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Attorneys Must Use Caution When Negotiating Fee Claims Concurrent With Client’s Interests

October 13, 2011

Attorneys already know that it is clearly unethical to be in any position in competition with your own client.  But, this  obvious conflict in interest  is sometimes totally forgotten when attorneys are negotiating causes of action which include a claim of attorneys fees should they prevail in proving their clients interest.

A recent disciplinary action reported in the Florida Bar News, October 1, 2011, revealed a glimpse of just how this conflict can result in a significant ethics violation in mediation.  Attorney Timothy Patrick of Tampa, Florida was suspended from practice for one year, apparently arising from inducing his client at mediation to reject a settlement offer that fully compensated his client but did not fully compensate his attorneys fees claim.  (Case No. SC09-2057)

This inherent conflict of interest in negotiating combined claims arises often in mediation, particularly where any litigated cause includes prevailing party’s attorneys fees and costs.

Such combined claims are very common, for example, in first-party insurance claims usually based upon statutory law.  But it also highly prevalent in many other business and commercial contractual matters as a matter of contract.  And the same is true in many other litigated matters where prevailing attorneys fees claims arise either by contract or statute.

Generally, this inherent conflict arises simply because most negotiation (and mediation) is generally intended to resolve the entire claim in litigation or to be litigated.  And, in many of these matters the entire claim includes not only the underlying dispute, but assuming resolution, it includes attempting to resolve the prevailing attorneys fees (and costs) elements as well.

Naturally, therefore, the insurance carrier defendant (and  every other defendant asking to pay for resolution) always seeks a “global” settlement, that is, a total settlement of every pled issue.   And, very likely the total monies any such defendant has allocated for any total resolution naturally also includes what monies they include for their risk and exposure to the fees and costs issues. 

This ethical problem arises however, in that by making this very natural “global offer” to any claimant,  it immediately causes the claimant’s attorney and his/her client to be forced to “divide/apportion” the global offer between their respective (and now competing) separate damage claims of the cause and the resultant collateral claim for attorneys fees and costs.  Thus, the unacceptable conflict of an attorney in direct financial competition with his/her own client is born. It seems quite clear to me that any such undifferentiated “global” offer of settlement made,  immediately places the attorney  in a clear ethical dilemma.

There are many “what if’s” that arise to demonstrate the peril.  For example, what if the offer is clearly enough to compensate the client, but woefully inadequate for the pending attorneys fees claim? Very often such first party claims are relatively insignificant financially and it is the threat of rising attorneys fees that obtains the offer for the underlying claim in the first place.

But, what if the offer made is adequate for the attorneys fees, but the client simply, reasonably or not,  doesn’t agree to the settlement of his claim for the remaining portion? The same dilemma arises.

And, what if a defendant simply wants to “use” this inherent conflict to intentionally try to force a settlement of one claim by driving this professional wedge between the claimant and his/her attorney?  Could such a use of such a conflict constitute an ethical violation by even attempting to force such a conflict?

With these problems, is there a process whereby both the Defendants and the Claimants can ethically accomplish negotiations of these “mixed” claims. 

Mark Nation, of Longwood, Florida, an experienced first party claims attorney, first alerted me to this potential issue in mediations conducted prior to this most recent disciplinary action.   Mark was able to negotiate his minefields.  With his help and suggestions, and the suggestions of other counsel who have participated in some recent similar mediations, I pass on these suggestions for your consideration.

(Note: In the interest of time and my desire to timely alert others of this growing issue,  I have not undertaken to fully research or consult the many sources of  direct ethical advice presumptively available to members of the Bar on this subject.  Feel free to add your research, recommendations or other pertinent references on this matter for use by others as a comment to this article.)

First, Claimants’ attorneys submitting their initial “demand” or initial settlement proposal, should always propose the substantive claim of their client totally separate and distinct from the collateral issue of prevailing attorneys fees and costs.  Preferably, this pre-mediation or other position need not even mention attorneys fees and costs (after all, you must first prevail) but if mentioned at all, it should be  without detail of your fee claim until specifically requested by the opposition.

Second, at your first negotiation opportunity, you should affirmatively suggest that negotiation of your client’s interest be concluded prior to any attempted negotiation of your fee (or costs).

Third, should the opposition (reasonably) inquire at to the basis of your future attorneys fee claim, if any, it is probably appropriate to factually notify them of  1) your hourly rate being sought 2) your present total of hours expended in pursuit of your clients claims and 3) your present total costs expected to be compensated by your client.  (The issue of any multiplier to be sought is a touchy one and probably would best be deferred until more progress is made upon your clients claim.  But, if is a normal award of that type claim, a factual disclosure of your claim likely should be made along with the above “factual” disclosures.)  This basic information, which would ultimately be due for any fee hearing at the least should allow the opposition to judge and evaluate this portion of the ultimate total claim.

Fourth, each time the defense proposes any offer, you must affirmatively inquire as to whether the offer is solely to your client’s claim or is intended to be a global settlement offer.   

If  an offer is deemed separate (or apportioned), proceed on with your negotiation of your client’s claim, only.  And, respond, only, to your clients portion of the offer.  Your response to that portion of the offer allocated to your fee is that “until your clients claim is resolved, your fee has not even accrued and therefore is ongoing.”  Of course, you should repeat that you are willing to discuss your fee (and costs) once the client’s claim has been resolved (or even tentatively resolved*).

(A lesser choice that may have to be strategically made is to consider “parallel” negotiations.  That is negotiating your clients differentiated claim simultaneously with a differentiated fee claim.  It may or may not be better than having all negotiations cease.  But it is fraught with much more potential conflict than attempting to first conclude (or tentatively conclude*) your clients interest.)

If the offer is termed as “global” you must affirmatively inquire as to what portion of their offer is allocated to your clients claim.  If the offer is global and the offer then will not be apportioned by the defense, you must pass on the entire proposal to your client, to carry out your duties of full disclosure,  but you should then inform your client (and the opposition) that ethically you cannot negotiate on their behalf unless and until an apportionment of the global offer is elected by the proposing party.  It may be necessary to explain to your client, why!

It may be up to your mediator to explain “why” to your opposition.

(It is very common for the Defense to initially resist this insistence on separation of any global offer.  After all, they seek only a full and final total release and usually do not care how their total dollars are ultimately divided.  However, it is also a good time to remind the defense that likely just such a defense-allocated division would likely be required under the present strict construction rules for valid proposals for settlement.)

These initial suggested guidelines seem adequate to prevent your immediate ethical dilemma.  And there probably are others.  I would be glad to hear other suggestions.  But, beware, there are still issues to be considered as you move forward in this setting.

The  obvious:  What do you do when your opposition simply refuses  to assist you with this ethical matter?  And they insist that it is not their responsibility?  It is your choice, but I, personally, would rather pass on such an obvious ploy to place me in direct ethical conflict with my client,  than jeopardize my license trying to dance with the devil.

Another collateral factor to consider should you “give in” to discussing your fee prematurely is that although your client’s claim may be static, that is, of the same value today as at trial, your fees and costs are continuing.  One of the collateral problems to negotiating fees prematurely is that if you are not successful, your fees will continue to rise.  But, the memories of your last position remain with your opposition for future negotiations!

One  simple solution is to resolve your client’s claim first.  Then work separately upon your claim for attorneys fees and costs without any connection to your resolved client’ claim.   This works well if your opposition will agree.  And, by the way, your primary prevailing party fee hours probably effectively stop accruing;  a point for the opposition to consider. 

However, that raises another primary negotiation issue. Entitlement.  Entitlement, i.e. prevailing,  is a common risk factor of any fee claim.  And a central negotiation element in the entire total claim.   What if the “entitlement” to a fee issue, i.e. whether your fees (and costs) ever even becomes an issue, prevents reasonable negotiation of your fee and thus  total resolution of your client’s claim? 

And what if your opposition allows you to come to a “tentative agreement”  on your clients interest, subject to resolving your fee, noted (*) above?  That is, your clients claim is settled, IF, an agreement can then be reached on your fee.

Clearly another ethical minefield.

But, is making your client’s claim resolution subject to resolution of your claim the same ethical issue?   I say, No, because it is now not you forcing the unethical decision, but the Defendant.  (And, any attorney allowing his client to insist on demanding such a “choice”, better be very careful about permitting an unethical offer to be made!)

As a blog,  (and even though longer than most) I must stop now in order to offer this information timely enough to be meaningful.  That is, simply as an alert to you to this common ethical issue arising repetitively in negotiation and mediation.  Clearly more specific research and investigation is also warranted by those who will face these issues as early as tomorrow.

For now, simply use great caution when negotiating any claim that combines your claim for attorneys fees.  A word to the wise.

3 Comments leave one →
  1. Ali permalink
    July 1, 2016 3:37 pm

    Have you done any more recent research on this issue? I’ve found it to be very relevant in mediations with a fee-shifting component (a seeming conflict of interest for attorneys in their fees versus client damages).

    • July 3, 2016 10:26 am

      Ali, thanks for your comment. It is the reason I write this blog; for practitioners.
      And, you are right, in Florida, it is and always has been a “bright-light” conflict of interest to divide anything with your own client.
      However, in actual negotiation practice, including in mediation, it seems so common in my experience as, frankly, not to be paid much attention. Of course, until there is a complaint.
      My personal practice is to caution all sides of my mediation participants and then, as usual, allow them to proceed as they choose.
      I have done no specific research since my original blog on the matter; most of my “suggestions” for my blog for others come solely from my daily observations of what lawyers do and do not do.
      My better practitioners in these fee-shifting matters seem to have several ways they satisfy themselves (and their clients) within the ethics of this mixed subject-process (usually “pressed” by the defense side as an expediency of their “need” to know their total exposure).
      One is to have had a pre-negotiation full-disclosure conference and even a written waiver plan on this precise issue. Second, (sometimes first after my reminder?), with each offer/counter-offer, an attorney-client pre-agreed division of each offer in case their offer is accepted. Third, before any final acceptance, a similar pre-agreement for the division, if necessary, between the claim and the applicable attorneys fee.
      In Florida, most ethical conflicts may be waived if clients are properly informed in advance. A fully informed client seldom complains. However, better lawyers will want to have such waivers in writing.
      I hope this helps. Dan, from Houlton, Maine (for a cooler summer!)

      • Ali permalink
        July 15, 2016 3:40 pm

        Thank you so much for this response, Dan! I appreciate hearing some practical advice on the issue.

        As far as advice for mediators hoping to encourage best practices in the mediation process (and hoping also for a higher possibility of settlement) — what kind of statements of caution do you recommend in particular? In your opinion, is it ethical for mediators to mention/highlight this issue?

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