D.C. Bar Ethics Opinion 386: Aggregate Settlements in Civil Matters

Representing multiple clients in a civil litigation has its benefits. For the clients, when their interests are aligned, it can be less expensive because a lot of the lawyer’s work will benefit all the clients. From a lawyer’s perspective, representing multiple clients can mean a bigger fee, either because the lawyer must do more work to address the different circumstances of the multiple clients or because it will result in a bigger contingency fee.

It can be a win-win for the clients and the lawyer—until it isn’t. Client interests that once were aligned can diverge after litigation starts. One place that can happen is in settlement negotiations.

In Ethics Opinion 386, the DC Bar addresses how a lawyer representing multiple clients in civil litigation must handle issues involving aggregate settlements. In an aggregate settlement, two or more clients of a lawyer together agree to resolve the matter in a certain way. The key to an aggregate settlement is that it is interdependent—the agreement is contingent upon acceptance by all the clients.

D.C. Rule of Professional Conduct 1.8(f) states:

A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims for or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent in a writing signed by the client after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.

In other words, negotiating aggregate settlements on behalf of multiple clients is permissible so long as each client provides written informed consent as to the agreed settlement after the lawyer has made the necessary disclosures.

Importantly, the Opinion states, the disclosures “must be made in the context of a specific offer or demand.” Accordingly, the informed consent required by Rule 1.8(f) generally cannot be obtained in advance of settlement discussions. This means, for example, that an advance consent provision in an engagement agreement would be insufficient. That is not to say, of course, that the lawyer should not disclose at the outset that joint representation can involve settlement risks. It just means that later on, when a settlement offer is on the table, the lawyer must revisit the issue by discussing the relevant details of that specific offer.

As reviewed in the comments to Rule 1.8(f), “the lawyer must inform each of [the clients] about all the material terms of the settlement, including what the other clients will receive or pay if the settlement or plea offer is accepted.” The Opinion endorses the following list of minimum disclosures a lawyer should make to clients when they are offered a joint settlement:

• The total amount of the aggregate settlement or the result of the aggregate settlement.
• The existence and nature of all the claims and defenses involved in the aggregate settlement.
• The details of every other client’s participation in the aggregate settlement, whether it be their settlement contribution, their settlement receipts, or any other contribution or receipt of something of value as a result of the aggregate resolution.
• The total fees and costs to be paid to the lawyer as a result of the aggregate settlement, if the lawyer’s fees and/or costs will be paid, in whole or in part, from the proceeds of the settlement or by an opposing party or parties.
• The method by which the costs (including costs already paid by the lawyer as well as costs to be paid out of the settlement proceeds) are to be apportioned among them.

The Opinion also reviews the recent case In re Kennedy, 281 A.3d 36, 42-43 (D.C. 2022). There, the lawyer had retained 67% of the settlement funds for himself without informing his clients of the terms of the settlement or the percentage he had taken. The Court found that the lawyer had violated Rule 1.8(f), among other rules.

A couple of approaches lawyers involved in aggregate settlements have tried are (1) to obtain the clients’ advance consent to accept a settlement approved by a majority of the clients or (2) to set up a committee or subset of clients to decide the settlement for the group. Those options, the Opinion says, are impermissible because the lawyer’s duty is to each of the clients. “To the extent that one or more clients disagree with the terms of the aggregate settlement, the settlement cannot proceed.” As the Opinion notes, that conclusion stems from Rule 1.2(a), requiring a lawyer to “abide by a client’s decision whether to accept an offer of settlement of a matter.”

The real difficulties arise when one or more clients approve, while others reject, a settlement offer. In that case, the lawyer may or may not be able to continue to represent any of the clients, depending on the applicable confidentiality and conflicts rules (Rules 1.6, 1.7, 1.8, and 1.9) and Rule 1.16 on terminating representation. In such circumstances, it is vital for the lawyer to work through each of those rules given the relevant facts of the case before going further in the settlement process.

In sum, the prospect of an aggregate settlement involving a lawyer’s multiple clients presents a special problem that must be handled with care. The interests of each client in the settlement are inevitably different to some extent. The key is to ensure that all relevant information about the settlement is disclosed, including the terms obtained by the other clients and any fee to be collected by the lawyer from the settlement. If all of the critical information regarding the settlement is disclosed and the clients still wish to proceed, great—the lawyer can continue to represent all of the clients in the settlement. But if one or more clients wants to proceed and others don’t, the lawyer must evaluate the situation as he or she would with any divergence of interests when jointly representing multiple clients. The lawyer may or may not be able to continue representing one or more of the multiple clients or none of them, depending on the circumstances.