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Ethics Opinion

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September 22, 1980


    Under Disciplinary Rule 5-106(A), an lawyer cannot represent both those clients who favor settlement and those who oppose it. A settlement made by a settlement committee composed of a specific number of plaintiffs to a settlement is invalid whether such a committee is created by a majority vote of the plaintiffs, by their unanimous consent, or by the attorneys representing the plaintiffs, since each plaintiff must approve the settlement under DR 5-106(A).


You have asked this Committee to respond to the following hypotheticals involving the creation of a settlement committee arising from your firm's representation of 28 Plaintiffs in an employment discrimination suit:

    Hypothetical 1. A settlement committee of three or five Plaintiffs would be chosen through votes cast by all 28 Plaintiffs. The three or five Plaintiffs receiving the most votes would constitute the settlement committee. Its power would include negotiation and ability to bind the entire 28 Plaintiffs to a settlement agreement. The use of a settlement committee would first have to receive approval from a majority of the 28 Plaintiffs.

    Hypothetical 2. The same situation as the first hypothetical with two variations; first, instead of the settlement committee chosen by two votes of all 28 Plaintiffs, the settlement committee would be chosen by the attorneys representing the Plaintiffs. Second, the use of a settlement committee would first have to be approved by all of the 28 Plaintiffs.

These hypotheticals will be answered under the assumption that the suit involved is not a class action suit, which would bring into play other considerations, e.g., FRCP 23.

Disciplinary Rule DR 5-106(A) deals with the settling of similar claims of multiple clients, as follows:

    A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of the claims of or against his or her clients, unless each client has consented to the settlement after being advised of the existence and nature of all the claims involved in the proposed settlement, of the total amount of the settlement, and of the participation of each person in the settlement.

Thus, an lawyer is not allowed to make or to participate in the making of an aggregate settlement of the claims of multiple clients unless each client consents after the circumstances of the settlement have been fully disclosed.

In Hayes v. Eagle-Picher Industries, Inc., 513 F2d 892 (CA 10, 1975), the Court was presented with a settlement agreement entered into by the eighteen plaintiffs therein with their lawyer. This agreement stated that in the event of a settlement offer, majority rule would govern the acceptance of the settlement. The defendants, accepted by a majority of the plaintiffs made a settlement offer, and judgement was entered at the request of the plaintiffs' lawyer. The appellants in the Court of Appeals were certain plaintiffs who were opposed to the compromise. Since the settlement was expressly states to be the result of "majority rule," it was clear that not all of the plaintiffs had consented to the terms of the settlement. The fact that a settlement could be concluded over the express objection of some of the plaintiffs convinced the Court that those who objected were not bound thereby.

In our view, however, this arrangement is contrary to the plain duties owed by a lawyer to a client. An agreement such as the present one which allows a case to be settled contrary to the wishes of the client and without his approving the terms of the settlement is opposed to the basic fundamentals of the lawyer-client relationship. Inasmuch as the lawyer is merely an agent for the client in negotiation and settlement, the approval of the client is an all important essential to a settlement which is to be binding, and if this approval is not present the court is placed in a most unfavorable position in enforcing it. (Hayes, supra, at 894)

The Court went on to say that in light of Rule 5-106 of the Kansas Code of Ethics, which Rule is similar to our DR 5-106(A), "it was untenable for the lawyer to seek to represent both clients who favored the settlement and those who opposed it." (Id. At 894).

While we are not bound by the Tenth Circuit's ruling in the Hayes case, we adopt its analysis, which seems to clearly preclude the use of "majority rule" as outlined in Hypothetical 1. See also Augustus v. John Williams & Assoc., Inc., 92 NM 437, 589 P2d 1028 (1979), for a discussion of unauthorized settlements.

Hypothetical 2 proposes unanimous consent to the formation of the settlement committee. Once again, the Court's opinion in Hayes is applicable:

    One other aspect, which complicates the problem, is the fact that the agreement calling for the majority governing the decision to settle was entered into sometime prior to the date of negotiations. It is difficult to see how this could be binding on non-consenting plaintiffs as of the time of the proposed settlement and in the light of the terms agreed on. In other words, it would seem that plaintiffs would have the right to agree or refuse to agree once the terms of the settlement were made known to them. (Id. At 894).

American Bar Association Ethical Consideration 7-7 supports the analysis of the Hayes case.

As typical examples in civil cases, it is for the client to decide whether he will accept a settlement offer or whether he or she will waive his or her right to plead an affirmative defense.

The client must make the final decision about accepting or rejecting a settlement offer. This Committee's Informal Opinion No. CI-309 (5/9/77), and Owens v. Lombardi, 41 AD2d 438, 343 NYS2d 978 (1973), stand for the proposition that it is ultimately the client's choice whether to go ahead with a trial, and, therefore, the lawyer may not settle the case without the client's consent. EC 7-8 adds further support for this position when, in discussing the necessity of informed consent, it states:

    In the final analysis, however, the lawyer should always remember that the decision whether to forego legally available objectives or methods because of non-legal factors is ultimately for the client and nor for him or herself.

Also see ABA Formal Opinion 326 (8/9/70).

We have also reviewed the Michigan case of Hartman v. Frontier City, Inc., 20 Mich App 274, 174 NW2d 48 (1969), in which "precedent special authority" of an lawyer to settle his client's case was found lacking. We note that the Hartman case did not involve multiple plaintiffs, and we do not read the Court's decision as having any application to your second hypothetical situation. It is our opinion that even unanimous approval of the use of a settlement committee will not avoid the necessity of each Plaintiff approving the final settlement offer, and that prenegotiation authorization is inadequate under DR 5-106(A), EC 7-7 and EC 7-8.

Although this is the opinion of the undersigned, it has been circulated to the other members of the Committee for their approval prior to being released to you.



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