Wednesday, July 18, 2007

Conflicts, Third Party Payment and the ABA

Posted by Allison Hayward

My colleague Ron Rotunda (you owe it to yourselves to click the link) has alerted me to an effort that others here might find of interest.  A group of ethics experts is seeking signatories for an ABA Standing Committee on Ethics and Professional Responsibility opinion request regarding the practice of negotiating attorney's fees in settlements with defendants.  Interested individuals should contact Lester Brickman at Benjamin N. Cardozo School of Law, brickman -at- yu -dot- edu. A link to the web page with the full document is here.

Here's an excerpt from the draft request (which in total runs 30 pages) - after the jump.

This excerpt from the draft letter's introduction should give readers a sense for the project:

A troubling practice, whereby attorneys in contingency fee representations are negotiating their fees directly with settling defendants, is occurring with increasing frequency and on an increasing scale.   The potential ethical improprieties of this practice -- one that has now become commonplace in mass tort contingency fee representations  -- are clear and considerable, as are the consequences of its continuation.  As a result, we believe that the Standing Committee’s attention to this matter is warranted. We write this letter in two capacities. 

First, we write as members of the Bar concerned with maintaining the integrity of the fiduciary relationship between attorneys and clients that is essential for an effective and meaningful adversarial legal system in this country.  We strongly believe, and ethics norms and rules mandate, that it is the obligation of every attorney, wherever and to the extent possible, to avoid conflicts of interest that undermine the fiduciary relationship between attorneys and clients and undermine the public’s confidence in and respect for our profession. 

Secondly, we write as and on behalf of taxpayers and citizens from whom substantial funds have been taken, in the amount of more than $10 billion in the tobacco cases alone, through a process that both in appearance and substance exemplifies the dangers inherent when claimants’ counsel negotiate their fee payments with their adversaries’ principals.  We submit that the Model Rules call for a per se ban on the practice; in the alternative, we believe that the Rules require steps that will ameliorate and eliminate its most ethically problematic dangers.

Regarding the practice, we present the following propositions for the Committee’s consideration:

Proposition 1: In the absence of statutory authority, attorneys who seek recovery on behalf of clients or classes and negotiate for the direct payment of their fees by defendant adverse parties and/or their counsel do so in what, at a minimum, is a presumptive but rebuttable violation of their fiduciary duty to their clients; more preferably, such practice should be deemed per se unethical.

Proposition 2: In the absence of a per se ban against such agreements, attorneys should submit a reviewable, written submission to their clients demonstrating that no practicable alternative form of fee payment was available and that, in practice and in fact, counsel had been faithful to their clients’ interests at the expense of their own. 

Proposition 3: Any provision in such agreements that in any way limits, insulates or precludes judicial or ethics-based review of the propriety of the fees should be per se unethical.

Proposition 4: More specifically:  Any provision in such agreements that in any way compromises the right of the clients or classes to recover fees deemed excessive or unethical by such review, including without being limited to provisions that make reductions of fees negotiated between defendants and plaintiffs’ attorneys payable to the defendants, should be per se unethical .

Proposition 5: More specifically:  Any provision in such agreements that in any way makes the validity or enforceability of the agreements contingent on the payment of the fees negotiated between defendants and plaintiffs’ attorneys should be per se unethical.

Proposition 6: More specifically:  All such agreements should be expressed in terms of a single settlement sum payable to the plaintiffs from which the plaintiffs’ attorney fees are to be deducted.

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