Settlement Offers in Civil Cases: Some Important Ethical Considerations

By Alara Chilton
Law Office of Alara Chilton

 

Since most civil cases conclude in a settlement, you may focus much of your time working towards a negotiated resolution.  You do not have complete freedom to do and say whatever comes to mind in an effort to reach a settlement.  An attorney must give careful thought to the various ethical considerations that attend a settlement in order to effectively protect your client, your professional reputation, and avoid a disciplinary complaint.

Consider the following hypothetical:

You represent Mary in a wrongful termination lawsuit against her former employer.  The opposing counsel, Jose, has verbally communicated a settlement offer of $7,000.00 dollars in exchange for a dismissal of the lawsuit.  The offer expires in one week. 

In your view, Jose has provided a “low ball” offer that falls far from making Mary “whole.” You want to tell Jose that Mary will not accept the offer because you consider it ridiculously low.  You contemplate how to proceed. 

Rather than inform Mary of the offer, you consider providing Jose with a counter demand approved by Mary. Before embarking on the aforementioned course of action, you decide to research your ethical obligations.  Your preliminary research reveals the following:

A Lawyer Must Communicate to Her Client All Written Offers and Oral Offers of Settlement if the Verbal Offer Constitutes a “Significant Development

California Rule 1.4.1 (Communication of Settlement Offers) imposes a duty to promptly communicate all “amounts, terms and conditions of any written offer of settlement made to the client. . .[i]” (Cal. Prof. Rule of Conduct, Rule 1.4.1(a)(2), emphasis added.)  Furthermore, this rule imposes a duty to communicate an “oral offer of settlement” if it is a “significant development under Rule 1.4.” (Comment to Cal. Prof. Rule of Conduct, Rule 1.4.1.)

California Rule 1.4 (Communication with Clients) imposes a duty to inform a client about “significant developments” relating to the representation. (Cal. Prof. Rule of Conduct, Rule 1.4(a)(3).)  Although Comment [1] to this rule makes clear a lawyer will not face discipline for a failure to communicate “insignificant or irrelevant information,” whether a development is significant will generally depend upon the “surrounding facts and circumstances.” (Comment [1] to Cal. Prof. Rule of Conduct, Rule 1.4.)

A Lawyer Must Communicate Regarding a Client’s Representation Objectives

California Rule 1.4 also imposes a duty to “reasonably consult with the client about the means by which to accomplish the client’s objectives in the representation.” (Cal. Prof. Rule of Conduct, Rule 1.4(a)(2), emphasis added.)  This duty is intended to strengthen the communication between a lawyer and client by encouraging them to reach a common understanding of how to best achieve the client’s desired outcome during the representation.

What constitutes reasonable consultation is likely to be unique to each client, given the differences of each case and the type of legal representation involved.  Given that client objectives may change, the rule is intended to foster a strong lawyer-client dialogue throughout the representation.

A Lawyer Must Abide by A Client’s Decision Whether to Settle a Matter

California Rule 1.2 (Scope of Representation and Allocation of Authority) imposes a duty “to abide by a client’s decision whether to settle a matter.” (Cal. Prof. Rule of Conduct, Rule 1.2(a).) (See Nehad v. Mukasey, (9th Cir. 2008) 535 F.3d 962, 970 [“Only the client . . . may decide whether to make or accept an offer of settlement.”].)

Analysis

Here, opposing counsel, Jose, has verbally informed you of a settlement offer of $7,000 dollars in exchange for dismissal of the lawsuit.  Under Rule 1.4.1, you are required to communicate this offer to Mary, including its amount and its date of expiration, if it constitutes a “significant development.”  

The hypothetical does not provide sufficient information about the “surrounding facts and circumstances” to determine if the offer constitutes a “significant development” that must be communicated to Mary.  Moreover, the terms “low ball” and “whole” are vague, and may have different meanings to both you and Mary.  Consequently, it is difficult to conclude if the settlement offer constitutes “insignificant or irrelevant” information.

Rule 1.4(a)(2) seemingly encourages you to have an ongoing lawyer-client dialogue with Mary about her representation objectives.  Perhaps Mary would accept the amount included in the offer if her current objectives now require funding her living expenses for the next month, after which she will start a new position. 

If so, and despite your opinion the offer is “ridiculously low” and falls far from making Mary “whole,” the $7,000.00 offered by Jose may support Mary’s representation objectives. As such, you must disclose it to her.  Furthermore, as your client, Mary alone— and not you— has the authority to accept this offer, irrespective of whether you think it is “ridiculously low” or falls far from making Mary “whole.”

In light of Rules 1.4 and 1.4.1, it is best practice to communicate all settlement offers, verbal or written, in order to protect your client’s interests and avoid any misunderstandings or miscommunications regarding your client’s objectives in the representation.

Conclusion

Communicating settlement offers in civil cases must be done with careful consideration of the various applicable ethical rules.  The California Rules of Professional Conduct mandate the prompt communication of written settlement offers, as well as verbal offers that constitute “significant developments.”

In addition, on-going communications with your client regarding his or her objectives will strengthen the lawyer-client relationship and improve the likelihood of a successful outcome.  

Remember that it is solely your client’s decision to make or accept an offer of settlement.  Familiarity and understanding of these ethical considerations will go a long way in protecting your client and your bar card.

 


[i] “Client” is defined as a “person who possesses the authority to accept an offer of settlement or plea, or, in a class action, all the named representatives of the class.”  (Cal. Prof. Rule of Conduct, Rule 1.4.1(b).) 

 

 

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