I Feel the Earth Move

DISCUSSION

Rule 1.08 addresses a variety of potential conflicts.  Subsection (f) is applicable here:

(f) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement to guilty or nolo contendere pleas, unless each client has consented after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the nature and extent of the participation of each person in the settlement.

This provision is the “aggregate settlement rule” and it applies when there is a global settlement to be apportioned among jointly-represented clients.  Though our Rules do not define “aggregate settlement”, we understand it to mean a single settlement amount intended to settle multiple client claims.  

Defendants might make an “aggregate settlement” offer in a large multi-plaintiff case where there are hundreds or thousands of claimants; however, Rule 1.08(f) applies any time there is more than one client represented by a lawyer facing a single settlement offer to all individual claims.  The defendant may take the position that it doesn’t care how the global settlement amount is apportioned among the clients as long as every claimant—or almost every claimant—signs a release (this is often referred to as a “cram-down” settlement).

An aggregate settlement offer can put a lawyer in a difficult position.  On one hand, the lawyer may have little difficulty dividing the money among clients who have identical claims and damages; however, where the damages are more subjective and varied, clients may have sharply different opinions about the apportionment of settlement funds to different clients. Moreover, the lawyer may be tempted to recommend the global settlement—even though it is objectively inadequate compared to the lawyer’s own damages model—because the lawyer’s resulting contingent fee is substantial and it eliminates the risk of not recovering  anything at trial.  And while there can be conflicts between the lawyer’s own interest versus the clients’ interest in settlements under Rule 1.06(b), here we are interested primarily in Rule 1.08(f).

So, what does Lawyer A need to do under Rule 1.08(f)?

• First, disclose to every client the proposed settlement amount for that client and for each of the jointly-represented clients.
• Second, explain how each client’s proposed settlement amount was calculated—which requires an explanation of the individual claims of every client and what variables were used to calculate the proposed settlements.
• Third, after providing these disclosures, ask for each individual client’s consent to his or her proposed individual settlement.

In some instances, the mechanics of apportioning a global settlement is not easy.  To the extent that objective, relevant factors can be used, they should be; however, there also may be relevant factors that are inherently subjective.  In our property damage scenario, damage estimates may be a mix of objective and subjective factors.  Using competent appraisers and/or damage estimators who strive to apply the same criteria for every property is important, even if there is still a degree of subjectivity.  The lawyer’s approach doesn’t have to be perfect – and it won’t be – but it should strive to apply the same standards to every client’s claims so that the clients can understand the lawyer’s methodology.  Further, making financial exceptions for “holdout” clients is suspect because that significantly deviates from using the same methodology for every client and opens the lawyer up to charges of favoritism.  

The primary purpose behind Rule 1.08(f) is full disclosure to every jointly-represented client of how that client is being treated compared to other similarly-situated clients.  Of course, Rule 1.08(f) can make aggregate settlements more difficult to accomplish because, with disclosure, some clients may contest the methodology or the results that it produced.  And the mechanics of disclosure can vary because there is always the risk that specific client settlement amounts may be leaked by clients to third parties that have no right to know this otherwise confidential information.  

Because the question did not describe how the lawyer apportioned the global settlement to individual clients, and did not reveal whether the required disclosures were made, B is the best answer.  If Lawyer A did not make the disclosures required by Rule 1.08(f), then she is in violation of that rule.