In a class action where the defendant pays the plaintiffs' statutory attorney's fees, can plaintiffs' counsel negotiate those fees with the defendant before the underlying case is settled?

Plain-English summary

The Commission considered whether, in a class action where plaintiffs' counsel is statutorily entitled to be paid by the defendant, it is unethical for counsel to negotiate the amount of those fees with the defendant before the underlying action is settled. Related questions were whether counsel may disclose to the defendant the hours and hourly rate expended before settlement on the merits, and whether counsel may prevent a client from settling without protecting counsel's fee recovery.

The Commission saw a classic conflict of interest: the client and the attorney have competing interests in how a settlement fund the defendant is prepared to pay gets divided. It found no prior ethics opinion on point but treated recent federal class-action decisions, whether read as substantive law or ethical principle, as persuasive. Unlike other self-interest situations, this one cannot be solved by the attorney resigning, because class plaintiffs must be represented and any counsel faces the same statutorily created conflict; counsel is always exposed to the accusation that the size of the fee may have influenced the settlement recommendation.

Drawing on cases like Prandini v. National Tea Co. and Jamison v. Butcher & Sherred, which condemned negotiating counsel fees before settlement and favored deferring fee consideration until after approval of the class settlement, the Commission concluded that the inherent conflict requires plaintiffs' counsel to abstain from any fee discussions with the defendant until the underlying case has at least been tentatively resolved. Once the plaintiffs' claims are settled and counsel has committed to the settlement value, fee discussion becomes appropriate; counsel may then disclose hours, billing rates, and similar matters, but the fee itself must be fixed or approved by the court. Whether a gross settlement figure is set with the fee left to the court, or a fee proposal is approved, matters little; the key is that the underlying claim be resolved before the fee is considered. The Commission added that it would be equally unethical for a defendant to seek to resolve counsel's fees before agreement on the underlying claim.

Finally, the Commission held that counsel may never prevent clients from settling, even if the settlement ignores their right to recover statutory counsel fees from the defendant. It saw no impropriety, however, in counsel informing clients that they might be directly liable to counsel for fees, such as in quantum meruit, if they waived their right to recover fees from the defendant.

Currency note

This opinion was issued in 1981, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can plaintiffs' counsel negotiate statutory fees with the defendant before the class action is settled?

A: The opinion concluded no. The inherent conflict between the attorney's fee interest and the clients' settlement interest requires counsel to abstain from fee discussions until the underlying claim has at least been tentatively resolved.

Q: When may counsel disclose hours and rates to the defendant?

A: The opinion concluded that once the underlying claims are settled and counsel has committed to the settlement value, counsel may disclose hours, billing rates, and similar matters, with the fee itself fixed or approved by the court.

Q: Can counsel block a client from settling to protect counsel's fee?

A: The opinion concluded no. Counsel may never prevent clients from settling even if that waives their statutory fee right, but counsel may inform them they could be directly liable for fees, for example in quantum meruit.

Background and rules framework

The opinion addresses a conflict between a lawyer's own interest and the client's interest, the subject of Maine Bar Rules 3.4(f) and 3.7(c) and (i), though the Commission noted those rules are not strictly applicable because class counsel never really has an "interest" in the client's cause of action. It rested instead on the lawyer's basic duty under Rule 3.6(a) to apply best judgment in serving the client. These correspond to Model Rule 1.7 (conflicts of interest) and Model Rule 1.5 (fees). The analysis turns on sequencing: resolving the underlying claim before any fee negotiation.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (conflicts of interest); Model Rule 1.5 (fees)
• Maine Bar Rules 3.6(a), 3.4(f), 3.7(c), 3.7(i)

Cases:

• Prandini v. National Tea Co., 557 F.2d 1015 (3d Cir. 1977), defer fee consideration until after class settlement approval
• Jamison v. Butcher & Sherred, 68 F.R.D. 479 (1975), attorney's fees reserved for the court after settlement of the class amount
• Norman v. McKee, 290 F. Supp. 29 (N.D. Cal. 1968), aff'd, 431 F.2d 769 (9th Cir. 1970)
• Munoz v. Arizona State University, 80 F.R.D. 670 (1978)
• City of Philadelphia v. Charles Pfizer & Co., 345 F. Supp. 454 (S.D.N.Y. 1972), settlement providing for court-set "reasonable counsel fees" upheld

Other authorities:

• Manual for Complex Litigation, Rule 1.46 ("inherent conflict of interest"); 3B Moore's Federal Practice para. 23.07(1)

See also

• Maine Ethics Op. 95: Pre-Settlement Negotiation of Statutory Attorney's Fees Claims
• Maine Ethics Op. 64: Contingent Fee Interest in Real Estate That Is the Subject of the Suit
• Maine Ethics Op. 24: Charging Attorney's Fees Beyond the Amount Allowed by a Commission

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89495

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Issued by the Professional Ethics Commission

Date Issued: January 15, 1981

The principal question before the Committee is whether, in a class action in which plaintiffs' counsel is statutorily entitled to be compensated by defendant, it is unethical for plaintiffs' counsel to negotiate the amount of those fees with defendant prior to settlement of the underlying action. Ancillary inquiries involve the propriety of disclosure to defendants of the number of hours and hourly rate expended by plaintiffs' counsel prior to settlement on the merits and the right of plaintiffs' counsel to prevent his client from agreeing to settle without protecting plaintiffs' counsel with respect to recovery of fees from defendant.

The questions posed raise the specter of a classic conflict of interest between an attorney and his client: the competing interest of the client and the attorney in the division of a settlement fund which a defendant is prepared to pay to resolve litigation. Surprisingly, no ethics opinion has been found which deals with such matter. A number of recent cases, however, have discussed the question in the context of approval or disapproval of proposed settlements in class actions, and we feel that, whether viewed as statements of substantive law or ethical principles, these cases are persuasive and dictate the result of our deliberations.

Unlike other attorney self-interest situations, the inquiry poses a circumstance which cannot be resolved by the attorney resigning from the case. Plaintiffs in class actions must, of necessity, be represented by counsel, and any attorney representing plaintiffs under these circumstances falls victim of the same statutorily created conflict. The conflict presented is very real; the attorney involved is always left open to the accusation that consideration of the amount of his fee may have influenced his recommendation as to the settlement of the underlying case.

"The present arrangement leaves the unfortunate impression that defendants are buying themselves out of the lawsuit by direct compensation to plaintiffs' counsel." Jamison v. Butcher and Sherred, 68 F.R.D. 479, 484 (1975)

Several recent cases have condemned a practice of negotiating plaintiffs' counsel fees prior to settlement of the underlying case. Leading among these is Prandini v. National Tea Co., 557 F.2d 1015 (3rd Cir. 1977). The Prandini court establishes a far preferable procedure of deferring any consideration of counsel fees until after the approval of the class action settlement. See also, Norman v. McKee, 90 F.Supp. 29, 36 (N.D.Cal. 1968), aff'd, 431 F.2d 769 (9th Cir. 1970); Munoz v. Arizona State University, 80 F.R.D. 670 (1978); Jamison v. Butcher & Sherred, supra at 484 (". . . (I)t is inappropriate for a proposed settlement to provide for direct payment of attorney's fees to counsel for the class representatives . . . . Rather, the issue of attorney's fees is more properly reserved for judicial consideration after settlement of the gross amount to be paid to the class.") See also, 1 Moore on Federal Practice (Manual for Complex Litigation), Rule 1.46; 3B Moore's Federal Practice, paragraph 23.07(1). C.f. City of Philadelphia v. Charles Pfizer & Co., 345 F.Supp. 454, 470-71 (S.D.N.Y. 1972), where the court upheld a class action settlement providing for a plaintiff's attorney to be paid "reasonable counsel fees" to be later determined by the court.

In view of these authorities, we must conclude that the "inherent conflict of interest" (Manual for Complex Litigation, Rule 1.46 supra) presented by this inquiry requires a plaintiff's attorney to abstain from any fee discussions with a defendant until after the underlying case has been at least tentatively resolved. Once the plaintiff's claims have been settled as between the parties and plaintiff's counsel has committed himself to the settlement value of the underlying claim, it becomes appropriate to discuss fee considerations. Plaintiff's counsel might disclose to defendant information concerning hours expended, billing rates, and other matters commonly considered in establishing a reasonable fee. Of course, the fee itself must be either fixed or approved by the court, and whether this were done in the context of a gross settlement figure recommended by the parties with a fee to be determined by the court, or in the context of an approval of a fee proposal made by the parties, seems to us to make little difference. The important factor is that the amount of the underlying claim be resolved prior to consideration of the fee for counsel. It should also be noted that it would be equally unethical for a defendant to seek resolution of plaintiff's counsel fees prior to agreement on the underlying claim.

In no event may plaintiffs' counsel prevent his clients from settling a case, even though such a settlement may ignore the plaintiffs' right to recover statutory counsel fees from the defendant. We would perceive no ethical impropriety, however, in the attorney informing his clients that they might be directly liable to him for counsel fees-such as under quantum meruit-if they were to waive their right to receive counsel fees from the defendant.

Footnote

[1] Perhaps it is not so surprising, since none of the provisions of the Code of Responsibility address themselves directly to the issue. Rules 3.4(f) and 3.7(c) and (i), dealing with the interest of a lawyer in or antagonistic to his client's interest, are not strictly applicable because counsel in a class action never really has an "interest" in the client's cause of action. Rule 3.6(g), relating to settlement of similar claims on behalf of different clients, does not really address itself to a class action. Of course, the principal duty of the lawyer, as set forth in Rule 3.6(a) is that he "employ reasonable care and skill and apply his best judgment in the performance of his services"; the concern raised by the issue posed is that the resolution of the attorney's fee may distract the attorney from using his best judgment in settling the class action.