Contingency agreements in tort cases are generally permissible, but they must be provided in a written contract that clearly outlines the fee structure. Furthermore, the ABA requires that fees be reasonable, and California stipulates that fees must not "shock the conscience." Although we don't know the specific contingency percentage, attorney fees take into account numerous factors. Generally speaking, a lawyer's fee constituting up to 30% of the total settlement is considered reasonable. Here, there is a valid contingency fee agreement, so there is no issue of professional misconduct.
When August sent a written settlement demand for $500,000 to Len and learned that Len had not communicated it to Davis, August did nothing. This is the first potential ethical issue. The duty of diligence requires a lawyer to zealously represent clients and take actions to secure their interests, and the duty to report requires reporting possible ethical violations by the opposing party, e. g. failing to inform the client of a settlement offer. However, Len's inaction may not necessarily be unethical if there is a possible arrangement between the opposing client and lawyer that demands above a certain amount need not be disclosed to the client. If such an understanding exists, not informing the client might be ethically permissible. From August's perspective, he cannot directly communicate with the opposing client (which will be discussed infra). He can not question Len about not informing their client either, as this could be protected by the opposing lawyer's duty of confidentiality. Since August did not have many better options due to Len's inaction, we do not have enough information to definitively determine if August's inaction constitutes ethical misconduct. Of course, as a general practice, making a phone call to ensure that Len received and understood the demand letter might be more appropriate.
Next, August instructing his own client to communicate with the opposing party is another problematic issue. Ethical standards clearly prohibit direct client-to-opposing client communication without the opposing lawyer's consent, as this is designed to prevent lawyers from using their legal knowledge to create an unequal communication advantage. However, client-to-client communication does not have this issue - even if such communication is instigated by a lawyer. Therefore, instigating a client to directly communicate with the opposing client does not violate ethical standards. Nevertheless, if a lawyer has their client deliver their signed demand letter to the opposing client, this could potentially breach the duty of fairness to the opposing party.
The ABA allows fee sharing between lawyers provided that the division is proportional to the work performed or risk assumed. California does not even require proportionality. The rules also mandates that fee sharing must not increase the total fee charged to the client. Here, it appears that August and Rita shared both work and risk, and the overall fee for the client did not increase.
The most apparent problem with August and Rita's arrangement is the lack of prior client consent for such a fee-sharing agreement. The ABA requires "informed consent, confirmed in writing" for changes in fee-sharing arrangements, while California requires "informed written consent." By not obtaining the client's prior consent, August and Rita violated their duty of communication with the client.
Rita's statement that she "knew" Dani raises potential conflict of interest concerns. Whether this acquaintance is due to a familial connection, fiduciary duty, or a prior attorney-client relationship, each could impair Rita’s ability to represent Paul effectively and may cast doubt on the legitimacy of the settlement agreement.
Rita settled the case without obtaining Paul’s consent at the time of settlement. Although the settlement amount of $500,000 was previously agreed upon by Paul, seeking Paul’s confirmation would have been a more appropriate and cautious practice.
From Len's perspective, there was no agreement with Davis to disregard demands above a certain amount. Therefore, failing to communicate the $500,000 settlement demand to the client constitutes a violation of his duty of communication.
The attorney-client relationship is a fiduciary one based on independent contract principles where the client is responsible for decisions regarding objectives, and the attorney is responsible for means and manners. While an attorney does not need to consult the client on every strategic decision, significant matters must be communicated to the client for them to make informed decisions. The settlement amount is a crucial aspect of a civil case, and no matter how unreasonable the attorney might perceive an offer, it must be communicated to the client to allow them to decide independently. Therefore, Len’s ethical duty would have been to inform Davis of the settlement demand.
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