Informed Consent to Aggregate Settlements under Proposed Rule 1.8.7
LACBA Update, November 2011
By John W. Amberg, member and former chair, LACBA Professional Responsibility and Ethics Committee, and a partner in Bryan Cave LLP, email@example.com. The opinions expressed are his own.
Who would object to more Mozart? Generations of music lovers have laughed at the peevish critique by Emperor Joseph II of the composer’s masterwork, The Abduction from the Seraglio: "Too many notes."1 The proposed new and amended Rules of Professional Conduct, which await approval by the California Supreme Court, took slightly more time to compose than Mozart’s opera—about nine years more—but received a similar raspberry from the State Bar’s prosecutor, the Office of Chief Trial Counsel (OCTC), which found the new rules “too lengthy and complicated.” The OCTC recalled the halcyon days of 1928 (before the OCTC) when the rules were four pages long.2
A modest case in point is proposed new Rule 1.8.7, which is based on ABA Model Rule of Professional Conduct 1.8(g) and restates current Rule of Professional Conduct 3-310(D) on a lawyer’s ethical duty with respect to aggregate settlements. (The rule does not apply to class actions.) Although the new rule doubled the text of the current rule—from one to two sentences—the OCTC took particular aim at the appended comments: “there are too many comments and they are too long.”3 The real problem for practicing lawyers, however, lies not in the length of the rule and its comments but in what they say.
As defined in a comment to the new rule, “An aggregate settlement occurs when two or more clients who are represented by the same lawyer resolve their claims, defenses or pleas together, whether in a single matter or in different matters.”4 Current Rule 3-310(D) states: “A member who represents two or more clients shall not enter into an aggregate settlement of the claims of or against the clients without the informed written consent of each client.” The rule reflects the principle that the lawyer ordinarily does not have authority to compromise the client’s substantive rights.5 Indeed, lawyers have been disciplined for settling a case without the client’s knowledge or consent.6
Rule 3-310(D) also recognizes that although there may be no conflict of interest among a lawyer’s joint clients at the outset of the engagement, a conflict may develop when an allocation must be made among claimants—for example, if a lump sum settlement is insufficient to pay each client’s claim in full. This can create an ethical and logistical dilemma for lawyers who are trying to settle a case with multiple parties and must obtain informed consent from all of their clients. This is especially true in modern “mass actions” that may have hundreds of plaintiffs and are an increasingly popular way to litigate toxic torts, wage and hour claims, and claims against financial institutions, especially after the U.S. Supreme Court’s rejection of class action treatment for claims in Wal-Mart Stores, Inc. v. Dukes.7 For example, there are no fewer than 30 mass actions currently pending against banks in state and federal courts in Los Angeles and Orange counties. Unfortunately, the definition of “informed written consent” in section (A)(2) of Rule 3-310 applies to the formation of a joint attorney-client relationship, not to an aggregate settlement. Moreover, the current rule does not specify what the lawyer must disclose when obtaining the joint clients’ consent to the aggregate settlement.
Anticipating the need for alacrity in settlement, lawyers sometimes obtain authority to settle their clients’ claim within certain defined parameters at the beginning of the engagement, and the State Bar’s Committee on Professional Responsibility and Conduct has approved such arrangements.8 However, the lawyer’s settlement authority is limited by the terms of the prospective grant, so a blanket waiver of the client’s rights is probably invalid if new or different terms are involved because such advance consent could not be truly “informed.”
More complications arise when the lawyer represents joint clients with conflicting interests in the settlement. The issue of whether joint clients can prospectively delegate settlement authority to the lawyer has never been decided in California, but other jurisdictions have concluded that joint clients cannot delegate authority before the terms of the aggregate settlement are known and disclosed. In 2009, the New York City Bar Association’s ethics committee noted the objections of commentators who feared that prohibition of advance waivers would impede multiparty settlements, and would allow each client to veto the entire settlement, but nevertheless concluded that a client may not waive his or her individual right to approve the terms of an aggregate settlement.9 The protection against inadequate settlements and unfair allocations outweighed the burden on the lawyer.10 The New York City Bar committee relied on ABA Formal Opinion 06-438, which stated that since detailed disclosures of the settlement terms must be made in the context of a specific offer or demand, informed consent cannot be obtained in advance.11
An alternative scheme in which the joint clients delegate settlement authority to a subset of the plaintiffs, rather than the lawyer, has been disapproved in other jurisdictions where Model Rule 1.8(g) is in effect.12 The California Practice Guide for Professional Responsibility questions whether a “majority vote” would satisfy the Rule 3-310(D) requirement for the informed consent of each client.13
Proposed new Rule 1.8.7 imports these precepts from the ABA and New York ethics opinions. After stating that the lawyer shall not participate in making an aggregate settlement “unless each client gives informed written consent,” the new rule expands on Model Rule 1.8(g) by adding the language “among other things” to the second sentence of the ABA rule: “The lawyer’s disclosure shall include, among other things, the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.” The comments to Rule 1.8.7 set forth a more expansive conception of the lawyer’s duty of disclosure not found in the Model Rule. Thus, comment  states that the disclosure required by the rule should be in writing and “ordinarily must include the material terms of the settlement, what each of the lawyer’s clients would receive or pay if the settlement were accepted, and the method by which expenses (including any expenses already paid by the lawyer and any expenses to be paid out of the settlement proceeds) would be apportioned among them. The disclosure must also include the amount of any fee and of any expense reimbursement the lawyer would receive from the settlement.” The lawyer must make a good faith estimate of additional expenses if he or she does not currently know them.14 The lawyer’s obligation to make written disclosure and to obtain the clients’ written consent can be satisfied by stating them on the record in court.15
The proposed new rule provides valuable guidance to California lawyers by clearly articulating what written disclosures should be made to clients so their consent to an aggregate settlement is truly informed. Not only a benefit to clients, Rule 1.8.7 would also protect lawyers by ensuring that a written record is made of the settlement terms communicated to their clients. The price of this protection is that more time and care must be taken in consummating an aggregate settlement—and a longer rule and comments.
It remains to be seen whether proposed Rule 1.8.7 and its comments will be approved by the California Supreme Court, and whether the court will weigh the protection of clients and its desire to bring California into conformity with the ABA Model Rules against the public policy in favor of expediting settlements. In the meantime, the debate rages: Too many words?
1 Marcia Davenport, Mozart 205 (Dorset Press 1932).
2 Letter from Russell G. Weiner, Interim Chief Trial Counsel, to Office of Professional Competence, Planning and Development, State Bar of California (June 15, 2010).
4 Proposed Rules of Prof'l. Conduct R. 1.8.7, cmt .
5 Blanton v. Womancare, Inc., 38 Cal. 3d 396 (1985).
6 Sampson v. State Bar, 12 Cal. 3d 70 (1974).
7 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541 (2011).
8 See, e.g., State Bar of Cal., Standing Committee on Professional Responsibility & Conduct, Formal Op. 2002-160.
9 Association of the Bar of the City of New York, Committee on Professional and Judicial Ethics, Formal Op. 2009-06, at 2.
10 Id. at 3.
11 ABA Comm. on Ethics and Prof'l. Responsibility, Formal Op. 06-438, at 6.
12 Id. at 4, n.9.
13 Paul W. Vapnek, Mark L. Tuft, Ellen R. Peck, and Justice Howard B. Wiener (ret.), Cal. Prac. Guide: Professional Responsibility, ¶ 5:739.1 (The Rutter Group 2010).
14 Proposed Rules of Prof'l. Conduct R. 1.8.7, cmt. .
15 Id. at cmt. .