When Settlement Pits Client Against Attorney

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Settling a case that involves potential court-awarded attorney fees raises a big issue—a conflict of interest between plaintiffs’ counsel and their clients. But it’s definitely possible for plaintiffs’ attorneys to deal with this sticky situation with their ethical duties intact.

When plaintiffs’ counsel settles both the merits of a case and the attorney fee claim simultaneously, a potential conflict of interest arises between counsel and client. Here’s how it usually arises:

  • the defendant has offered a favorable settlement on the merits in exchange for little or no attorney fees, or
  • the defendant offers a large amount of attorney fees but a poor settlement on the merits.

In both situations the settlement package tries to cut the defendant’s costs by pitting the plaintiffs against their attorneys.

What should plaintiffs’ counsel do to steer clear of this potential conflict of interest? The preferred practice is to reserve the fee issue until the merits are resolved by litigation or settlement. Folsom v Butte County Ass’n of Gov’ts (1982) 32 C3d 668, 681. At that point, the fee issues may be either settled separately or submitted to the court for determination.

But leaving fees to be dealt with at the end may not work for the defendant. The United States Supreme Court in White v New Hampshire Dep’t of Employment Sec. (1982) 455 US 445 noted that “a defendant may have good reason to demand to know his total liability from both damages and fees.”

If the defendant won’t go for putting the fee issues off, consider using a bifurcated settlement, i.e., a settlement that breaks out damages and attorney fees separately rather than providing a lump sum. Given the conflict issues involved, bifurcated settlements require court approval. Ramirez v Sturdevant (1994) 21 CA4th 904, 925 gave trial courts a bit of guidance in this area, directing them to use the federal procedures for class actions, i.e., determine whether a fair and reasonable balancing of the interests of the plaintiff and his or her attorney was reflected in the negotiations.

Keep in mind that, as with other situations involving a conflict of interest, there’s a presumption that the conflict prejudiced the client absent evidence to the contrary.

For more on the special considerations involved with settling a case that involves potential attorney fees, turn to CEB’s California Attorney Fee Awards, chapter 11. Find guidance on all aspects of negotiation and case settlement in CEB’s California Civil Procedure Before Trial, chapter 46.

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© The Regents of the University of California, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

Topics:  Attorney's Fees, Conflicts of Interest, Settlement

Published In: Civil Procedure Updates, Civil Remedies Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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