Ethics Opinion 289
“Cause” Litigation by a Non-Profit Foundation Run by Non-Lawyers; Prospectively Restricting Clients’ Right to Waive Attorneys’ Fees or Agree to a Confidential Settlement
Lawyers in the General Counsel’s office of a non-profit, public interest organization are forbidden by D.C. Rule of Professional Conduct 5.4 from participating in, managing or directing litigation brought on behalf of individual third parties with whom they do not have a lawyer-client relationship. By doing so, the organization, which employs and compensates the lawyers, improperly directs or regulates the independent professional judgment of the lawyers acting on behalf of the parties in litigation, and threatens the duty of confidentiality owed to such parties. A client’s right to accept or reject a settlement offer cannot be contracted away in advance through a provision in a retainer agreement that precludes the client from accepting any settlement that waives the client’s right to recover attorneys’ fees, or that prevents the client from agreeing to a confidential settlement.
- Rule 1.2 (Scope of Representation)
- Rule 1.6 (Confidentiality of Information)
- Rule 1.7 (Conflict of Interest: General Rule)
- Rule 1.8 (Conflict of Interest: Prohibited Transactions)
- Rule 5.4 (Professional Independence of a Lawyer)
A non-profit membership organization (“the Organization”), whose activities consist of legislative lobbying and public education efforts on behalf of a particular population group, also seeks to advance its public policy purposes through so-called “cause” litigation—litigation intended to establish what it views to be useful legal precedents, or to challenge those which it believes are undesirable. To this end, the Organization relies upon staff lawyers to represent it as amicus curiae and, in certain cases, as a plaintiff.
The Organization now desires to expand its litigation efforts to represent third persons, who also may be members of the Organization. It would do so through the auspices of a companion non-profit, charitable foundation (“the Foundation”) it has created to carry on activities other than lobbying. The Foundation is funded by the Organization and by governmental grants. The Organization’s lawyers who would be involved in this effort have been placed in a separate unit within the Foundation (“the Unit”). The Unit, however, is not a separate legal entity from the Foundation.
The Organization, recognizing some of the ethical issues discussed in this opinion, has undertaken various measures to insulate the Unit’s lawyers from lay control and interference with their conduct of third-party representation.
• First, the personnel of the Unit are all either lawyers or legal support personnel.
• Second, while the lawyer in charge of the Unit will report to the Foundation’s Administrator and Board of Directors, all of whom are non-lawyers, they purportedly will exercise no role in the conduct of third party representation cases. Non-lawyers outside of the Unit, however, will participate in the Unit’s selection of cases to be undertaken, in order to determine whether the Unit’s litigation efforts would be consistent with the Organization’s public policy goals, the Organization’s representation of other clients, and its relationships with other entities.
• Third, the Unit has a charter and litigation guidelines, which have been formally adopted by the Foundation’s Board, a set of written procedures, and a standard retainer agreement. Among other things, these documents state that no director, officer, employee or agent of either the Organization or the Foundation who is not a staff lawyer of the Unit or a lawyer in the office of general counsel of the Organization (who are also general counsel to the Foundation) will interfere in the selection, management or conduct of litigation involving the representation of third persons, and that no staff lawyer will permit any person or entity outside the Unit to interfere with or attempt to influence her independent professional judgment regarding the selection, management or progress of such a case. The documents ensure that client confidences and secrets will not be shared with nonlawyers other than those providing support services to the lawyers.
• Fourth, with client consent, the scope of the Unit’s representation of a particular client may be limited, as specified in a signed retainer agreement. Once such an agreement is executed, however, neither the Organization, the Foundation, nor any of their directors, officers, employees or agents outside the Unit staff will influence or interfere with the management or conduct of litigation involving the representation of third persons. The standard retainer agreement specifies that if it is to the client’s advantage to take a legal position in conflict with the Organization’s or the Foundation’s policies, then the client has the last word as to whether the position will be taken. If the client chooses to adopt such a position, the Unit’s lawyers may seek leave to withdraw.1
According to the Organization, the clients in the Unit’s third person representation cases will not be responsible for payment of any fee for the services of the Unit’s lawyers, but the Unit and cooperating counsel will seek such fees in cases where court-awarded attorneys’ fees may be available. Fee awards will be split between the Unit and cooperating counsel in proportion to the respective time their lawyers have spent on the case.2 Any fees obtained by Unit lawyers will be placed in a separate account, to be used solely for the purpose of supporting other “cause” litigation in which the Unit’s lawyers are engaged.
While the retainer agreement provides that the Unit’s legal representation will be without fee to the client, it obligates the client to cooperate a) in obtaining an award of attorneys’ fees in cases where they are available, b) in obtaining fees from the defendants in connection with settlement, and c) in publicizing the case. In this connection, the agreement specifically commits the client, as a condition of the representation, not to accept a settlement offer conditioned on the client’s waiver of his or her right to pursue court-awarded attorneys’ fees. It also specifically commits the client not to accept a settlement offer conditioned on keeping the fact and/or terms of the settlement confidential, so that the Unit (or perhaps the Foundation or the Organization) is permitted to publicize the results of the case.
The inquirer asks whether the above-described activities of the Unit’s lawyers will be in compliance with the D.C. Rules of Professional Conduct.
- Lay Interference with a Lawyer’s Independence of Judgment: Rules 1.6, 1.8, and 5.4
Although the Organization has taken a number of steps designed to insulate the Unit’s lawyers from lay control, the arrangement as presented to the Committee does not do so in compliance with governing provisions of our Rules, several of which reflect the importance of preserving a lawyer’s independent judgment. Rule 5.4 is specifically designed “to protect the lawyer’s professional independence of judgment.” See Rule 5.4, Comment . Rule 5.4(c) thus prohibits a person who employs or pays a lawyer to render legal services to another to direct or regulate the lawyer’s professional judgment in rendering such legal services. Rule 1.8(e)(2) also specifically provides that “a lawyer shall not accept compensation for representing a client from one other than the client” unless “there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship”.
The inquirer advises that “no director, officer, employee or agent of either the Organization or the Foundation who is not a staff lawyer of the Unit or a lawyer in the office of general counsel of the Organization (who are also general counsel to the Foundation) will interfere in the selection, management or conduct of litigation involving the representation of third persons” (italics supplied). The implication of this representation, confirmed through conversation with the inquirer, is that lawyers in the Organization’s general counsel’s office (who are agents of a lay entity and have no lawyer-client relationship with the individual party) will be permitted to participate in the day-to-day management of third party representation conducted by the Unit’s lawyers (and presumably by lawyers of cooperating firms who also have direct lawyer-client relationships with the represented individual). Therefore, the lay organization, although acting through counsel, improperly will be regulating the Unit lawyer’s professional judgment in violation Rules 1.8 and 5.4.3
This conclusion is consistent with prior opinions of this Committee. In Opinion No. 93, for example, we examined a similar question under our prior Rules and concluded that “the non-lawyers involved [in a legal service organization] must not direct or regulate the exercise of professional judgment of lawyers in the performance of legal services.” The rule was followed in Opinion No. 135, another case dealing with a lawyer working for a corporation, which stressed again that “non-lawyers involved in the corporation must not exercise any control or influence over the exercise of the inquirer’s professional judgment in performing legal services for the corporation’s clients” (italics supplied).
The instant inquiry poses a slightly different question: whether lawyers (as opposed to lay individuals) employed by a corporation may exercise control or influence in third party litigation where they have no attorney-client relationship with the party. We have no doubt that the barriers applicable to lay persons in this setting are equally applicable to lawyers. Indeed, the proposition that lawyers acting on behalf of lay individuals may seek to exercise such control over litigation brought by parties to whom they do not owe the lawyer’s obligations of undivided loyalty raises even more significant questions than having lay individuals exercise such control or influence. We conclude that this exercise of control is inconsistent with the our Rules of Professional Conduct.4
- Waiving the Right to a Confidential Settlement: Rules 1.2, 1.6, 1.8, and 5.4
As noted above, the standard retainer agreement applicable to the Unit’s third party clients commits the client not to accept a settlement offer conditioned on keeping the fact and/or terms of the settlement confidential. The inquirer asserts that this commitment is necessary because the Unit’s cases are undertaken for public policy objectives that will not be served if a favorable disposition of the case is deprived of precedential or educational value.
Regardless of the Unit’s laudable objectives, however, this commitment interferes with the client’s ability to settle a case. Rule 1.2, governing scope of representation, specifically provides, in relevant part, “[a] lawyer shall abide by a client’s decision whether to accept an offer of settlement of a matter.” Rule 1.2(a). This rule is designed to preserve the client’s right to accept or reject a settlement offer, and it requires that a client be able to exercise his or her judgment at the time a settlement offer is communicated. See also Rule 1.4(c) (requiring that settlement offers be communicated promptly).
Rule 1.2(c) allows a lawyer and client to limit the objectives of the representation if the client consents after consultation. We do not believe it is possible, in this situation, for a client to offer informed consent to the advance condition in question. The client’s consent is sought in this instance at the outset of the litigation, before he or she is likely aware of the particular confidences and secrets that may emerge in the litigation process, and well before he or she can understand clearly the effect of publicizing a settlement which has yet to be proposed. He or she may desire confidentiality terms in the settlement agreement in order to preclude public access to personally embarrassing or detrimental facts that may have emerged during the litigation process, but which had been shielded from public disclosure, such as through a protective order. Lawyers are ethically bound not to reveal such facts. See Rule 1.6(a)(1)-(3) (prohibiting a lawyer from knowingly revealing client confidences or secrets, from using confidences or secrets to the client’s disadvantage, and from using confidences and secrets to the lawyer’s own advantage or the advantage of a third person).
In the analogous area of prospective waiver of conflicts of interest under Rule 1.7, the ABA Committee on Ethics and Professional Responsibility, in Formal Op. 93-372, persuasively observed:
[A waiver of future conflicts] must meet all the requirements of a waiver of a contemporaneous conflict of interest, and if a waiver is to be effective with respect to a future conflict, it must contemplate that particular conflict with sufficient clarity so that the client’s consent can reasonably be viewed as having been fully informed when it was given.
A lawyer’s generalized disclosure of a potential future conflict can be considered “full” only if, based on such a disclosure, the client can appreciate what it will mean down the road to have waived confidentiality. See ABA Formal Op. 93-372 (Apr. 16, 1993) (“Since the prospective waiver is sought at a time when the scope of the services the lawyer will provide the client may not be fully defined, . . . we conclude that a client’s prospective waiver of conflicts cannot be presumed to waive objection to disclosure or use of confidential client information subject to Rule 1.6.”). We see no way for the proposed advance waiver of confidentiality, which is analogous to a prospective waiver of a conflict of interest, to meet this exacting standard. Accordingly, it is impermissible for the retainer agreement categorically to preclude any settlement agreement with a confidentiality provision (whether or not the provision is at the defendant’s insistence), because such preclusion amounts to an improper prospective waiver of the client’s right to maintain the confidentiality of information protected by Rule 1.6.
Moreover, to the extent that non-lawyer personnel of the Organization and the Foundation require the Unit’s lawyers to impose this settlement limitation in every third-party representation, the Unit’s lawyers are subject to improper lay interference with their independence of professional judgment and their client-lawyer relationships. See Rules 1.8(e)(2) and 5.4(c). This lay interference also is improper to the extent it fails adequately to protect client confidences and secrets protected by Rule 1.6 (see Rule 1.8(e)(3)).5
- Waiving the Right to Accept a Settlement without Attorneys’ Fees: Rules 1.2, 1.7, 1.8 and 5.4
As noted, the Unit’s standard retainer agreement also commits the third-party client, as a condition of the representation, not to accept a settlement offer conditioned on the client’s waiver of his or her right to pursue court-awarded attorneys’ fees. The inquirer asserts that this provision is only a “slight impingement” on the client’s right to accept a settlement in “cause” litigation, an impingement which allegedly is justified by fee-shifting statutes and by the “public interest” served by providing financing for further “cause” litigation.
Ensuring the recovery of attorneys’ fees in a settlement has taken on substantial importance in civil rights cases since the Supreme Court held, in Evans v. Jeff D, 475 U.S. 717 (1986), that defendants in cases where a court may award fees may condition settlement upon a waiver of fees.6 Where a settlement offer provides full relief to the plaintiff but is conditioned upon a waiver of attorneys’ fees, a tension may arise between the interests of the lawyer and the client. There are several clearly ethical ways of dealing with this dilemma from the viewpoint of a plaintiff’s counsel. For example, the lawyer and client may agree in advance that the client shall cooperate in obtaining fees; that fees will be sought if available; and that the client will be required to pay counsel fees (either contingent or hourly) in the event the such fees are not sought or recovered from the defendant. Such an agreement removes the conflict between counsel and client arising in the event of a fee-waiver settlement offer.
The course proposed here, however, is not consistent with our Rules. An agreement designed to mitigate the impact of such a settlement offer by committing the client in advance to reject it, or by insisting that the client assign to the attorney his or her right to fees, raises very serious questions under our Rule 1.2(a). While the Committee is aware of a split in opinion between Bar associations and commentators who have considered this issue, we find persuasive the opinions of those Bar associations that have condemned advance agreements of this type regarding settlement terms because they infringe upon a client’s absolute right to accept or reject a settlement offer.
The Ethics Advisory Opinion Committee of the Utah State Bar has found, for example, that it would be unethical for an attorney to insist in advance that a client cede to him the right to veto a particular offer in settlement of a case because it did not provide for payment of attorneys’ fees. Utah Op. No. 98-05 (Apr. 17, 1998). According to the Utah Committee, the client must always have the final say whether or not a settlement will be accepted and that this “ultimate client authority cannot be contracted away.” Id.7
The Committee on Professional Ethics of the Connecticut Bar Association has reached the same conclusion. In Informal Op. 97-31 (Nov. 3, 1997), the Connecticut Committee withdrew its earlier opinion (Op. 85-19) providing that a lawyer and a client could agree that the lawyer would have a right to veto a settlement otherwise satisfactory to the client, but that did not provide for a legal fee acceptable to the lawyer. The Committee found that “[a] lawyer may not reject a settlement agreement that a client wishes to accept.” Although the Committee did not determine whether a client may assign her right to a fee award to her lawyer, leaving this decision to the federal courts, it did note that such an assignment not only could place the lawyer in a position to veto a settlement acceptable to his client, but also would create a financial conflict between a lawyer who insists on a particular fee award and the desires of the client, thus violating Rule 1.7. See Informal Op. 97-31.
Similarly, in Opinion Number 93-09 (June 28, 1993), the State Bar Association of North Dakota addressed the propriety of a retainer agreement in which a plaintiff agreed not to accept an offer of settlement conditioned on the waiver of attorneys’ fees. The Ethics Committee found that the retainer agreement created a conflict of interest between the attorney and the client. See North Dakota Op. 93-09 at 3. While such a conflict theoretically can be waived after disclosure and consent, the Committee concluded that the “attorney should refrain from use of this type of agreement, in light of the serious questions that could be raised about the adequacy of the consultation and the voluntariness of the client’s consent.” Id. A retainer agreement can make clear the client’s responsibility for fees and costs, but “that agreement may not restrict the client’s right to receive and accept settlement offers.” Id.
In contrast, the California State Bar’s Standing Committee on Professional Responsibility and Conduct has found that a lawyer ethically may contract with a client for the right to apply for and receive an award of attorneys’ fees, provided clear disclosure of the potential conflicts are made in advance. See California State Bar Comm. Op. 1994-136 (1994), 1989 WL 253262. Although the California Committee agreed that vesting the right to pursue fees in the lawyer “creates an actual conflict between the attorney and client because it allows the lawyer to pursue a course of action that may not be in the client’s best interests,” it also observed that “[a]ssignment by the client of the statutory right to attorney’s fees appears fair” and that “[s]uch an assignment is consistent with the purposes of the attorney’s fees award in civil rights cases.” Accordingly, the California Committee found that such an assignment was ethically permissible so long as the lawyer met stringent disclosure requirements.8 See also Hazard & Hodes, The Law of Lawyering, § 1.5.107 (2d Ed. 1998 Supp.).
The Committee, like the other jurisdictions that have faced this issue, recognizes that a client’s right to accept or reject a settlement offer is absolute, as confirmed by our Rule 1.2(a). Moreover, an advance waiver of this right in the context of a fee award would create an actual conflict between the lawyer and client when and if the client were called upon to honor the settlement restriction, seriously impairing the lawyer’s ability to render full and candid advice regarding the propriety of accepting the settlement offer and raising serious issues regarding the client’s ability to provide a voluntary consent to the lawyer’s continued representation. For this reason, we conclude that an agreement of the sort proposed here is not consistent with the D.C. Rules of Professional Conduct.
Finally, to the extent that non-lawyer personnel of the Organization and the Foundation require the Unit’s lawyers to impose this settlement limitation in every third-party representation, the Unit’s lawyers are subject to improper lay interference with their independence of professional judgment and their client-lawyer relationships. See Rules 1.8(e)(2) and 5.4(c).
The Committee finds laudable the Organization’s desire to pursue so-called “cause” litigation in order to protect what it views as the public interest. The Committee also notes many of the measures the Organization has implemented in an effort to safeguard the professional independence of the Unit’s lawyers, such as (1) the placement of lawyers who will be conducting the third-party representations into a separate Unit, (2) a standardized retainer agreement clarifying the scope of representation, the independence of the Unit’s lawyers, and the client’s right to confidentiality, and (3) a policy of funneling any fees derived from such representations into a separate fund to be used solely by the Unit’s lawyers.9 Nonetheless, third party clients represented without fee by lawyers engaged in “cause” litigation remain clients and are entitled to be treated no less favorably by counsel than any other client. Their rights in litigation cannot be subject to outside control, they cannot be required to waive their right to confidentiality, and their right to accept or reject a settlement offer must be inviolate.
Inquiry No. 98-6-15
Adopted: January 19, 1999
Date Issued: March 16, 1999
1. The Organization advises that this will not leave the party without representation, as other cooperating counsel will be involved and remain able to provide representation. We presume that any lawyers involved in such representation will comply fully with the D.C. Rules of Professional Conduct addressing withdrawal from representation, see Rule 1.16, as well as with all applicable rules of the court(s) in which the representation takes place.
2. We were not advised whether fee apportionment will be discussed with the client or will be part of the standard retainer. We presume again that the lawyers involved will follow those portions of our Rules which address division of fees, see Rule 1.5(e), including appropriate notice to the client and client consent.
3. The inquirer further indicates that client confidences and secrets will not be shared with nonlawyers other than those providing support services to the lawyers. We are troubled by the implication of this representation; that client confidences and secrets may be shared with lawyers outside of the Unit, namely, lawyers in the Organization’s general counsel’s office. Such information sharing, should it occur, would run afoul of Rules 1.8 and 5.4, to the extent confidences are shared for purposes of managing the litigation and influencing the professional judgment of the Unit’s lawyers. We note further that the proposed standard retainer agreement clarifies that the third-parties are clients of the Unit’s lawyers, with whom the clients will have no attorney-client relationship, may breach the Unit’s lawyers’ duty of confidentiality under Rule 1.6. See Rule 1.6(a)(1) (providing, with limited exceptions, that a lawyer shall not knowingly reveal a confidence or secret of the lawyer’s client).
4. Additionally, the lawyers may be acting in contravention of Rule 5.5(b), which prohibits a lawyer from assisting a person who is not a member of the D.C. Bar (such as the lay leaders of the Organization who employ the lawyers in the general counsel’s office) from the unauthorized practice of law. While the inquirer asserts that Rule 5.5(b) “would not come into serious question” because only the Unit’s lawyers are representing clients, this assertion may be inconsistent with having lawyers in the Organization’s general counsel’s office involved in managing, directing or influencing these clients’ litigation.
5. This arrangement also may violate Rule 5.5’s prohibition on the unauthorized practice of law. See note 4, above.
6. Jeff D in essence overruled D.C. Legal Ethics Opinion No. 147 (1985), which had concluded that it was unethical to condition settlement upon an explicit waiver of a statutory award of attorney’s fees.
7. Many other jurisdictions have recognized the client’s exclusive authority to settle a case. See, e.g., Nebraska State Bar Ass’n Advisory Comm. Op. 95-1 (interpreting EC’s 7-7 & 7-8, the predecessors to Rule 1.4(a)-(c); “the committee’s opinion is that any provision limiting the client’s ultimate authority to settle a matter will be unenforceable and improper”); New York County Lawyers’ Ass’n Comm. on Professional Ethics, Op. 699 (Mar. 10, 1994) (interpreting EC 7-7; “[a] provision in a retainer agreement requiring the lawyer’s consent to settle an action is prohibited. . . .”); North Carolina State Bar Op. RPC 145 (Jan. 15, 1993) (interpreting North Carolina Rule 7.1(C)(1) which requires a lawyer to abide by a client’s decision whether to accept settlement; “a lawyer cannot divest a client of his exclusive authority to settle a matter”).
8. These included, in addition to the generic disclosure attendant upon any conflict waiver, specific disclosure that the lawyer might attempt to override the client’s desire to settle the case if the settlement offer depends upon a waiver of attorneys’ fees, and that in the event the defendant offers complete relief contingent upon waiver of fees, the lawyer’s interest and the client’s in the settlement would differ, with the result that the lawyer might be forced to withdraw. Additionally, the Committee noted that even with such disclosures, “there is no guarantee that such agreements are enforceable” because “[a] member may not agree to settlement without the client’s consent” and because “[t]he client always has the right to determine whether or not to accept a settlement.”
9. See Am. Fed’n of Gov’t Employees v. Fed. Lab. Relations Auth., 944 F.2d 922, 937 (D.C. Cir. 1991) (holding that a “separate operating account for legal services provides sufficient protection against the unauthorized practice of law by a lay organization”) (quoting Curran v. Dep’t of Treasury, 805 F.2d 1406, 1408 (9th Cir. 1986)).