New ethics opinion provides guidance on avoiding conflicts of interest in aggregate settlements

In a newly issued ethics opinion (Formal Opinion 06-438 [PDF]), the American Bar Association Standing Committee on Ethics and Professional Responsibility provides detailed guidance to help lawyers avoid conflicts of interest in making or accepting aggregate settlements or agreements.

Potential conflicts can arise in civil cases when a single lawyer represents multiple parties in the same case, such as several victims of a car accident, or individual parties with separate but related cases, as with several persons who bought homes from the same builder and claim breach of warranty, notes the opinion.  Such situations are governed by Rule 1.8(g) of the ABA Model Rules of Professional Conduct.

Ethics rules deter a lawyer with multiple clients from favoring one over another by requiring the lawyers to disclose to all clients information that is relevant to a proposed settlement.  The new ethics opinion details categories of information that must be disclosed to all clients who would be affected by the settlement:

• The total amount of the settlement or result of the agreement
• The existence and nature of all claims, defenses or pleas involved
• Details of each client's participation in the aggregate settlement or agreement, whether by contribution to payment, share of receipts or  resolution of criminal charges
• Total fees and costs to be paid to the lawyer as a result of the settlement, whether paid from proceeds of the settlement or by an opposing party or parties
• The method to be used to apportion costs among the parties

The opinion notes that all disclosures must be made in the context of a specific offer or demand, as informed consent cannot be obtained in advance of formulating the offer or demand.  In order to avoid favoritism, all clients must agree, it adds.  If any do not, the lawyer may be required to withdraw from representation of all.

Complying with Rule 1.8(g) protects the clients and the lawyer, and helps assure finality and enforceability of the agreements, the opinion concludes.

The ABA Standing Committee on Ethics and Professional Responsibility periodically issues ethics opinions for the guidance of lawyers, courts and the public interpreting and applying the ABA Model Rules of Professional Conduct to specific issues of legal practice and client-lawyer relationships.

Opinions are available free of charge to ABA members here for a period of one year after they are issued.

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