The Philadelphia Bar Association’s professional guidance committee — on which I serve — generally provides excellent guidance for practitioners in its published opinions. Once in a while, however, an opinion goes wildly off track — most recently in Opinion 2011-6. And, it matters, because the universal prohibition imposed by Opinion 2011-6 deprives injured plaintiffs (clients) of choices in settlement negotiations that are rightfully theirs (with counsel) to make.
The guidance from Opinion 2011-6 holds that it will always be “financial assistance” (and thus prohibited) for counsel for a plaintiff to agree, as part of a settlement negotiation, to “indemnify” a settling defendant from a later claim by Medicare arising out of failure of the plaintiff to satisfy the Medicare lien from settlement proceeds. The conclusion that any such agreement is always “financial assistance” is the ultimate basis for the opinion’s blanket prohibition. No “informed consent” to a conflict could be given for prohibited “financial assistance.” But, Opinion 2011-6 fails entirely to explain why such an agreement must always be “financial assistance.” Indeed, it seems clear that such an agreement is not likely to ever result in prohibited “financial assistance” to a client.
Under such an agreement, the lawyer’s undertaking would be roughly, “I will assure the defendant that the final Medicare lien will be satisfied from settlement proceeds, and if I fail to do so, I will indemnify defendant from having to pay those medical expenses again.” Such agreement would be entered into only after the client gives informed consent, for inter alia, the lawyer to retain sufficient control of settlement funds to assure that the Medicare lien is satisfied from settlement funds. The lawyer has every incentive to see that the liens are satisfied and that his obligation to indemnify never matures. In such an instance, the agreement would simply be a device for ensuring that settlement proceeds are used to satisfy the lien.
Opinion 2011-6 gives only one reason for its contention that such an agreement would always be financial assistance: “[such agreement] facilitates avoidance by the client of an existing financial obligation.” That is both a bizarre, and highly unlikely, sole reason on which to conclude that all such agreements will always be financial assistance.
On the contrary, it is far more likely that any such agreement would interpose another person (plaintiff’s lawyer) who has an interest in assuring that the lien is satisfied out of settlement. However, ignoring that scenario, the opinion posits the opposite: In order to aid a plaintiff in avoiding payment of the lien out of settlement funds, counsel might “facilitate” such avoidance by agreeing to himself guarantee such payment and actually make such payment. Why would anyone seeking to aid a fraud agree to assist that fraud by assuming personal liability for the unmet obligation? This sole example on which 2011-6 rests makes no sense at all. And, even accepting the opinion’s dubious assumption that its hypothetical might somewhere come to pass, that does not mean that all such agreements would be financial assistance.
The opinion’s incorrect determination that an agreement would always be financial assistance causes the next error in 2011-6: The view that here, client informed consent cannot resolve any conflict between counsel and client.
Opinion 2011-6 next holds that such agreement to indemnify, by its nature, raises a risk of concurrent conflict of interest under RPC 1.7(a)(2). Opinion 2011-6 presupposes that any demand for an agreement of indemnification is one to which counsel must submit, or have the settlement fail, and is thus “an express condition of the settlement.” The opinion thus states that such demand always creates an “impermissible choice for [counsel], one that threatens to compromise [his] duty of loyalty to and the exercise of professional judgment on behalf of the client.” Here, Opinion 2011-6 is mistaken in several ways. First, the opinion has gone off the tracks by making a universal pronouncement, untethered to the facts of the inquiry. The inquirer in 2011-6 did not claim that he had been given a “take it or leave it” ultimatum, just that such agreement to indemnify was included in the draft release sent to him by the defendant.
Further, the opinion’s general conclusion is not even generally correct. If all parties are willing to wait until the issuance of the “final lien” letter by Medicare, and are also willing to have the defendant issue separate checks to Medicare and to the plaintiff and his counsel, no agreement to indemnify would be needed. Thus, it is inaccurate to assume that seeking such agreement is always a “condition of settlement.” It may well be that it is merely a response to a negotiating position taken (properly) by plaintiff and plaintiff’s counsel.
In any event, settlement terms resolving litigation are negotiated under the facts, strengths and weaknesses of each case. Plaintiffs and their counsel have many options, as do defendants, in determining what course of negotiations and what agreement will result in the best outcome for this plaintiff in this case. In some circumstances, an agreement to indemnify might assist the plaintiff, and were it not for the unfortunate blanket prohibition of 2011-6, could be employed as part of a settlement arrangement to assist the client. There is no factual basis for concluding that the demand for such agreement creates an impermissible choice. Both sides to a settlement have many options in negotiations.
Finally, the Rules of Professional Conduct provide means to resolve a conflict. The settlement of cases (and indeed many arrangements between client and counsel) will often raise the risk of a concurrent conflict of interest. The Rules of Professional Conduct have adapted to the existence of such potential conflicts, and yet protected clients, often through the requirement of “informed consent.” There is no reason why “informed consent” cannot be obtained in many instances of such proposed agreement to indemnify.
To gain “informed consent” in any matter, the rules mandate a level of explanation sufficient for that client, no matter how unsophisticated. Thus, in Rule 1.0(e), “informed consent” requires counsel to provide “adequate information and explanation”: i.e., adequate to that client in that matter.
The lawyer must provide such adequate information about both the “material risks of” and the “reasonably available alternatives to” any “proposed course of action.” So, the explanation must be adequate for that client and must provide that client an understanding of both the “risks” and the other “options” reasonably available, when evaluating whether counsel should agree to indemnify the defendant as to payment of the Medicare lien. Rule of Professional Conduct 1.8 specifically addresses any instance where a lawyer enters a “business transaction” with a client.
Opinion 2011-6 also posits that attorneys would be asked in every case to expose themselves “to unknown and contingent liabilities.” But that is mistaken: only counsel for the plaintiff can deal with Medicare on behalf of his client and plaintiff’s counsel has unique access to information regarding any lien. Thus, if the Medicare lien was really “unknown” it may be because plaintiff’s counsel has not undertaken the steps which he alone, as advocate for the plaintiff, can take. In any event, there is no basis for concluding that the lien amount is always unknown.
• Opinion 2011-6 harms clients by precluding them from exercising (with their counsel) a choice that is rightfully theirs to make.
• The opinion fails to demonstrate that an agreement to indemnify would always be “financial assistance.” Indeed, the opinion fails to show why such agreement need ever be financial assistance.
• The opinion thus also negates the opportunity for “informed consent” between a client and his lawyer regarding such agreement.
• The opinion is incorrect that Medicare lien information need always be “unknown” to plaintiff’s counsel.
• The opinion is inaccurate in positing the “imposition” of an “impermissible choice” on counsel.
• The opinion departs from the guidance committee’s customary and well-founded practice of anchoring the opinion to the facts of the inquiry and limiting the guidance to the facts presented.
The bar can, and should, provide more accurate guidance to practitioners and clients who are burdened with settling cases under the Medicare Secondary Payer Act. •
W. Bourne Ruthrauff is a member of Bennett, Bricklin & Saltzburg, where he serves as ethics counsel. He is a former chair of the Philadelphia Bar Association’s professional guidance committee, and has been an active member for over 25 years. The focus of his practice is professional responsibility and litigation.