Interdependent Settlements: Ethics of Simultaneously Settling Separate Actions in N.Y. Mass Tort Actions
By David G. Keyko and Joshua I. Schlenger
Attorneys in mass tort litigations are no doubt familiar with the following scenario: Multiple plaintiffs, all of whom are represented by the same law firm, file separate complaints against the same defendants based upon injuries that allegedly were caused by the same or similar harmful products or occurrences. The lawsuits all are assigned to the same judge, who encourages counsel to settle the lawsuits. Plaintiffs’ lawyers propose that a group of the cases be settled at the same time. Some of the cases are considerably stronger than the others, and plaintiffs’ attorneys suggest that some of the lawsuits be settled for more than the others.
When defense counsel expresses interest in only settling the stronger cases, plaintiffs’ lawyers respond that all cases in the group must be settled or none will be. The judge, seeing an opportunity to significantly reduce the number of cases pending before her, asks the defendants’ lawyers to be reasonable and resolve the whole group at the same time. Further, to encourage settlement, at the suggestion of plaintiffs’ lawyers, the court schedules the best of the lawsuits for a prompt trial. Are the actions of the attorneys and judge proper from an ethics standpoint?
This common scenario does not appear to be addressed squarely by New York case law or bar association ethics opinions. Parsing New York Rules of Professional Conduct (N.Y. Rules) and Code of Judicial Conduct, as well as relevant commentary on the applicable provisions of each, provides the answer: The practice of “grouping” separate but related lawsuits together for purposes of settlement negotiations without obtaining each plaintiff’s written informed consent is not proper. Even with written informed consent, the Rules of Court in the N.Y. Supreme Court, Appellate Division, First Department prohibits grouping related lawsuits together for settlement.
Rules’ Ban on ‘Aggregate Settlements’
N.Y. Rule 1.8 forbids counsel from making “aggregate settlements” of claims without obtaining either (i) each client’s written informed consent, or (ii) approval of the court:
A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, absent court approval, unless each client gives informed consent in a writing signed by the client. The lawyer’s disclosure shall include [1] the existence and nature of all the claims involved and [2] of the participation of each person in the settlement. 22 NYCRR Pt. 1200, NYPRC Rule 1.8(g).
The ABA Model Rule is almost identical, but contains additional language clarifying that it applies to criminal as well as civil cases. See, ABA Model Prof. Conduct R. 1.8(g) (“…or in a criminal cases an aggregated settlement as to guilty or nolo contendere pleas…”). As the New York City Bar Association has observed, however, neither the N.Y. Rules nor the ABA Model Rules define “aggregate settlement.” NYC Bar Assn. Comm. on Prof. & Jud. Ethics, Formal Op. 2009-6. This has led to some confusion as to what exactly is proscribed by N.Y. Rule 1.8(g). Does the rule only forbid resolving the claims of multiple, commonly-represented clients in the same lawsuit through a single settlement agreement? Or does it also apply to the above scenario, where individual but interdependent settlement offers for separate lawsuits are made by plaintiffs’ counsel?
In 2006, the ABA in a formal opinion defined “aggregate settlement” under ABA Model Rule 1.8(g) to include individual settlements in “separate cases”:
[Aggregate settlements] may arise in separate cases. For example, the rule would apply to claims for breach of warranties against a home builder brought by several home purchasers represented by the same lawyer, even though each claim is filed as a separate lawsuit and arises with respect to a different home, a different breach, and even a different subdivision. ABA Comm. on Ethics & Prof. Responsibility, Formal Op. 438 (2006).
Based on this ABA opinion, Professor Roy D. Simon is of the view that “N.Y. Rule 1.8(g) applies not only to lump sum offers, but also to offers where settlements of different clients are in any way interdependent — i.e., where any one plaintiff or group of plaintiffs has the power to veto the power to other plaintiffs.” See, Simon’s New York Rules of Professional Conduct Annotated 529 (2015 ed.). This conclusion also is supported by the purpose of the rule — to prevent lawyers from obtaining a settlement covering multiple plaintiffs without receiving the approval of each of the plaintiffs. See Comment [13] to N.Y. Rule 1.8. If a group settlement is to be achieved by compromising one party’s claim for a lesser amount than would have been the possible had that party’s claim be settled separately, the plaintiff who has made this sacrifice should know and consent. While N.Y. Rule 1.8 permits the court to approve the settlement in lieu of each plaintiff consenting, as discussed below, this exception is exceedingly narrow.
This interpretation of “aggregate settlement” receives support from judicial and bar association opinions addressing old New York Disciplinary Rule (DR) 5-106, which likewise forbade lawyers from “mak[ing] or participat[ing] in the making of an aggregate settlement of the claims of or against the clients” without their informed consent. A 1992 NYS Bar Association opinion interpreted the DR 5-106 ban broadly to include claims of a lawyer’s clients in “separate actions against the same defendant.” NYSBA Ethics Op. 639 (1992). Likewise, Justice Ramos found in In re N.Y. Diet Drug Litig., No. 700000/98, 2007 WL 969426, at *4 (Sup. Ct. NY Cty. 3/27/2007), that a law firm violated DR 5-106 by not obtaining informed consent from its clients (plaintiffs on whose behalf the firm filed separate actions against the same defendants) before settling these lawsuits in a single all-or-nothing settlement agreement for a lump-sum amount, to be allocated among the plaintiffs in an exhibit to the agreement at a later date.
In the opening scenario above — a condition that a good claim that is about to go to trial will not be settled unless weaker claims are settled as well — is precisely the type of situation that raises concern about inequitable treatment of plaintiffs. It is unclear that a defendant would pay full value to settle a strong claim and also pay more than full value to settle weaker claims at the same time. Rather, it is likely that a defendant, if forced to pay more than the defendant has concluded that weak claims are worth, will negotiate to pay less than the defendant would have paid to settle the strong claim alone.
First Department Ban on ‘Grouping’ Claims for Settlement
For cases pending in New York’s First Department, there are additional considerations. There, the Rules of Court impose a categorical ban on “grouping” or “combining” different claims for settlement purposes:
No attorney for a claimant or plaintiff shall for the purpose of settlement or payment combine or group two or more claims or causes of action or judgments therefor on behalf of separate clients, and each such demand or action shall be settled or compromised independently upon its own merits and with regard to the individual interest of the client. No attorney for a defendant shall participate in the settlement of any such claims or actions on the basis directly or indirectly of combining or grouping claims or actions belonging to different persons. 22 NYCRR §603.17
The Fourth Department has a substantially identical rule, except its ban on grouping is limited to “two or more unrelated claims or causes of action on behalf of clients,” 22 NYCRR §1022.13 (emphasis added), a qualification that might allow for grouping related individual lawsuits, as in the mass tort context, for settlement. This rule is noteworthy because (1) it prima facie applies to plaintiffs asserting claims in separate “actions” (not just claims by different plaintiffs within the same action); (2) it makes it a violation for both plaintiffs’ and defense counsel to participate in such settlement negotiations (unlike N.Y. Rule 1.8(g), which speaks only of the attorney representing the multiple clients); and, (3) unlike N.Y. Rule 1.8(g), it offers no exceptions for written informed consent or court approval. While no cases have analyzed the scope of this rule, it apparently prohibits interdependent individual settlements in all situations.
Disciplinary Consequences
The various ethical rules prohibiting attorneys from grouping distinct lawsuits for settlement purposes can result in discipline for members of the New York bar if they participate in or facilitate settlements that violate the rules. This is possible even though there do not appear to be any reported cases affirming disciplinary measures for such violations.
Violation of N.Y. Rule 1.8(g)’s prohibition on participating in aggregate settlements is a form of professional misconduct. See 22 NYCRR Pt. 1200, N.Y. Rule 8.4(a) (“Misconduct. A lawyer or law firm shall not … violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another)”; see also, In re Connelly, 18 A.D.2d 466, 469 (1st Dept. 1963) (“Lawyers are expected to follow faithfully the dictates of the[ ] Canons (of Professional Ethics, now the Rules of Professional Conduct), and any substantial breach thereof is considered as professional misconduct which may be the subject of disciplinary action in accordance with the provisions of §90(2) of the Judiciary Law.”)
Section 90 of the N.Y. Judiciary Law, in turn, authorizes each department’s Appellate Division “to censure, suspend from practice or remove from office any attorney and counsellor-at-law admitted to practice who is guilty of professional misconduct… .” NY Judiciary Law §90(2).
In addition, because N.Y. Rule 8.4(a) prohibits a lawyer doing indirectly what the lawyer cannot do directly, a member of the New York bar also could be subject to discipline if he or she assists a client in reaching a settlement that violates the N.Y. Rules of Professional Conduct, even if the lawyer is not a signatory to the settlements. See generally, In re Robinson, 136 NYS 548, 557 (1st Dept. 1912), aff’d, 209 NY 354 (1913) (disbarring attorney who approved the unethical acts of a client’s employees, though the lawyer did not participate in those acts); see also, NYC Bar Assn. Comm. on Prof. & Jud. Ethics, Formal Op. 2012-2 (“An attorney may not use a third party to do what she could not otherwise do. Rule 8.4(a) prohibits an attorney from violating any Rule ‘through the acts of another.’”)
Attorneys who violate the First Department’s prohibition on grouping separate cases for settlement are likewise guilty of professional misconduct and may be subject to disciplinary action, including (at a minimum) an admonition or reprimand from the First Department’s disciplinary committee. See, 22 NYCRR §603.2 ) “Any attorney who violates any provision of the rules of this court governing the conduct of attorneys … shall be guilty of professional misconduct within the meaning of [Judiciary Law §90(2)].”) See also, NY Judiciary Law §90(2), supra (“The appellate division of the supreme court in each department is authorized to censure, suspend from practice or remove from office any attorney and counsellor-at-law admitted to practice who is guilty of professional misconduct…”); and also, 22 NYCRR §603.9 (“The Departmental Disciplinary Committee may issue an admonition or a reprimand in those cases in which professional misconduct, not warranting proceedings before this court, is found.”)
Considerations for Judges in Assessing Interdependent Individual Settlements
As noted, N.Y. Rule 1.8(g) creates an exception to the prohibition on aggregate settlements in cases where there is “court approval.” One might think that — at least outside of the First Department — this exception would justify aggregate settlements, without clients’ written informed consent, any time a judge in a mass tort litigation urges counsel to settle.
The “court approval” exception, however, is exceedingly narrow. As Professor Simon points out, the “[NYSBA] Reporter’s Note…suggested that the court approval exception would apply in situations ‘such as in class actions,’ reflecting the reality that individual consent to a class action settlement is rarely (if ever) obtained from every member of a class.” See Simon, supra, at 525. Further supporting this reading, “New York’s CPLR, which is enacted by the Legislature, contains no mechanism for court approval of an aggregate settlement in any setting other than a class action (or its close cousin, the derivative action).” Id.
Accordingly, N.Y. Rule 1.8(g)’s “court approval” exception should not be read as applying to aggregate settlements outside of class actions — including our scenario of individual but interdependent settlement offers across different lawsuits. Moreover, even if the court permission route is available in lawsuits other than class actions (and the rule does not address the standard for court approval), given the purpose of the Rule and the long-established procedures for court approval of class action settlements, court approval in this context should involve a finding that the settlement proceeds fairly compensate the plaintiffs. Meaning one party has not been paid less to obtain more for other plaintiffs. See CPLR 908 (providing that court approval is required for a class action to be “dismissed, discontinued, or compromised”); see also, Vincent Alexander, CPLR Prac. Comm. §C908:1 (noting that CPLR 908 “carries forward the longstanding rule that any voluntary discontinuance or compromise of a class action must be approved by the court.”)
Written informed consent by all clients, consequently, remains the only practical exception to N.Y. Rule 1.8(g)’s proscription in such cases. Accordingly, judges that encourage attorneys to engage in collective settlement negotiations without first obtaining written informed consent from the plaintiffs (and, in the First Department, even with such consent) risk committing an ethical violation under New York Code of Judicial Conduct, which requires a judge to “respect and comply with the law.” NY Ct. R. 100.2(B).
Moreover, as a practical matter, judicial “encouragement” of individual but interdependent settlement offers may also violate the Code’s exhortation for judges to “dispose of all judicial matters promptly, efficiently and fairly.” NY Ct. R. 100.3(B)(7) (emphasis added). The NYSBA’s non-binding comment to this rule stresses that efficient disposal of matters must not cross the line into unfair pressure on an attorney or party to settle:
…A judge should encourage and seek to facilitate settlement, but the judge should not take any action or make any comment that might reasonably be interpreted by any party or its counsel as (a) coercion to settle, or (b) impairing the party’s right to have the controversy resolved by the court in a fair and impartial manner in the event settlement negotiations are unsuccessful. Id., NYSBA Reporter’s Comment (1996).
A directive from a judge to defense counsel in a mass tort docket to settle multiple related suits at once and pressuring the defendant by facilitating the selection of plaintiffs’ counsel’s best case for an early trial raises questions as to whether the court arguably crosses the line. Judges like lawyers must therefore proceed with caution when asked to assist attempts to settle multiple cases at the same time.
Conclusion
The prevalent phenomenon by which New York lawyers and judges encourage settlement of multiple related mass tort lawsuits brought by the same firm at the same time is fraught with ethical difficulties that, at least in one Appellate Division department, might not be curable with clients’ written informed consent. The best practice for tribunals, counsel, and litigants to follow is to engage in settlement discussions on an individual basis, and not try to link the settlement of multiple actions.
David G. Keyko is a partner in the Litigation practice at Pillsbury Winthrop Shaw Pittman LLP and is located in the New York office. Joshua I. Schlenger is a litigation associate in Pillsbury’s New York office.
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