When a California lawyer settles a fee dispute with a client, may the settlement agreement include a general release and a Civil Code section 1542 waiver that also covers legal malpractice, and what does the lawyer have to do first?

Currency note

This opinion was issued in 2009, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former Rules 2-100 (communication with a represented party), 3-300 (business transactions and adverse interests), 3-310 (avoiding adverse interests), 3-400 (limiting liability to client), and 3-500 (keeping the client informed), together with Business and Professions Code section 6068(m) and Civil Code section 1542. Functionally, current California Rules 1.4 (communication), 1.7 (conflicts of interest), and 1.8.8 (limiting liability to client) now address these issues. The enforceability of any such settlement is a matter of contract law (citing Winet v. Price and Donnelly v. Ayer) that the opinion expressly leaves to other authority. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule reference or procedural step.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

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Plain-English summary

The opinion addresses three hypotheticals.

Fact Pattern 1: Attorney A and Client 1 have an ongoing engagement and a fee dispute. Attorney A is unaware of any basis for a malpractice claim but is concerned about future allegations. Attorney A proposes a settlement, with a general release and a section 1542 waiver broad enough to release any malpractice claim. Client 1, also unaware of any malpractice, signs. Later, Client 1 sues for malpractice for pre-settlement services; Attorney A asserts the release.

Fact Pattern 2: Attorney B believes she has committed malpractice in a matter she is still handling for Client 2. Client 2 is delinquent on fees. The parties mediate; without disclosing the potential malpractice claim, Attorney B settles the fee dispute and signs a mutual general release with a section 1542 waiver broad enough to cover malpractice. Client 2 has no independent counsel.

Fact Pattern 3: Attorney C demands fees from former Client 3 after the underlying case settles. Client 3 refuses, alleging malpractice. Client 3 engages Attorney D for the dispute. With Attorney D representing Client 3, Client 3 and Attorney C settle, signing a mutual general release with a section 1542 waiver covering malpractice.

The committee structures the analysis in six parts.

Withdrawal: A fee dispute alone does not require withdrawal; at initial stages it is permissive (LACBA Formal Opinion 521 (2007)). Before suing a current client for fees, the attorney should withdraw (Rule 3-700(C)(1)(f); Santa Clara County Counsel Attys. Assn. v. Woodside; LACBA Formal Opinions 476 (1994) and 212 (1953)). Before obtaining a release and section 1542 waiver from a client, the lawyer should consider whether withdrawal is appropriate, weighing the circumstances motivating the request, the antagonism between lawyer and client, and the prejudice to the client (Rule 3-700(A)(2)).

Settling claims for attorney liability: A fee dispute alone does not create a conflict (LACBA Formal Opinion 521). But where the dispute involves a potential malpractice claim and the lawyer intends through the settlement to obtain a release of that claim, or the agreement is broad enough to do so, the general release and section 1542 waiver fall within Rule 3-400(B): the lawyer may not settle an actual or potential malpractice claim against herself unless (1) the client is informed in writing that she may seek independent counsel and (2) given a reasonable opportunity to do so.

Duty of loyalty and conflict of interest: Once a potential or actual malpractice claim is involved and the lawyer seeks a release, the lawyer has a financial and professional interest in avoiding suit and minimizing exposure (citing People v. Bonin and Ramirez v. Sturdevant). The lawyer must advise the client that the lawyer cannot represent the client in connection with that dispute, whether or not the fee dispute also involves a malpractice claim (cf. Rules 3-310(C) and 3-500; Flatt v. Superior Court).

Disclosure of facts giving rise to a malpractice claim: Under Business and Professions Code section 6068(m) and former Rule 3-500, the lawyer must keep the client reasonably informed of significant developments. Where the lawyer believes she has committed malpractice, she must promptly communicate the factual information pertaining to the potential claim, because it is a significant development (Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 514: "attorneys have a fiduciary obligation to disclose material facts to their clients, an obligation that includes disclosure of acts of malpractice."). California State Bar Formal Opinion 1989-116 footnote 4 had previously stated that it would be unethical for an attorney knowing he had committed malpractice to negotiate an arbitration provision into an existing retainer without fully disclosing the negligence. Expansion Pointe Properties notes there is no ethical obligation to discuss recovery types.

Inapplicability of Rule 3-300: Rule 3-300 requires fair and reasonable terms, written disclosure, written advisory of right to independent advice, opportunity to obtain such advice, and written consent for adverse business transactions and acquisitions. The committee held that Rule 3-300 should not apply to a cash settlement of a fee dispute that includes a release and section 1542 waiver. First, Rule 3-400(B) specifically addresses an attorney's ability to settle an actual or potential malpractice claim. Second, applying Rule 3-300 would render Rule 3-400(B) surplusage, contrary to the specific-controls-general canon (People v. Hawes).

Application:

• Pattern 1: Attorney A must advise Client 1 in writing of the right to seek independent counsel under Rule 3-400(B) and tell Client 1 that Attorney A does not represent Client 1 as to that dispute. After Client 1 files the malpractice lawsuit, absent informed written consent, Attorney A should withdraw from the underlying representation.

• Pattern 2: Attorney B should consider withdrawal. Because the dispute extends beyond fee compensation to malpractice, the settlement with release is presumed to involve a breach of fiduciary duty subject to Attorney B's rebuttal (Ramirez v. Sturdevant). Attorney B must fully disclose the facts pertaining to the potential malpractice claim (Rule 3-500, cf. Rule 3-310(A)-(B)) and must advise Client 2 of the right to seek independent counsel with meaningful opportunity to do so (Rule 3-400(B)). If a mediation is in progress, the parties may have to adjourn and reconvene to allow Client 2 a meaningful opportunity for independent advice.

• Pattern 3: Because Client 3 and Attorney C have terminated their relationship and Client 3 has independent counsel (Attorney D), the duty to keep a "client" informed no longer applies, and Rule 3-400 (which by its terms is applicable only to "clients") does not apply (California State Bar Formal Opinion 1992-127, fn. 7; Donnelly v. Ayer). Attorney C may communicate directly with Client 3 even though Client 3 is represented (Discussion to Rule 2-100(A): the rule does not prohibit a member who is also a party from communicating directly on his or her own behalf with a represented party).

Common questions

Q: Must a California lawyer disclose potential malpractice before settling a fee dispute that includes a section 1542 release?

A: Per the opinion, yes. Where the lawyer believes she has committed malpractice and the release would cover the malpractice claim, she must promptly communicate the factual information to the client. This is grounded in former Rule 3-500, Business and Professions Code section 6068(m), and the Beal Bank fiduciary disclosure obligation.

Q: Does former Rule 3-400(B) apply when there is no actual malpractice but the release is broad?

A: Per the opinion, yes. Rule 3-400(B) is triggered when the lawyer intends through the settlement to obtain a release of a malpractice claim, or when the settlement agreement itself is broad enough to effectively release such a claim. Compliance requires written notice of the client's right to seek independent counsel and a reasonable opportunity to do so.

Q: Does former Rule 3-300 (adverse business transactions) also apply to these settlements?

A: Per the opinion, no. Rule 3-400(B) is specific to settlements of malpractice claims, and applying Rule 3-300 would render Rule 3-400(B) surplusage. The committee cites People v. Hawes for the canon that the specific controls over the general. (The opinion notes that the situation where the attorney obtains a property interest to secure past-due fees is expressly subject to Rule 3-300.)

Q: When must the lawyer withdraw before seeking a release?

A: Per the opinion, withdrawal is not automatically required by a fee dispute alone. The lawyer should consider the circumstances motivating the request for a release, the level of antagonism, and the prejudice to the client (Rule 3-700(A)(2)). Where a client has already filed a malpractice lawsuit, the lawyer should withdraw from the underlying representation absent informed written consent.

Q: What if the settlement is being negotiated during mediation and the client has no independent counsel?

A: Per the opinion, the parties may have to adjourn the mediation and reconvene so the client has a meaningful opportunity to seek independent counsel as required by Rule 3-400(B), depending on when the advisory is given and what the client wants.

Q: What if the client already has independent counsel and the lawyer-client relationship has ended?

A: Per the opinion, the duty to keep a "client" informed no longer applies, and Rule 3-400 does not apply because the person is no longer a "client." The former attorney may communicate directly with the former client even though the former client has independent counsel, per the Discussion to Rule 2-100(A).

Background and rules framework

The opinion interprets former California Rules 2-100 (communication with a represented party), 3-300 (business transactions and adverse interests), 3-310 (avoidance of representation of adverse interests), 3-400 (limiting liability to a client, including 3-400(A) on prospective limitations of liability and 3-400(B) on settling malpractice claims), and 3-500 (keeping the client informed), together with Business and Professions Code section 6068(m) (significant developments) and Civil Code section 1542 (general releases do not extend to claims the releaser does not know or suspect). Functionally, the framework now corresponds to current California Rules 1.4 (communication), 1.7 (conflicts of interest with current clients), and 1.8.8 (limiting liability to a client). The committee notes the parallel narrow approach in ABA Model Rule 1.8(h)(2) and Restatement (Third) of the Law Governing Lawyers § 54(4).

Citations and references

Rules of Professional Conduct (former, in effect at time of opinion):

• Former California Rule 2-100 (communication with a represented party)
• Former California Rule 3-300 (business transactions and adverse interests)
• Former California Rule 3-310 (avoidance of representation of adverse interests)
• Former California Rule 3-400(A) (prospective limitations of liability; inapplicable to past acts)
• Former California Rule 3-400(B) (settlement of actual or potential malpractice claims)
• Former California Rule 3-500 (keeping the client informed)
• Former California Rule 3-700 (termination; including 3-700(A)(2) and 3-700(C)(1)(f))

Statutes:

• California Business and Professions Code section 6068, subdivision (m)
• California Civil Code section 1542 (general release does not extend to unknown or unsuspected claims)

Cases:

• Winet v. Price (1992) 4 Cal.App.4th 1159, enforceability of a section 1542 waiver
• Donnelly v. Ayer (1986) 183 Cal.App.3d 978, same; Rule 3-400 does not apply post-termination
• Santa Clara County Counsel Attys. Assn. v. Woodside (1994) 7 Cal.4th 525, duty of loyalty and lawsuits against current client (dictum)
• Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, fiduciary obligation to disclose acts of malpractice
• People v. Bonin (1989) 47 Cal.3d 808, conflicts of interest scope
• Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, dual-representation conflict
• Flatt v. Superior Court (Daniel) (1995) 9 Cal.4th 275, duty of loyalty
• Expansion Pointe Properties Ltd. Partnership v. Procopio, Cory, Hargreaves & Savich, LLP (2007) 152 Cal.App.4th 42, no ethical obligation to discuss recovery types
• People v. Hawes (1982) 129 Cal.App.3d 930, specific controls over general

Other opinions and authorities cited:

• Los Angeles County Bar Association Formal Opinion 212 (1953)
• Los Angeles County Bar Association Formal Opinion 476 (1994)
• Los Angeles County Bar Association Formal Opinion 521 (2007)
• California State Bar Formal Opinion 1989-116 fn. 4 (concealment of malpractice during retainer renegotiation)
• California State Bar Formal Opinion 1992-127 fn. 7 (Rule 3-400 inapplicable post-termination)
• ABA Model Rule 1.8(h)(2)
• Restatement (Third) of the Law Governing Lawyers § 54(4)

See also

• CA COPRAC Op. 2006-170: Charging lien in contingency fee agreement
• CA COPRAC Op. 2009-177: Charging lien preservation on joint settlement check
• CA COPRAC Op. 2008-175: Successor counsel, prior lien, and client concealment instruction

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original PDF: https://www.calbar.ca.gov/sites/default/files/portals/0/documents/ethics/Opinions/2009-178.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2009-178

ISSUES: Is it ethically proper for an attorney who is settling a fee dispute with a client to include a general release and a Civil Code section 1542 waiver in the settlement agreement? Does the existence of a legal malpractice claim against the attorney alter the ethical propriety of including a general release and section 1542 waiver in the settlement agreement?

DIGEST: An attorney must promptly disclose to the client the facts giving rise to any legal malpractice claim against the attorney. When an attorney contemplates entering into a settlement agreement with a current client that would limit the attorney's liability to the client for the lawyer's professional malpractice, the attorney must consider whether it is necessary or appropriate to withdraw from the representation. If the attorney does not withdraw, the attorney must:

1. Comply with rule 3-400(B) by advising the client of the right to seek independent counsel regarding the settlement and giving the client an opportunity to do so;

2. Advise the client that the lawyer is not representing or advising the client as to the settlement of the fee dispute or the legal malpractice claim; and

3. Fully disclose to the client the terms of the settlement agreement, in writing, including the possible effect of the provisions limiting the lawyer's liability to the client, unless the client is represented by independent counsel.

AUTHORITIES INTERPRETED: Rules 2-100, 3-300, 3-310, 3-400, and 3-500 of the Rules of Professional Conduct of the State Bar of California. Business and Professions Code section 6068, subdivision (m). Civil Code section 1542.

STATEMENT OF FACTS

Fact Pattern 1: Client 1 engages Attorney A to represent Client 1. During the representation, a dispute develops regarding attorneys' fees. Client 1 and Attorney A decide to settle the attorneys' fees dispute by entering into a written settlement agreement. Client 1 and Attorney A intend that Attorney A continue to represent Client 1 in the ongoing matter. Although Attorney A is not aware of any basis for a legal malpractice claim, Attorney A is concerned that Client 1 may allege that Attorney A committed legal malpractice at some future date. To resolve the fee dispute and protect against any future legal malpractice allegation regarding Attorney A's completed services, and to allow the continuation of the representation, Attorney A proposes a settlement of the fee dispute, memorialized by a written settlement agreement including a general release of all claims known and unknown to the date of the settlement and a provision waiving Civil Code section 1542 (hereinafter "section 1542"). The proposed settlement agreement is broad enough to release any legal malpractice claim. Section 1542 provides that:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Client 1 is unaware of any legal malpractice by Attorney A, and has not alleged legal malpractice against Attorney A, formally or informally. Client 1 and Attorney A execute the settlement agreement, including the section 1542 waiver. Later, Client 1 files a lawsuit for legal malpractice against Attorney A with regard to services rendered before the settlement agreement was executed. At that time, Attorney A relies upon the general release and the section 1542 waiver, asserting that Client 1 released the claim for legal malpractice against Attorney A.

Fact Pattern 2: Attorney B believes that she has committed legal malpractice in a matter that she is handling on behalf of Client 2. Client 2 is delinquent in payment of attorneys' fees to Attorney B. Near the end of the engagement, Attorney B demands payment of all past due attorneys' fees. Attorney B and Client 2 decide to mediate their dispute. At the mediation, Client 2 is not represented by independent counsel. Without disclosing the potential malpractice claim to Client 2, Attorney B settles the fee dispute with Client 2, and the parties enter into a settlement agreement and mutual general release of all claims, known and unknown. Attorney B and Client 2 both intend that the settlement agreement resolve any claim for legal malpractice, and the terms of the settlement agreement are broad enough to do so. The settlement agreement includes a section 1542 waiver.

Fact Pattern 3: Client 3 engages Attorney C to represent Client 3. The representation comes to a conclusion because the case in which Attorney C represented Client 3 is resolved through a settlement. However, Client 3 has not paid Attorney C's billings for attorneys' fees in full. Attorney C sends a letter to Client 3 demanding payment of the outstanding fees. In response, Client 3 refuses to pay the outstanding attorneys' fees and asserts that Attorney C has committed legal malpractice. Attorney C disagrees that he has committed legal malpractice. Client 3 engages Attorney D to represent Client 3 in reference to the dispute with Attorney C, including the dispute concerning the payment of attorneys' fees and Client 3's legal malpractice claim against Attorney C. While Client 3 is represented by Attorney D, Client 3 and Attorney C resolve their dispute, memorializing the resolution in a written settlement agreement and mutual general release of all claims, known and unknown, which includes a section 1542 waiver. Attorney C intends that the settlement agreement resolve Client 3's claim for legal malpractice against Attorney C, and the terms of the settlement agreement are broad enough to do so.

This opinion discusses the ethical issues raised by the above scenarios. The issues include: (1) whether the attorney in each factual scenario has a conflict of interest; (2) how the attorney in each scenario must proceed in order to fulfill his or her fiduciary duties; (3) the duty of the attorney in each scenario to make disclosures to the client, including disclosure of the facts giving rise to a legal malpractice claim and disclosure fully explaining the terms and conditions of the proposed settlement; and (4) under what circumstances the attorney must withdraw from the representation of the client.

The effect of a settlement agreement between a lawyer and a client releasing all claims, known and unknown, combined with a section 1542 waiver, is a matter of contract law. In some cases, depending on the facts and circumstances, the precise language of the release, whether the client is represented by independent counsel, and the intentions of the parties in entering into the settlement agreement, the settlement agreement may result in the client's release of the lawyer from all claims, known or unknown, including any claims that the client may have against the lawyer for legal malpractice. (See, e.g., Winet v. Price (1992) 4 Cal.App.4th 1159, 1168 [6 Cal.Rptr.2d 554]; Donnelly v. Ayer (1986) 183 Cal.App.3d 978, 983-984 [228 Cal.Rptr. 764].) The enforceability of the settlement agreement, depending as it may on whether the client has independent counsel, whether a viable malpractice claim is concealed by the attorney from the client, and whether the client signed the release and section 1542 waiver without intending to release the attorney from liability for legal malpractice, is a legal matter of contract law that is beyond the scope of this opinion. We consider here only the ethical obligations of a lawyer entering into such an agreement with a present or former client.

DISCUSSION

1. Withdrawal from Representation

A fee dispute between a lawyer and client does not, by itself, require the lawyer to withdraw as counsel. (Los Angeles County Bar Assn. Formal Opn. No. 521 (2007).) At the initial stages of a fee dispute, withdrawal is permissive. (Ibid.) Prior to an attorney initiating a suit for the collection of fees against a client, the attorney should withdraw from the representation of the client. (Rule 3-700(C)(1)(f); Santa Clara County Counsel Attys. Assn. v. Woodside (1994) 7 Cal.4th 525, 548-549 [28 Cal.Rptr.2d 617]; Los Angeles County Bar Assn. Formal Opn. No. 476 (1994); Los Angeles County Bar Assn. Formal Opn. No. 212 (1953).)

Before entering into a settlement agreement and obtaining a general release and section 1542 waiver from a client, the lawyer should consider whether it is appropriate to withdraw from the representation. In making this decision, the lawyer should consider the circumstances motivating the request for a general release and section 1542 waiver, the level of antagonism between the lawyer and client, and the degree to which withdrawal from representation would cause prejudice to the client. (Rule 3-700(A)(2).)

2. Settling Claims for Attorney's Liability

A fee dispute with a client, by itself, also does not create an ethical conflict of interest. (Los Angeles County Bar Assn. Formal Opn. No. 521.) However, where the fee dispute involves a potential claim of legal malpractice, and where the lawyer intends through the settlement agreement to obtain a release of that legal malpractice claim, or where the settlement agreement itself is broad enough to effectively release the client's legal malpractice claim against the lawyer, a general release including a waiver of section 1542 from the client in connection with the resolution of that fee dispute is subject to rule 3-400(B). Rule 3-400(B) provides that an attorney shall not settle a claim or potential claim for an attorney's liability to a client for an attorney's professional malpractice unless (1) the client is informed in writing that the client may seek the advice of independent counsel regarding the settlement, and (2) the client is given a reasonable opportunity to seek that advice. (Rule 3-400(B).)

3. Duty of Loyalty and Conflict of Interest

A conflict of interest arises in scenarios involving a lawyer's settlement of a fee dispute with a client that also involve the release of a potential or actual legal malpractice claim. A member should not accept or continue representation of a client without providing written disclosure to the client where the member has or had financial or professional interests in the potential or actual malpractice claim involving the representation. (Cf. Rule 3-310(B)(4).) "The primary purpose of this prophylactic rule is to prevent situations in which an attorney might compromise his or her representation of the client in order to advance the attorney's own financial or personal interests." (Santa Clara County Counsel Attys. Assn. v. Woodside, supra, 7 Cal.4th at p. 546.) Written disclosure to the client of the conflict of interest arising from the lawyer's financial or professional interests in the dispute should be given. (Cf. Rule 3-310(B).)

Although the lawyer does not have a financial interest that creates a conflict of interest in a situation involving solely a fee dispute (Los Angeles County Bar Assn. Formal Opn. No. 521), once a potential or actual legal malpractice claim is involved, and once the attorney seeks a release from such a claim, the lawyer has a financial and professional interest in avoiding a suit for legal malpractice arising from the lawyer's representation and in minimizing the lawyer's exposure to the client. (See People v. Bonin (1989) 47 Cal.3d 808, 835 [254 Cal.Rptr. 298].) Where the attorney's interest in securing an enforceable waiver of a client's legal malpractice claim against the attorney conflicts with the client's interests, the attorney must assure that his or her own financial interests do not interfere with the best interests of the client. (See Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 924 [26 Cal.Rptr.2d 554].) Accordingly, the lawyer negotiating such a settlement with a client must advise the client that the lawyer cannot represent the client in connection with that matter, whether or not the fee dispute also involves a potential or actual legal malpractice claim. (Cf. Rules 3-310(C) and 3-500; Flatt v. Superior Court (Daniel) (1995) 9 Cal.4th 275, 289 [36 Cal.Rptr.2d 537].)

4. Disclosure of Facts Giving Rise to Potential Malpractice Claim to Client

A lawyer has an ethical obligation to keep a client informed of significant developments relating to the representation of the client. (Bus. & Prof. Code, § 6068, subd. (m); rule 3-500.) Where the lawyer believes that he or she has committed legal malpractice, the lawyer must promptly communicate the factual information pertaining to the client's potential malpractice claim against the lawyer to the client, because it is a "significant development." Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 514 [66 Cal.Rptr.3d 52] ["attorneys have a fiduciary obligation to disclose material facts to their clients, an obligation that includes disclosure of acts of malpractice."]. We previously stated that:

It would, of course, be unethical for an attorney, knowing he/she had committed malpractice, to attempt to negotiate an arbitration provision into an existing retainer agreement without fully disclosing the fact of the attorney's negligence to the client. (State Bar Formal Opn. No. 1989-116, fn. 4.)

5. Inapplicability of Rule 3-300

Rule 3-300 imposes certain requirements before an attorney may "enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client[.]" The requirements include: (1) a fair and reasonable transaction or acquisition and terms; (2) full written disclosure of such terms; (3) a written advisory that the client may seek advice from an independent attorney of the client's choice; (4) a reasonable opportunity to obtain such advice from an independent attorney; and (5) written consent by the client to the terms of the transaction or acquisition. (Rule 3-300(A)-(C).) While no published California authorities have specifically addressed whether an attorney's cash settlement of a fee dispute that includes a general release and a section 1542 waiver of actual or potential malpractice claims for past legal services falls within the prescriptions of this rule, it is the Committee's opinion that rule 3-300 should not apply.

First, rule 3-400(B) expressly addresses an attorney's ability to settle an actual or potential claim for malpractice by imposing the requirements set forth in Section 2, supra. Specifically, the client must be advised in writing that he or she may seek advice of an independent attorney of his or her choice regarding the settlement and must be given a reasonable opportunity to do so. (Rule 3-400(B).) Rule 3-300, however, lacks any reference to the settlement of such claims.

Second, if the prescriptions of rule 3-300 were to apply to these circumstances, rule 3-400(B) would be rendered mere surplusage. Rule 3-400(B)'s requirements are more narrow in scope than those in rule 3-300, but are nonetheless contained within rule 3-300. Consequently, there would be no need for rule 3-400(B)'s existence if rule 3-300 also applied. (See People v. Hawes (1982) 129 Cal.App.3d 930, 936-937 [181 Cal.Rptr. 456].)

For these reasons, the Committee believes that the prescriptions of rule 3-300 are inapplicable when an attorney and client are negotiating a cash settlement of a fee dispute in exchange for a section 1542 release of claims, including malpractice claims for prior services rendered.

6. Application to Fact Patterns

In Fact Pattern 1, where Attorney A and Client 1 have an ongoing attorney-client relationship, and Client 1 has no independent counsel, Attorney A must advise Client 1 that Attorney A does not represent Client 1 in reference to that dispute. Attorney A must advise Client 1 in writing that Client 1 may seek the advice of independent counsel regarding the general release and section 1542 waiver, and must give Client 1 an opportunity to do so. (Rule 3-400(B).) After Client 1 has filed a lawsuit for legal malpractice against Attorney A, absent informed written consent, Attorney A should withdraw from representation of Client 1 in the ongoing, underlying matter.

In Fact Pattern 2, Attorney B has an interest in not only resolving the fee dispute favorably, but also in obtaining an enforceable release of the legal malpractice claim which Client 2 may have against Attorney B. Because Client 2's interest is adverse to that of Attorney B, Attorney B should consider whether it is appropriate to withdraw from the representation of Client 2. Because the dispute involves a legal malpractice claim, a matter beyond the compensation and hiring arrangements in the attorney-client relationship, the settlement agreement including the general release and section 1542 waiver is presumed to involve a breach of Attorney B's fiduciary duties to Client 2 (see Ramirez v. Sturdevant, supra, 21 Cal.App.4th at p. 917), subject to rebuttal by Attorney B. Attorney B is further obliged to fully disclose the facts pertaining to the potential legal malpractice claim to Client 2. (Rule 3-500; cf. rule 3-310(A)-(B).)

Attorney B must also advise Client 2 in writing of Client 2's right to seek the advice of independent counsel regarding the settlement agreement and must give Client 2 a meaningful opportunity to do so. (Rule 3-400(B).) Where the settlement takes place during a mediation, in order to comply with rule 3-400(B), the parties to the mediation may have to adjourn the mediation and reconvene in order to permit Client 2 to have a meaningful opportunity to seek independent counsel, depending upon when the advice required by rule 3-400(B) is given, and upon Client 2's desires.

In Fact Pattern 3, because Client 3 and Attorney C have terminated their attorney-client relationship, and Client 3 has independent counsel (Attorney D), the obligation to keep a "client" informed of significant developments no longer applies. (Bus. & Prof. Code, § 6068, subd. (m); rule 3-500.) Likewise, rule 3-400, which by its terms is applicable only to "clients," is not applicable to this factual scenario because Client 3 is no longer a client of Attorney C. (State Bar Formal Opn. No. 1992-127, fn. 7; see Donnelly v. Ayer, supra, 183 Cal.App.3d at p. 984.) Where Client 3 is represented by Attorney D in connection with the dispute that is the subject of the settlement agreement, Attorney C may communicate directly with Client 3, even though Client 3 is represented by counsel. (Discussion to rule 2-100(A).)

CONCLUSION

Before entering into a settlement agreement with a current client that includes a general release and a section 1542 waiver, an attorney must promptly disclose to the client the facts giving rise to any potential or actual malpractice claim. The attorney should consider whether it is necessary or appropriate to withdraw from the representation. If the attorney does not withdraw, the attorney must comply with rule 3-400(B), advise the client that the lawyer does not represent the client in reference to the fee dispute or legal malpractice claim, and fully disclose to the client the terms of the settlement agreement, in writing, including the possible effects of the general release and section 1542 waiver, assuming the client does not have independent counsel.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.