MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2013-08
May an attorney settle a claim on behalf of two clients whom that attorney cannot locate despite his best efforts to do so, and without an agreement giving the attorney sole settlement authority?
Authorities Consulted
- Maryland Rules of Professional Conduct: 1.2(b) (Conduct); 1.4 (Communication); 1.8, (Conflict of interest); Rule 1.16
- Accrocoo v Splawn, 264 Md 527(1972); In re Rosenthal, 90N.J. 12 (1982); Carter v. Peotrowski, 452 A.2d 632 (R.I. 1982)
- MSBA Ethics opinion, 98-5 (1998)
- Arizona Ethics Opinion 06-07 (2006)
Question Presented
May an attorney settle a claim on behalf of two clients whom that attorney cannot locate despite his best efforts to do so, and without an agreement giving the attorney sole settlement authority?
The Committee’s Response
You have provided this Committee with the factual background of this case. You have advised that you are the attorney supervising students at a local law school clinic and have asked this Committee for guidance in resolving a litigation matter for which your legal clinic represents four clients for wage violations under the Maryland Wage and Payment Collection law and under the Fair Labor Standards Act for actions committed by your clients’ former employer. When suit was filed, Defendants consisted of two individuals. The court dismissed the claims of Plaintiff against one Defendant prior to trial.
Following a trial, a jury awarded your clients one judgment totaling $57,000 for their four respective claims. The Defendant unsuccessfully attempted to discharge this debt through a bankruptcy. He was unemployed at the time of trial and could not afford to pay the judgment.
Following the trial and an appeal affirming the judgments, and upon learning that the Defendant had secured employment, Plaintiffs instituted a garnishment of Defendant’s wages. Plaintiffs began to receive garnishments in the amount of $1,000 per month starting in January 2013. This money was deposited into the law school’s IOLTA account on behalf of the Plaintiffs.
Recently, Defendant has made an offer to settle the matter with all four Plaintiffs for $20,000. In exchange for payment, Defendant would receive a dismissal in full satisfaction of the judgment. Defendant’s offer is contingent upon settlement of all claims by the four Plaintiffs. This proposed settlement amount represents the amount of unpaid wages awarded to your clients, without any treble damages.
Meanwhile, two of the four Plaintiffs moved out of the country and, despite your office’s extensive efforts, cannot be located These efforts included hiring a private investigator. You believe that the missing clients have returned to their countries of origin. As a result, you are unable to communicate the offer to these two individuals.
Your local clients are eager to accept the settlement offer, whose claims represent back pay of approximately $16,000. You have advised that the claims of the missing two Plaintiffs represent approximately $4,000.00.
You have also advised that your retainer agreement contains a provision requiring your clients to maintain contact with you throughout the course of your representation and you ask whether the apparent breach of this provision by your missing clients would enable you to withdraw as their counsel.1
You have asked the committee to advise you about your ethical obligations to all of your clients in this situation under the Maryland Rules of Professional Conduct.
Rules 1.2, 1.4, and 1.8 apply to your situation. Rule 1.4 requires the attorney to keep the client reasonably informed about the status of the subject of the representation and to respond to requests for information from the client. This duty includes counsel’s obligation to secure the informed consent of the client about matters of importance to the representation. In addition, Rule 1.2 requires the attorney to consult with the client about all of the objectives to the litigation. This duty includes the obligation to consult with the client and to seek the client’s informed consent to settle a matter. See e.g., MSBA Ethics Docket 98-5. Finally, as discussed below, Rule 1.16 regarding termination of representation also relates to your inquiry.
Your authority to accept a settlement offer on behalf of a client is both express and implied. However your fiduciary duties under the Rules of Professional Conduct require you to receive consent from each of your clients to any settlement offer concerning that client’s claims.
It is well settled in Maryland that you as counsel do not have the inherent authority to settle or compromise a client’s claim without his or her consent. See Accrocoo v Splawn, 264 Md. 527 (1972). This consent must be an informed one. The duty to obtain informed consent is no less applicable to this case even though you believe that your missing clients would have favored the settlement offer.
You have indicated in addition that your retainer agreement does not contain a provision authorizing you to accept a settlement to settle their case without the consent of the client under a power of attorney. Even if such a provision existed, it is unclear whether Maryland would authorize its enforcement.
Such provisions are viewed with disfavor in a number of jurisdictions as violative of the rules of professional conduct. For example, In the Matter of Lewis, 266 Ga .61, 463 S.E. 2nd 862 (1995), the Georgia Court of Appeals found that an express provision in a retainer agreement giving the attorney full power and authority to settle, compromise, or take any action which the lawyer deemed appropriate to resolve the case without consent of the client amounted to giving the attorney a propriety interest in the cause of action and thus violated rule 1.8 (i). See e.g., In Re Rosenthal, 90 N. J. 12, 446((1982); Carter v Peotrowski, 452 A.2d 632 (R. I. 1982) .
This is not to say that some circumstances might exist in which the parties foresee the need to draft such a provision in light of circumstances where it might be impossible for the attorney to consult with the client concerning a settlement offer. The use of such an agreement would most likely need to be phrased in terms of specific, foreseeable circumstances, and not based on the mere occurrence of an unavailable party.
Nevertheless, under the present case you are obligated by the Maryland Rules of Professional Responsibility to zealously represent all four of your clients. See Preamble to the Maryland Rules of Professional Conduct.2The duty to your two local clients is not diminished by your inability to locate the other two clients. The committee sees no ethical foibles in trying to negotiate a settlement on behalf of your two local clients, while preserving the claims of the missing Plaintiffs. If the Defendant refuses, then you cannot settle.
While the committee recognizes your interest in resolving this negotiation favorably for all four clients, you cannot, consistent with the Rules of Professional Conduct, accept this offer as it stands without the consent of all of your clients. In the meantime, you remain obligated to keep the property of the missing clients in your IOLTA account. Finally and while not part of your inquiry, the Committee does not see any information in the facts you presented that would prohibit you from terminating your representation of the two clients whom you can not locate, provided that you comply with Rule 1.16.
The committee trusts that this opinion answers the questions contained in your inquiry.
1. This is a legal question and not one of ethics. However, the committee believes that since the matter has concluded with the exception of post judgment negotiations, there is no basis for you to seek to withdraw from the case.
2. The committee has no facts indicating that undertaking your representation of these four clients in this litigation presents a conflict of interest under Rule 1.8.