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Keywords

settlementattorneytrialmotion
settlementplaintiffdefendantlitigationattorneylawyer

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Tax Authority, Inc. v. Jackson Hewitt, Inc., 187 N.J. 4, 898 A.2d 512

Facts

The case arose when franchisees of Jackson Hewitt, represented by attorney Eric H. Karp, alleged that the franchisor breached their franchise agreement by failing to issue promised rebates. The franchisees entered into a retainer agreement allowing for settlement by a weighted majority vote. After a settlement was negotiated and approved by a majority, some franchisees refused to sign, prompting the franchisor to seek enforcement of the settlement. The trial court granted the motion to enforce the settlement, but the Appellate Division reversed this decision, leading to the Supreme Court's review.

Defendant Jackson Hewitt is a nationwide tax preparation service with its principal place of business in Parsippany, New Jersey. It has franchises throughout the United States. Plaintiff The Tax Authority, Inc. is a franchisee of Jackson Hewitt with its principal place of business in Maple Shade, New Jersey.

Issue

Whether RPC 1.8(g) prohibits an attorney representing multiple clients from entering into an aggregate settlement of the clients' claims without each client consenting to the settlement after its terms are known.

The issue presented is whether our Rule of Professional Conduct (RPC) 1.8(g) prohibits an attorney who represents more than one client from entering into an aggregate settlement of the clients' claims without each client consenting to the settlement after its terms are known.

Rule

RPC 1.8(g) forbids an attorney who represents two or more clients from participating in an aggregate settlement of the claims unless each client consents after being informed of the terms of the settlement.

RPC 1.8(g) provides that a lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, unless each client consents after consultation, including disclosure of the existence and nature of all the claims involved and of the participation of each person in the settlement.

Analysis

The court determined that the retainer agreement's provision allowing a weighted majority to decide on settlements violated RPC 1.8(g). It emphasized that each client must have the opportunity to consent to a settlement after being fully informed of its terms, and that advance consent to a majority decision undermines the individual rights of clients.

We hold that RPC 1.8(g) forbids an attorney from obtaining advance consent from his clients to abide by the majority's decision about the merits of an aggregate settlement.

Conclusion

The New Jersey Supreme Court reversed the Appellate Division's decision and held that the majority-rules provision in the retainer agreement was unenforceable, applying the ruling prospectively.

We reverse and remand.

Who won?

The Tax Authority, Inc. prevailed in the sense that the Supreme Court recognized the invalidity of the majority-rules provision in the retainer agreement, although the ruling was applied prospectively.

The Appellate Division reversed, holding that an attorney-client agreement with a weighted majority provision for settlement of litigation was contrary to RPC 1.8(g) and unenforceable.

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