Ethics Tip of the Month - June 2013

Unsettling Settlements

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Sometimes, settlement discussions with clients can be very unsettling.  Consider the following:

You have been representing a client in a personal injury matter for the past two years.  You have carefully analyzed the merits of the case and have determined that the best recovery your client can hope for is $25,000.  You have been negotiating with the defendants for several months and they have now come to you with a settlement proposal of $24,000.  They have made it very clear that that is their final offer.  Your client tells you to refuse their offer and demand nearly twice that amount.  If the demand is refused, the client insists that you take the matter to trial.

You believe that if you go to trial, costs and expenses will total $20,000, and that it is very unlikely that you will recover more than your original estimate. Under Rule 1.16, Declining or Terminating Representation do you have good cause to withdraw from the matter?

Two of the Model Rules have particular relevance to this scenario.  Model Rule 1.2(a)   Scope Of Representation And Allocation Of Authority Between Client And Lawyer states, “A lawyer shall abide by a client’s decision whether to settle a matter.”  The second paragraph of the Comment to Rule 1.2 states “…The decisions specified in paragraph (a) such as whether to settle a civil matter, must also be made by the client.”  On the other hand, Rule 1.16(b)(4) states that a lawyer “may withdraw from the representation if the client insists upon taking action that the lawyer considers to be repugnant or with which the lawyer has a fundamental disagreement.”   Subpart (6) of the Rule states that a lawyer may withdraw from the representation when the representation “has been rendered unreasonably difficult by the client”.

Courts have taken varying approaches to the question of whether a lawyer has good cause to withdraw under such circumstances.  Generally, these matters come before courts when the lawyer has already withdrawn, and the issue is whether he is entitled to collect any legal fees.     For example, In Kannewurf v. Johns, 632 N.E., 2d 711 (1994) the court allowed the lawyer to withdraw and awarded fees on a quantum meruit basis when the client refused to negotiate for a settlement amount below the defendant’s $300,000 policy limit.  In Pearlmutter v. Alexander, 158 Cal. Rprtr. 762 (1979) the court allowed the lawyer to withdraw where the client agreed to and then reneged on a settlement agreement.  Other courts strictly follow the dictates of Rule 1.2 and will not find good cause for withdrawal solely based on the client’s refusal to accept a settlement.  See, e.g. Lofton v. Fairmont Specialty Ins. Managers, Inc., 367 S.W.3d 593 (2012) (Citing to Rule 1.2, the Kentucky Supreme Court found that lawyer was not entitled to quantum meruit when he withdrew from the  representation over a dispute with client over settlement offer of $25,000 where client wanted to hold out for $1.2 million and ultimately settled for $25,000 with successor counsel), See Also May v. Seibert, 264 S.E. 2d 643 (1980) and Kay v. Home Depot, Inc. 623 So. 2d 764 (1993).   

Sometimes lawyers try to anticipate this problem and insert provisions in their retainer agreements that provide that they can withdraw in the event that their clients refuse a reasonable settlement offer.  Think twice before doing so.  State bar ethics committees have universally found such provisions to be inappropriate.  See, e.g. Connecticut Bar Asssociation Opinion 95-24 (1995) (lawyer may not insert provision in retainer agreement that he would be allowed to withdraw and convert fee to hourly rate if client refused reasonable settlement offer);  Nassau County (New York) Opinion 99-4 (1999) (lawyer may not include provision that allows him to withdraw if client refuses reasonable settlement offer).

Some state bar committees have stated that it is permissible for a lawyer to withdraw if the client’s conduct in the context of settlement negotiations has been rendered unreasonably difficult by the client.  See Rhode Island Bar opinion 91-21 (lawyer may withdraw when client repudiates settlement agreement and wishes to continue litigation) and South Carolina Opinion 86-1 (lawyer may withdraw when client insists that lawyer return settlement check) and Texas Opinion 557 (2005) (lawyer must withdraw when client consults malpractice lawyer over lawyer’s estimate of the case’s value.)

For further information on this topic, See the annotations to Rules 1.2 and 1.16 as they appear in the Seventh edition of the ABA Annotated Model Rules of Professional Conduct (2011)  and the chapter entitled “Permissive Withdrawal” (last updated in 2006) as it appears at page 31:1101 of the ABA/BNA Lawyers’ Manual on Professional Conduct.  Further information about the Lawyers' Manual (which includes a free trial) is available here:

As always, when confronted with this type of question check the local court rules, ethics opinions and case law in your jurisdiction.

© 2013 by the American Bar Association


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