Ethics Spotlight: Settlement Authority in the Client-Lawyer Relationship

The Client Can Delegate Authority to Settle but It is Not Irrevocable

October 2021

By Kevin Mohr

Among its lesser legacies, the 1970s Watergate scandal left a naming convention by which every purported political scandal must go through an early stage where the suffix “-gate” is affixed to it, until cooler heads prevail and rechristen it. (E.g., “Irangate” of the mid-1980s begat the “Iran-Contra Affair,” which in turn edged out an early favorite, “Iranamok.”) Watergate, however, did have an influential and lasting effect on legal education. With many players in the Watergate cast having been lawyers sworn to uphold the law, the American Bar Association, as the accrediting agency for law schools, made Professional Responsibility a required course for law students. Consequently, any lawyer admitted to practice over the last several decades will have taken such a course. 

A typical P.R. course is designed to give law students an early appreciation of the duties they will undertake once they have entered a lawyer-client relationship (e.g., loyalty, confidentiality) and protections afforded the client (e.g., attorney-client privilege). Students are also schooled in the important division of authority between client and lawyer. While lawyers – experts in law and procedure –have authority to decide “procedural matters” and bind the client in those decisions, only clients can decide “substantive matters,” i.e., make decisions regarding matters that potentially impair the client’s “substantial rights.” See Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 404; Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1585; Maddox v. City of Costa Mesa (2011) 193 Cal.App.4th 1098, 1105 (listing cases); see also CRPC 1.2(a) & Cmt. [1]. This is a relatively straightforward rule: lawyers decide procedural matters and clients decide substantive matters. There is also little controversy about the substantive matters only a client can decide. One such matter about which there is no dispute is who decides when to settle a civil suit. Matter of Guzman (Rev.Dept. 2014) 5 Cal. State Bar Ct. Rptr. 308, 314 (A client’s unilateral right to control the outcome of his or her case includes the “right to settle or refuse to settle a claim”); CRPC 1.2(a) (“A lawyer shall abide by a client’s decision whether to settle a matter.”) 

This seemingly simple concept – only a client decides settlement – was the central issue in a recently published opinion issued by the Fourth District Court of Appeal, Amjadi v. Brown (8/30/21) 68 Cal.App.5th 383, 2021 WL 3855831, 2021 Cal. App. LEXIS 715. In this personal injury lawsuit, the plaintiff client had fired her first lawyers a week before trial and substituted new lawyers for a trial that had been rescheduled for six months later. The new lawyers’ contingent fee agreement with plaintiff contained the following language:

“CLIENT agrees that if a settlement offer is tendered in the case by any defendants and the ATTORNEY believes in good faith that the settlement offer is reasonable, and that acceptance of the offer is in the CLIENT’s best interest, and should be accepted, CLIENT authorizes ATTORNEY to accept said offer on CLIENT’s behalf, at ATTORNEY’s sole discretion.”

Client signed the fee agreement but her relationship with her new lawyers deteriorated, and the lawyers sought to be relieved as counsel on the first day of trial. The trial court denied their motion. One of plaintiff’s lawyers then sought to settle the case for $150,000, an amount plaintiff had previously rejected. Defense counsel renewed the $150,000 offer and plaintiff’s lawyer advised his client he would accept on her behalf. Despite plaintiff’s objection and request that her lawyers sign a new substitution, the lawyer signed a written settlement based on the quoted unilateral authority set out in the fee agreement. The trial court accepted the settlement and set a hearing for dismissal of the suit. Plaintiff appeared in propria persona at that hearing and filed a declaration stating (i) she objected to the settlement and (ii) had not consented to the agreement signed by her lawyer. Nevertheless, the trial judge dismissed the case on the ground plaintiff had failed to bring a motion. Plaintiff then retained new lawyers who filed a motion to vacate the judgment. Her former lawyers opposed the motion, submitting declarations that described various attorney-client communications that alluded to plaintiff’s interactions with previous lawyers, her mental health and feelings of religious persecution, and other confidential information. The court denied the motion to vacate and plaintiff appealed.

Before delving into the Court of Appeal’s decision, we should ask whether a client can ever delegate to a lawyer the authority to settle a claim. The short answer is yes. A more nuanced answer recognizes that a lawyer may settle a claim, but only if the lawyer is “specifically authorized” by the client.: See, e.g., Levy v. Superior Court (1995) 10 Cal.4th 578, 583 (quoting Blanton v. Womancare, Inc., supra, 38 Cal.3d 396 at 404); Murphy v. Padilla (1996) 42 Cal.App.4th 707, 716-717. Further, a lawyer can condition a contingent fee agreement on the client’s agreement to settle for a particular minimum amount. Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 918. On the other hand, a provision that prohibits a client from settling a claim without the lawyer’s consent is void as a matter of public policy. Matter of Van Sickle (Rev.Dept. 2006) 4 Cal. State Bar Ct.Rptr. 980, 989.^[1] Finally, a client may revoke an authorization to settle at any time. Rule 1.2, Comment [2]. With these principles in mind, we can proceed to a discussion of the Court of Appeal’s decision.

After first holding the trial court’s refusal to consider plaintiff’s arguments against the settlement was error, the court addressed the substantive issue: may a lawyer settle a claim over the client’s objection regardless of whether the retainer agreement purports to authorize the lawyer to do so. 68 Cal.App.5th at ___, 2021 WL 3855831, at *2. Relying on rule 1.2(a), requiring a lawyer to “abide by a client’s decision to settle a matter,” the court answered with an emphatic no and, relying on Matter of Guzman, supra, 5 Cal. State Bar Ct. Rptr. at 314-315, concluded that the disputed provision purportedly authorizing the lawyer in his “sole discretion” to settle the case “violates the Rules of Professional Conduct and is void.” 68 Cal.App.5th at ___, 2021 WL 3855831, at *4. Consequently, the court held, the settlement was voidable by the client and, when she objected to it, she voided the agreement. Id.

The client’s former lawyers raised two arguments the court dispensed with summarily. First, as to the lawyers’ contention they had acted with the client’s blessing per the contested retainer provision, the court pointed to the uncontroverted evidence that the client consistently objected to the settlement “at all times.” Moreover, the client had previously rejected the same settlement offer of $150,000. Second, as to the lawyers’ reliance on Comment [2] to rule 1.2, the court, while conceding that a client can authorize the lawyer to settle, observed that Comment [2] does not countenance settlement over a client’s objection. 68 Cal.App.5th at ___, 2021 WL 3855831, at *3. Quoting the Comment, the court noted “[T]he client can revoke [settlement] authority at any time,” which effectively prohibits settling when a client objects. Regardless, there was no settlement authority in this case, the retainer provision being found void.

The court, however, was not finished. Rather than limiting its rationale to a violation of rule 1.2(a)’s requirement to “abide” by a client’s settlement decision, the court cited several other rules or common-law ethical tenets the lawyers’ provision violated. First, the court identified a violation of rule 1.7(b), which prohibits a lawyer from representing a client without the client’s “informed written consent” if “there is a significant risk the lawyer’s representation of the client will be materially limited” by, inter alia, “the lawyer’s own interests.” Although the court did not explain this violation further, it appears to have taken the position that the lawyer’s own interests in being able to settle a case over a client’s objection would “materially limit” the lawyer’s representation of a client where, by the express terms of rule 1.2(a), the lawyer is required to “abide by a client’s decisions concerning the objectives of representation.” Second, the court also recognized a violation of rule 1.6(a), prohibiting a lawyer from revealing confidential information protected by Bus. & Prof. Code § 6068(e), and Bus. & Prof. Code § 6149, which recognizes a retainer agreement as a confidential client communication. 68 Cal.App.5th at ___, 2021 WL 3855831, at *3. It appears the court reasoned that the lawyers’ disclosure of the settlement clause in their fee agreement to defend their actions constituted the violation. The court, however, did not discuss whether the lawyers’ disclosure might have been permitted under Evid. Code § 956 (“There is no privilege under this article as to a communication relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship”) Regardless, the court also cited to a second violation of rule 1.6(a) in the lawyers disclosing various confidential communications in their declarations to opposing counsel and the court. 68 Cal.App.5th at ___, 2021 WL 3855831, at *4. Third, the court identified a violation of rule 1.9 in the lawyers opposing “their own former client’s motion to vacate the dismissal, arguably to preserve their ability to collect fees from the settlement proceeds.” Id. Fourth, the court concluded the provision is inconsistent with the well-settled rule that “the client’s power to discharge an attorney, with or without cause, is absolute.” 68 Cal.App.5th at ___, 2021 WL 3855831, at *3 (quoting Fracasse v. Brent (1972) 6 Cal.3d 784, 790). Here, despite the client’s objection and timely attempt to substitute her lawyers out of the case, one of them proceeded to settle it. Given the court’s concerns with the lawyer’s behavior, it referred all three of plaintiff’s former lawyers to the State Bar for an investigation of their conduct in the case.

So what should we make of the court’s opinion? Its decision focused on the undisputed evidence that the client had consistently objected to the settlement and had even attempted to fire her lawyers before they agreed to the offer that they had solicited from defendants. Given that a client can revoke a settlement authority at any time, (rule 1.2, Comment [2]), the lawyer’s failure to heed the client’s objections doomed their decision to proceed. But what if a client does not object at the time a lawyer receives a settlement offer? Clients sometimes suffer buyer’s remorse. Would the clause have passed muster if, for instance, the aggrieved client had subsequently filed a complaint with the State Bar? 

As already noted, there is well-settled case authority that permits a lawyer to settle a matter when the lawyer has been “specifically authorized” to do so. See, e.g., Levy v. Superior Court, supra, 10 Cal.4th at 583; Murphy v. Padilla, supra, 42 Cal.App.4th at 716-717. Here, the disputed provision arguably did “specifically authorize” the lawyer to settle only so long as the lawyer “believes in good faith that the settlement offer is reasonable, and that acceptance of the offer is in the [client’s] best interest.” True, the clause adds that the lawyer is authorized to settle “at ATTORNEY’s sole discretion,” but that “sole discretion” is still conditioned on the lawyer’s “good faith” belief that first, the settlement offer “is reasonable,” and second, is in the client’s “best interests.” The court of appeal had something to say on that point. Although it stated it was not deciding the issue, it questioned whether a “blanket authorization, given at the inception of the attorney-client relationship, to settle at any amount and on any terms in the attorney’s ’sole discretion’ would be sufficiently ‘specific’ to satisfy the commentary [to rule 1.2] even if the settlement were made in the client’s absence and without a contemporaneous objection.” 68 Cal.App.5th at ___, 2021 WL 3855831, at *3. Despite the court’s statement it was not deciding whether the clause “specifically authorized” the lawyers to settle, there is no question it was highly skeptical of the provision’s ethical efficacy as seen by its enumeration of the provision’s several rule violations. Id. Although the court’s statement might be denominated as non-controlling dictum, it would be a foolish lawyer indeed to include a clause like the one in Amjada as part of the lawyer’s retainer agreement.

In summary, Amjada v. Brown reprises a valuable lesson in lawyer-client relationship dynamics that most of us learned in law school. Many of us have had experience with clients with whom we disagreed on achieving the matter’s objectives and more to the point, have disagreed on whether it was the right time to settle a case. Where we are approached by a prospective client seeking a lawyer to replace a discharged lawyer, we might be tempted to alter the established roles of the relationship to avoid disputes we envision might arise. However, Amjada tells us it would not be a wise strategy to attempt to contract around the well-settled allocation of authority between lawyer and client, particularly in the context of settling a civil claim. Instead of a contract provision, the better approach when difficulties are foreseen in the relationship might be simply declining the representation, however less financially rewarding that decision might be. 

Kevin Mohr is a professor at Western State College of Law, Irvine, California. Professor Mohr is a founding member of the CLA’s Ethics Committee. The views expressed are his own.

^[1] Compare Pen. Code § 1018, which sets forth an important exception to the client’s right to enter a plea in the context of a capital case (“No plea of guilty of a felony for which the maximum punishment is death, or life imprisonment without the possibility of parole, shall be received from a defendant who does not appear with counsel, nor shall that plea be received without the consent of the defendant’s counsel.”)