In The Know: How to Discuss Settlement in Your Fee Agreement

By JULIE BROOK, ESQ. [CEB] REPRINTED WITH PERMISSION

When handling a dispute, make sure that your fee agreement covers settlement. Here’s some sample language to get you started.

Your fee agreement should always state that you won’t settle the case without the client’s consent. Write something like this:

Attorney will not settle Client’s _ _[claim/case]_ _ without the approval of Client, who will have the absolute right to accept or reject any settlement. Attorney will notify Client promptly of the terms of any settlement offer received by Attorney.

Keep in mind that attorneys have a responsibility to communicate settlement offers to their clients. See Bus & P C §6103.5; Cal Rules of Prof Cond 1.4.1.

Then, consider covering the following issues:

• When recovery is paid directly to the client. The language below should be used in fee agreements for cases in which part or all of the recovery might be paid directly to the client rather than to the attorney. Such direct payments are particularly possible in collection cases. Client will notify Attorney promptly of any payments received directly and will pay promptly to Attorney any amounts due from such payments, under the terms of this agreement, for attorney fees and costs advanced.

• When recovery is obtained from a debtor who later files for bankruptcy. When an attorney collects money from a debtor who later files for bankruptcy, the bankruptcy court may require the attorney, as the initial recipient, to refund for the benefit of creditors funds that the attorney transferred to the client. Thus it’s important to include a clause that requires the client to hold the attorney harmless and to submit to the bankruptcy court’s jurisdiction on the issue of the responsibility for payment. The language below should be used in fee agreements for cases in which this issue may arise.

If the _ _[debtor/party obligated to pay any settlement reached in this matter]_ _ files bankruptcy after making any payments to Attorney on account of Client’s claim, Client will hold Attorney harmless from any claim or demand for repayment or reimbursement made by the debtor or a trustee in bankruptcy under the Bankruptcy Code and will submit to the jurisdiction of the bankruptcy court for purposes of indemnification.

When drafting a fee agreement for a new matter, you’ll want to review the many potentially applicable provisions. CEB’s Fee Agreement Forms Manual, chap 1, makes it easy to peruse the possibilities and get sample language.