What must a lawyer disclose to multiple clients before settling their claims together in an aggregate settlement?

Plain-English summary

The opinion interprets Model Rule 1.8(g), which governs aggregate settlements, the situation in which a lawyer who represents two or more clients resolves their claims, defenses, or pleas together. Because the Model Rules do not define "aggregate settlement" or "aggregated agreement," the committee first explains that such a resolution occurs whenever two or more clients represented by the same lawyer together resolve their matters, whether the claims arise in the same case or in separate ones, and not all of a lawyer's clients need participate.

The committee describes Rule 1.8(g) as a focused supplement to the general conflicts rule. It requires an additional level of disclosure beyond Rule 1.7 and, unlike Rule 1.7, demands that the clients' informed consent be in writing. The rule's purpose is to deter a lawyer from favoring one client over another in a joint settlement, by giving each client the information needed to decide whether to consent and the power to refuse. To satisfy the rule, the lawyer must disclose, at a minimum, the total amount or result of the settlement, the existence and nature of all of the claims, defenses, or pleas involved, the details of every other client's participation including non-monetary benefits, the total fees and costs the lawyer will receive from the proceeds or from an opposing party, and the method by which costs will be apportioned among the clients.

The committee holds that these disclosures must be made in the context of a specific offer or demand, so the required informed consent generally cannot be obtained in advance, and cannot be delegated to the lawyer or to a majority of the clients. Where the required disclosures would reveal one client's confidential information to the others, the lawyer must first obtain each client's informed consent to share that information, best done at the outset of the representation, and should warn the clients that the attorney-client privilege may later be unavailable in disputes among them. The committee treats Rule 1.8(g) as a prophylactic rule that protects both the clients and the lawyer and helps assure the finality and enforceability of the settlement. It does not treat certified class-action or derivative settlements as aggregate settlements, and does not reach multi-party bankruptcy representation.

In practice

Under this opinion, a lawyer who proposes to settle several clients' claims as a package must lay out the whole picture to each client, including what every other client is getting and what the lawyer will be paid, and obtain each client's written consent tied to the actual offer on the table. The opinion makes clear that advance, blanket consent to a future aggregate settlement does not satisfy Rule 1.8(g), and that confidentiality consents should be addressed early because the disclosures will cross client lines.

Common questions

Q: What exactly do I have to tell each client before an aggregate settlement?

A: The committee lists the total result; every client's claims, defenses, or pleas and their participation; the lawyer's total fees and costs; and how costs are apportioned. The opinion requires that "these detailed disclosures must be made in the context of a specific offer or demand."

Q: Can I get the clients to agree to an aggregate settlement up front in the retainer?

A: No. Because the disclosures must accompany a specific offer or demand, the opinion concludes informed consent generally cannot be obtained in advance, and it cannot be delegated to the lawyer or a client majority.

Q: What if disclosing one client's information to the others is necessary?

A: Get consent first. The opinion states that "if the information to be disclosed in complying with Rule 1.8(g) is protected by Rule 1.6, the lawyer first must obtain informed consent from all his clients to share confidential information among them."

Q: Does this apply to class actions?

A: Not as such. The committee does not treat certified class-action or derivative settlements as aggregate settlements under Rule 1.8(g).

Background and rules framework

The opinion interprets Model Rule 1.8(g) (aggregate settlements; written informed consent) as a specific application of Rule 1.7 (concurrent conflicts), Rule 1.2(a) (the client's authority to decide whether to settle), Rule 1.4 (communication), and Rule 1.6 (confidentiality). It draws on the definitions in Rule 1.0(b) and 1.0(e) ("confirmed in writing" and "informed consent") and traces the rule's lineage to Model Code DR 5-106.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.8(g) (aggregate settlements; written informed consent)
• ABA Model Rule 1.7 (concurrent conflicts)
• ABA Model Rule 1.2(a) (client's authority to settle)
• ABA Model Rule 1.6 (confidentiality)
• ABA Model Rule 1.4 (communication)

Cases:

• Arce v. Burrow, 958 S.W.2d 239 (Tex. App. 1997), aggregate-settlement disclosure
• The Tax Authority, Inc. v. Jackson Hewitt, Inc., 873 A.2d 616 (N.J. Super. Ct. App. Div. 2005), validity of advance consent
• Hayes v. Eagle-Picher Industries, 513 F.2d 892 (10th Cir. 1975)

Other opinions cited:

• Model Code DR 5-106 (settling similar claims of clients), the rule's predecessor

See also

• ABA Formal Op. 497: Conflicts Involving Materially Adverse Interests
• ABA Formal Op. 474: Referral Fees and Conflict of Interest
• ABA Formal Op. 484: Clients Using Companies to Finance the Lawyer's Fee

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 06-438.pdf