Opinion 1850

I have been instructed by the Rules of Professional Conduct Committee to respond to your ethics inquiry #1850. By correspondence previously acknowledged, you asked a series of questions regarding potential restrictions on practice arising out of settlement negotiations.

Background

In the course of settlement negotiations, plaintiff receives a settlement proposal from defendant. The settlement proposal is presented by the attorney defending the lawsuit. Plaintiff desires to accept the settlement offer. Certain of the settlement elements may impose restrictions on plaintiff’s attorney’s future representations, as discussed in greater detail below.

General Rule

While the inquiry requires analysis of a number of rules, the main rule at issue is RPC 5.6(b). That rule states:

"A lawyer shall not participate in offering or making: . . . (b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a controversy between private parties."

The purpose for and criticism of RPC 5.6(b) is summarized in the following:

"The purported purpose of this heavily criticized rule is to make legal services available to more people. But another possible purpose for the rule is to prevent the client and the third party from opportunistically taking advantage of the lawyer by depriving the lawyer of one of the ordinary benefits of representation -- future business -- at a time when the lawyer might be in a vulnerable bargaining position."

G. Cohen, "When Law and Economics Met Professional Responsibility," 67 Fordham L. Rev. 273, 283 (1998).

Discussion

Plaintiff’s Attorney`s Future Representation of Defendant.

Restriction on the practice of an attorney in negotiated settlements between private parties are strictly prohibited by RPC 5.6(b). Consequently, a requirement in a settlement agreement that requires plaintiff’s attorney to represent the defendant following settlement would be in violation of the rule. Consequently the defendant’s lawyer would be prohibited from suggesting or conditioning settlement on the plaintiff’s lawyer acceptance of future representation of the defendant.

One commentator has noted that the defendant retains the ability to engage plaintiff’s counsel:

"However, the defendant could retain the plaintiff’s lawyer, after the settlement, as consulting counsel on any claims arising out of the same transaction. By operation of the conflict of interest rules, that arrangement would preclude the lawyer from representing any new plaintiffs in such cases. Of course, the defendant cannot be given complete protection, for new claimants may hire other lawyers and no agreement could bind them."

2 G. Hazard, Jr. and W. Hodes, The Law of Lawyering, 826.7 - .8 (1998) ("Lawyering"). The difference in the case noted in Lawyering, and the question posed, is the requirement that the plaintiff’s lawyer agree as a part of the settlement to future representation of the defendant.

Plaintiff’s Attorney Non-solicitation of Future Clients.

RPC 5.6 precludes a settlement offer or agreement that would restrain plaintiff’s attorney from lawful solicitation of future clients in similar litigation involving the subject matter of the initial case. However, as discussed below, the use of information by the attorney from the prior case may be restricted.

Plaintiff’s Agreement that Defense Information Confidential.

The next issue addresses the hypothetical in which the settlement agreement and instruction to plaintiff’s attorney would attempt to place the attorney-client privilege protection around communications received from defendant (and not from plaintiff).

First, we note the expansive definition of the terms "confidence" and "secret" in the terminology of the RPC.

"Confidence" refers to information protected by the attorney-client privilege under applicable law, and "secret" refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.

In the hypothetical presented, the plaintiff (client) would direct counsel that information gained in the course of the relationship would be a "secret." The RPC definition of "secret" contemplates that it is the client’s determination as to what information is to "be held inviolate."

Note, the Washington RPC used the same definition of terms as do the ABA model rules, with one exception material to this analysis. Washington inserted language relating to "confidence" and "secret" in the Model Rules’ definitions. This added language appears to be an expansion of the subjects of confidentiality under the Model Rules as well as under the former Code of Professional Responsibility.

"The prior Code [CPR] may have influenced the Washington drafters. Under that Code, the word "secret" included information gained in the professional relationship, the disclosure of which would be embarrassing or would likely be detrimental to the client."

2 Orland & Tegland, Washington Practice 106 (1997). There is no present requirement under the RPC that the information identified by the client as secret also be embarrassing or detrimental to the client.

One ethics ruling, noted in an ABA Journal article, discussed this issue:

"A related issue is whether a lawyer may agree not to use or share any knowledge about the defendant’s products or practices. By limiting what information can be used in representing future clients, the condition impermissibly restricts the lawyer’s ability to practice law, benefits one client at the expense of other injured citizens, and defeats the flow of information about products and practices in which the public may have a compelling interest.

"In Opinion 1985-5, the New Mexico Ethics Committee considered the propriety of a settlement in a wrongful death case that was conditioned on the lawyer’s agreement to turn over her client file, including work product. The committee held that the request was unethical, reasoning that the lawyer would lose access to her work product, which might inhibit her ability to settle cases for subsequent clients with similar claims.

"`If this were to occur, defense counsel would accomplish indirectly what they cannot accomplish directly . . .,` the opinion stated. `The lawyer cannot agree to any condition that restricts her right to practice law.`

"A lawyer agreeing not to use any knowledge about the defendant would have a conflict of interest under Rule 1.7(b) with future clients who wished to pursue similar claims against the defendant. Even if the lawyer objectively could determine that she could represent adequately the prospective client without the information, the client still would have to give an informed consent. This, in turn, would mean disclosing information that would violate the nondisclosure agreement."

J. Pittula, Co-opting the Competition: Beware of Unethical Restrictions in Settlement Agreements, 78 ABAJ 101 (1992).

The ABA Journal article suggests, but does not conclude, that the RPC would be violated by such conduct. It appears that in Washington greater protection is afforded to the client’s wishes regarding "secrets." Consequently, should the client identify information gained in the professional relationship be held inviolate as a secret, counsel would be precluded from disclosure under RPC 1.6. The fact that the information is received from (and potentially sensitive to) defendant, instead of information pertaining to plaintiff, does not appear to be relevant to the inquiry. The determinant factor is the decision of the client as to what is a secret. Under RPC 1.9(b) if the use of the secret relating to the representation would be to the disadvantage of the former client, i.e., violation of the settlement agreement, the attorney’s conduct would be in violation of the RPC.

Management of Settlement Offer.

RPC 1.2(a) dictates that "a lawyer shall abide by a client’s decision whether to accept an offer of settlement of a matter." Consequently, plaintiff’s attorney is obligated to report the settlement offer even though the settlement offer may be unenforceable and in violation of RPC 5.6. As noted in Lawyering, ABA Formal Opinion 93-371 found that "Rule 1.2(a) requires a lawyer to abide by a client’s wishes regarding settlement, but it read that provision as limited by Rule 5.6(b): clients may not force their lawyer to agree to an improper settlement."

Based upon the foregoing, it is the Committee’s position that plaintiff, when faced with a settlement offer that violates RPC 5.6 must present the settlement offer to the client, advise the client that restrictions on the attorney’s ability to practice would be unenforceable and not binding upon the attorney. Further, the plaintiff’s attorney should call the matter to the attention of defense counsel and advise that the provision will not be enforceable against the plaintiff or plaintiff’s counsel.

Conclusion

It does constitute a violation of RPC 5.6(b) for plaintiff’s attorney to enter into ("make")
a settlement agreement which restricts that lawyer’s right to practice. However, RPC 5.6(b) does not prohibit the client from designating information as "secret" and not available to plaintiff’s counsel for future use under RPC 1.6 and 1.9.