Jan. 18, 2017 – If a client refuses to accept even the most favorable settlement offers despite tremendous effort by the lawyer, can the lawyer, who was working on a contingency fee, withdraw and charge an hourly rate for the time spent on the cases?
Question:
Lawyer practices personal injury law. Lately, Lawyer has become increasingly frustrated with what Lawyer believes to be certain clients’ unreasonable refusal to settle. In a few cases, Lawyer had put in tremendous effort to secure very favorable settlement offers in cases that would have been costly to try. Lawyer withdrew in those cases and received nothing for his efforts.
Lawyer would like to insert a clause in his engagement agreements that states that, if the client refuses what Lawyer believes to be a reasonable settlement offer, the Lawyer may then withdraw and be paid for time at an hourly rate.
May Lawyer insert such a clause in his engagement agreements?
Answer:
SCR 20:1.2(a) states:
“Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client’s decision whether to settle a matter.”
(emphasis added)
Paragraph [1] of the ABA Comment to the Rule explains further:
“[1] Paragraph (a) confers upon the client the ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by law and the lawyer’s professional obligations. The decisions specified in paragraph (a), such as whether to settle a civil matter, must also be made by the client.”
Thus it is clear from the plain language of the Rule that the decision whether to accept an offer of settlement lies solely with the client. This is near absolute, and lawyers may not use engagement agreement to attempt to diminish a client’s settlement authority, such as by having a clause requiring the lawyer's consent to accept a settlement offer.1 Another consequence of clients’ near absolute settlement authority is that disagreement about settlement ordinarily does not constitute good cause for withdrawal.2
It is clear from the plain language of the Rule that the decision whether to accept an offer of settlement lies solely with the client.
Because of this, authorities have consistently found that attempts to impose penalties or burdens on clients who do not follow a lawyer’s settlement advice also run afoul of Rule 1.2(a). In considering a clause substantially similar to the one considered in this column, Philadelphia Bar Association Ethics Opinion 2001-1 stated as follows:
“The Committee concludes that, as written, each provision in this inquiry violates the requirement in Rule 1.2(a). Imposing adverse financial consequences on a client due to his or her settlement determination is inconsistent with the mandate of Rule 1.2. Each provision raises the distinct possibility that the client may suffer significant adverse financial consequences if he or she does not agree with the lawyer's settlement recommendation. Under the terms of the agreement, these consequences potentially include incurring a significant liability for counsel fees – calculated on the basis of inquirer's standard hourly rates or "quantum meruit" — where the client wishes to reject the inquirer's recommendation concerning settlement of the matter.
“Although a lawyer and a client obviously may agree to base a fee on the standard hourly rates charged by that lawyer, the provisions of this agreement permit the lawyer to exercise discretion about whether to accept a settlement offer and enforce his or her will by changing the nature of the fee and imposing on the client potentially adverse financial consequences in the event the client disagrees with the lawyer's settlement recommendation. We believe that these provisions run afoul of Rule 1.2(a). See Connecticut Bar Association, Committee on Professional Ethics, Informal Opinion No. 99-18 (June 17, 1999) (Rule 1.2(a) violated by contingent fee agreement that "client would become obligated to compensate [lawyer] for services rendered at [lawyer's] usual hourly rate(s) if the client rejects a settlement offer that [lawyer] recommended, and thereafter the defendant prevails"); Nebraska Ethics Opinion No. 95-1 (prohibiting a lawyer from using a contingent fee agreement that requires client to pay the higher of the contingent fee or hourly rate in the event the client accepts a settlement offer that the lawyer deemed unacceptable). See also Philadelphia Bar Association, Professional Guidance Opinion No. 88-16 (July 25, 1988) (disapproving contingent fee agreement in which costs of litigation would be contingent on recovery, but requiring client to pay costs “where the client has rejected an offer of settlement which appears to counsel to be ‘fair and reasonable under the circumstances ...'”).”
There are few issues in the Rules as clear as the client’s near absolute right to control settlement of a civil matter, and lawyers should be wary of any attempt to place conditions upon that right.
Have an Ethical Dilemma?
Ethical dilemmas affect every lawyer’s practice. This series of questions and answers appears each month in InsideTrack. The answers, offered by the State Bar’s ethics counsels org tpierce wisbar Timothy Pierce and org akaiser wisbar Aviva Kaiser, are intended to provide guidance only and are not legal authority. Each situation will depend on the facts and circumstances involved.
As a State Bar member, you have access to informal guidance in resolving questions regarding Wisconsin’s Rules of Professional Conduct for Attorneys. To informally discuss an ethics issue, contact Pierce or Kaiser. They can be reached at (608) 229-2017 or (800) 254-9154, Monday through Friday, 9 a.m. to 4 p.m.
In Case You Missed It: Read Past Ethical Dilemmas
Ethical Dilemmas appears monthly in InsideTrack. Check out these topics from recent issues:
Ethical Dilemmas: Can New Lawyers Impute Conflicts from Their Work as a Law Student?, Dec. 21, 2016
Does a firm who hires a recently graduated lawyer need to implement screening procedures if they become aware of a conflict while the new lawyer was a law student?
Ethical Dilemmas: Can I Use Web Bugs to Track Email to Opposing Counsel?, Nov. 21, 2016
“Web bugs” – email tracking devices – are frequently used by marketers. Can lawyers use them in emails to opposing counsel?
For more, search “ethical dilemmas” on WisBar.org.
Endnotes
1 See, e.g., New York Country Lawyers’ Association Ethics Opinion 699 (1994).
2 See, e.g. Lofton v. Fairmont Specialty Ins. Managers, Inc., 367 S.W.3d 593 (2012).