South Carolina Lawyer
SC Lawyer, November 2008, #6.
"Let's Make a Deal"-Settlement Ethics
South Carolina LawyerNovember 2008"Let's Make a Deal"- Settlement EthicsPlaintiffs who reject settlement offers and go to trial do worse 61 percent of the time, losing an average of $43,000 according to a study published in the September issue of the Journal of Empirical Legal Studies. Randall L. Kiser et al., Let's Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations, 5 J. Empirical Legal Studies 551 (2008). Defendants were wrong in rejecting settlement offers less often, 24 percent of the time, but the wrong decision was more costly, resulting in an average loss to the defendant of $1.1 million. Id. at 566. The results come from a study of more than 2000 trials in the California state courts from 2002 through 2005. Id. at 552. Error rates for plaintiffs are higher in contingency fee cases; for defendants error rates increase when the defendant lacks insurance. Id. at 577. So, it looks like both plaintiffs and defendants would generally fare better by settling rather than going to trial. But what happens if the client refuses to accept a "reasonable" settlement recommended by counsel or reneges on a settlement agreement made by counsel?
1. How should a lawyer ethically handle a client who unreasonably refuses to accept a settlement offer?
Lawyers are agents of their clients. Under agency law and the rules of professional conduct, clients have the right to decide whether to accept or reject an offer of settlement in a civil case or an offer of a plea agreement in a criminal case. See S.C. Rule of Professional Conduct (SCRPC) 1.2(a). In making this decision clients do not always make the best choice, as the empirical evidence mentioned above indicates. In addition, the particular circumstances of plaintiffs and defendants may influence them to make decisions that may appear unwise from the perspective of a reasonable person not affected by such factors. Take the situation of a plaintiff in a personal injury case. A plaintiff who is in need of funds may be willing to accept an offer of settlement that the plaintiff's lawyer considers inadequate. On the other hand, a plaintiff who is not desperate for funds may be willing to reject a good settlement offer and take the risk of a trial in the hope of a big recovery; when the plaintiff's lawyer is handling the case on a contingency fee basis and fronting the expenses, the trial costs a plaintiff nothing. A defendant without substantial insurance may be willing to reject a good settlement offer and risk a trial because the defendant cannot afford to pay the settlement and plans to bankrupt against it if it loses.
So what can a lawyer do if a client acts unreasonably with regard to a settlement offer? One possibility is to move to withdraw from the representation. Withdrawal, however, is questionable both practically and ethically. Practically, if the lawyer moves to withdraw, the lawyer may find it difficult to collect his or her fee. The lawyer's claim for a fee will be reduced to a quantum meruit recovery, rather than the amount set forth in the fee agreement. See Robert M. Wilcox & Nathan M. Crystal, Annotated South Carolina Rules of Professional Conduct 52 (2005 ed.). In addition, the lawyer will not have a...