#11092 - Aggregate Settlements Aggregate Settlement Rule - Complex Litigation

Aggregate Settlements (Aggregate Settlement Rule)

1. The principal ethical limitation applicable to aggregate settlements is the Aggregate Settlement Rule (ASR), which is Rule 1.8(g) of the Model Rules of Professional Responsibility.

2. Rule 1.8(g) provides:

   1. 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 as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client. The lawyer's disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement. (CB 553)

3. An “aggregate settlement” or “aggregated agreement” occur when two or more clients who are represented by the same lawyer together resolve their claims or defenses. ABA Formal Ethics Opinion 06-438 (CB 554).

   1. It is not necessary that all of the lawyer’s clients having claims against the same parties, or having defenses against the same claims, participate in the matter’s resolution for it to be an aggregate settlement or aggregated settlement. ABA Formal Ethics Opinion 06-438 (CB 554).

   2. The rule applies when any two or more clients consent to have their matters resolved together. ABA Formal Ethics Opinion 06-438 (CB 554).

   3. The ASR applies to “common representation of multiple parties in the same matter” and to common representation of multiple parties “in separate cases.” ABA Formal Ethics Opinion 06-438.

4. TEST: In order to ensure a valid and informed consent to an aggregate settlement or aggregated agreement, Rule 1.8(g) requires a lawyer to disclose, at a minimum, the following information to his clients:

   1. (1) The total amount of the aggregate settlement or the result of the aggregated agreement.

   2. (2) The existence and nature of all of the claims or defenses involved in the aggregate settlement or aggregated agreement.

   3. (3) The details of every other client’s participation in the aggregate settlement or aggregated agreement, whether it be their settlement contributions, their settlement receipts, or any other contribution or receipt of something of value as a result of the aggregate resolution.

      1. For example, if one client is favored over the other(s) by receiving non-monetary remuneration, that fact must be disclosed to the other client(s).

   4. (4) The total fees and costs to be paid to the lawyer as a result of the aggregate settlement, if the lawyer’s fees and/or costs will be paid, in whole or in part, from the proceeds of the settlement or by an opposing party or parties.

      1. When the amounts of fees and costs to be paid to the lawyer as a result of the aggregate settlement are not yet determined at the time of the settlement, the lawyer will need to disclose to each of his clients [1] the process by which those amounts will be established and [2] who will pay them, and [3] the amount he will be requesting to be paid. ABA Formal Ethics Opinion 06-438 n.13 (CB 555).

   5. (5) The method by which costs (including costs already paid by the lawyer as well as costs to be paid out of the settlement proceeds) are to be apportioned among them. ABA Formal Ethics Opinion 06-438 (CB 555).

5. Rule 1.8(g) also requires that the clients’ consent to the settlement or agreement be in writing. ABA Formal Ethics Opinion 06-438 (CB 554).

6. The detailed disclosures required by the ASR rule must be made in the context of a specific offer or demand. ABA Formal Ethics Opinion 06-438 (CB 555).

   1. The informed consent required by the rule generally cannot be obtained in advance of the formulation of such an offer or demand. ABA Formal Ethics Opinion 06-438 (CB 555).

7. If the information to be disclosed in complying with Rule 1.8(g) is protected by Rule 1.6, the lawyer must first obtain informed consent from all his clients to share confidential information among them. ABA Formal Ethics Opinion 06-438 (CB 555).

8. There is no room under the ASR for ex ante waiver of requirement of unanimous consent. Tax Authority (CB 570).

9. In addition to disciplinary action by the relevant bar authorities, there can be other consequences for violating the ASR:

   1. An attorney who breaches a fiduciary duty to his client may be required to forfeit all or part of his fees, whether or not the breach caused the client actual damages. Burrow (CB 557).

      1. The amount of the fees to be forfeited is a question for the court, not for a jury. Burrow (CB 557).

   2. Whether an attorney must forfeit any or all of his fees for a breach of fiduciary duty to his client must be determined by applying the rule as stated in the Proposed Restatement (Third) of the Law Governing Lawyers § 49. Burrow (CB 561).

      1. RULE: “A lawyer engaging in clear and serious violation of duty to a client may be required to forfeit some or all of the lawyer’s compensation for the matter.” Proposed Restatement (Third) of the Law Governing Lawyers § 49 (CB 560).

         1. The remedy is restricted to “clear and serious” violations of duty. Burrow (CB 560).

         2. “A violation is clear if a reasonable lawyer, knowing the relevant facts and law reasonably accessible to the lawyer, would have known that the conduct was wrongful.” Proposed Restatement (Third) of the Law Governing Lawyers § 49 cmt. d (CB 560).

         3. The forfeiture of fees for clear and serious misconduct is not automatic and may be partial or complete, depending on the circumstances presented. Burrow (CB 560).

      2. The factors listed in § 49 are to be considered in determining whether a violation is “clear and serious,” whether forfeiture is appropriate, and if so, what amount:

         1. (1) the gravity and timing of the...