Failure to Inform Client of Settlement Offer Costs Lawyer $84,000 in Fees

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Virginia lawyer Francis brought a federal Fair Debt Collection Practices Act suit against two lawyers that represented a creditor of his client. When a settlement offer from the defendants did not include attorney’s fees, Francis decided not to communicate it to his client. If he had, the settlement would have been accepted and concluded the case. The court found that the Francis’ failure to consult with his client, and other unreasonable behavior, amounted to conduct that multiplied the proceedings “unreasonably and vexatiously” in violation of 28 U.S.C. § 1927. This was sufficient to warrant sanctions and award of attorney’s fees and cost to the defendants of $84,752 [Blowers v. Lerner, Case No. 1:15-cv-889-GBL-MSN [E.D. Va. Aug. 31, 2016]]. This case gives us the opportunity to stress how important it is to promptly communicate settlement offers to a client. The Kentucky Supreme Court in Clark v. Burden, 917 S.W.2d 574 [1996], wrote:

With respect to compromise or settlement of a claim, final decision-making authority rests with the client. Kentucky Rules of Professional Conduct provide that “[a] lawyer shall abide by a client’s decision whether to accept an offer of settlement of a matter” [SCR 3.130-1.2[a]] and the rules require a lawyer to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation” [SCR 3.130-1.4[b]].

Additionally, Comment 2 to Rule 1.4 provides:

For example, a lawyer who receives from opposing counsel an offer of settlement in a civil controversy or a proffered plea bargain in a criminal case must promptly inform the client of its substance unless the client has previously communicated to the lawyer that the proposal will be acceptable or unacceptable or has authorized the lawyer to accept or to reject the offer.

Our long-standing risk management advice for settlements is:

  • Do not encourage false or unreasonable expectations. Compromise is hard enough to achieve with reasonable expectations.
  • Discuss settlement with the client throughout the representation. It is not a sign of lawyer weakness to discuss reality with a client.
  • Take plenty of time to explain the advantages and disadvantages of a legitimate offer to the client. Since settlement involves compromise, the client must process some amount of disappointment. This is easier for a well-counseled client.
  • Keep your client involved in settlement negotiations from start to finish. In view of Clark v. Burden getting the client’s decision in writing is the only safe way to consummate a settlement agreement. Document thoroughly all settlement negotiations, client emails, and client discussions about settlement.
  • Recognize that settlement of a divorce case does not carry with it the same finality typical of other settlements. A divorce settlement is not the end of the matter for the client — rather a new beginning. Future consequences of faulty divorce settlements will reveal a lawyer’s negligence with a vengeance. Many decisions involve divorce settlements that did not adequately cover taxation, pensions, IRAs, and valuation of real estate.
  • Avoid settlement remorse malpractice claims by always getting the client’s decision in some form of writing, even if it is hand-written on a yellow pad during trial.

If you are interested in more analysis of risk managing settlements go to lmick.com, click on Resources, click on Subject Index, go to Negotiation and Settlement, and select the article “Unsettling Settlements.”

 


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