attorney-client relationship with the plaintiffs, but nevertheless allowed the plaintiffs to proceed against the lawyers on several different counts, on the basis that the lawyers’ services to TelexFree “crosse[d] the line from legal advice to sales commentary,”  thereby exposing the lawyers to potential liability to non-clients. 

            The plaintiffs’ allegations as to the involvement of TelexFree’s former counsel were thin.  The plaintiffs alleged that the lawyers had held themselves out in advertising as experts in advising multi-level marketing and direct sales firms.  The plaintiffs further alleged that after the lawyers had been retained by TelexFree, the lawyers represented to investors and potential investors that they had “vetted” TelexFree’s business model and that it was legally compliant.  The plaintiffs further alleged that at the time these statements were made, TelexFree’s operations in Brazil already had been shut down and its assets frozen by the Brazilian government. 

            The lawyers moved to dismiss all ten claims asserted against them.  The court granted the motion to dismiss as to plaintiffs’  unjust enrichment claim, holding that the only benefit conferred on the lawyers were the legal fees paid by TelexFree, and therefore the plaintiffs had no standing to seek recoupment.  The court also dismissed plaintiffs’ claims that the lawyers had “aided and abetted” in TelexFree’s violations of Mass. Gen. Laws chapter 93, § 69 (regulating multi-level marketing companies) and Mass. Gen. laws chapter 93A (prohibiting unfair and deceptive trade practices), on the grounds that neither statute explicitly provided for “aiding and abetting” liability.  Finally, the court dismissed the plaintiffs’ legal malpractice claim, because the facts as alleged did not establish an express or implied attorney-client relationship. 

            Inconsistently, however, the court allowed the plaintiffs to proceed on their negligent misrepresentation claim, concluding that the plaintiffs had pled sufficient facts to plausibly suggest that the lawyers knew that the plaintiffs were relying on their services.  The court also declined to dismiss direct claims against the lawyers under c. 93 and c. 93A, holding that the plaintiffs’ allegations were sufficient to draw the lawyers in as “participants” within the meaning of c. 93, and as “active particip[ants] in trade or commerce” within the meaning of c. 93A.  The court similarly declined to dismiss a claim against the lawyers under the Massachusetts Securities Act, holding that the lawyers’ appearances and statements on TelexFree’s behalf went beyond the provision of legal advice as outside counsel, and instead were arguably a significant part of TelexFree’s marketing campaign.  The court also held that the plaintiffs’ fraud claim satisfied the particularity requirement of Fed. R. Civ. P. 9(b). 

            The case now moves on to the discovery phase, and presumably the lawyers expect to develop evidence sufficient to knock out some or all of the remaining counts of the complaint via summary judgment motion.  The decision nevertheless is concerning for those lawyers who speak for their corporate clients in outward-facing fora such as press conferences, shareholder meetings, and the like.  One very much doubts that the plaintiffs in TelexFree truly were relying on TelexFree’s lawyers for advice.  Nevertheless, attorneys who find themselves speaking to non-clients on behalf of their clients may wish to precede their remarks with lengthy and detailed disclaimers, to avoid being drawn into expensive and drawn-out litigation.