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Aug. 26 — An attorney representing clergy abuse plaintiffs shouldn't have accepted and distributed a lump-sum settlement that exceeded the sum of his clients' individual settlement offers without getting their informed written consent to the method of allocation, the Oregon Supreme Court decided Aug. 21.
Oregon Rule of Professional Conduct 1.8(g) on aggregate settlements applies whenever the resolution of individual clients' claims is interdependent, the court held, rejecting the lawyer's argument that the rule applies only to all-or-nothing settlement offers. It suspended the lawyer from practice for 90 days.
In a per curiam opinion, the court embraced the definition of “aggregate settlement” the American Law Institute adopted in its 2009 Principles of the Law of Aggregate Litigation. (See box.)
Section 316 of the Principles of the Law of Aggregate Litigation (2009) states:
“Definition of a Non-Class Aggregate Settlement
“(a) A non-class aggregate settlement is a settlement of the claims of two or more individual claimants in which the resolution of the claims is interdependent.
“(b) The resolution of claims in a non-class aggregate settlement is interdependent if:
“(1) the defendant's acceptance of the settlement is contingent upon the acceptance by a number or specified percentage of the claimants; or
“(2) the value of each claim is not based solely on individual case-by-case facts and negotiations.”
Under the ALI definition, the court said, an aggregate settlement does not exist if the lawyer consults with each client individually and obtains minimum settlement authority from each client, and then makes a settlement offer that represents the total of the individual settlement offers.
But “when the value of one client's claim depends on the value of other clients' claims, the interests of the clients conflict, and the settlement that a lawyer reaches constitutes an ‘aggregate settlement,'” the court stated.
“The ALI definition reflects the underlying rationale of both RPC 1.8(g) and RPC 1.7, and we therefore adopt it in construing the term ‘aggregate settlement' as that term is used in RPC 1.8(g),” the court said.
Applying that definition, the court found a settlement that attorney Daniel J. Gatti reached with the Portland Archdiocese and another settlement he reached with the state on behalf of alleged abuse victims of a priest were aggregate settlements within the meaning of Rule 1.8(g).
Gatti was not initially involved in an aggregate settlement, the court said, when he made a settlement offer equaling the total of his clients' individual settlement offers. But Rule 1.8(g) came into play, it said, when the defendants responded with a higher lump-sum settlement offer.
In the Archdiocese settlement, the court said, Gatti accepted the offer and distributed the funds so that each client received his minimum settlement offer plus a proportionate share of the surplus funds. In the settlement with the state, it said, Gatti used a method of his own design to determine how much each client would get beyond the individual's minimum offer.
In both settlements, the court said, Gatti violated Rule 1.8(g) because he did not obtain his clients' informed consent in writing to the formula or method he used to divide the defendants' lump-sum settlement offers.
In finding that Gatti also violated Rule 1.7(a)(1) (representation directly adverse to current client), the court said when multiple clients make any agreement to divide an offer that exceeds the total of their minimum offers, the clients have competing interests in the surplus.
Even if Gatti's clients in fact orally agreed to divide any surplus proportionately, there was no evidence that he obtained their written informed consent as required by Rule 1.7 or that he counseled them about the pros and cons of that allocation method and advised them to seek independent legal advice, the court said.
Moreover, the court added, Gatti decided on his own how to distribute the settlement with the state. Even if his chosen method of allocation was fair, each dollar that he allocated to one client was a dollar that he did not allocate to another, it noted.
The court also held that Gatti violated Rule 1.4(b) (duty to explain matter sufficiently to enable client to make informed decisions) by summarily telling one client “I was able to settle your case for the $7,500 you requested” without indicating how the settlement funds would be allocated among all the plaintiffs.
The court settled on a 90-day suspension as a sanction after reviewing case law from other jurisdictions on the appropriate sanction for violating the aggregate settlement rule.
The sanction typically imposed in Oregon for engaging in a conflict of interest—a 30-day suspension—was not enough in light of Gatti's substantial experience and the potential harm to his clients of not obtaining their informed consent to the aggregate settlements, the court said.
Fucile & Reising LLP represented Gatti. Assistant Disciplinary Counsel Mary Cooper, Tigard, Ore., represented the state bar.
Copyright 2014, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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