ETH 2009-178.

• Court: California

California Ethics Opinion 2009. ETH 2009-178. THE STATE BAR OF CALIFORNIASTANDING COMMITTEE ONPROFESSIONAL RESPONSIBILITY AND CONDUCTFORMAL OPINION NO. 2009-1782009ISSUES:Is it ethically proper for an attorney who is settling a fee dispute with a client to include a general release and a Civil Code section 1542 waiver in the settlement agreement? Does the existence of a legal malpractice claim against the attorney alter the ethical propriety of including a general release and section 1542 waiver in the settlement agreement?DIGEST: An attorney must promptly disclose to the client the facts giving rise to any legal malpractice claim against the attorney. When an attorney contemplates entering into a settlement agreement with a current client that would limit the attorney's liability to the client for the lawyer's professional malpractice, the attorney must consider whether it is necessary or appropriate to withdraw from the representation. If the attorney does not withdraw, the attorney must: 1. Comply with rule 3-400(B) by advising the client of the right to seek independent counsel regarding the settlement and giving the client an opportunity to do so; 2. Advise the client that the lawyer is not representing or advising the client as to the settlement of the fee dispute or the legal malpractice claim; and 3. Fully disclose to the client the terms of the settlement agreement, in writing, including the possible effect of the provisions limiting the lawyer's liability to the client, unless the client is represented by independent counsel. AUTHORITIES INTERPRETED: Rules 2-100, 3-300, 3-310, 3-400, and 3-500 of the Rules of Professional Conduct of the State Bar of California.(FN1) Business and Professions Code section 6068, subdivision (m). Civil Code section 1542. STATEMENT OF FACTS Fact Pattern 1: Client 1 engages Attorney A to represent Client 1. During the representation, a dispute develops regarding attorneys' fees. Client 1 and Attorney A decide to settle the attorneys' fees dispute by entering into a written settlement agreement. Client 1 and Attorney A intend that Attorney A continue to represent Client 1 in the ongoing matter. Although Attorney A is not aware of any basis for a legal malpractice claim, Attorney A is concerned that Client 1 may allege that Attorney A committed legal malpractice at some future date. To resolve the fee dispute and protect against any future legal malpractice allegation regarding Attorney A's completed services, and to allow the continuation of the representation, Attorney A proposes a settlement of the fee dispute, memorialized by a written settlement agreement including a general release of all claims known and unknown to the date of the settlement and a provision waiving Civil Code section 1542 (hereinafter "section 1542"). The proposed settlement agreement is broad enough to release any legal malpractice claim. Section 1542 provides that:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Client 1 is unaware of any legal malpractice by Attorney A, and has not alleged legal malpractice against Attorney A, formally or informally. Client 1 and Attorney A execute the settlement agreement, including the section 1542 waiver. Later, Client 1 files a lawsuit for legal malpractice against Attorney A with regard to services rendered before the settlement agreement was executed. At that time, Attorney A relies upon the general release and the section 1542 waiver, asserting that Client 1 released the claim for legal malpractice against Attorney A. Fact Pattern 2: Attorney B believes that she has committed legal malpractice in a matter that she is handling on behalf of Client 2. Client 2 is delinquent in payment of attorneys' fees to Attorney B. Near the end of the engagement, Attorney B demands payment of all past due attorneys' fees. Attorney B and Client 2 decide to mediate their dispute. At the mediation, Client 2 is not represented by independent counsel. Without disclosing the potential malpractice claim to Client 2, Attorney B settles the fee dispute with Client 2, and the parties enter into a settlement agreement and mutual general release of all claims, known and unknown. Attorney B and Client 2 both intend that the settlement agreement resolve any claim for legal malpractice, and the terms of the settlement agreement are broad enough to do so. The settlement agreement includes a section 1542 waiver. Fact Pattern 3: Client 3 engages Attorney C to represent Client 3. The representation comes to a conclusion because the case in which Attorney C represented Client 3 is resolved through a settlement. However, Client 3 has not paid Attorney...