Inquiry is made concerning the ethical consequences of settlement negotiations which include provisions relating to attorney's fees.
The subject of this inquiry arises with increased frequency following the advent of structured settlements, class actions and the Civil Rights Attorney's Fee Award Act of 1976, 72 U.S.C. Section 1988.
Formal Ethics Opinions 80-F-1, 80-F-1(a), 84-F-61 and 84-F-77 have addressed the matter relating to structured settlement. Formal Ethics Opinion 84-F-77 states:
There is a potential, if not an actual, conflict of interest between the attorney and client in every instance where structured settlements are discussed or considered as a settlement option. It is recognized that, in some instances, an immediate cash settlement would be more beneficial to the client, whereas the attorney may prefer to receive the payment of his attorney fee periodically; or, vice versa. The preferences of the attorney or client are often dependent or based upon their respective ages, economic station or tax consequences. These factors will seldom, if ever, be viewed from the same perspective by the attorney and the client.
Formal Ethics Opinion 80-F-1 states:
... any arrangement by which the opposing party participates in the setting of the fee charged by the attorney to his client conflicts with the language and intent of DR 5-107 and EC 5-22 of the Code. (emphasis added)
The matter of civil rights attorney's fee awards has not been addressed in a Formal Ethics Opinion. It appears the conflict in such instances may be more severe than in cases involving structured settlements. For example, in the case of Jeff D. et al v. Evans, 743 F.2d 648 (9th Cir. 1984), during the settlement negotiations, the defendants offered virtually all of the relief sought by plaintiff's conditioned upon waiver of attorney's fees by plaintiff's counsel.
The Ninth Circuit Court of Appeals in considering the matter states:1
The crux of the problem is the possibility of diverging interests of the lawyer and the class. The attorney may be tempted with a generous fee offer as a quid pro quo for less than optimal settlement. Alternatively, the defendant may condition settlement on the attorney's waiver of fees, creating a particularly severe conflict when important interests of class members are at stake....
To avoid this conflict, this circuit has ... disapproved simultaneous negotiation of settlements and attorney's fees.
In such instances, settlement negotiations which include provisions for attorney's fees are not inherently improper and may be appropriate, provided plaintiff's counsel:
(i) Fully advises the plaintiff or plaintiffs concerning each and every step and aspect of the negotiations;
(ii) Advises that independent legal advice may be obtained regarding the matter; and
(iii) The client should be allowed to approve or disapprove of the entire settlement, including provisions relating to attorney's fees. When consent, approval or permission of a court is
required, the court should be fully advised of all matters relative thereto, including the provisions for attorney fees.
This 26th day of September, 1986.
W. J. Flippin, Chairman
Edwin C. Townsend
Henry H. Hancock
APPROVED AND ADOPTED BY THE BOARD
1The District Court denied attorney's application for fees following a settlement agreement providing for a waiver of attorney's fees. The Ninth Circuit held that a stipulated waiver of
attorney's fees obtained solely as a condition for obtaining relief for the class should not be accepted and the Court should make its own determination of reasonable fees, remanding the case for such a determination. The United States Supreme Court granted certiorari and, on April 21, 1986, held that the District Court had discretion to refuse to award fees, and considering the extent of relief in the settlement, there was no abuse of discretion by the District Court in upholding the waiver of fee and denying attorney's application for fees. See Evans v. Jeff D., 106 S.Ct. 1531 (1986).