## Facts

- 154 franchisees of Jackson Hewitt, Inc. (JHI), including The Tax Authority, Inc. (TA), jointly retained one attorney under identical retainer agreements to sue JHI over alleged unpaid “Performance Incentive Rebates” connected to refund anticipation loan reserves.
- Each retainer included a “weighted majority” provision requiring each franchisee to accept any settlement approved by a weighted majority of plaintiffs (weighted by refund anticipation loan volume).
- A four-member steering committee, including TA’s owner, negotiated a preliminary global settlement with JHI; steering committee members signed the preliminary agreement subject to the retainer’s approval mechanism.
- TA’s owner later resigned from the committee and, with other dissenters, opposed the final settlement terms.
- A weighted majority approved the settlement; JHI sought to enforce it against all franchisees, including dissenters.
- While appellate review proceeded, the settlement was implemented for all franchisees except TA.

## Issues

1. Whether a retainer provision that binds clients in multi-plaintiff litigation to a settlement approved by a weighted majority is consistent with RPC 1.8(g) and enforceable.
2. If the provision violates RPC 1.8(g), whether the settlement may nevertheless be enforced against TA, which objected to the final settlement.

## Decision

- The court held the weighted-majority settlement provision conflicted with RPC 1.8(g) and was unenforceable as contrary to public policy.
- The court nonetheless enforced the settlement against TA and reinstated the trial court’s enforcement order.
- The court prospectively disapproved weighted-majority aggregate-settlement provisions of this type under RPC 1.8(g).

## Legal Principles

- Under RPC 1.8(g), an attorney may not participate in an aggregate settlement unless each client gives informed consent after consultation and disclosure of material information, including how each person participates in the settlement.
- Advance, blanket agreement to be bound by a later majority vote does not satisfy RPC 1.8(g)’s requirement of informed, individualized consent to the actual settlement terms.
- Retainer provisions that conflict with the Rules of Professional Conduct are contrary to public policy and are not enforceable as contracts.
- Even when a retainer clause is unethical and unenforceable, a court may enforce a settlement against a particular client where that client had substantial participation in negotiating the deal, was fully informed of the settlement’s terms and allocation, and unwinding the settlement would significantly impair reliance and finality for the settling parties.

## Conclusion

The court rejected weighted-majority retainer clauses as inconsistent with RPC 1.8(g)’s requirement that each client individually and knowingly consent to a specific aggregate settlement after full disclosure, yet enforced the global settlement against TA because TA’s principal had materially participated in negotiating and understanding the settlement and the agreement had already been implemented for all other plaintiffs.


The Tax Authority, Inc. v. Jackson Hewitt, Inc., 898 A.2d 512 (N.J. 2006)