Is It Possible to Settle Mass Tort Cases and Not Receive Your Fees?

Is It Possible to Settle Mass Tort Cases and Not Receive Your Fees? By Renée E. Moeller and Robert “Bob” Bennett, The Bennett Law Firm.


An attorney can do the massive work required to settle a group of mass tort and end up forfeiting his fees. To prevent this outcome, always structure the settlement with the disclosure of the existence and nature of all the claims involved, and the nature and extent of the participation of each person in the settlement.

In Burrow v. Arce , after a mass tort settlement was distributed, a number of the Plaintiffs asserted causes of action against their attorneys for: 1) breach of fiduciary duty; 2) fraud; 3) violations of the Deceptive Trade Practices--Consumer Protection Act, (TEX. BUS. & COM. CODE §§ 17.41-.63; 4) negligence; and 5) breach of contract.

They also asserted that the attorneys had committed the following action in violation of rules governing their professional conduct:
1) solicited business through a lay intermediary (violation of TDRPC 7.03(b));
2) failed to fully investigate and assess individual claims (violation of Rules 1.01, 2.01);
3) failed to communicate offers received and demands made (violation of Rule 1.03);
4) entered into an aggregate settlement with Defendant(s) of all plaintiffs' claims without plaintiffs' authority or approval (violation of Rule 1.08(f));
5) agreed to limit their law practice by not representing others involved in the same incident (violation of Rule 5.06(b)); and
6) intimidated and coerced their clients into accepting the settlement (violation of Rules 1.02, 2.01).

The factual disputes were never resolved in Burrow, and ultimately the Supreme Court remanded the case to the district court for ruling on those disputes. However, the Supreme Court in Burrow focused on the attorney-client relationship and the way in which the attorney performs his duties. Three of the four holdings of the Texas Supreme Court in Burrow were mainly centered on breach of fiduciary duty and fee forfeiture, as follows:
1) In a breach of fiduciary claim, it is not necessary for a plaintiff to prove actual damages or causation as a prerequisite for proof of a breach of fiduciary duty for forfeiture of an attorney’s fee.

2) Fee forfeiture is not automatic or complete, but must fit the circumstances presented and must be determined by applying the rule as stated in section 49 of the proposed Restatement (Third) of The Law Governing Lawyers and factors identified to the individual circumstances of each case.

3) The decision on the amount of fee forfeiture is made by the court as it is a remedy in equity; and the value of the legal services rendered does not dictate either the availability of the remedy or the amount of the forfeiture.

4) Although the plaintiffs made numerous allegations of misconduct against the defendant attorneys, which tended to focus on the assertion that the attorneys violated Rule 1.08(f) of the Texas Disciplinary Rules by reaching an aggregate settlement, the lower courts did not address these issues which were remanded to the district court.

Unfortunately, the case was then settled without a final decision. Therefore, the conclusions reached in the Burrow case are that you must not breach your fiduciary duty to any of your clients, nor make an aggregate settlement of all claims, without the approval of each fully-informed client.

The fiduciary duty owed by attorneys to clients is a matter of law based on the grounds that “the attorney-client relationship is one of ‘most abundant good faith,’ requiring absolute perfect candor, openness and honesty, and the absence of any concealment or deceptions.” Goffney v. Rabson, 56 S.W.3d 186,193 (Tex. App.—Houston [14th Dist.] 2001, no pet.) . Establish the attorney-client relationship and you have established the duty.

“The basic fiduciary obligations are two-fold: undivided loyalty and confidentiality.” Many allegations of attorney’s breach of fiduciary duty to the client involve “failure to disclose conflicts of interest, failure to deliver funds belonging to the client, placing personal interests over the client’s interest, improper use of client confidences, taking advantage of the client’s trust, engaging in self-dealing, and making misrepresentations.”

The original plaintiffs’ allegations in Burrow state that the most important breaches were entering a forbidden aggregate settlement and intimidating or coercing clients into accepting the settlement. As to the latter element, an attorney may address this issue simply by providing a written settlement closing/disbursement document, to be signed by the settling client, which would include a statement that the settlement has been fully explained and that the client has not been intimidated or coerced into accepting the settlement. As in any other settlement, disclosures should also include precise deductions for expenses and attorney’s fees. In the appropriate case, consideration should be given to having separate and independent counsel approve the final settlement arrangement.

The more difficult issue is not entering an aggregate settlement agreement of all plaintiffs' claims unless, as required in Rule 1.08(f), each client must consents after consultation, including the disclosure of the existence and nature of all the claims involved and the nature and extent of the participation of each person in the settlement. In Burrow , the clients alleged the settlement was reached without assessing each of the clients’ individual claims and only a twenty minute consultation took place with each client after the settlement was reached by the attorneys.

You should consider carefully each of the following recommendations for action to prevent a Burrow’s type lawsuit where you are representing more than one plaintiff and there is an aggregate settlement:
1. Prepare separate settlement offers for each client, which each individual client may accept or reject.
(a) When the tort settlement involves personal injury, each client’s individual injury and damages must be assessed in determining the amount of the settlement.
(b) Where damage to real property is the issue, some clients may receive similar settlement offers due to the similarity of their claim(s) to others in the same category of damages. If the categories use different formulas, each client has a separate, individual assessment of his/her claim, and each client may separately accept or reject the settlement offer, these individual criteria should meet the requirements of Rule 1.08.
2) Whether the issue is personal injury or property damage, you should set forth in writing, to be signed by the settling client, an explanation of the different categories, what the formulas are and then the individual features of each client’s claim, showing how each settlement “offer” is achieved, including a disclaimer that the document(s) have been fully and completely explained to the client’s satisfaction, and stating that the individual client’s settlement is satisfactory. Carefully explanation to the client before any overall acceptance of a settlement is reached should discuss both similar and different values utilized in reaching the settlement amount for each claimant, and the use of a signed, written explanation of how the settlement figure was reached for each client (pointing out the differences in types of cases, settlement values and amounts) should fulfill the requirements of Rule 1.08(f). Naturally, you would include complete disclosure of precise deductions from each client’s settlement for expenses and attorney’s fees.
3) Your cover letter to the client with the disclosure/settlement statements should invite the client(s) to call and discuss their settlement offer with one of their attorneys. Document such calls or meetings with file notations or database notations, clearly indicating the dates of the discussions and the attorneys involved. If the discussions are substantive, memorialize these discussions in follow-up correspondence with the client(s), particularly documenting the resolution of any problematic discussions.
4) Consider having your disclosure/settlement statements notarized when signed by the client, as lay persons may pay more attention to, and often accord more significance to documents which require their notarized signature.

The suggestions above assume cooperation by defendants and defense counsel. If you find yourself presented with the scenario where defense counsel (or his/her client) does not want to spend the time and money arguing over the value of individual cases, let alone cutting individual checks, but instead offers (improperly) an aggregate amount to settle all cases, you should consider retaining a neutral individual, such as a Special Master to handle the allocation of funds. Counsel for both parties should contribute to the Special Master’s compensation, since proper settlement is in the interest of both parties. Counsel should agree upon a suitable individual and/or petition the court for a formal appointment. Finally, separate and independent counsel may be needed to be inserted into the settlement resolution to insure propriety. By following this scenario, plaintiffs’ counsel has not breached the fiduciary duty to any client, as the clients would be informed of all particulars, including the Special Master’s qualifications, the overall settlement amount, the number of claims that would share the settlement amount, the proposed methodology of the Special Master, and the reasons for using a neutral party to perform an allocation. Then the clients would be asked to consent to the process.

Notwithstanding the alternatives suggested above, the best option for protecting you and your clients is probably to expend the time and effort of using a Special Master. It is better for each client to feel he/she was treated objectively, fairly and without favoritism. It is better for you since you are more likely not to be face total fee forfeiture, malpractice suits, and (for the defendants) challenged settlements. Plus you will have happy, satisfied clients that will speak highly of you.
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Biography:

Robert S. “Bob” Bennett is a partner in and Renée E. Moeller is an associate with Houston’s Bennett Law Firm. Bennett is a former federal prosecutor and is board certified by the Texas Board of Legal Specialization in consumer and commercial law. He represents attorneys, doctors and judges before various administrative boards, courts and panels throughout Texas. Moeller focuses mainly on grievance and malpractice matters and hearings before the Board of Law Examiners. She also handles appellate issues.