No Advance Majority-Rule Consent

No Advance Majority-Rule Consent

Rule 1.8(g) allows a lawyer to participate in an aggregate settlement only if "each client gives informed consent, in a writing signed by the client."¹ A lawyer with dozens of clients in one mass case has an obvious reason to collect that consent early: put in the retainer a promise by every client to be bound by whatever aggregate settlement a stated majority later approves. An aggregate offer is all-or-nothing, so the refusal of a single client rejects it for everyone,² and a majority-rule clause would remove that veto. The rule's text, however, contains no exception for consent given in advance, and the courts that have considered such a clause hold that it cannot replace each client's own agreement once the terms are known.³

The reason lies in what the consent must cover. The rule requires the lawyer's disclosure to include "the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement."⁴ A retainer signed before any offer exists can disclose none of that; its signature records only a promise to accept what other clients later decide. Those clients may have different interests, and the lawyer, who owes each of them an equal duty of loyalty, must give each balanced and candid advice, a task that becomes difficult or impossible when an interdependent proposal favors one client over another.⁵

Jackson Hewitt and Its Roots

The leading decision is Tax Authority v. Jackson Hewitt, in which the New Jersey Supreme Court held that RPC 1.8(g) "forbids an attorney from obtaining consent in advance from multiple clients that each will abide by a majority decision in respect of an aggregate settlement."⁶ The holding draws on the rule's history and on two earlier decisions, yet the court still enforced the settlement against the objecting plaintiff.

The facts show how such a clause is built. Plaintiffs' counsel represented plaintiffs from many different states and successfully sought to have all of them agree in advance to be bound by a weighted majority.⁷ The agreement paired that majority-rules provision with a four-person Steering Committee empowered to decide "all strategic and similar procedural matters other than the decision to settle the matter," so the decision to settle belonged to the weighted vote.⁸ The Steering Committee negotiated a settlement in principle, and a weighted majority of plaintiffs approved it, but eighteen others did not. Jackson Hewitt sought to enforce the settlement against all plaintiffs, and the motion court granted the application.⁹ The Tax Authority, whose owner and president, Kenneth Leese, sat on the Steering Committee, was the only plaintiff to appeal. The Appellate Division reversed, holding that an attorney-client agreement with a weighted majority provision for settlement of litigation was contrary to RPC 1.8(g) and unenforceable.¹⁰

The Supreme Court agreed with the Appellate Division about what the rule demands: "Before a client may be bound by a settlement, he or she must have knowledge of the terms of the settlement and agree to them."¹¹ It grounded that sequence in the principle that, when a lawyer represents more than one client, "each client has the right to accept or reject the settlement after the terms are known."¹² An advance clause fails at the first step. A retainer signed before any offer exists cannot reveal a total, the other plaintiffs' shares, or the fees, because none of them has been fixed, and the signer's promise binds him to an outcome that other plaintiffs will choose.

The setting makes that failure more serious. Authority the court reviewed drew a "sharp distinction" between class actions and simple joinder actions: a court must determine whether a class settlement is reasonable, but "in a joinder action there is no judicial review of the settlement and a party should not be bound unless he has specifically agreed to it." Fundamental fairness, that authority added, is violated when a settlement binds objecting parties and no safeguards protect their interests.¹³ In a joined action, then, the client's own consent is the only protection the client has.

The rule's history explains why the court found no new exception in the modern wording. Before the Model Rules, New Jersey followed DR 5-106, which barred an aggregate settlement "unless each client has consented to the settlement after being advised of the existence and nature of all the claims involved in the proposed settlement, of the total amount of the settlement, and of the participation of each person in the settlement."¹⁴ RPC 1.8(g), as it stood before its 2004 amendment, required each client to consent "after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement."¹⁵ The 2004 amendment added the term "informed consent,"¹⁶ and the Model Rule's disclosure sentence likewise names the claims and each person's participation without separately listing the total.¹⁷ A lawyer could read the dropped phrase as a loosening. The court would not. The Debevoise Committee, whose recommendations the court adopted in 1984 when it put RPC 1.8(g) in place of DR 5-106, had called Model Rule 1.8(g) "substantially the same as DR 5-106,"¹⁸ and the court agreed that "any textual differences between the former DR 5-106 and RPC 1.8(g) are without significance."¹⁹

The Tenth Circuit had reached the same conclusion under DR 5-106 in Hayes v. Eagle-Picher Industries, Inc. It read the rule to require "the attorney to refrain from participating in a settlement on behalf of two or more clients unless each of them consents to it," and it found an agreement that authorized settlement "contrary to the wishes of the client and without his approving the terms of the settlement" opposed to the basic fundamentals of the attorney-client relationship. In a non-class case, it added, an arrangement letting a majority control the minority "delegates to the attorney powers which allow him to act not only contrary to the wishes of his client, but to act in a manner disloyal to his client and to his client's interests," and it was untenable for one lawyer to represent both the clients who favored the settlement and those who opposed it.²⁰ The word disloyal names the mechanism. Once a vote decides, the lawyer must carry out the majority's choice against a client to whom the lawyer owes the same loyalty as to the rest.

In re Hoffman states the point in a sentence that reaches any consent given before the terms exist: "The requirement of informed consent cannot be avoided by obtaining client consent in advance to a future decision by the attorney or by a majority of the clients about the merits of an aggregate settlement."²¹ Hayes shows that the bar on majority rule predates the Model Rules, and Hoffman shows how broadly it sweeps.

Having announced the rule, the court nonetheless enforced the settlement. The case was its first occasion to interpret RPC 1.8(g), and counsel's effort to have every plaintiff agree in advance to a weighted majority was "a plausible, although incorrect, interpretation." The defendant, moreover, "was led to believe that plaintiffs had agreed among themselves to be bound by a weighted majority vote and relied on that in reaching the settlement." And Leese, the president of The Tax Authority, sat on the Steering Committee, assisted in reaching the settlement, and signed it.²² The court reversed the Appellate Division, by a vote of seven to none, and remanded to reinstate the judgment enforcing the settlement.²³

The result looks contradictory only until the two questions are separated. The holding says what the rule means for every later lawyer. The outcome decided only whether this objector should escape a settlement that the defendant had accepted in reliance on a reading the court had never before rejected. After the decision, a lawyer who drafts a majority-rule clause will find the same excuse harder to make.

A fact pattern that recites a retainer clause, a lopsided vote, and a lone dissenter invites the answer that the size of the majority settles the matter. It does not. A vote taken under an advance clause, whether it is a weighted majority as in Jackson Hewitt or any other margin, is not the dissenter's own consent to terms known at the time.²⁴

The Reform Debate

The ban has critics. Professors Charles Silver and Lynn Baker would amend the rule to let litigants agree to abide by majority rule.²⁷ Their argument starts from the scale of mass litigation: because the stakes are so large and the issues so complex, settlement is "both more urgent and more difficult in mass lawsuits than in other litigation, and the aggregate settlement rule is a complication that often gets in the way." They list the complications as expense and delay, the defendant's inability to obtain finality, invasion of plaintiffs' privacy, and the chance that a single claimant will hold out, meaning withhold agreement, or block an entire settlement.²⁸

The case for the rule rests on what the consent requirement protects. In a joined action no court reviews the settlement, so the client's agreement is the only safeguard against being bound to terms the client opposes.²⁹ A majority-rule arrangement also puts the lawyer in the position the Tenth Circuit called disloyal, because the lawyer must carry out the majority's choice against a dissenting client.³⁰ The rule does not stop the lawyer from negotiating an aggregate deal, whether by making the offer or responding to one. It requires each client's informed consent in a signed writing, and it forbids the lawyer to keep from any client the nature or amount of the offer to another.³¹

The two positions give opposite answers on the same facts.

The unequal injuries and the equal division drive the disagreement. Supporters of the proposal see the vote as the group's protection against one claimant holding up a deal that fifteen of twenty want. Others see Okafor's position as the harm the consent requirement guards against: claimants with less at stake fixing the price of a claim worth far more, with a lawyer whose duty of loyalty runs equally to both sides.³²

The New Jersey court did not resolve the policy dispute. "In light of those and other concerns advanced in favor of permitting less than unanimous agreement in multi-plaintiff mass litigation," it referred the issue to its Commission on Ethics Reform "for its review and recommendation to the Court."³³ The referral left the holding intact. The Silver and Baker proposal is a suggestion for amendment, and nothing in the text of Rule 1.8(g), which requires each client's informed consent in a signed writing, adopts it.³⁴