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<xTITLE>Settlement Ethics 101</xTITLE>

Settlement Ethics 101

by Phyllis Pollack
March 2018

PGP Mediation Blog by Phyllis G. Pollack

Phyllis  Pollack

As of last fall 2017, I am a Lecturer in Law at the University of Southern California (USC) Gould School of Law teaching ADR (Alternative Dispute Resolution) Ethics. I teach mediation ethics while my co-teacher covers arbitration ethics.

With this perspective in mind, the recently filed lawsuit by Stormy Daniels against Donald Trump intrigued me from an ethical standpoint.  While in my class, I do focus on ethics from the perspective of a mediator, I also focus on this topic from the standpoint of an attorney settling lawsuits.

According to what has been in the news, Mr. Trump’s attorney claims that he arranged this settlement on his own and advanced the settlement funds out of his own pocket. (See, Complaint at paragraph 26, p.4: 12-21.)  If so, several ethical concerns come into play.

While the attorney is licensed in New York and thus governed by the Model Rules of Professional Conduct (“Model Rules”) which have been adopted in all states except California, the California Rules of Professional Conduct and the California Business and Professions Code essentially cover the same conduct.  As I do in my class, I will discuss both (although providing links to the Model Rules only).

First and foremost is the basic principle that the attorney is the agent of the principal, the client. Thus, pursuant to Model Rule 1.2, a lawyer is to abide by the decisions of the client and consult with the client on how to carry out the client’s wishes.  This same requirement is also found in California’s Business and Professions Code Section 6104, which states that an attorney who “’’… corruptly or willfully and without authority [appears] for a party in an action or proceeding…” constitutes cause for disbarment or suspension.

The Model Rules also covers communicating with a client indicating that such is mandatory. Model Rule 1.4 requires that an attorney keep the client reasonably informed. It states that a lawyer is to “keep the client reasonably informed about the status of the matter” as well as to “reasonably consult with the client about how the client’s objectives are to be accomplished.”

Similarly, Business and Professions Code section 6103.5 provides that an attorney is to “…. Promptly communicate to the member’s client all amounts, terms, and conditions of any written offer of settlement made by or on behalf of an opposing party.  California Rule of Professional Conduct 3-510 provides the same as well.

In addition, California Rule 3-500 of Professional Conduct also provides that “a member shall keep a client reasonably informed about significant developments relating to the employment or representation….”.  This same admonition is also contained in California’s Business and Professions Code section 6068(m). Settling a matter is usually considered a “significant development.”

So, if the attorney settled a matter pertaining to Mr. Trump without informing   Mr. Trump and obtaining the latter’s authority, the above rules may well come into play. If on  the other hand,  the attorney adhered to the above rules and kept  Mr. Trump informed of all significant developments and obtained his client’s consent to settle, then the issue of attorney client privilege and confidentiality raise concerns as both Model Rule 1.6 as well as  California Rules of Evidence (Evidence Code sections 950-968 and the California Business and Professions Code section 6068(e))  require that an attorney keep confidential and maintain the attorney client privilege on all matters relating to the representation unless the client gives informed consent to the disclosure (doubtful in this case!).

So… is the attorney in a no-win situation here?

Further, Model Rule 4.1 provides that in the course of representing a client, a lawyer shall not knowingly “… make a false statement of material fact or law to a third person, or….” (California Business and Professions Code 6104, above, covers this as well.)  Query: Would representing a third party without the consent of the third party constitute a false statement of material fact? Or, providing information about the representation thereby implying consent of the client when in fact, such consent does not exist?

Further, the California Rules of Professional Conduct 4-210 also prohibits the payment of Personal or Business Expenses Incurred by or For a Client by providing that “a member shall not directly or indirectly pay or agree to pay…the personal or business expenses of a prospective or existing client….”  Similarly, Rule 1.8 of the Model Rules also provides that “… A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation…”

Last but certainly not least, California, and no doubt New York, requires the signature of the actual party on a settlement agreement for it to be binding. As a mediator, this topic has been a frequent one: can the attorney for a party sign a settlement agreement that will be binding the client solely based on his representation of the client. The usual answer has been “no”. (Levy v. Superior Court (1995) 10 Cal. 4th 578, 896 P. 2d. 171)

While no doubt, more rules can be cited (such as California Business and Professions Code section 6068(a) stating it is the duty of an attorney to support the Constitution and the laws of the United states and of this state), the above discussion shows that even when settling a matter out of court and before the courts even become involved, attorneys do have duties and obligations that must be followed…. even during mediations!

With respect to this precise matter, the ultimate query is this: If the attorney did indeed act without authority will he be disciplined by the New York State Bar?; if, instead, he did indeed act with his client’s authority, what does it say about his client? And… will his client come to his rescue or avoid and/or deny?

…. Just something to think about.


Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as well as their own needs better than any mediator or arbitrator. She does not impose her views or make decisions for the parties. Rather, Phyllis assists the parties in creating options that meet the needs and desires of both sides.  When appropriate, visual aids are used in preparing discussions and illustrating possible solutions. On the other hand, she is not averse to being proactive and offering a generous dose of reality, particularly when the process may have stalled due to unrealistic expectations of attorney or client, a failure to focus on needs rather than demands, or when one or more parties need to be reminded of the potential consequences of their failure to reach an agreement.

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