Cynthia Allen Mann retained the Dweck Law Firm on a contingency basis to represent her in an employment discrimination claim. Mann turned down a $1,035,000 settlement offer, so Dweck went back to the table, and negotiated a 30% larger $1.35 million settlement offer. But when Mann turned down this offer after (it claims and Mann disputes) Dweck refused to reduce its fee to increase her take-home amount, Dweck sued her.
The court dismissed a 2002 complaint for breach of contract, so the law firm amended the complaint to allege bad faith, and Southern District of New York federal Judge Shira Scheindlin recently ruled that the suit could go forward. “Where a client refuses a settlement offer because she believes her claim is worth more, and that her attorney has not effectively advocated on her behalf, she is not acting in bad faith,” the court said. “If, on the other hand, the client believes the settlement offer is satisfactory, but refuses it because she does not want to forfeit any recovery to her attorney, her actions may constitute bad faith.” (“Law Firm Has Claim Against Former Client For Rejecting Settlement Offer in Bad Faith”, ABA/BNA Lawyers’ Manual on Professional Conduct, May 19).
It remains unclear how one is to determine this subjective state of mind except through litigation–if a plaintiff takes the position that she does not want to settle because she wants to have a greater recovery than the combination of settlement offer and contingent fee permits, is that good faith or “bad”? The court made no effort to consider the ex ante effect of allowing law firms to have a plausible threat of suing a client if the client refuses to accept a settlement of a contingent case, especially given lawyers’ ethical obligations to their clients. Of course, the problem is more often the converse case: a risk-averse client wants a settlement, while a plaintiffs’ lawyer, who spreads his or her risk over several cases, wants the chance of a big payday.
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