NJ Underlying Commercial Action
Student Contributor: Melissa Goldberg
Facts: This is an appeal from the decision of the N.J. Superior Court enforcing a settlement agreement. Franchisees sued Jackson Hewiit for improperly retaining funds in a loan risk pool after delinquent loans had been paid. A settlement agreement was reached between the attorneys for the franchisees and Jackson Hewitt, but certain of the franchisees refused to sign, and brought suit against their attorney for conducting an improper "aggregate settlement" by allocating settlement awards without prior settlement authority from each individual plaintiff for his or her award in violation of R.P.C. 1.8(g) which provides:
A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or no contest pleas, unless each client gives informed consent after a consultation that shall include disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.
Issue: Did the attorney’s decision to allocate a lump sum settlement offer amongst his clients, without previously obtaining a release from each individual client, constitute an aggregate settlement in violation of R.P.C. 1.8(g)?
Ruling: Yes, however, the Court held that its ruling would be applied prospectively. The Supreme Court of New Jersey defined an aggregate settlement as one where an attorney negotiates a settlement for a group of claimants directly with the defendants and then allocates individual awards to each claimant. The Court held that no claimant should be bound without full disclosure and specific agreement. As such, where an attorney does wish to settle a multi-claimant matter in the aggregate, he must advise each claimant of the proposed settlement with the defendant, his proposed division of the proceeds, and obtain each claimant’s consent.
Given that this was the Supreme Court’s first opportunity to interpret R.P.C. 1.8(g), and that the franchisee’s counsel made a plausible, although incorrect, effort to have all franchisees agree to be bound by a majority vote, the Court deemed it fair to enforce the aggregate settlement against the franchisees and apply its holding prospectively.
Lesson: R.P.C 1.8(g) requires that an attorney entering into an "aggregate settlement" on behalf of his clients first advise each of his clients of (1) the lump sum offer by the defendant; (2) explain the allocation of that lump sum offer to the individual plaintiffs in the class action; and (3) obtain independent consent from each plaintiff for the aggregate settlement prior to finalizing the settlement and distributing the awards.