Formal Opinion 134: Ethics of Preparing Agreements for Jointly Represented Clients in Litigation to Make Collective Settlement Decisions, 0318 COBJ, Vol. 47, No. 3 Pg. 78
| Position | Vol. 47, 3 [Page 78] |
CBA ETHICS COMMITTEE
Adopted January 4, 2018
Question
Under the Colorado Rules of Professional Conduct (Colo. RPC or Rules), may a lawyer prepare an agreement for multiple jointly represented clients providing that majority rule, or other non-unanimous procedures, will govern collective settlement decisions?1
Syllabus
A lawyer ethically may prepare an advance agreement for multiple jointly represented clients, which provides that majority rule will govern future settlement decisions. Rule 1.8(g) is not implicated at the stage of drafting such an agreement, but the lawyer must ensure compliance with Rule 1.7. Specifically, before undertaking this representation, the lawyer must adequately disclose to the potential clients the risks and potential conflicts that may arise from such an agreement and from joint representation in the drafting of that agreement, and must obtain the informed consent of each potential client.
When a proposed settlement is being considered, Rule 1.8(g) does apply and a lawyer may not participate in a joint settlement without consent from all clients. At that time, and notwithstanding the existence of a prior agreement that majority rule will govern future settlement decisions, if one or more of the joint clients does not abide by a majority decision regarding a specifc settlement proposal, the lawyer may neither compel the dissenting clients to settle nor otherwise take steps to enforce the agreement. In that event, the clients who form a majority on the specifc settlement proposal may have a claim against the dissenting minority clients for breach of the agreement. The lawyer, however, may not represent any of the clients in this dispute among the clients, and might need to withdraw from any further representation of any of the clients.
Introduction
A, B, and C ask Lawyer to represent them jointly in a single action against a single defendant. Recognizing the potential benefit of a unified position regarding settlement, the potential clients ask Lawyer to prepare an agreement among the clients providing that (1) the clients will make all settlement decisions by majority vote,2 and (2) settlement proceeds will be divided pro rata based on the amount of each client’s initial claim. 3
Lawyer undertakes the joint representation and prepares an agreement that includes the requested provisions regarding settlement decisions. Lawyer files the lawsuit and proceeds to jointly represent all three clients in the litigation. The defendant makes a settlement proposal. A and B wish to accept the settlement, but C does not. Even though a majority of the clients wish to accept the settlement, the minority client, C, refuses to follow the majority decision and refuses to enter into the settlement.
These facts raise the following questions:
1.May Lawyer ethically prepare the agreement among the jointly represented clients that they will make settlement decisions by majority rule?
2. Once C dissents from the majority decision of A and B regarding the proposed settlement, may Lawyer take action to compel the dissenting client, C, to settle? In other words, may Lawyer enforce the majority-rule agreement against C on behalf of A and B?
3. May Lawyer continue to represent all three clients, A, B, and C, once C refuses to comply with the majority-rule agreement?
We answer the first question in the affirmative and the second and third questions in the negative.
Analysis
Rules 1.7 and 1.8 apply when a lawyer considers entering into an engagement to represent multiple clients jointly. Generally, joint representation is permissible, notwithstanding the existence of possible conflicts of interest among the jointly represented clients, if
1. the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
2. the representation is not prohibited by law;
3. the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
4. each affected client gives informed consent, confirmed in writing.
Colo. RPC 1.7(b).
Rule 1.8(g) applies specifically to possible conflicts of interest among jointly represented clients presented by aggregate settlements of litigation:4 “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients . . . unless each client gives informed consent, in a writing signed by the client.”
Rule 1.2(a) also provides guidance regarding a lawyer’s responsibility to abide by client decisions regarding settlement: “[A] lawyer s hall abide by a client's decision 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 shall abide by a client's decision whether to settle a matter."
Several courts and ethics committees have concluded that a lawyer may not enforce against any of the lawyer's clients an advance agreement to settle. That is, if some of a lawyer's clients do not wish to accept a settlement proposal, the lawyer may not compel the lawyer's dissenting clients to settle, even if all clients have previously agreed to abide by majority decision regarding settlement and a majority of die clients wish to accept that proposal. Nor may clients delegate in advance to their lawyer die decision to settle so that the lawyer may bind all clients in responding to a settlement proposal.5 The Colorado Bar Association Ethics Committee (Committee) concurs. These conclusions proceed directly from Rules 1.2(a), 1.7, and 1.8(g), which give clients, and not their lawyer, full authority regarding settlement decisions.
These court decisions and ethics opinions often use broad language that suggests that, not only is a lawyer forbidden from compelling any joint client to settle not with standing the client's prior agreement that the majority of joined represented clients will control settlement decisions, but also that a lawyer cannot draft such an agreement in the first place. The Committee concludes otherwise. A lawyer may prepare an agreement for joined represented clients providing that future decisions regarding settlement will be made by majority rule. An agreement to govern litigation decisions, including possible decisions regarding settlement, is in many respects similar to any other agreement among jointly represented clients that provides how their future relationship will be governed, such as an operating agreement for a business entity formed for jointly represented clients.
Under Rule 1.8(g), a lawyer "shall not participate in making an aggregate settlement" of claims belonging to more than one of the lawyer's clients without written, informed consent from each client. The quoted language from Rule 1.8(g) is somewhat ambiguous. Arguments could be made that any activity that relates in anyway to a potential settlement would fall within die scope of "participation] in making." The Committee concludes, however, that such an interpretation of the language would be too broad. Preparing an agreement in advance of an offer to settle is not "making" a settlement based on that offer, much less "participation]" in making such a settlement. Therefore, Rule 1.8(g) does not apply to die drafting. Rule 1.8(g) does not apply until...
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