Is it ethical for a settlement negotiation to include terms about the plaintiff's attorney's fees, including a defense offer conditioned on the lawyer waiving fees?

Plain-English summary

The Board noted that questions about settlement provisions affecting attorney's fees were arising more often with the rise of structured settlements, class actions, and the Civil Rights Attorney's Fee Awards Act of 1976, 42 U.S.C. § 1988. Earlier opinions (Formal Ethics Opinions 80-F-1, 80-F-1(a), 84-F-61, and 84-F-77) had addressed structured settlements; Opinion 84-F-77 recognized a potential or actual conflict of interest whenever a structured settlement is considered, since attorney and client preferences over immediate cash versus periodic payment often diverge based on age, finances, or tax consequences. Opinion 80-F-1 held that any arrangement letting the opposing party participate in setting the attorney's fee conflicts with DR 5-107 and EC 5-22.

The opinion observed that civil-rights fee awards had not yet been addressed in a formal opinion and that the conflict there could be more severe, citing Jeff D. v. Evans, 743 F.2d 648 (9th Cir. 1984), in which defendants offered virtually all of the relief plaintiffs sought conditioned on plaintiffs' counsel waiving attorney's fees. The Ninth Circuit identified the core problem as the lawyer's diverging interest from the class: a generous fee offer might tempt the attorney to accept a less than optimal settlement, while a defendant might instead condition settlement on a fee waiver, creating a severe conflict where important class interests are at stake; for that reason the circuit had disapproved simultaneous negotiation of settlement and fees. The opinion concluded that settlement negotiations including attorney's-fee provisions are not inherently improper and may be appropriate if plaintiff's counsel fully advises the plaintiff of every step and aspect of the negotiations, advises that independent legal advice may be obtained, and lets the client approve or disapprove the entire settlement, fee provisions included, with any court whose approval is required fully advised of the fee provisions.

Currency note

This opinion was issued in 1985, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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 Treat this page as historical context, not current guidance.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: Is a settlement offer conditioned on the plaintiff's lawyer waiving attorney's fees ethically problematic?

A: The opinion recognized this creates a particularly severe conflict between the lawyer's interest and the client's (or class's) interest, citing the Ninth Circuit's concern in Jeff D. v. Evans that a defendant may condition relief on a fee waiver specifically to exploit that divergence.

Q: Can settlement negotiations properly include terms about the plaintiff's attorney's fees at all?

A: Yes, the opinion found such negotiations not inherently improper, but only if counsel fully advises the client of each step of the negotiations, tells the client independent legal advice is available, and lets the client approve or disapprove the whole settlement, including the fee terms.

Q: What must happen if a court's approval of the settlement is required?

A: The court must be fully advised of all matters relevant to the settlement, including the provisions relating to attorney's fees.

Background and rules framework

The opinion applied Disciplinary Rule 5-107 and Ethical Consideration 5-22 of the Code of Professional Responsibility, which bar arrangements letting an opposing party participate in setting the attorney's fee, and built on the Board's prior structured-settlement opinions addressing the conflict between attorney and client interests. The modern correlates are Model Rule 1.7 (conflicts of interest) and Model Rule 1.5 (fees), cited here as navigational cross-references rather than rules the opinion itself applied.

Citations and references

Cases:

• Jeff D. v. Evans, 743 F.2d 648 (9th Cir. 1984), defense settlement offer conditioned on plaintiff's counsel waiving attorney's fees

Other opinions cited:

• Tennessee Formal Ethics Opinion 80-F-1, opposing party's participation in setting attorney's fee
• Tennessee Formal Ethics Opinion 84-F-61, structured settlements
• Tennessee Formal Ethics Opinion 84-F-77, conflict of interest in structured settlements

See also

• Tennessee Op. 84-F-61: Contingent Attorney Fees in Structured Settlements
• Tennessee Op. 84-F-77: Attorney Fees in Structured Settlements
• LACBA Op. 445: Attorney's Fees: Settlements Restricting Fees in Civil Rights and Civil Liberties Cases
• Tenn. Ethics Op. 85-F-96(a): Settlement Negotiations Including Attorney's Fees (supplements this opinion after the U.S. Supreme Court resolved the cited Jeff D. v. Evans case)

Source

• Landing page: https://www.tbpr.org/ethic_opinions/85-f-96

Original opinion text

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

85-F-96 - Settlement Negotiations including attorney fees

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 85-F-96

Inquiry is made concerning the ethical consequences of settlement negotiations which include provisions relating to attorney's fees.

The subject of this inquiry arises with increased frequency following the advent of structured settlements, class actions and the Civil Rights Attorney's Fee Award Act of 1976, 72 U.S.C. Section 1988.

Formal Ethics Opinions 80-F-1, 80-F-1(a), 84-F-61 and 84-F-77 have addressed the matter relating to structured settlement. Formal Ethics Opinion 84-F-77 states:

There is a potential, if not an actual, conflict of interest between the attorney and client in every instance where structured settlements are discussed or considered as a settlement option. It is recognized that, in some instances, an immediate cash settlement would be more beneficial to the client, whereas the attorney may prefer to receive the payment of his attorney fee periodically; or, vice versa. The preferences of the attorney or client are often dependent or based upon their respective ages, economic station or tax consequences. These factors will seldom, if ever, be viewed from the same perspective by the attorney and the client.

Formal Ethics Opinion 80-F-1 states:

... any arrangement by which the opposing party participates in the setting of the fee charged by the attorney to his client conflicts with the language and intent of DR 5-107 and EC 5-22 of the Code. (emphasis added)

The matter of civil rights attorney's fee awards has not been addressed in a Formal Ethics Opinion. It appears the conflict in such instances may be more severe than in cases involving structured settlements. For example, in the case of Jeff D. et al v. Evans, 743 F.2d 648 (9th Cir. 1984), during the settlement negotiations, the defendants offered virtually all of the relief sought by plaintiff's conditioned upon waiver of attorney's fees by plaintiff's counsel.

The Ninth Circuit Court of Appeals in considering the matter states:

The crux of the problem is the possibility of diverging interests of the lawyer and the class. The attorney may be tempted with a generous fee offer as a quid pro quo for less than optimal settlement. Alternatively, the defendant may condition settlement on the attorney's waiver of fees, creating a particularly severe conflict when important interests of class members are at stake....

To avoid this conflict, this circuit has ... disapproved simultaneous negotiation of settlements and attorney's fees.

In such instances, settlement negotiations which include provisions for attorney's fees are not inherently improper and may be appropriate, provided plaintiff's counsel:

(i) Fully advises the plaintiff or plaintiffs concerning each and every step and aspect of the negotiations;

(ii) Advises that independent legal advice may be obtained regarding the matter; and

(iii) The client should be allowed to approve or disapprove of the entire settlement, including provisions relating to attorney's fees. When consent, approval or permission of a court is required, the court should be fully advised of all matters relative thereto, including the provisions of attorney fees.

This 31st day of May, 1985.

ETHICS COMMITTEE:

W. J. Flippin, Chairman

Edwin C. Townsend

Henry H. Hancock

APPROVED AND ADOPTED BY THE BOARD