Legal Ethics Committee
Dear Fellow Members:
Below you will find a link to an online copy of the Maryland Rules of Professional Conduct. We have provided this link in hopes of making your search for answers to your legal ethics questions easier. As always, if you need additional guidance, please do not hesitate to call the Legal Ethics Committee hotline at the number listed in the current issue of your bar newsletter.
MD Rules of Professional Conduct
Legal Ethics Hotline Volunteers
David Gavin ... 301-279-2700 ... email@example.com
Sam Shapiro ... 301-340-1333 ... firstname.lastname@example.org
Settlements on the Courthouse Steps -- A Cautionary Tale
Prior to the COVID-19 pandemic one could sit in a trial courtroom, usually when the presiding judge was going through a motions docket, and watch and hear attorneys for the parties to a lawsuit inform the judge that their clients had settled their dispute. The lawyers would orally state the settlement on the record. The judge would have a few questions, but in short order the lawsuit would be docketed as settled, even when a follow-up written settlement instrument was to be prepared and executed. Unfortunately, sometimes those oral courtroom settlements perpetuate the dispute and the settlement is then litigated. That situation raises a serious attorney/client issue concerning the client’s understanding of the authority given the attorney to settle. The recent reported decision of the Court of Special Appeals in 4900 Park Heights Avenue LLC v. Cromwell Retail 1, LLC, No. 3136, September Term, 2018 (Opinion filed April 30, 2020), sheds light on that issue.
4900 Park Heights Avenue was a dispute between 4900 Park Heights Avenue LLC (“4900 Park Heights”) which owned and operated a business in a business park developed by Cromwell Retail 1, LLC (“Cromwell”). 4900 Park Heights owned the lot within the business park upon which its business was located, but the lot was subject to a declaration of perpetual and irrevocable covenants (the “2014 Declaration”) which gave Cromwell sole and absolute discretion to approve or disapprove initial improvements to the lot, and reasonable discretion to approve or disapprove future improvements. To make a long story short, after 4900 Park Heights because the owner of its lot it made improvements (a sign) over the objection of Cromwell, and instituted a lawsuit in the Circuit Court for Anne Arundel County to declare that Cromwell had unreasonably withheld its approval of the improvement.
On the day of trial (March 28) the attorneys for the two parties appeared before a judge to place on the record an agreement to settle the lawsuit. Aside from dealing with the sign that 4900 Park Heights had already installed, the settlement also provided that the 2014 Declaration would be modified so that all initial and future improvements must be approved by Cromwell in its sole and absolute discretion. In other words, per the settlement Cromwell had sole and absolute discretion to approve future improvements instead of reasonable discretion.
However, later the same day, after the court hearing, 4900 Park Heights told its attorney that while it did not care about giving Cromwell sole and absolute discretion to approve future improvements, it had not understood that the modification of the 2014 Declaration would bind its successors. Its counsel did not inform Cromwell’s counsel of the client’s misunderstanding until months later after there had been exchanges of multiple drafts of settlement documents. As happens, the lawyers could not agree that the drafts reflected the settlement, and Cromwell filed a motion to enforce the settlement as reported to the court at the March 28 hearing.
At the hearing to enforce the settlement the trial court considered two issues: (a) whether the parties had entered into a binding settlement agreement at the March 28 court hearing, and (b) whether counsel for 4900 Park Heights had express authority to agree to the terms put on the record at the March 28 court hearing.
Counsel for 4900 Park Heights conceded that the parties intended to be bound by the settlement terms put on the record at the March 28 hearing, but argued that the documents prepared by Cromwell did not reflect the parties’ agreement. The trial court found that the settlement terms placed on the record at the March 28 court hearing by counsel were clear and unambiguous.
The trial court then heard evidence on whether counsel for 4900 Park Heights had authority to agree to the terms put on the record at the March 28 hearing. Counsel for 4900 Park Heights reported that before the March 28 hearing his client told him, “I don’t care about the covenants.” Given that statement, counsel agreed to the oral statement of Cromwell’s attorney about modifying the 2014 Declaration at the March 28 hearing. Based on that testimony the circuit court found that the attorney had express authority to bind 4900 Park Heights to the settlement presented at the March 28 hearing and granted Cromwell’s motion to enforce the terms of the settlement.
On appeal the Court of Special Appeals (“CSA”) addressed multiple issues involving settlement agreements. One issue dealt with the settlement authority that 4900 Park Heights gave to its attorney for the March 28 court hearing. This article is to report on that part of the 4900 Park Heights decision.
Initially, the CSA noted that in order to settle a client’s case the attorney must have express authority to do so. Citing and quoting, Accrocco v. Splawn, 264 Md. 527, 533, 287 A.2d 275 (1972); KinKaid v. Cessna, 49 Md. App. 18, 22, 430 A.2d 88 (1981). The attorney has no implied authority to settle the client’s case. Citing and quoting, Mitchell Properties v. Real Estate Title, 62 Md. App. 473, 483, 490 A.2d 271 (1985). The CSA found that there was ample evidence that the attorney for 4900 Park Heights had express authority to settle the lawsuit based on the terms that the attorneys placed on the record at the March 28 hearing.
4900 Park Heights, however, did not understand that the modification to the 2014 Declaration would bind its successors, and argued that the “disconnect” between what its lawyer agreed to and what it did not understand meant that its attorney did not have authority to settle the lawsuit. The CSA concluded that 4900 Park Heights had authorized its attorney to modify the 2014 Declaration. The statement that “I don’t care about the covenants” was an express authorization to its attorney to agree to the modification of the 2014 Declaration as presented orally to the court by Cromwell’s attorney. The fact that the client did not understand that the modification would bind successors could not qualify or condition the express authorization because the attorney for 4900 Park Heights “reasonably interpreted [the client’s] statement” to authorize the modification placed on the record. The CSA observed: “...we note the troubling implications of the rule 4900 Park Heights would have us adopt, which would seem to render suspect any settlement concluded by counsel — and conveyed to the court — unless and until their clients confirmed independently not only that they had authorized a settlement, but also that they and their attorneys shared the same subjective understanding of the agreed terms. Such a rule would impede settlements and the efficient operation of the courts (citations).”
Notwithstanding the CSA determinations about the attorney’s authority, in a footnote the CSA also observed: “Whether [the client] understood the legal implications of what he was agreeing to was (and remains) between him and his counsel.” In other words, the footnote implies that while a court may determine that an attorney complied with a client’s settlement instructions, that does not mean that the client would agree with the court’s determination, or that its attorney had sufficiently informed it of the implications of the settlement authority given.
MARPC 1.4 (Md. Rule 19-301.4) deals with an attorney’s obligation to communicate with a client and the Court of Appeals has held that this obligation extends to the terms of a settlement agreement. In Attorney Grievance v. Zhang, 440 Md. 128, 160-61, 100 A.3d 1112 (2014), the Court of Appeals found that an attorney had violated then MLRPC 1.4(a) (predecessor of MARPC 1.4 (Md. Rule 19-301.4)) because “the record does not demonstrate that [client] knew of the substance of the proposed settlements prior to their execution”. 440 Md. at 161. It quoted from a Comment to the rule as follows: “As Comment  explains, a lawyer receiving a settlement offer ‘must promptly inform the client of its substance unless the client has previously indicated that the proposal will be acceptable or unacceptable or has authorized the lawyer to accept or to reject the offer.’ ” Id.
Given the Rules of Professional Conduct and how they are interpreted, the CSA footnote in 4900 Park Heights Avenue should be noted by all attorneys.
Bil Chen, Esquire
Jessica M. Hall, Co-Chair
Allen J. Katz, Co-Chair
Samuel M. Shapiro, Co-Chair