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Settling for more or less?
By Peter Geraghty
ABA Center for Professional Responsibility
and Susan J. Michmerhuizen
ETHICSearch Research Counsel
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 no more than $30,000. The opposing party makes an offer of $25,000, but despite your best efforts to convince your client to accept it, your client insists that you reject it and make a counter demand of $1.2 million. You subsequently withdraw from the matter, and the client retains new counsel. The opposing party once again makes an offer of $25,000, which the client now accepts. You file a motion to recover your fees from the settlement on a quantum meruit basis.
Can you expect to receive some compensation for the work you have done?
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.”
Rule 1.16 was amended pursuant to the ABA Ethics 2000 Commission’s (E2K) recommendations in 2003. Subpart (3) of the Rule as it was before the amendment permitted a lawyer to withdraw if the client insisted on pursuing an objective that the lawyer considered to be repugnant or imprudent. As explained in the E2K Official Reporter’s notes:
… Allowing a lawyer to withdraw merely because the lawyer believes that the client’s objectives or intended action is “imprudent” permits the lawyer to threaten to withdraw in order to prevail in almost any dispute with a client, thus detracting from the client’s ability to direct the course of the representation. Nevertheless, the Commission believes that a lawyer ought to be permitted to withdraw when the disagreement over objectives or means is so fundamental that the lawyer’s autonomy is seriously threatened.
Under Rule 1.16, Declining or Terminating Representation, a threshold issue will be about the legitimacy of the lawyer’s withdrawal from the representation, often under subsection (7) of the rule, allowing withdrawal for “other good cause.”
Courts have taken varying approaches to the question of whether a lawyer has good cause to withdraw when lawyer and client drastically disagree about the terms of a proposed settlement. Matters such as this tend to come before courts when the lawyer has already withdrawn, and the issue at that point is whether he is entitled to collect any legal fees. A key issue here is whether the withdrawal is justified or if it appears based on the lawyer’s desire to escape from a less profitable case. In Kannewurf v. Johns, 632 N.E., 2d 711 (1994) the court awarded fees on a quantum meruit basis for a lawyer who had worked on the matter for two years and withdrew after the client continually refused to negotiate for any 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 receive quantum meruit compensation after withdrawing when the client reneged on a settlement agreement.
It is generally accepted that a lawyer with a contingent fee agreement who is discharged without cause is entitled to receive quantum meruit compensation for the work he or she performed. Jurisdictions are not as unified in finding that a lawyer may exercise the right to permissive withdrawal and then claim quantum meruit compensation. Some courts highlight the different standards for permissive withdrawal and for receiving quantum meruit compensation. They follow a strict reading of Rule 1.2 and will not find a basis for awarding quantum meruit fees after a withdrawal from representation when the “other good cause” rationale is 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) where, citing Rules 1.2 and 1.16, the Kentucky Supreme Court found that lawyer did not satisfy the good cause requirement to collect his fees on a quantum meruit basis when he withdrew from the representation over a dispute with a client over a settlement offer of $25,000 where the client wanted to hold out for $1.2 million and ultimately did settle for $25,000 with successor counsel. In that case, the court emphasized that the standards for good cause for withdrawal under Rule 1.16 was different from the good cause requirement to collect fees on a quantum meruit basis. The court stated:
… We do not question the wisdom of Lofton in requesting to withdraw in this case, or the use of the circuit court’s discretion in allowing him to do so. However, we find that the “good faith” or “good cause” or a comparable basis for withdrawing as counsel under SCR 1.16(b) does not translate into a comparable justification or “good cause” to be entitled to quantum meruit compensation for past services. They are two entirely different standards, with a much lower threshold to withdraw from the case than to withdraw with quantum meruit compensation.
See also May v. Seibert, 264 S.E. 2d 643 (1980) (where the court hinted that the lawyer’s withdrawal may have been based on the case appearing less lucrative as it developed, ultimately remanding case that had awarded fee for an allocation of fees between the withdrawing lawyer and subsequent counsel) and Kay v. Home Depot Inc. 623 So. 2d 764 (1993) (vacating award of partial attorneys’ fee to lawyer who withdrew from the representation a week before trial due to a disagreement about whether to accept a settlement offer).
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. Then think again. Taking this step pre-emptively could violate Rule 1.2 in the absence of any facts that could support permissive withdrawal. State bar ethics committees have universally found such preemptory 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 settlement negotiation have been rendered unreasonably difficult by the client. See Illinois opinion 12-10 (2012) (lawyer may withdraw when client who has a history of mental health problems refuses to sign negotiated settlement agreement); 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.
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