By Richard D. Hendlin
This Ethics in Brief article arises from a SDCBA Ethics Hotline (619.231.0781×4145) inquiry I recently handled involving the often present tension between the interests of the client in an optimal recovery and their attorney’s interest in optimal compensation. It offers an instructive opportunity to review an attorney’s fundamental ethical obligations to convey settlement offers and abide by the client’s decision even where it may result in the attorney losing a significant part or all of his or her fees.
The inquiry’s hypothetical involved Attorney A who represents plaintiff-Client in a civil lawsuit involving a “fee-shifting statute”[1] whereby the prevailing party has a statutory right to seek an award of attorney fees. Defense counsel presents Attorney A with a settlement offer, conditioned on Client agreeing to waive the statutory attorney fees, that is woefully insufficient to compensate Attorney A for her time. Must Attorney A convey such an offer and abide by the client’s desire to accept the settlement offer even if Attorney A feels it is unacceptable and knows that it will reduce the likelihood of recovering some or all of his or her fees? Yes.
California Rule of Professional Conduct [CRPC] Rule 1.4.1(a) (2) “Communication of Settlement Offers” provides in part:
“(a) A lawyer shall promptly communicate to the lawyer’s client . . .
(2) all amounts, terms, and conditions of any written offer of
settlement made to the client in all other matters.”[2]
The Comment to Rule 1.4.1 states that “An oral offer of settlement made to the client in a civil matter must also be communicated if it is a ‘significant development’ under rule 1.4.”
CRPC Rule 1.4 (a) (3) provides in part that a lawyer shall “keep the client reasonably informed about significant developments relating to the representation.”
Similarly, Business and Professions Code section 6068 (m) includes among the duties of an attorney” to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services.”
It seems extremely probable that an oral settlement offer would be deemed a “significant development.” Thus, in our hypothetical, regardless of whether Defense counsel’s settlement offer to Attorney A was written or oral, Attorney A must promptly communicate all amounts, terms and conditions to the Client.
CRPC Rule 1.2 (a) provides that a lawyer “shall abide” by a client’s decisions concerning the objectives of representation, and expressly mandates that “A lawyer shall abide by a client’s decision whether to settle a matter.”
Comment [1] to Rule 1.2 states “Paragraph (a) confers upon the client the ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by the law and the lawyer’s professional obligations.”
Our hypothetical situation is strikingly similar to that presented in State Bar Formal Opinion no. 2009-176 (2009) wherein an Attorney filed a lawsuit under a “fee shifting statute.” The Defense Attorney B conveyed a fee-waiver settlement offer of $20,000 to Plaintiff’s Attorney A. If Client were to accept the settlement offer, Attorney A would receive far less the $100,000 value of the time she has invested in Client’s lawsuit. The Opinion found that Defense Attorney B did not violate any ethical obligation by conveying a fee-waiver settlement offer, and that the Plaintiff’s Attorney A was ethically obligated to inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s wishes even if it reduced the likelihood of recovering some or all of her fees.
In State Bar Formal Opinion No. 2009-176, the Attorney had a contractual right specified in the fee agreement with the client to the greater of one-third contingent fee or the statutory attorney’s fee. The Standing Committee on Professional Responsibility and Conduct [COPRAC] stated:
“[I]t is to Attorney A’s own personal advantage to press Client’s case to conclusion in hopes of securing a victory and assurance of payment under the fee-shifting provisions of the Act. Attorney A, however, may not veto a settlement that Client wishes to accept in order to benefit herself. Instead, Attorney A is obligated to inform Client of Defendant’s settlement offer and to consummate the settlement in accordance with the Client’s wishes even if it reduces the likelihood of recovering the full value of her services.”
In State Bar Formal Opinion No. 1989-114 the question presented was in representing a plaintiff in a federal civil rights action or similar “private attorney general” action, is an attorney obligated to inform the client that statutory attorney’s fees are the client’s property which the client may waive as a condition of settlement? COPRAC concluded that “[t]he attorney must disclose this information to his client, although it may well result in the attorney not being paid for services performed.”
In State Bar Formal Opinion No. 1989-114, COPRAC also observed:
“Even absent such an offer, however, the attorney may be obligated to discuss such a settlement with the client if, for example, there is reason to believe that the defense would agree to such a disposition. Failure to recognize such a situation, or use it to the client’s advantage, could well be seen as a violation of the attorney’s duty to act competently under rule 3-110 [now CRPC Rule 1.1]. Thus, the prudent attorney is well-advised to discuss the possibility of a fee-waiver settlement with the client at the outset of the representation.”
CRPC Rule 1.7 (b) “Conflict of Interest: Current Clients” which provides, in part, that:
“A lawyer shall not, without the informed written consent from each affected client … represent a client if there is a significant risk the lawyer’s representation of the client will be materially limited by . . . the lawyer’s own interests.”
Comment [1] to Rule 1.7 emphasizes that “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.”
Comment [4] to Rule 1.7 observes:
“Even where there is no direct adversity, a conflict of interest requiring informed written consent under paragraph (b) exists if there is a significant risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities, interests, or relationships, whether legal, business, financial, professional, or personal.”
“Attorneys are generally ineligible to receive fees (statutory or otherwise) for services rendered in violation of conflict of interest rules.” (Tuft, Peck & Mohr, California Practice Guide: Professional Responsibility (The Rutter Group 2018) ¶ 5:352. (See also, Fair v. Bakhtiari (2011) 195 CA4th 1135, 1151, 1153, [“California courts have often held that when the ethical violation in question is a conflict of interest between the attorney and the client…the appropriate fee for the attorney is zero.”]
Ramirez v. Sturdevant (1994) 21 CA4th 904, at 910, held:
“[W]here, as here, there is evidence that a conflict of interest arose between attorney and client which may have affected the ultimate settlement of the case, the settlement negotiations and settlement should be examined by an impartial tribunal to determine if the client’s interests have been forcefully represented. In conducting that review we place the burden of proof on the attorney to demonstrate that the attorney’s own pecuniary interest did not interfere with the duty to promote the best interests of the client.”
The potential conflict of interest between attorney and client regarding settlement of both the merits of a case and the attorney fee at the same time may be reduced through a well-drafted retainer agreement. Although beyond the scope of this article, among the possibilities that have been suggested are to charge the client a reasonable hourly rate for all services due on resolution of the action and to obtain an assignment of the right to attorney fees from the client. (See Richard M. Pearl, California Attorney Fee Awards, § 11.14-11.16 (3d ed. 2019 Cal CEB.)
The underlying principal to be guided by is well-summarized in the ABA Section of Litigation’s Ethical Guidelines for Settlement Negotiations (August 2002), section 4.2.2, at page 42, “Provisions Relating to the Lawyer’s Fee” as follows:
“When an attorney’s fee is a subject of settlement negotiations, a lawyer may not subordinate the client’s interest in a favorable settlement to the lawyer’s interest in the fee.”[3]
Finally, in this context, the attorney is reminded that under Business and Professions Code § 6128 (b): “Every attorney is guilty of a misdemeanor who … (b) Willfully delays his client’s suit with a view to his own gain.”
Richard D. Hendlin, Attorney at Law
**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**
[1] Examples of the numerous “fee-shifting statutes” include: California’s private attorney general fee statute (Code Civil Proc. §1021.5) and California Fair Employment and Housing Act {FEHA] (Gov. Code §§ 12900, 12965 (b); Federal Civil Rights Act (42 U.S.C. § 1988), and Patent Act (35 U.S.C. §285). See Richard M. Pearl, California Attorney Fee Awards, chpt. 3 (3d ed. 2019 Cal CEB), and Mary Francis Derfner & Arthur D. Wolf, Court Awarded Attorney Fees (2019 Matthew Bender) for discussion of fee shifting statutes under California and federal law, respectively. See Flannery v Prentice (2001) 26 C4th 572 for discussion of additional ethical issues involved in statutory fee-shifting which are beyond the scope of this article [finding attorney fees awarded under Government Code §12965 (FEHA) belong to the attorneys who labored to earn them when no contractual agreement provides otherwise.]
[2] See also Bus. & Prof. C. § 6103.5 requiring the lawyer “shall promptly communicate to the client all amounts, terms and conditions of any written offer of settlement.”
[3] Although the ABA Section of Litigation Ethical Guidelines for Settlement Negotiations is non-binding, the American Bar Association recommends them as a resource designed to facilitate and promote ethical conduct in settlement negotiations.