The opinion of the court was delivered by: Paul L. Friedman United States District Judge
This matter is before the Court on plaintiff's motion to set aside the settlement agreement.*fn2 For the reasons explained below, the Court declines to approve the settlement agreement, and therefore will grant plaintiff's motion to set it aside.
The Court makes the following findings of fact: Plaintiff Arthur Lloyd was a Deputy United States Marshal employed by the United States Marshals Service, a unit of the Department of Justice, for 24 years, first in the Superior Court of the District of Columbia and then in this Court. He brought suit in 1997 against the Marshals Service, claiming discrimination based on race and retaliation during the years 1990 through 1994. On October 26, 2001, after an eight-day trial at which Mr. Lloyd was ably represented by Veronice Holt, the jury found for plaintiff on all six of his claims of race discrimination and retaliation. The jury awarded Mr. Lloyd a total of $36,000 in compensatory damages. The Court thereafter considered defendant's motion for judgment as a matter of law, for a new trial and for remittitur. The Court entered judgment for the defendant on plaintiff's sole discrimination claim (Count II) and on one of his retaliation claims (Count V), leaving judgment in plaintiff's favor on Counts I, III, IV and VI. The Court ruled that the jury's award of $36,000 in compensatory damages would stand.
Mr. Lloyd then filed a motion for equitable relief in the amount of $316,143. To support his motion, Mr. Lloyd submitted an expert report from an economist who works as an expert in calculating economic damages in labor-related matters. (Hr'g Tr. at 8, Feb. 22, 2008). Defendant filed an opposition to the motion, arguing that Mr. Lloyd was not entitled to any equitable relief and disputing plaintiff's calculations. Defendant also submitted a competing expert report. (Hr'g Tr. at 67, May 23, 2008; Dkt. 147). Mr. Lloyd testified that at the time he filed the motion for equitable relief he was anxious to settle this case as soon as possible so that he could retire. (Hr'g Tr. at 13, Jan. 11, 2008). A co-worker had advised him that "once you win a discrimination suit, it's best to leave the service." (Id.). Another inspector told him he had better go because headquarters people were still mad at him. (Id.). Mr. Lloyd wanted to resolve his equitable relief before retiring. (Id.).
At a status conference in July 2004, the parties agreed to meet and attempt to resolve the issue of equitable relief. (Hr'g Tr. at 11, Feb. 22, 2008; Def.'s Ex. 34 at 19). In the fall of 2004, at the Court's request, an effort was undertaken by Magistrate Judge Alan Kay to settle the remaining issues in the case. The two primary issues that remained to be resolved were Mr. Lloyd's claims for equitable relief and attorneys' fees. (Hr'g Tr. at 20, May 23, 2008). The government understandably wanted to resolve the questions of equitable relief and attorneys' fees simultaneously. Defendant indicated that it would make an initial offer and would expect to receive a counteroffer from Mr. Lloyd. (Hr'g Tr. at 11, Feb. 22, 2008). Ms. Holt testified that defendant "was clear about the fact that this was not going to be a take it or drop dead offer. This was just going to be the opening offer." (Id.).
On October 8, 2004, defendant tendered a written settlement offer through Assistant United States Attorney Oliver McDaniel pursuant to which Mr. Lloyd would receive $30,000 in addition to the jury's award of $36,000 in compensatory damages. (Def.'s Ex. 4). Defendant's offer described the $30,000 as a "retirement buyout," (Id.), but the $30,000 also was conditional on Mr. Lloyd withdrawing his $316,000 claim for equitable relief. (Def.'s Ex. 4; Hr'g Tr. at 22, May 23, 2008). Mr. Lloyd understood the $30,000 to be payment in settlement of his equitable relief/economic damages in the case. (Hr'g Tr. at 28, Jan. 11, 2008). That was Ms. Holt's understanding as well. (Hr'g Tr. at 12-14, Feb. 22, 2008). While defendant's legal position was that Mr. Lloyd's equitable relief claim lacked merit, Mr. McDaniel testified that defendant did not believe its position was a certainty. (Hr'g Tr. at 8, 22, May 23, 2008). Defendant's settlement offer included an offer of $120,000 for attorneys' fees. (Def.'s Ex. 4). According to Mr. McDaniel, it is the government's policy to negotiate and try to resolve all outstanding claims, including attorneys' fees, before finally settling a case. (Hr'g Tr. at 24, May 23, 2008).
Ms. Holt drafted a counteroffer and presented it to Mr. Lloyd for his review. (Hr'g Tr. at 15, Feb. 22, 2008). The draft counteroffer was never approved by Mr. Lloyd or sent to defendant. (See Hr'g Tr. at 15-20, Feb. 22, 2008; Pl.'s Ex. 24; Hr'g Tr. at 28, Jan. 11, 2008).
In the same time period, Mr. Lloyd was contemplating becoming a plaintiff in a separate class action suit against defendant. (Hr'g Tr. at 26-27, Jan. 11, 2008; Hr'g Tr. at 16, Feb. 22, 2008). During the Fall of 2004, attorney David Sanford was investigating a racial discrimination class action against the United States Marshals Service. Mr. Sanford met with Mr. Lloyd in September of 2004, who he viewed "as [a] potential witness and/or potential class representative." (Hr'g Tr. at 89, Mar. 20, 2008).
In October, 2004, after receiving defendant's settlement offer, Mr. Lloyd shared its terms with Mr. Sanford and sought a second opinion from him. (Hr'g Tr. at 14-15, Mar. 20, 2008). Mr. Sanford agreed to review the case file and provide a second opinion. (Id. at 14-15). On October 25, 2004, Mr. Sanford called Ms. Holt to inquire about the settlement and to inform her that he had agreed to review the relevant documentation. (Id. at 24-25, 93). Ms. Holt informed Mr. Sanford that she was acting as counsel for Mr. Lloyd with respect to the motion and was not interested in working with him on the case. (Id.). She did not send him any documentation. (Hr'g Tr. at 32-33, Mar. 20, 2008; Hr'g Tr. at 107-09, Feb. 22, 2008).
On Thursday, October 28, 2004, Mr. Lloyd shot and killed a man in Rockville, Maryland. (Hr'g Tr. at 16, Mar. 20, 2008; Hr'g Tr. at 25-26, May 23, 2008; Dkt. 180 at 3). This incident received extensive media coverage. (Hr'g Tr. at 28, Jan. 11, 2008; Hr'g Tr. at 20-21, Feb. 22, 2008; Hr'g Tr. at 26, May 23, 2008). On Saturday, October 30, 2004, Mr. Lloyd met with Mr. Sanford at his office. (Hr'g Tr. at 16, Mar. 20, 2008; see also Hr'g Tr. at 35, Jan. 11, 2008). Mr. Lloyd testified that he was concerned that he would be arrested shortly. (Hr'g Tr. at 29, Jan. 11, 2008). Mr. Sanford informed Mr. Lloyd that he did not specialize in criminal law but that he would assist Mr. Lloyd in obtaining a criminal defense lawyer. (Id. at 16-17). Mr. Sanford warned Mr. Lloyd that defense counsel might cost between $75,000 and $100,000. (Hr'g Tr. at 31, Jan. 11, 2008). Mr. Sanford discussed with Mr. Lloyd possible sources of money to pay a criminal defense lawyer. (Hr'g Tr. at 45, Jan. 11, 2008). He knew from his earlier discussions with Mr. Lloyd that he had an outstanding settlement offer of $30,000 plus a $36,000 judgment. (Id. at 32). Mr. Sanford suggested that Mr. Lloyd accept the government's offer and use that money towards his criminal defense. (Id. at 34).
At some point between Saturday, October 30, 2004 and Monday, November 1, 2004, Mr. Sanford and Mr. Lloyd together called Ms. Holt from Mr. Sanford's office to inform her that Mr. Lloyd wanted to accept the defendant's pending settlement offer. (Hr'g Tr. at 35, Jan. 11, 2008; Hr'g Tr. at 16-17, 26-27, Mar. 20, 2008). Mr. Lloyd and Ms. Holt both testified that she agreed to call Mr. McDaniel and attempt to accept the offer of settlement of Mr. Lloyd's claims for the total of $66,000. (Hr'g Tr. at 36, Jan. 11, 2008; Hr'g Tr. at 23, Feb. 22, 2008). That same day, Ms. Holt tried to call Mr. McDaniel to inform him of Mr. Lloyd's decision, but did not reach him. (Hr'g Tr. at 24, Feb. 22, 2008). Ms. Holt left a message requesting that Mr. McDaniel call her back. (Id. at 23-24, 27). Mr. McDaniel testified that he knew that she had called, but was not clear whether he called her back. (Hr'g Tr. at 24-25, May 23, 2008).
Ms. Holt testified that when she attempted to call Mr. McDaniel, she did not intend to accept the offer of $120,000 in attorneys' fees that was made in defendant's October 8 letter. Her intent was to tell Mr. McDaniel that her client would accept the $30,000 the government had offered -- as well as the $36,000 that the jury had awarded him -- in exchange for abandoning Mr. Lloyd's claim for equitable relief. (Hr'g Tr. at 133-35, Feb. 22, 2008). Ms. Holt hoped defendant would agree to resolve the attorneys' fees issue separately at a later date. (Id.). Since she did not reach Mr. McDaniel, however, defendant was unaware of the substance of what she intended to communicate. (See Hr'g Tr. at 24-25, May 23, 2008).
Mr. McDaniel was aware on Monday, November 1 that Mr. Lloyd had been involved in a shooting. It was "the talk of the office." (Hr'g Tr. at 25, May 23, 2008). Mr. McDaniel concluded from the press accounts that there was a good probability that Mr. Lloyd would be charged with a crime. (Id. at 25-26). Mr. McDaniel conferred with Joe Lazar, counsel to the Marshals Service, following the October 28 shooting incident. (Id. at 7). Mr. McDaniel and Mr. Lazar decided to withdraw the settlement offer because of the shooting incident. (Id. at 7, 26). Mr. McDaniel could recall only two or three other instances, out of several hundred in which he was personally involved, when the government had withdrawn a settlement offer. (Id. at 28). He also testified that typically the government's offers, on the defense side of litigation, tend to go up, rather than down. (Id. at 28-29).
On November 1, 2004, at 2:03 p.m., Mr. McDaniel faxed a letter to Ms. Holt withdrawing the October 8 settlement offer. (Def.'s Ex. 5; Hr'g Tr. at 7, May 23, 2008).Ms. Holt informed Mr. Sanford that she had been unable to "accept" the offer because defendant had withdrawn it before she could do so. (Hr'g Tr. at 27, Feb. 22, 2008).*fn3
On November 2, 2004, Mr. Lloyd was arrested and charged with first degree murder. (Dkt. 180 at 3). He was held without bond. (Hr'g Tr. at 95, Mar. 20, 2008). He was held in isolation and put on suicide watch after he started fasting. (Hr'g Tr. at 38-39, Jan. 11, 2008). After a week of 24-hour lockdown, he was permitted to leave his cell for one hour a day. (Id.). Mr. Lloyd testified that he felt isolated, depressed and "very anxious." (Id. at 42, 59).
Mr. Sanford contacted Bernard Grimm, a criminal defense attorney, to see if he would represent Mr. Lloyd. (Hr'g Tr. at 18, Mar. 20, 2008). Mr. Grimm wanted an initial payment of $5,000, which Mr. Lloyd's brother provided. (Id.). But when Mr. Lloyd was unable to raise more money, Mr. Grimm declined the case. (Id. at 18, 20).
Ultimately the decision was made to hire Barry Helfand and Stefanie Roemer to represent Mr. Lloyd. (Pl.'s Ex. 11). Ms. Roemer had been married to Mr. Sanford. (Hr'g Tr. at 77, Mar. 20, 2008). They had divorced but had reconciled and were living together from 2003 through 2005. (Id. at 78). Ms. Roemer was Of Counsel to Mr. Sanford's law firm on a contract basis. (Id. at 19). She had been an Assistant United States Attorney in the District of Columbia.
(Id. at 21). Mr. Helfand was a Montgomery County criminal defense attorney. (Id. at 20). Mr. Helfand is not associated with Mr. Sanford's law firm.
Mr. Sanford prepared a retainer agreement for Mr. Lloyd to sign. (Hr'g Tr. at 96, Mar. 20, 2008). Mr. Lloyd agreed "to retain counsel Stefanie Roemer of Sanford, Wittels & Heisler [Mr. Sanford's law firm] and attorney Barry Helfand (collectively "Co-Counsel") . . . to provide legal services . . ." in his criminal case. (Pl.'s Ex. 11). Mr. Sanford signed the retainer agreement on November 22, 2004. (Pl.'s Ex. 11; Hr'g Tr. at 96, Mar. 20, 2008). Mr. Helfand signed the agreement on December 12, 2004. (Pl.'s Ex. 11). Mr. Lloyd and his wife also signed the retainer agreement, but their signatures are not dated. (Id.). The retainer agreement obligated Mr. Lloyd to pay a $100,000 fee for his criminal defense:
The flat-fee, non-refundable rate for representation before the District and Circuit Court in Montgomery County in the above case is $100,000.00, which includes expenses. After expenses are paid, which Co-counsel estimates will be approximately $30,000.00, Co-counsel will split evenly the balance of the $100,000.00. David Sanford's service will be offered pro bono -- which means that Mr. Sanford will not charge Mr. Lloyd and his family for his time spent on this matter. All disbursements will be payable to Sanford, Wittels & Heisler and will thereafter be distributed to Co-Counsel. (Id.).
The first $40,000 of the $100,000 was due by January 5, 2005. The remainder was to be paid no later than February 15, 2005. (Pl.'s Ex. 11). In the retainer agreement, Mr. Lloyd also agreed to "turn over to Co-Counsel the settlement proceeds from [his civil case] in the amount of $36,000.00 before Judge Friedman. This contract will serve as a lien on that settlement." (Id.). The payments were to be made to Mr. Sanford's law firm, but were to be held in an escrow account for the payment of expert witnesses and attorneys' fees to Mr. Helfand and Ms. Roemer. (Hr'g Tr. at 44-47, 81-83, Mar. 20, 2008).
Mr. Lloyd was unable to pay any significant amount of the money towards the retainer until January 19, 2005, when he refinanced his Florida retirement home for $35,217.81. (Pl.'s Ex. 12; Hr'g Tr. at 70-72, Jan. 11, 2008; Hr'g Tr. at 109-10, Mar. 20, 2008). He gave this money to Mr. Sanford's firm to be held in escrow for his criminal defense. (Hr'g Tr. at 109-10, Mar. 20, 2008). Mr. Lloyd, through the refinancing of his house and contributions from his family, eventually paid $63,217 to Mr. Sanford's firm, held in escrow. (Hr'g Tr. at 144-45, Mar. 20, 2008; Sanford Ex. 1). Out of that money, Ms. Roemer was paid at least $10,000 in fees. (Hr'g Tr. at 40, Mar. 20, 2008; Sanford Ex. 1).
While Mr. Lloyd was in jail awaiting trial in his criminal case, Mr. Sanford visited him a number of times. (Hr'g Tr. at 39, Mar. 20, 2008). On November 15, 2004, Mr. Sanford visited Mr. Lloyd in jail. (See Hr'g Tr. at 47-48, Jan. 11, 2008; Pl.'s Ex. 2). Mr. Sanford drafted a note from Mr. Lloyd to Ms. Holt requesting that she "coordinate all settlement/payment issues regarding my EEOC/Title VII race discrimination lawsuit with my attorney, David Sanford" and that she send to Mr. Lloyd "the paperwork to sign as soon as possible." (Hr'g Tr. at 46-47, Jan. 11, 2008; Pl.'s Ex. 2). Mr. Lloyd signed the note. (Hr'g Tr. at 7, Jan. 11, 2008; Pl.'s Ex. 2). Mr. Sanford faxed the note to Ms. Holt that same day. (Hr'g Tr. at 34, Mar. 20, 2008; Pl.'s Ex. 2).
On November 16, 2004, Ms. Holt faxed Mr. Sanford a response indicating that she did not "jointly" represent Mr. Lloyd, that she believed that Mr. Sanford had "interfered in [her] attorney-client relationship with Mr. Lloyd," and that she would not work with Mr. Sanford on this matter. (Pl.'s Ex. 3). Around this time, according to both Ms. Holt and Mr. Lloyd, Mr. Lloyd had a phone conversation with Ms. Holt and told her that he wanted her to continue to represent him. (Pl.'s Ex. 4; Hr'g Tr. at 29-30, Feb. 22, 2008; Hr'g Tr. at ...