Allocating Lump-Sum Offers

Allocating Lump-Sum Offers

A defendant who offers one sum to settle every claim at once hands the plaintiffs' lawyer a task the rule regulates without forbidding: dividing the money. Take a bus crash with many injured clients. The bus company offers a lump sum for all of them, and the lawyer is to divvy it up. That arrangement is not prohibited, but the lawyer must obtain each client's informed consent after the disclosure the rule specifies.¹ Rule 1.8(g) restricts participation without that consent, not participation as such.²

The division is delicate because the offer is aggregate: all the parties must join, or the offer is withdrawn.³ The lawyer owes each client an equal duty of loyalty and must give each balanced, candid advice on whether to accept. That balance may be difficult or impossible when the interdependent proposal favors one client over another.⁴ A lump sum sharpens the problem, because every dollar that goes to one client is a dollar unavailable to the others. The conflict is real, but the rule still lets the lawyer take part once the process is right: disclosure first, then each client's signed consent.⁵

That lawyer failed on two counts. The disclosure must cover the total, the existence and nature of every claim, and the details of every other client's participation, and these clients saw only their own numbers.⁶ Each client also had to consent in a writing that client signed, and none did.⁷ Shares that could be defended on the merits would not cure the violation, which lies in how the split was reached and concealed.

The better course starts earlier. The commentary advises that, in any multiple representation, the lawyer consult the clients at the outset about the possibility of divided loyalty and about what steps will reconcile a conflict if one emerges.⁸ A lump-sum case suggests one concrete use of that conversation: asking the clients to agree on how any settlement dollars will be allocated, perhaps by a reasonably objective formula or by the evaluation of neutral outside experts. The rule's text does not address advance agreements on method, so this approach is best learned as a reasoned possibility and not as a settled holding.

A formula chosen at the outset works because nobody yet knows who will fare best. No client can pick a rule that happens to favor that client, and the lawyer no longer chooses winners when the money arrives, because the formula or the neutral expert makes the division and the shares become predictable. The method also leaves each client's control intact, because each client must still consent to the final deal after disclosure.⁹

Some personal injury lawyers with many clients use a point system, in which a physician assigns points for each possible injury and the points yield a fractional formula for dividing the proceeds. Whether such a system satisfies Rule 1.8(g) is uncertain.¹⁰ It resembles the objective formula described above, but a formula is only as neutral as the person who sets the points and the stage at which the clients accept it. A lawyer who writes the point values after the offer arrives has moved the favoritism into the schedule instead of removing it. The safe statement is that a point system is a possible allocation method of uncertain status, and that it never relieves the lawyer of the duty to obtain each client's informed, signed consent to the final deal.

An advance agreement on method differs from the advance agreement to be bound by a majority vote, which the preceding section explains is not allowed. A retainer clause saying that any recovery will be divided according to a neutral expert's evaluation answers only how an accepted sum is split, so a client who finds the total too low may still decline. A clause binding every client to any settlement that three-quarters of the group approves surrenders that individual right. It cannot be squared with a rule that requires each client to consent in a writing that client signs.¹¹ For the same reason, an exam stem that recites a formula in the retainer has not shown compliance. The consent to the final deal must still be informed, which requires disclosure of the total, the claims, and each person's participation, and it must still appear in a writing signed by that client.¹²