Self-Serving Retainer Agreement Leads to Attorney Withdrawal

• Author: Susan F. Dent
• Pages: 7-7

Published in Litigation News Volume 45, Number 4, Summer 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

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federal cour t ruling has pro-

vided new ethics g uidance

on contingency fee agree-

ments, hold ing that when

an attorney’s pecuniary

benef‌it comes a t the expense of his or

her client ’s recovery, such an agree -

ment may present a n impermissible

conf‌lict of intere st.

In Gamble v. Kaiser Foun dation

Health Plan, In c., the U.S. District

Court for the N orthern District of

California considered whether a

retainer agree ment that (1) charac-

terized client recover y as property of

an attorney, (2) expressly as signed

negotiation righ ts for said fees, and

(3) required cli ents to pay twice the

attorney’s Lodes tar fee if attorney

fees were waived as pa rt of settle-

ment presented an impermissible

conf‌lict of intere st that runs afoul of

California ethics rules.

In response to the de fendant’s

allegations of eth ical impropriety, the

plaintis in Gam ble brought a motion

pursuant to Fede ral Rule of Civil

Procedure 16 an d the court’s inherent

power to control the cond uct of the

attorneys that app ear before it. As

the court desc ribed it, the plaintis

sought an order “d ictating in advance

the parameters o f any settlement

negotiations with defendants,” and

asked the court to “gi ve its imprima-

tur to plaintis’ co unsel’s fee agree-

ment and conf‌ir m that it poses no

conf‌lict of intere st with the named

plaintis or the class.”

The court foun d the above provi-

sions created an in herent conf‌lict of

interest betwee n the attorney and his

clients, thus necessitating his with-

drawal and staying th e entire proceed-

ing pending rete ntion of new counsel.

Under Rule 23 of t he Federal Rules

of Civil Procedure , the court has an

obligation to evaluate putative class

counsel, ens uring no conf‌licts of

interest with class m embers. In order

to evaluate an attorney ’s f‌itness, Rule

Self-Serving Retainer Agreement

Leads to Attorney Withdrawal

23(g) permits th e court to “order

potential class co unsel to provide

information on any s ubject pertinent

to the appointmen t and to propose

terms for attorney ’s fees and nontax-

able costs” to dete rmine if any poten-

tial conf‌licts exi st.

In support of it s f‌inding that the

three provisions pre sented an ethical

conf‌lict, the co urt relied on California

State Bar Formal Ethi cs Opinion No.

2009-176, wh ich provides that “[a]

lawyer is ethical ly obligated to inform

a client that the clie nt possesses, and

can waive, the right to se ek an award

of statutory attor ney’s fees as a con-

dition of settlem ent even though it

may result in the lawye r not receiving

remuneration for services performed”

and “[a] lawyer is ethically obli gated

to consummate a settl ement in accor-

dance with the clien t’s wishes and

cannot veto a settle ment simply

because it inc ludes a fee waiver.”

The court reas oned that, by these

standards , the notion that the attorney

may reject a settle ment oer because

the attorney fees a re insucient is

contrary to Cali fornia ethics rules.

The court fur ther expressed that

California recognizes an “inherent

conf‌lict of intere st” when a plainti’s

attorney insist s on negotiating the

amount of damages payable to the

plainti separ ately from the award of

attorney fe es.

As to the third provision , the court

found the retainer agreement, requir-

ing settlemen t of attorney fees to

be negotiated sep arately from dam-

ages (and, thus, fo rfeiting the client’s

ability to pay fees on a co ntingency

basis), would result in clie nts owing

the attorney doub le his Lodestar rate

(time spent on the c ase multiplied by

hourly rate).

ABA Section of Liti gation lead-

ers f‌ind the Gamble ruling, despite

its harsh outcom e on plaintis’ coun-

sel, to align with sta ndard practices.

“Lawyers have been representing

By Susan F. Dent, Litigation News Contributing Editor

classes in Rule 23 cases for decades

and have managed to avoid e thical

conf‌licts over fe es,” opines John

M. Barkett, M iami, FL, cochair of

the Section of Liti gation’s Ethics &

Professionalis m Committee. “I do not

see this opinion c hanging anything.

To the contrary, this opinion s hould

help class coun sel design a fee agree-

ment that is ethically compliant.”

Further expand ing on this point,

Adam Polk, San Fra ncisco, CA,

cochair of the Sec tion’s Class Action

& Derivate Suits Co mmittee, adds:

“The scrutiny cou rts give to fee

requests in cl ass action settlements

under Rule 23 (e) is, in my experience,

a sucient proce dural safeguard that

properly bala nces the interests of the

class in not paying a wi ndfall, against

the fair compe nsation of class coun-

sel, who have oftenti mes invested in

the case and bor ne the risk of litiga-

tion for the class’s be nef‌it with no

guarantee of recovery.”

Although the cou rt in Gamble rec-

ognized the unusu al nature of the

motion, Barket t believes its order

created a valuable tool for class

action counse l when drafting retainer

agreements. “Where statutory fees

are awardable if a pla inti prevails

in a claim, lawyer s need to know the

applicable l aw and ethics opinions,

then draft a retainer agreement that

is consistent with the l aw and ethics

opinions, th at results in a fair and rea-

sonable fee,” co ncludes Barkett.

RESOURCES

Jonathan Uslaner, "Much More Than

'Houseke eping': Rule 23(c)(4) in Action,"

Class Actions & D erivative Suits (Feb. 19 ,

2015).

Joe l B. Rosen & R. Monica H ennessy,

"Rule 16, t he Litigator’s Forgotten A lly,"

Litig. (Summer 2 008).

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