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December 07, 2017 Articles

Dark Settlements: An Ethical Constraint on Secrecy?

Be wary if your opponent not only tries to kill the litigation but also to bury it, along with the public record, as deeply as possible.

By Nicholas D. Stellakis – December 7, 2017

You congratulate your partner. She has won a hard-fought battle on summary judgment. After years of toil, she is elated. Her spirits are further lifted when she comes to you, the firm’s appellate practitioner, for your take on the case after the opponent files the expected notice of appeal. To your practiced appellate eye, the trial judge’s decision contains no glaring deficiencies. It is lengthy and analytical and reflects careful review of the considerable summary judgment record. True, the decision centers around a thorny—and novel—question of law. You counsel your partner that an appellate court could take a very different view of the law; and given the dearth of authority on the issue in your jurisdiction and across the country, you cannot predict the result. However, based on your knowledge of the state judicial culture and experience with the appellate courts, you think that the respected trial judge’s persuasive opinion will be difficult to overturn. In short, the client is in a very strong position.

The opposing side evidently knows this, too, because, after years of bravado, it now urgently wants to talk settlement. Because the settlement talks will focus on the merits of your opponent’s appeal, and because appellate strategy and procedure are your forte, you take the lead on behalf of the client. Settlement talks are difficult, but you have a near-final draft of the written settlement agreement.

You have one hesitation, though. Your opponent is insisting on a confidentiality provision that goes beyond the standard agreement that the terms of the settlement are confidential. Your opponent wants even the fact of settlement to be confidential. Further, your opponent insists that the parties to the litigation and their attorneys agree not to disclose any of the details of the litigation, including facts stated and arguments made in the publicly filed trial court record.

Settlement Strategy: Extreme Gag Orders
You realize that part of your opponent’s settlement strategy is not only to kill the litigation but also to bury it, along with the public record, as deeply as possible. Because the case was litigated in a state trial court, after settlement the case file will be forgotten in dusty boxes at some little-known archive facility, practically inaccessible. Not so if the record appendix is filed on appeal, where cases get far more public scrutiny and files are more carefully preserved and made publicly accessible electronically. You now understand the urgency to settle before appellate briefs are filed.

Extreme Gag Orders: Authority on Acceptability
You are reluctant to agree to the sort of gag order that your opponent requires, but your client is willing to accede. May you as well? No. At least, that is the answer given by the few authorities that have addressed the question.

The place to start is ABA Formal Opinion 00-417 (Apr. 7, 2000). The question there was whether a lawyer could participate in a settlement agreement that would bar him from using information, gained during the representation, in later representations against the same opposing party. The opinion held that this violated Rule 5.6 of the ABA’s Model Rules of Professional Conduct because it effectively restricted the lawyer’s right to practice: the lawyer’s inability to use certain information could materially limit his representation of a future client and adversely affect that representation. The opinion states that Model Rule 5.6 overrides even the client’s instructions (except as to the client’s confidential information, which the client can restrict the lawyer from using).

Other ethics opinions have relied on the ABA opinion to bar settlement agreements that would foreclose counsel from disclosing public information. Ethics Opinion 335 of the District of Columbia Bar (May 16, 2006) states thus:

A settlement agreement may not compel counsel to keep confidential and not further disclose in promotional materials or on law firm websites public information about the case, such as the name of the opponent, the allegations set forth in the complaint on file, or the fact that the case has settled.

The decision was also rooted in Model Rule 5.6 and “the intent to preserve the public’s access to lawyers who, because of their background and experience, might be the best available talent to represent future litigants in similar cases, perhaps against the same opponent.” Id. A provision precluding such information in advertisements would prevent lawyers “from disclosing their relevant experience.” Id.

Similarly, the Opinions Subcommittee of the Chicago Bar Association’s Committee on Professional Responsibility determined in its Informal Ethics Opinion 2012-10 (Feb. 12, 2013) that “a settlement agreement may not prohibit a party’s lawyer from disclosing information that is publicly available information or that would be available through discovery in other cases.” In other words, while the settlement agreement may prohibit disclosure of the content of the settlement, it cannot prohibit disclosure of the fact of the settlement or information that is publicly available.

There is precious little other authority on point. For an excellent summary, see Patrick Malone & John Bauer, “When Secret Settlements Are Unethical (May 22, 2015). See also Ronald D. Rotunda & John S. Dzienkowski, Legal Ethics: The Lawyer’s Deskbook on Professional Responsibility § 5.6-1 (Apr. 2017 Update); and State Bar Association of North Dakota Ethics Committee Opinion No. 97-05 (June 30, 1997). Perhaps more significantly, no contrary authority has been located.

The issues raised by the sort of gag order that these ethics opinions prohibit may arise in any case in any procedural context, and the appellate practitioner must be sensitive to them. They can present even more difficulty to appellate counsel whose client won below. After all, the winning litigant can have only downside—in cost and risk—if it declines a settlement with favorable business terms. Yet that is exactly what counsel must persuade the client to do.

Comforted by this knowledge, you can tell opposing counsel that you are unable to agree to the restrictions. All the authority that you can locate indicates that the restrictions would impermissibly impinge on your right to practice. What is more, Model Rule 5.6 bars not just the making of such an agreement but also any participation in offering the proposed agreement. Thus, you advise your opponent, it is just as ethically perilous for him or her to propose such a provision as it would be for you to accept it; and because all of the business terms are resolved, the gag provisions should simply be stricken.

Perhaps that will settle the question.

Nicholas D. Stellakis is a partner with Manion Gaynor & Manning LLP in Boston, Massachusetts.

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