Abbott v. Kidder Peabody & Co., Inc.
42 F. Supp. 2d 1046, 1999 WL 160297, 1999 U.S. Dist. LEXIS 3534 (1999)
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Rule of Law:
An attorney-client agreement that deprives an individual client of the ultimate authority to accept or reject a settlement offer is void as against public policy. Such an arrangement creates a non-waivable conflict of interest under the Rules of Professional Conduct, warranting the disqualification of the attorney.
Facts:
- Over 200 plaintiffs, who had invested in partnerships allegedly created by James Donahue, hired the law firm Christa & Jackson to represent them in a single lawsuit.
- Most plaintiffs signed an 'Attorney-Client Contract' with the firm.
- The contract established a 'steering committee' of plaintiffs, which was authorized to make all litigation decisions for the entire group.
- The contract stipulated that the law firm would not conduct any individual's case differently from how it conducted the case for the steering committee.
- A 'Settlement and Sharing of Proceeds' provision authorized the attorneys to settle any client's claims on the same terms as the steering committee members.
- The agreement required that any settlement money received be shared among the entire plaintiff group according to a formula, which the steering committee had the power to alter.
- During settlement negotiations, one client who wished to accept an individual settlement offer was required to withdraw from the group and obtain new counsel.
- The contract also contained an escrow provision that prevented any single client from receiving settlement proceeds until every member of the group had settled their case.
Procedural Posture:
- Over 200 plaintiffs filed a single, non-class action securities lawsuit in the U.S. District Court for the District of Colorado.
- The presiding judge referred the case to a Magistrate Judge for settlement conferences.
- After attempts at group and individual settlement conferences failed to produce results, the Defendants filed a Motion to Declare Void and Unenforceable the Group Governance and Settlement Provisions of Plaintiffs’ Attorney-Client Contract and to Disqualify Counsel.
- At a hearing on the motion, Defendants' counsel verbally amended their request, asking only that Plaintiffs' counsel be disqualified from participating in settlement discussions.
- The motion was referred from the presiding judge to District Judge Daniel for a ruling.
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Issue:
Does an attorney-client agreement that delegates an individual client's settlement authority to a steering committee and requires settlement proceeds to be shared among all plaintiffs create an impermissible and non-waivable conflict of interest that warrants disqualification of the law firm?
Opinions:
Majority - Daniel, District Judge
Yes. An attorney-client agreement that transfers an individual client's settlement authority to a minority steering committee creates a non-waivable conflict of interest that violates public policy and the Colorado Rules of Professional Conduct, thus warranting disqualification. A lawyer's representation may be materially limited by their responsibilities to other clients, creating a conflict. While clients can sometimes consent to conflicts, under Rule 1.7(c), consent is invalid where a 'disinterested lawyer would conclude that the client should not agree to the representation.' Here, the agreement divests individual clients of the right to control their own cases, particularly the crucial decision to settle. This arrangement is contrary to the fundamental principles of the attorney-client relationship, as established in precedents like Hayes v. Eagle-Picher Industries, Inc., and is void as against the public policy of Colorado, which holds that litigants have the right to control their own cases. Therefore, the conflict is so severe that it cannot be waived by client consent, and disqualification is the appropriate remedy.
Analysis:
This decision reaffirms the fundamental principle that each client in a multiple-client representation retains ultimate authority over their own case, especially the decision to settle. It establishes that fee agreements cannot contractually eliminate this right, even with client consent, if the arrangement creates a severe conflict of interest. The ruling serves as a strong caution to attorneys handling mass-plaintiff, non-class action cases against using 'majority rule' or 'steering committee' governance structures for settlement decisions. It reinforces the lawyer's ethical duty of loyalty to each individual client, which cannot be subordinated to the will of a client subgroup or the administrative convenience of managing a large group.
