by Jeremy G. Suiter

Congratulations. After a long year of contentious discovery and hard-fought motion practice, you have whittled down the plaintiff’s lawsuit to just one minor surviving cause of action against your three joint clients—the plaintiff’s former business partners. Soon, the plaintiff’s attorney calls you and makes a very reasonable settlement demand, in which he proposes to dismiss the entire case with prejudice in exchange for mutual releases and a payment by your clients of the total sum of $10,000. You believe that this is a “sweetheart deal,” given that plaintiff had originally asserted multiple causes of action and was initially seeking more than $1 million in compensatory damages. You immediately call your clients to convey the terms of the proposal. Not surprisingly, all three of them are thrilled. After hardly any discussion, they all tell you that they accept the proposal, and that they appreciate your work on their behalf.

Now that all of your joint clients have told you over the phone that they accept the settlement offer, may you now call the plaintiff’s attorney back to convey their acceptance? Under Rule 3-310(D) of the California Rules of Professional Conduct, the answer is no. That Rule states: “A member who represents two or more clients shall not enter into an aggregate settlement of the claims of or against the clients without the informed written consent of each client.”

In other words, when you represent more than one joint client in a lawsuit, obtaining their mere oral consent to the plaintiff’s aggregate settlement proposal is not sufficient under Rule 3-310(D). Each joint client must consent in writing. The consent must also be “informed.”

Unfortunately, “the California Rules of Professional Conduct do not specifically address what must be disclosed to a client to obtain the client’s ‘informed consent.’” Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1124 (2014). However, as the California Practice Guide for Professional Responsibility has recognized, Formal Opinion 06-438 of the American Bar Association “provides considerable guidance here.” Paul W. Vapnek, Mark L. Tuft, Ellen R. Peck & Justice Howard B. Wiener (Ret.), Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.5 (The Rutter Group 2014).

According to the American Bar Association, a lawyer representing more than one client in a civil action should disclose, at a minimum, the following information in writing to the joint clients regarding a settlement proposal:

• The total amount of the aggregate settlement or the result of the aggregated agreement.
• The existence and nature of the claims and defenses involved in the aggregate settlement.
• The details of every client’s participation in the aggregate settlement, whether it be their contribution or receipt of something of value as a result of the settlement. For example, if one joint client would pay more than another joint client, that fact must be disclosed.
• The total fees and costs to be paid to the lawyer, if any, as a result of the aggregate settlement.
• The method by which costs, if any, are to be apportioned among the joint clients.

ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 06-438 (2006).

As the American Bar Association has explained, the “unique facts and circumstances of any particular settlement may require additional disclosures other than those outlined here.” Id. at n.11. Indeed, a lawyer representing more than one client in a civil action should also consider including the following information in their written disclosures to the joint clients:

• A copy or quote of Rule 3-310(D).
• A disclosure of all potential conflicts of interest between the joint clients regarding the negotiation or result of the aggregate settlement, together with a disclosure that the attorney may not favor any joint client over another if their positions differ.
• A disclosure that any joint client may accept or reject the proposed aggregate settlement, together with a disclosure of the risk that a rejection by one joint client may cause the plaintiff to withdraw the proposal as to all joint clients.
• A disclosure that each joint client has the right to obtain the advice of independent counsel.

ABA Formal Op. 06-438; Vapnek, et al., Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.1.

The purpose of Rule 3-310(D) is to deter a lawyer from favoring one joint client over another joint client in settlement negotiations by requiring that lawyer to give all joint clients the relevant information that they need to decide whether to accept or reject the settlement proposal. Vapnek, et al., Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.1. “That information empowers each joint client to withhold consent and thus prevent the lawyer from subordinating the interests of the client to those of another client or to those of the lawyer.” ABA Formal Op. 06-438.

In our scenario above, for example, it would be important for the lawyer to disclose and explain that the plaintiff’s settlement demand of $10,000 did not specify how much each joint client should pay. While all three joint clients may initially agree that $10,000 is an acceptable amount, they may subsequently disagree how much each of them should contribute towards that amount. This could create an ethical dilemma because the defense lawyer cannot advocate for one joint client over another. Flatt v. Superior Court, 9 Cal. 4th 275, 282 (1994) (“An attorney’s duty of loyalty to a client is not one that is capable of being divided ... ”). In that situation, the lawyer should encourage the joint clients to resolve the issue amongst themselves, and the lawyer should remain available to answer any questions they may have in that regard.

Note that Rule 3-310(D) is not limited to settlements involving all joint clients. As long as two or more joint clients represented by the same lawyer on the same matter resolve their claims or defenses together, that constitutes an “aggregate settlement” for purposes of Rule 3-310(D). Vapnek, et al., Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.1. Thus, it is not necessary that all of the lawyer’s joint clients participate in the matter’s resolution. ABA Formal Op. 06-438. So, in our scenario above, the defense lawyer would still have to comply with Rule 3-310(D) if the plaintiff’s settlement proposal was directed to only two of the three joint clients.

An interesting question is whether lawyers may seek informed written consent in advance of negotiations, before the actual settlement terms are known and disclosed. The issue has not been decided in California, but out-of-state authorities have generally concluded that lawyers representing joint clients in aggregate settlement negotiations may not do so. N.Y.C. Bar Ass’n Op. 2009-6 (collecting cases and other authority); ABA Formal Op. 06-438 (stating, because disclosures must be made in context of specific settlement proposal, advance consent cannot constitute informed consent). For this reason, the California Practice Guide for Professional Responsibility states, “informed consent cannot be obtained in advance of an aggregate settlement offer or demand.” Vapnek, et al., Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.6.

Similarly, because “joint clients may not waive any right each individual has to approve the settlement before it is concluded,” the California Practice Guide for Professional Responsibility states that joint clients may not delegate their settlement decision to other joint clients. Rather, to satisfy Rule 3-310(D), each joint client must provide its own informed written consent regarding a proposed aggregate settlement. Vapnek, et al., Cal. Prac. Guide: Professional Responsibility, ¶ 4:150.6.

Rule 3-310(D) is designed to protect the interests of joint clients by addressing and resolving potential conflicts associated with aggregate settlements. Compliance with the rule helps ensure that joint clients have the information they need to understand the settlement, which helps avoid disputes down the road with other joint clients, their counsel, or the opposing party.

Jeremy G. Suiter is a litigation shareholder in the Newport Beach office of Stradling Yocca Carlson & Rauth and is a member of the OCBA’s Professionalism and Ethics Committee. He can be reached at jsuiter@sycr.com.