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March 31, 2015 Articles

Confidentiality Clauses in Settlement Offers under Rules 5.6 and 3.4

The Indiana Legal Ethics Committee has taken a position contrary to the position taken by several other jurisdictions.

By Larry Fox and Jenny Gu

The Indiana State Bar Association’s Legal Ethics Committee recently released an opinion addressing the controversial issue of confidentiality provisions in settlement offers. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 of 2014. The committee concluded that while a settlement provision limiting a lawyer’s ability to bring a subsequent case against a defendant would violate Rule 5.6(b) of the Indiana Rules of Professional Conduct, a narrower provision that restricts a lawyer’s freedom to name the particular defendant he or she settled against in general promotional materials would be permissible. The committee’s position is contrary to that of several other jurisdictions tackling the same issue, and this position may compromise the goals of attorney autonomy and client rights that the Rules of Professional Conduct seek to protect.

Indiana’s Opinion on Non-Disparagement Clauses 
The Indiana opinion specifically explored the propriety of using “non-disparagement” clauses in settlement offers, clauses that would prohibit a plaintiff and plaintiff’s counsel from making negative statements about the defendant. The committee cited as an example a sample provision that prohibits plaintiff’s counsel from making “any negative or disparaging statements” that malign, ridicule, or defame the defendant, “in any form,” including orally, on social media, on the Internet, or in other forums. Id. In accord with other ethics opinions, the Indiana Legal Ethics Committee stated that broadly framed non-disparagement clauses may violate Rule 5.6(b) of Indiana’s Rules of Professional Conduct. But the committee deviated from other opinions on settlement confidentiality clauses when it concluded that a settlement provision prohibiting a lawyer from advertising to the general public that he or she has represented clients against a particular defendant would not violate Indiana Rules 5.6(b) or 3.4(f).

Rule 5.6(b) forbids a lawyer from entering into a settlement agreement that restricts the lawyer’s right to practice. According to the committee, a non-disparagement clause that inhibits a lawyer from filing a new action or materially limits statements the lawyer can make during the course of such an action would “clearly violate” Rule 5.6(b). The committee also emphasized that non-disparagement clauses targeting statements made outside the context of litigation may be impermissible under the Indiana rules. For example, provisions that prohibit a lawyer from advertising that he or she has represented clients in certain types of matters would violate Rule 5.6(b) because such restrictions would hamper potential clients’ ability to find lawyers that have the most relevant experience for their needs. For similar reasons, a lawyer may not be prohibited from communicating information about his or her past representations, including the identity of particular adverse parties, to prospective clients in one-on-one settings. In those settings, explained the committee, the prospective client’s interest in retaining the most suitable lawyer is paramount and the lawyer must be free from limitations that would prevent him or her from providing competent and diligent representation.

On the other hand, the committee concluded that a settlement provision prohibiting a lawyer from naming the particular defendants his or her clients have settled against in general advertisements would not violate Rule 5.6(b). The committee did not consider these provisions to be inappropriately restrictive of a lawyer’s ability to practice law or of the public’s interest in finding a suitable lawyer. This interpretation of Rule 5.6(b) is much narrower than that adopted by several other ethics committees, as discussed below.

The Indiana opinion additionally stated that this narrower set of non-disparagement clauses would not violate Rule 3.4(f) of the Indiana Rules of Professional Conduct. Rule 3.4(f) prohibits a lawyer from requesting another person, other than his or her client, to refrain from voluntarily giving relevant information to a third party, unless the person is a relative or employee or other agent of the client and the lawyer reasonably believes that the person’s interests will not be adversely affected by refraining from giving such information. Other ethics committees have interpreted rules similar to Indiana’s Rule 3.4(f) to prohibit settlement provisions that bar an opposing party from disclosing nonconfidential information about the settlement to any third party, including the general public, as discussed below. The Indiana Legal Ethics Committee disagreed, stating that Rule 3.4(f) should only apply in the dispute context rather than in the context of public statements concerning past cases. Accordingly, a restriction that prohibits a lawyer from publicly advertising his or her role in settlements against particular defendants would not violate Rule 3.4(f).

Rule 5.6: Barring Restrictions on a Lawyer’s Right to Practice 
Almost every jurisdiction has adopted a rule similar to that of Indiana Rule 5.6(b), which echoes the ABA Model Rules of Professional Conduct Rule 5.6(b): “A lawyer shall not participate in offering or making . . . an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.” Model Rules of Prof’l Conduct R. 5.6. This rule rests on several public policy justifications. First, as explained by the ABA, the rule is meant to protect the lawyer’s right to practice and to protect the public’s access to lawyers, “who, by virtue of their background and experience, might be the very best available talent to represent these individuals.” ABA Comm. on Ethics & Prof’l Responsibility, Op. 93-371 (1993); see also Model Rules of Prof’l Conduct R. 5.6(b) cmt 1. Second, such restrictions may create a conflict of interest between the lawyer, whose own financial interests might lead him or her to oppose limitations on the lawyer’s right to practice, and the lawyer’s client, who might want to accept the restrictive provision in order to obtain a more favorable settlement. See, e.g.Restatement (Third) of the Law Governing Lawyers § 13 cmt. c (1998).

Contrary to the Indiana Committee’s position, several other ethics committees have interpreted Rule 5.6(b) to prohibit settlement clauses that restrict a lawyer from publicly naming the particular parties against whom the client has settled. In an opinion by the South Carolina Bar Ethics Committee, for example, the committee addressed the question of whether a lawyer may sign a settlement provision that bars him or her from identifying or using the defendant’s name for commercial or commercially related purposes. The South Carolina Ethics Advisory Committee concluded that it would be “improper for a lawyer to become personally obligated in a client’s settlement agreement to refrain from identifying the defendant as a part of the lawyer’s business.” S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 10-04 (2010). Likewise, the San Francisco Bar Association’s Legal Ethics Committee has concluded that attorneys cannot be barred from mentioning in their curriculum vitae or other promotional material that they had represented a member of the lesbian, gay, bisexual, and transgender community in an employment discrimination case against a particular defendant. Bar Ass’n of San Francisco Legal Ethics Comm., Op. 2012-1 (2012). Such a provision would violate California Rules of Professional Conduct Rule 1-500, California’s version of Model Rule 5.6(b). The D.C. Bar Legal Ethics Committee has also observed that a settlement agreement “may not compel counsel to keep confidential and not further disclose in promotional materials . . . 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.” D.C. Legal Ethics Comm., Op. 335 (2006). Finally, several other ethics committees have concluded more broadly that lawyers may not agree to settlement provisions that prohibit them from disclosing publicly available information. See, e.g., N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 730 (2000) (agreement not to reveal “any information concerning any matters relating directly or indirectly to the settlement agreement” would be too broad and would violate New York State settlement confidentiality rule); State Bar Ass’n of N.D. Ethics Comm., Op. 1997-05 (1997) (lawyers may not agree to keep confidential information that does not constitute confidential client information, including information that is public record).

These decisions reflect concern that restrictions on a lawyer’s disclosure in promotional materials may greatly impede potential clients from obtaining the information they need to retain the best lawyer for their case. As the D.C. opinion explains, these provisions “have the purpose and effect of preventing counsel from informing potential clients of their experience and expertise, thereby making it difficult for future clients to identify well-qualified counsel and employ them in similar cases.” D.C. Legal Ethics Comm., Op. 335 (2006). This then impacts the lawyer’s ability to practice law, as a lack of information might “impair future clients’ retention of the attorney.” Bar Ass’n of San Francisco Legal Ethics Comm., Op. 2012-1 (2012).

The South Carolina Committee further pointed out that a lawyer’s access to the legal market is “implicated by advertisements.” S.C. Ethics Op. 10-04 (2010). A lawyer wishing to protect his or her own access to the legal market through advertisements might reasonably be opposed to accepting settlement terms that limit this freedom. Yet, the lawyer’s client might wish to accept those same terms in order to obtain a favorable settlement. Restrictions on advertisements thus create a direct conflict of interest between lawyer and client and should be prohibited under Rule 5.6(b) in order to further the public policy goal of conflict-free representation. Of course, a client may prohibit his or her own lawyer from using information relating to the representation. Model Rules of Prof’l Conduct R. 1.6. An opposing party, however, should not possess the power to sway the client’s decisions regarding his or her lawyer’s use of information through restrictive settlement provisions.

The Indiana opinion strays from an emerging consensus among ethics committees by drawing a distinction between restrictions on a lawyer’s disclosure of particular defendants’ identities and the lawyer’s disclosure of the case’s general subject matter. The committee’s claim that the latter is too restrictive whereas the former is permissible under Rule 5.6(b) is unpersuasive. As other ethics committees have recognized, clients are entitled to consider a lawyer’s experiences against particular opponents when deciding which lawyer to hire. Indeed, there is some evidence that such information is particularly relevant to clients’ decisions on retaining counsel. See, e.g., Vivien Tseng, “Client Retention from a General Counsel Counsel’s Perspective,” 46-Dec Boston B.J. 31, 31 (2002) (noting that clients look for “specific, in-depth experience” and that a law firm can differentiate itself from competitors if it has “solved [the same] problem for other clients before”). By permitting restrictions on disclosures of this sort of information, the Indiana opinion surely undercuts Rule 5.6(b)’s dual goals of preserving potential clients’ access to the information necessary to choose best counsel and preserving a current client’s right to conflict-free representation.

Rule 3.4: Barring Restrictions on Concealment of Evidence 
Other jurisdictions have also suggested that a non-disparagement clause may run afoul of state variants of the ABA’s Model Rule 3.4(f), which prohibits a lawyer from requesting a person other than a client to refrain from voluntarily giving relevant information to another party. Model Rules of Prof’l Conduct R. 3.4(f).

The purpose behind Rule 3.4 is to protect the integrity of the adversarial system by prohibiting concealment of evidence. Model Rules of Prof’l Conduct R. 3.4 cmt. 1. The Chicago Bar Association’s Committee on Professional Responsibility has construed Rule 3.4(f) to prohibit a lawyer from proposing or accepting a settlement agreement that bars an opposing party from disclosing to another party information such as “the existence, substance, and content of the claims.” Chicago Bar Ass’n Prof’l Responsibility Comm., Ethics Op. 2012-10 (2012). The committee interpreted “other party” to include “any person or entity with a current or potential claim against one of the parties to the settlement agreement.” Id. In other words, “other party” under this view would encompass the general public. The committee justified its interpretation on the basis that “a more narrow interpretation would undermine . . . the proper functioning of the justice system by allowing a party to a settlement agreement to conceal important information and thus obstruct meritorious lawsuits.” Id. Thus, a settlement provision that prohibits a lawyer from naming an opposing party in promotional materials directed toward the general public would presumably violate Rule 3.4(f) as interpreted by the Chicago Committee on Professional Responsibility.

This interpretation stands in contrast to the Indiana Legal Ethics Committee’s interpretation, which construed Rule 3.4(f) more narrowly. The Indiana committee concluded that the term “other party” under Rule 3.4(f) should be limited to the dispute context and that the rule was not meant to allow attorneys to make public statements concerning past cases. This reading stands to undermine the core purpose of Rule 3.4(f)—to promote the truth-seeking functions of adversarial litigation and to facilitate meritorious claims—because a general ban that prevents a lawyer from disclosing to the broader public that he or she has settled a particular case against a particular defendant could impede potential clients from the realization that they can raise similar claims against the same defendant. In this sense, the Chicago committee’s broader interpretation of Rule 3.4(f) may have better captured the rule’s underlying purpose.

The Indiana Legal Ethics Committee recognized in its opinion that Rules 5.6(b) and 3.4(f) or variations thereof are meant to protect the autonomy of lawyers and clients as well as the integrity and truth-seeking functions of the adversarial system. Nonetheless, the committee made a fine distinction between provisions that bar lawyers from advertising their general subject matter experiences and provisions that bar lawyers from naming particular defendants against whom the lawyers have settled. Given that the latter type of provisions will likely inhibit clients from finding the most experienced lawyers to represent them in a particular case and might also suppress information regarding meritorious claims from reaching the public, the committee’s decision to exempt these provisions from the scope of Rules 5.6(b) and 3.4(f) no doubt undermines the policy rationale for adopting these rules.

Keywords: litigation, ethics, professionalism, confidentiality, non-disparagement, settlement, Indiana Legal Ethics Committee

Larry Fox is a partner at Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania, and a lecturer at Yale Law School. Jenny Gu is a student at Yale Law School. This article is a project of the Ethics Bureau at Yale, a student clinic.

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