Ethical Guidelines for Settlement Negotiations
| Publication year | 2005 |
| Pages | 11 |
2005, February, Pg. 11. Ethical Guidelines for Settlement Negotiations
Vol. 34, No. 2, Pg. 11
The Colorado Lawyer
February 2005
Vol. 34, No. 2 [Page 11]
February 2005
Vol. 34, No. 2 [Page 11]
Articles
Ethical Guidelines for Settlement Negotiations
by Traci L. Van Pelt
by Traci L. Van Pelt
Traci L. Van Pelt is a founding member of McConnell Siderius
Fleischner Houghtaling & Craigmile, LLC - (303) 480-0400
tvanpelt@msfhc.com; www. msfhc.com. Her practice focuses on
the defense of legal and medical professionals in
malpractice/professional liability cases
This article discusses the basic ethical rules implicated in
settlement negotiations. The primary focus of the article is
on the risks to both lawyers and their clients when
settlement authority is ambiguous
Settlement talks are an important part of the litigation
process. Although the ultimate decision to settle a matter
belongs to the client, if, how, and when to negotiate a
settlement are decisions that must be made during the course
of litigation. Questions regarding the method and timing of
settlement discussions often plague lawyers in their
practice. However, a more fundamental question arises: Who
has the ultimate authority over settlement negotiations and
when to engage in them - the lawyer or the client?
One of the most difficult challenges a lawyer faces involves
the ethics of settlement negotiations. Clients often
communicate, in a general sense, that settlement would be
acceptable, but clients can view the initiation of settlement
talks as a sign of weakness. The question then presented is
what a lawyer should do when a client's emotional
involvement in a matter prevents the lawyer's initiation
of settlement talks. Settlement negotiations under these
circumstances can give rise to many ethical dilemmas.
This article touches on the basic ethical rules implicated in
settlement negotiations. It primarily focuses on a
lawyer's authority to enter into settlement negotiations
and the rules associated with the client's role in the
settlement process. Also emphasized are the risks both to the
lawyer and client when settlement negotiations and the
authority to engage in such negotiations are ambiguous.1
Basic Ethical Rules
The settlement process - not just the decision to settle -
belongs to the client. Some commentators have even gone as
far as to characterize the roles of lawyers and judges as
"servants" to the process, with the lawyer's
role more akin to risk assessment and valuation than to
persuading a reluctant client to settle.2 Many lawyers fall
into the trap of thinking that their judgment is better than
their client's. Also, lawyers may believe their knowledge
of the judicial system places their client at a disadvantage
with respect to making decisions about the timing and method
of settlement negotiations.
Few Colorado Rules of Professional Conduct ("Colorado
Rules") specifically address settlement, although
several are implicated, as discussed below. Nevertheless, the
negotiation process is replete with opportunities to run
afoul of ethical precepts. Lawyers who are unfamiliar with
the murky ethical waters of settlement negotiations expose
themselves to discipline or professional negligence claims
and, worse, expose their clients to unenforceable
settlements. Ethical issues raised by settlement negotiations
are often subtle. Therefore, understanding professional
responsibilities when engaging in settlement talks is an
important aspect of the practice of law.3
Settlement Negotiations Generally
Settlement negotiations are an essential part of the
litigation process. Colorado Rule of Civil Procedure
("C.R.C.P.") 16 requires that parties explore a
possible prompt settlement shortly after the case becomes at
issue.4 In July 2004, the Colorado Supreme Court modified
C.R.C.P. 16.1 to provide for a more expeditious and less
expensive procedure for litigating civil suits where less
than $100,000 is at stake.5 The Supreme Court focused its
attention on ways to resolve disputes short of a full-blown
trial, with its attendant expense and prolonged discovery.
In addition, it is increasingly common for courts to enter
alternative dispute resolution ("ADR") orders,
requiring parties to participate in some form of mediation
prior to proceeding to trial. It is estimated that more than
70 percent of civil cases are resolved through settlement.6
As noted, few rules provide specific guidance on the ethics
of settlements. However, the cardinal rule in Colorado, as in
most other jurisdictions, explicitly provides that the
ultimate decision whether to settle is the client's and
the client's alone.7 Colorado Rule of Professional
Conduct ("Colo. RPC" or "Rule") 1.2(a)
explicitly provides, "[a] lawyer shall abide by a
client's decision whether to accept an offer of
settlement of a matter."
Settlements implicate several other Colorado Rules. These
include rules governing the lawyer's competence to accept
representation; prompt communication with a client; authority
in initiating and negotiating settlements; duty to clarify an
ambiguous grant of settlement authority; and disclosure of
confidential information, such as a client's
recalcitrance to settlement.
Duty of Competence
In general, Colo.RPC 1.1 provides that a lawyer "shall
provide competent representation to a client." This
general obligation of competence applies to both the conduct
of settlement negotiations and the validity of any ensuing
agreement. The lawyer should make sure that he or she is
competent to undertake the representation in the first
instance, and that he or she is competent to negotiate a
valid, binding settlement agreement, making sure the
client's best interests are served.8 This fundamental
duty of competence is necessary to any successful settlement
negotiation.
Settlement negotiation has been found to be one of the most
basic and frequently undertaken tasks lawyers perform. A
lawyer who undertakes any representation, including the
negotiation of a settlement, is required to exercise the
skill and knowledge normally possessed by members of the
community. Failure to do so may subject the lawyer to a claim
of malpractice, and may subject the client to an onerous or
unenforceable settlement agreement. Several jurisdictions,
including Colorado, have allowed claims against lawyers for
malpractice in negotiating a settlement.9
In some circumstances, even when the client receives a
"fair and equitable" settlement, the client's
attorney may not be considered to be competent. This could be
based on the fact that the attorney may not have obtained the
most favorable settlement.10 Also, although a lawyer cannot
be held liable for failing to persuade an opposing party to
agree to settlement terms, the attorney could be held liable
for failing to see that agreed-upon terms are put in
writing.11
A court in New Jersey allowed a client to sue her attorney
for not obtaining the most favorable settlement terms. In
Ziegelheim v. Apollo,12 the plaintiff-wife sued her divorce
lawyer, contending that he did not know, or did not properly
advise her of, the likelihood of success on her claims, and
that this forced her to accept a less-than-optimal
settlement. The court found that a lawyer is
"supposed" to know the likelihood of success for
the types of cases the lawyer handles and to know the range
of possible awards in those types of matters. Thus, the
Ziegelheim court allowed a litigant, who became dissatisfied
with a settlement after its acceptance, to sue her lawyer.
The foundation of the Ziegelheim decision was the
lawyer's substandard evaluation of the client's
chances of success in a trial on the merits.13
Duty to Communicate Promptly
Communication is the foundation of effective representation
of the client. Colo. RPC 1.4(b) provides that "a lawyer
shall explain a matter to the extent reasonably necessary to
permit the client to make informed decisions regarding the
representation." Nowhere is this maxim truer than in
settlement negotiations. Often, clients are unsophisticated,
especially about the legal process and whether or when to
initiate settlement discussions. Particularly when courts
require settlement discussions, a detailed explanation of the
risks and benefits of settlement should take place. A lawyer
also needs to explain various approaches to settlement. Such
early discussions not only can help the client develop
reasonable expectations, but also can help the lawyer gain
clarity about and remain focused on the client's ultimate
objectives.
Colo.RPC 1.4(a) requires a lawyer to keep his or her client
"reasonably informed about the status of a matter,"
and failure to advise a client of settlement offers or
demands is a violation of that rule.14 As the Committee
Comments to Rule 1.4 note, the client should have enough
information to participate intelligently in decisions about
the objectives of the representation and should be promptly
informed of developments in the case. The Committee Comments
specifically address settlement negotiations in this regard,
stating:
For example, a lawyer negotiating on behalf of a client
should provide the client with facts relevant to the matter
inform the client of communications from another party and
take other reasonable steps that permit the client to make a
decision regarding a serious offer from another party. A
lawyer ought to initiate this decision-making process if the
client does not do so. A lawyer who receives from opposing
counsel an offer of settlement in a civil controversy . . .
should promptly inform the client of its substance unless
prior discussions with the client have left it clear that the
proposal will be unacceptable. See Rule 1.2(a). Even...
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