In a Settlement, Should You Agree Not To Represent Future Clients?
3.29.2022
Attorney Professionalism Forum
To the Forum:
I am a personal injury lawyer named Clara Contingency; I have a small firm with a few partners. I represent a retiree who worked for 25 years at a plant making plastic products owned by “Endorphin, Inc.” After his retirement, my client developed a particular form of cancer, which he was certain was related to his long-term exposure to harmful chemicals at the plant. After doing the necessary research, I sued Endorphin on my client’s behalf, under a one-third contingency arrangement.
In the course of discovery – all conducted under strict confidentiality orders – I saw Endorphin documents that I realized showed that company executives ignored warnings about the risks. The defendant is now offering a $20 million settlement, which my client is willing to accept. With some pride, I attribute the large amount to my own particular abilities and expertise, including my undergraduate training in chemistry that enabled me to understand the technical documents and detect and understand the cleverly worded warnings.
I have separately been contacted by several other former Endorphin workers who want to sue Endorphin for their own medical injuries, but none of them has formally retained me – yet.
Defendant’s counsel has sent me a draft settlement agreement, which would require that my firm and I
- Not represent anyone pursuing a similar claim against Endorphin or any other defendant.
- Not assist in, or encourage, any suit against Endorphin or any other defendant for a similar claim.
- Keep confidential the existence and amount of the settlement and all information we learned in the course of this representation (absent judicial process compelling disclosure, in which case we must provide Endorphin with sufficient notice and opportunity to contest such process).
I want to settle my client’s case and get him the award to which he is entitled. But I also want to represent other clients against Endorphin, and these provisions would make that impossible. What should I do?
Sincerely,
Clara Contingency
Dear Ms. Contingency:
The answer to your question starts – and mainly ends – with New York Rule of Professional Conduct 5.6(a)(2).
Rule 5.6(a)(2) and Its Rationale
Rule 5.6(a)(2) states that “a lawyer shall not participate in offering or making . . . an agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy” (emphasis added). As the italicized language indicates, the Rule’s prohibitions are “directed to lawyers on both sides of the restrictive agreement,” covering those who accept the limitation and those who demand it.[1] Comment [2], while not formally part of the Rule, states succinctly, “Paragraph (a)(2) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.” The Rule has been included in New York’s ethics rules with almost identical wording for decades and appears in the ABA Model Rules and the rules in other states as well.
The central purpose of Rule 5.6(a)(2) is simple: to avoid restricting a lawyer settling one case from representing future clients against the same defendant because such restrictions are considered to pose three problems:
- They prevent the public from using the “lawyers who, by virtue of their background and experience, might be the very best available talent to represent those individuals,” and who can do it most efficiently.[2]
- They reward the plaintiff based not on the merits of his or her case but on the defendant’s desire and ability to “buy off” plaintiff’s counsel.[3]
- Demanding such a restriction can create a conflict for the plaintiff’s lawyer, who must weigh the client’s interest in settling a particular case against the lawyer’s own interest in securing future clients and work; this conflict is heightened if the lawyer already represents another plaintiff pursuing an action that would be affected by this restriction.
Criticisms of the Rule
Rule 5.6(a)(2) has long been the subject of harsh criticism. In the less-than-gentle words of one commentator, the Rule is “an anachronism, illogical and bad policy.”[4] Critics argue that the policy concerns underlying the Rule are overblown. More particularly:
- As to counsel’s availability to the public, lawyers are permitted to turn down work for all sorts of reasons, and this should be no different; by the same token, defendants are permitted to put as many lawyers as they want on their payrolls even if for the express purpose of conflicting them out from representing plaintiffs.
- The concern about “buying off” plaintiffs presupposes that only this one lawyer can handle the type of case involved, but in almost all instances this “ignores the market. If a claim has merit and elimination of one lawyer creates a vacancy, the market will produce a replacement.”[5]
- While it is unfortunate that the defendant’s demand for a restriction may create a conflict of interest for plaintiff’s counsel, that conflict is no different, and no worse, than that created when defendants in civil rights cases make offers that link the settlement amount to the attorneys’ fee or when the possibility of an early settlement at a modest amount may provide a lower but more certain fee than a full-blown litigation.
These criticisms have occasionally resonated with courts in New York. For example, the court in Feldman v. Minars,[6] in what is probably best viewed as dicta, quoted Professor Gillers at length in concluding that “an agreement by counsel not to represent similar plaintiffs in similar actions against a contracting party is not against the public policy of the State of New York” (emphasis added) even if the Rule explicitly prohibits lawyers from entering into it. The actual holding of the case was that an agreement not to “encourage” (e.g., solicit) other plaintiffs to sue the defendants would be enforced even if an agreement not to represent other clients could not be enforced or could subject the lawyer to discipline. Much more recently, U.S. District Judge Furman was equally vocal in condemning the Rule and its rationale, though he also did so in dicta.[7]
We take no position on the pros and cons of the Rule. We note only that the Rule remains on the books, having been recodified in the Rules of Professional Conduct subsequent to Feldman v. Minars, and the Rule has often been cited favorably in court decisions and ethics opinions. In short, the Rule is still in force, and you must pay attention to it.
Applying the Rule to Your Facts
Turning to the Rule’s application here, you face a conundrum. You want to represent other clients against Endorphin. You even have clients ready to retain you for that very purpose. But you also want – and indeed are even obligated – to settle the case on terms your current client is willing to accept. Your current client could not care less if you are unable to represent future clients; he just wants his money. Endorphin’s draft settlement agreement, with its various conditions, places you in a conflict situation, with your own interests and those of other potential clients warring against the client’s. But is the draft agreement ethical? And even if not, is it enforceable? In New York, these questions have surprisingly different answers.
Ethics first. Requiring that you “not represent anyone pursuing a similar claim against Endorphin or any other defendant” violates the Rule. Agreements like these have been declared unethical in New York.[8] The fact that both parties can be disciplined for making such a deal gives you a basis for pushing back against Endorphin’s demands.
The second proposed condition – that you “not assist in, or encourage, any suit against Endorphin or any other defendant for a similar claim” – also violates Rule 5.6(a)(2). In N.Y. State Ethics Opinion 1006 (2014), the NYSBA Committee on Professional Ethics deemed ethically impermissible an agreement requiring the claimant’s lawyer to refrain from: (i) soliciting other clients for the purpose of bringing similar claims against the settling party; and (ii) referring potential claimants to other counsel. This opinion repudiates the Feldman holding that an agreement not to solicit other clients comports with Rule 5.6(b)(2).
The third proposed condition must be broken into two parts. As to the prohibition on revealing “the existence and amount of the settlement,” that condition is permissible. The First Department, in Bassman v. Fleet Bank,[9] held that such an agreement did not violate the Rule. The court also took the extreme outlying position that the lawyer could not represent others for fear that it would be impossible for the lawyer not to reveal the confidential settlement amount to future clients. Recent federal decisions have also permitted lawyers to agree to such a confidentiality agreement, but they have allowed the lawyers to represent future plaintiffs against the same defendants as long as the lawyers do not disclose the settlement terms in the process.[10]
The broader prohibition on using “all information . . . learned in the course of the representation” has been found to violate Rule 5.6(a)(2), even though the Rule’s terms do not specifically address it.[11] You must reject this restriction, even if the information in question was deemed confidential when provided.
Enforcing the Restrictions
But what if you sign the proposed agreement? Can it be subsequently enforced against you if you take on another client against Endorphin, or can you repudiate it as unethical? While, as we have shown, New York courts have different levels of enthusiasm for Rule 5.6(a)(2), they will use the “clean hands” doctrine to enforce an otherwise unethical restriction if a lawyer or client signed the agreement and got the benefit of it.
So it was in Feldman v. Minars. After criticizing Rule 5.6(a)(2) and its underlying policy, the court went on to say that even if it accepted the Rule, “failure to enforce a freely entered-into agreement would appear unseemly, and the ‘clean hands’ doctrine would preclude the offending attorneys from using their own ethical violations as a basis for avoiding obligations undertaken by them.”[12] This reasoning has been followed in other contexts as well, to enforce otherwise unethical agreements lawyers and clients freely entered into and from which they benefited.[13]
In short, in addressing an agreement that violates Rule 5.6(b)(2), you must recognize, in deciding whether to sign the proposed settlement agreement, that there is a good chance a court will not let you have your cake and eat it too. That is, a court is unlikely to allow you to get the benefits of the current settlement from Endorphin by agreeing to the conditions and then later allow you to repudiate those conditions and sue Endorphin on behalf of other clients.
Practice Take-aways
Here are some practical takeaways:
- An agreement not to take on future clients against a particular defendant as part of a settlement with that defendant violates Rule 5.6(a)(2).
- An agreement not to aid others in suing that defendant, or to not use information learned in the case against that defendant, also violates the Rule.
- These ethical restrictions apply to both sides’ lawyers. The lawyer being asked to agree to the restriction should remind the adversary of that early and often.
- The Rule does not prohibit an agreement not to disclose the terms of a confidential settlement. Lawyers thus must exercise care in drafting the restriction to make sure it is limited to disclosure of confidential information, not use of that information, and exercise even more care in carrying out the agreement so as to use the information if appropriate but not in a way that breaches confidentiality. For example, if you have done several confidential settlements at 55 cents on the dollar and then tell a later client, “I think they’ll settle for 55 cents on the dollar,” you probably will not have breached your previous agreement or your duty to the later client if the later client infers that you have achieved that result before, but you cannot explicitly tell the later client that and if the later client presses you as to why you feel that way, you may find yourself in an extremely uncomfortable position. In some instances, you will find that a permissible confidentiality agreement will have the same practical effect as a prohibited no-other-representation agreement. Hence, if you would have been willing to agree not to represent anybody else but for the fact that the Rule prohibits you from doing that, you will approach a confidentiality provision differently than if you want to leave your options open to represent others.
- A lawyer refusing to agree to these restrictions should nonetheless be permitted to inform a defendant, as of the time of a settlement, whether and the extent to which the lawyer is aware of any other clients who have asked for representation on the subject matter.
- Though an agreement that runs afoul of the Rule may ultimately be enforced, stay away! It is not worth the disciplinary risk and potential litigation costs.
For the Forum:
Ronald C. Minkoff
rminkoff@fkks.com
Robert Kantowitz
robert.kantowitz@gmail.com
Khasim Lockhart
KLockhart@fkks.com
Question for the Next Forum
To the Forum:
I am a corporate transactional attorney who has been in practice for nearly 30 years. Every few years I participate in an alumni program at my law school, where I am paired with a recent law school graduate to mentor throughout their first few years of practice. A few years ago, I was paired with a graduate who I have mentored for the last five years. She is now a mid-level associate at a boutique litigation firm where she just started. We were having coffee recently and discussing her new position. During our conversation, she recounted a few of her experiences with her new boss that left me troubled and raised some questions as to attorney civility and her ethical responsibilities as an associate and member of the bar.
She told me that the partner to whom she reports, who I will refer to as “Ren,” is particularly spirited, so much so that, in my opinion, he appears to cross the line between zealous advocate and unprofessional. For example, she told me that during meet-and-confer calls he is constantly screaming at adversaries, talking over them and changing course on his prior agreements by telling the court that he did not agree to certain things that my mentee specifically remembers that he did agree to. She also noted that he often attempts to justify his positions and misstatements by indicating that she agrees with him or that she will recall him saying things that she is certain he never said.
On one particularly offensive occasion, during a meet-and-confer Zoom between counsel, the associate on the opposing side attempted to address a discovery issue with my mentee directly. Ren immediately and aggressively interjected by stating, “DO NOT SPEAK TO HER!” She said she was taken aback because she was not only prepared to answer the adversaries’ question, seeing as she was the attorney who prepared and transmitted the production, but she found it offensive that he would not even afford her the opportunity to speak at all. On another occasion, Ren even went as far as to tell one of their male adversaries to “control” his female co-counsel during a meet-and-confer call between counsels. While my mentee indicated that she was not comfortable speaking up during the call, she asked me whether I thought she should have addressed the issue with him directly after the call.
I couldn’t believe what she was telling me. In my 30 years of practice, I have never encountered such behavior from a professional. Is Ren’s conduct a violation of the Rules of Professional Conduct? What about the Standards of Civility? Are there ethical considerations that have to be addressed? If so, as an associate who is employed by the individual exhibiting inappropriate behavior, does she have any ethical obligations that she should be aware of?
Sincerely,
Ainsley Associate
[1] N.Y. City 1999-03 (1999).
[2] ABA Formal Op. 93-371 (1993).
[3] Id.
[4] S. Gillers, A Rule Without a Reason, 79 A.B.A. Journal 118 (Oct. 1993).
[5] Id.
[6] 230 A.D.2d 356, 359–61 (1st Dep’t 1997).
[7] Ipsos-Insight, LLC v. Gessel, 21-CV-3992 (JMF), 2021 WL 2784634 at *7 (S.D.N.Y. July 2, 2021).
[8] See, e.g., N.Y. City 1999-03 (1999) (“agreements not to represent present or future clients in litigation against a settling defendant . . . are improper,” citing ethics opinions from numerous states); In re Cardillo, 123 A.D.2d 147, 148–49 (1st Dep’t 2014) (imposing reciprocal discipline on lawyer who entered into settlement agreement requiring her not to represent clients adverse to the defendants in the future); cf. Feldman, 230 A.D.2d at 361 (to the extent “an agreement by counsel not to represent similar plaintiffs in similar actions against defendants” violates the ethics rules, “the ‘violation’ can be addressed by appropriate disciplinary authorities”).
[9] 2000 N.Y. Misc. LEXIS 659 at *2–3 (1st Dep’t 2000).
[10] See Tour Tech. Software, Inc. v. RTV, Inc.,17-CV-5817, 2018 U.S. Dist. LEXIS 130021 at *4 n.4 (E.D.N.Y. Aug. 2, 2018); Tradewinds Airlines, Inc. v. Soros, No. 08 Civ. 5901 (JFK), 2009 WL 1321695 at *9 (S.D.N.Y. May 12, 2009).
[11] N.Y. State Ethics Op. 730 (2000) (barring this prohibition under the Rule because its “practical effect is to restrict the lawyer from undertaking future representations and . . . [it] involve[s] conditions or restrictions on the lawyer’s future practice that the lawyer’s own client would not be entitled to impose”) (emphasis added). ABA Formal Op. 00-417 (2000) (lawyer may enter into a settlement agreement that prevents them from “revealing” confidential information but not one that prevents them from “using” such information); Tour Tech. Software, 2018 U.S. Dist. LEXIS 130021 at *6 (endorsing same distinction).
[12] Feldman v. Minars, 230 A.D.2d 356, 361 (1st Dep’t 1997) (emphasis in original).
[13] See, e.g., Marin v. Constitution Realty, LLC., 28 N.Y.3d 666, 672 (2017) (although fee-sharing agreement between lawyers violated Rule 1.5(g), “it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on ‘ethical’ grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits” (citation omitted)). Friedman v. Kuczkir, 272 F. Supp. 3d 613, 632–33 (S.D.N.Y. 2017) (client cannot avoid business arrangement with lawyer on ethical grounds after obtaining benefits of the agreement for several years).
