Is a settlement agreement between a plaintiff and one of two co-defendants that realigns the parties' interests ethical, and must it be disclosed?

Plain-English summary

The Committee considered an agreement, made between a personal-injury plaintiff and one of two co-defendants, that minimized the agreeing defendant's negligence, shifted major responsibility to the non-agreeing defendant, released the agreeing defendant from liability outside the agreement, guaranteed the plaintiff payments, and required the agreeing defendant to remain in the suit. All parties were aware of the agreement and its terms. The question was whether the agreement constituted maintenance or champerty, or otherwise violated the Code of Professional Responsibility.

The opinion concluded that the agreement was neither maintenance nor champerty. Maintenance is the offense of officiously financing the litigation of another by a stranger, and champerty is the species of maintenance providing for return of a portion of the recovery; here the agreeing defendant acted to limit his own liability, a proper litigation objective, and plaintiff's counsel was not improperly financing the suit because the Code permits a lawyer to advance the costs of litigation so long as the client remains ultimately liable (EC 5-8; DR 5-103(B)).

The opinion noted that the agreement radically altered the agreeing defendant's expected interest in the outcome, giving him reason to favor a larger recovery rather than to minimize damages. Citing the Alaska Supreme Court's decision in Breitkreutz v. Baker and out-of-state authority, the opinion concluded that altering a party's usual interest by such an agreement is not wrong in itself, so long as there is no pretense that the interest remains unchanged. To guard against an express or implied misrepresentation of a party's actual interest, the opinion concluded it is essential that the agreement be disclosed to the court and to all the parties when it is made.

Currency note

This opinion was issued in 1974, before the Alaska Bar Association's adoption of the Alaska Rules of Professional Conduct (it applies the former Code of Professional Responsibility) and before the 2009 revisions to those rules. The rules on candor, advancing litigation costs, and disclosure have since been recodified. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific point mentioned here.

Common questions

Q: Is a settlement that realigns a co-defendant's interest champerty or maintenance?

A: No. The opinion concluded the agreement was neither, because the agreeing defendant acted to limit his own liability and plaintiff's counsel did not improperly finance the suit; the Code permits advancing litigation costs where the client remains ultimately liable.

Q: Does the agreement have to be disclosed?

A: Yes. The opinion concluded that, because the agreement secretly realigns a party's interest in the outcome, disclosure to the court and all parties when the agreement is made is essential to avoid a misrepresentation of that party's actual interest.

Q: Is changing a party's usual interest in the litigation improper?

A: Per the opinion, altering a party's usual interest by such an agreement is not wrong in itself, so long as there is no pretense that the interest remains unchanged.

Background and rules framework

The opinion applied the former Code of Professional Responsibility, including EC 5-8 and DR 5-103(B) on a lawyer's advancing litigation costs while the client remains ultimately liable, and the broader duty against misrepresenting a party's actual interest to the court. Those subjects are now treated by Model Rule 3.3 (candor toward the tribunal) and Model Rule 1.8(e) (financial assistance to a client). The opinion also discussed the common-law doctrines of maintenance and champerty.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 5-103(B); EC 5-8 (advancing costs of litigation; client ultimately liable) (cf. Model Rule 1.8(e))
• Duty against misrepresenting a party's actual interest to the court (cf. Model Rule 3.3)

Cases:

• Breitkreutz v. Baker, Opinion No. 936 (Alaska 1973), disclosure of a party-realigning agreement to the trier of fact is mandatory
• City of Tucson v. Gallagher, 483 P.2d 798 (Ariz. 1971), realigning agreements with disclosure
• Maule Industries v. Roundtree, 264 So.2d 445 (Fla. App. 1972)
• Pellett v. Sonatone Corp., 160 P.2d 783 (Cal. 1945), tacit approval of such an agreement with full disclosure

See also

• Alaska Ethics Op. 76-3: Joint Representation of Co-Defendants on Appeal
• Alaska Ethics Op. 2022-2: Client False Statements to the Court
• Alaska Ethics Op. 2003-2: Personal Representative Fraud Disclosure

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/74-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative. Ethics Opinion No. 74-1 Propriety of Agreements Between Plaintiff and One of Two Co-Defendants Which Changes Alignment of One or More Parties. Facts The plaintiff in a suit for personal injuries entered into an agreement which, where only one of two codefendants was involved, (1) minimizes the negligence of the agreeing defendant, (2) places major responsibility on the non-agreeing defendant, (3) releases the agreeing defendant from any liability outside the agreement, (4) requires the payment of $10,000 to the plaintiff immediately, (5) requires the payment of an additional $10,000 to the plaintiff in the event that the ultimate recovery is less than $20,000, and (6) requires that the agreeing defendant remain in the suit as a defendant. In addition, the agreeing defendant has also filed a crossclaim against the non-agreeing defendant, although not until after a question had been raised as to the legal and ethical propriety of the agreement. All parties to the action are aware of the existence and terms of the agreement. Counsel for the plaintiff has stated that he intends to use the proceeds to pay expenses of the litigation against the non-agreeing defendant. Question Does this agreement constitute maintenance or champerty, or a violation of the Code of Professional Responsibility? Opinion It is the opinion of the Committee that the agreement is not maintenance or champerty and that the agreement is not unethical so long as it is disclosed to the court prior to trial. Discussion Maintenance is the common law offense of financing litigation, while champerty is that species of maintenance which provides for the return of a portion of the recovery to one advancing financial assistance. The gist of these offenses is the officious intermeddling in the suit of another by a stranger. Here, the agreeing defendant has for his purpose the limitation of his own liability, a proper litigation objective. Nor is plaintiff's counsel involved in maintenance. The Code of Professional Responsibility affirms the propriety of attorneys advancing the 1

cost of litigation so long as the ultimate liability for such costs remain that of the client. EC 5-8; DR 5-103 (B). Thus the champerty.

above

agreement

does

not

constitute

maintenance

or

The agreement changes the expected interests of the agreeing defendant. Prior to the agreement his interests were (1) to establish that he was not negligent and (2) to minimize damages. Subsequent to the agreement (disregarding the cross-claim which appears to have been filed as an afterthought) the agreeing defendant has no interest in establishing that he was not negligent, has no interest in minimizing damages and, in fact, is affirmatively interested in establishing that damages are greater than $20,000. Thus the agreement radically alters the agreeing defendant's expected interest in the outcome of the litigation. Altering the usual interest of a party by such an agreement is not wrong, in itself, so long as there is no pretense that his interest remains unchanged. City of Tucson v. Gallagher, 483 P.2d 798 (Ariz. 1971) 493 P.2d 1197 (1972) and Maule Industries v. Roundtree, 264 So.2d 445 (Fla. App. 1972). In Breitkreutz v. Baker, Opinion No. 936, Supreme Court of Alaska (1973), our Supreme Court indicated that where there is an agreement which changes the usual interests of a party, disclosure of the change to the trier of fact is mandatory. The court, however, did not disapprove of the agreement and relief (upon the case of Pellett v. Sanatone Corp., 160 P.2d 783 (Cal. 1945), where the California Supreme Court gave tacit approval of such an agreement accompanied by full disclosure. The Committee believes that agreements which change the anticipated alignment of one or more parties may be distinctly useful in accomplishing such legitimate litigation objectives as compensating an injured party and limiting the potential liability of a defendant; however, to guard against an express or implied misrepresentation of a party's actual interest after such an agreement is made, it is essential that there be disclosure of such an agreement to the court and to all the parties when the agreement is made. Adopted by Board of Governors on May 15, 1974.

2