Settlement Agreement Provisions That Purport to Restrict an Attorney's Right to Practice Law
LACBA Update, March 2014
By Gayle Eskridge, Principal, Eskridge Law, and member, LACBA Professional Responsibility and Ethics Committee. She can be reached at firstname.lastname@example.org. The opinions expressed are her own.
Any attorney who regularly represents plaintiffs has most likely been confronted at least once by a defense counsel who attempts to restrict the ability of plaintiff’s counsel to represent other plaintiffs against that defendant.1 When defense counsel presents a settlement agreement that is straightforward in stating such a restriction, the law clearly prohibits such an arrangement. California Rule of Professional Conduct 1-500 provides:
(A) A member shall not be a party to or participate in offering or making an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right of a member to practice law, except that this rule shall not prohibit such an agreement which:
(1) Is a part of an employment, shareholders’, or partnership agreement among members provided the restrictive agreement does not survive the termination of the employment, shareholder, or partnership relationship; or
(2) Requires payments to a member upon the member’s retirement from the practice of law; or
(3) Is authorized by Business and Professions Code sections 6092.5 subdivision (i), or 6093. [These two sections relate to discipline by the State Bar of California.]
(B) A member shall not be a party to or participate in offering or making an agreement which precludes the reporting of a violation of these rules. [Emphasis added.]
The ABA Model Rules of Professional Conduct, which have been adopted by most states (although not by California), are consistent with Rule 1-500. ABA Model Rule of Professional Conduct 5.6 provides: 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.”
Additionally, ABA Disciplinary Rule 2-108(B) provides: “In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts his right to practice law.”
Considering what appears to be fairly clear and unambiguous language in these rules, you might think this would be the end of the problem. You would be wrong. Creative defense attorneys have developed indirect methods for attempting to bypass these rules.
A popular method for attempting to do an end-run around these ethics rules is to require, as a condition of settlement, that plaintiff’s counsel sign a retainer agreement, agreeing to serve as an attorney or consultant for the settling defendant in the future, so that conflict of interest rules will prevent plaintiff’s lawyer from representing future plaintiffs against the defendant. When such provisions are designed to “buy off” plaintiff’s counsel and thereby restrict the right of plaintiff’s counsel to practice law, they are unethical. The Los Angeles County Bar Association (LACBA) Professional Responsibility and Ethics Committee has reviewed this question and determined that such provisions are unethical, since they violate Rule 1-500.2
What about a settlement provision that would prohibit a plaintiff’s counsel from mentioning in a resume, on a Web site, or in advertising materials that counsel worked on a particular case against a defendant? California courts have not yet addressed this issue, but the State Bar of California Standing Committee on Professional Responsibility and Conduct (COPRAC) has opined that such a provision is unethical.3 This COPRAC opinion stated that such a settlement provision has the effect of giving the defendant the ability to control plaintiff’s counsel’s representation of future clients. (Since the COPRAC opinion was issued in 1988, it cited California Rules of Professional Conduct, Rule 1-109(A), which was the predecessor of Rule 1-500.)
What if the settlement provision does not affirmatively bar representation against the settling defendant but merely prohibits the disclosure of public facts regarding the past representation? The Legal Ethics Committee of the Bar Association of San Francisco has recently issued an opinion (Opinion 2012-1) in which it concluded that even this type of provision is unethical, since it still seeks to curtail an attorney’s autonomy and to impair future clients’ retention of the attorney by limiting disclosure of public information that might influence the retention decision.4
How about a settlement provision that would prohibit a plaintiff’s counsel from advertising expertise in a certain area of law? This also appears be unethical since, again, such a provision has the effect of giving the defendant the ability to control plaintiff’s counsel’s representation of future clients. A general prohibition against an attorney disclosing or advertising an area of expertise is a substantial restraint on the right to practice and the ability to provide adequate information to the public regarding the attorney’s qualification.5
The District of Columbia and many other states either have specific laws or some type of ethics opinions that are consistent with the opinions cited above.6 As can been seen, just about any creative attempt to execute an end-run around California Rule of Professional Conduct 1-500 (or the ABA Model Rule of Professional Conduct 5.6 in states that have adopted it) could get you into serious trouble. The best practice is to follow not just the form of the rule but also its substance.
1 It is normally defendants who desire such a restriction. I have personally never heard of a plaintiff requesting this type of restriction. It is therefore assumed in this article, for ease of writing if nothing else, that it is the defendant who requests the restrictive language. Other attorneys have apparently experienced the other scenario, however; the scenario of plaintiff’s counsel attempting to restrict defense counsel’s future representation of related, non-settling defendants is addressed in LACBA Ethics Opinion 468.
2 LACBA Prof'l Responsibility & Ethics Comm., Formal Op. No. 468 (March 16, 1992). See also ABA Section of Litigation Ethical Guidelines for Settlement Negotiations, August 2002, §4.2.1.
3 COPRAC Formal Op. No. 1988-104.
4 Please note, however, that a settlement agreement that is otherwise agreeable to the parties may contain a confidentiality clause that prohibits a lawyer from disclosing the fact and amount of the settlement to the lawyer’s other current or future clients without violating the Rules of Professional Conduct, although the lawyer’s duties to multiple clients in the same matter may limit such a clause. See LACBA Prof'l Responsibility & Ethics Comm., Formal Op. No. 512 (February 23, 2004).
5 See Legal Ethics Comm. of the Bar Ass'n of San Francisco, Op. 2012-1.
6 See, for example, District of Columbia Bar Legal Ethics Comm. Op. No. 335; New York Ethics Op. 730 (2000); New Hampshire Bar Ass'n Ethics Comm. Op. No. 2009-10/6; and Prof'l Ethics of the Florida Bar Op. 04-2 (January 21, 2005).
LACBA's Professional Responsibility and Ethics Committee welcomes new inquiries from LACBA members regarding ethical issues or concerns about professional responsibilities. The identity of the inquirer is kept confidential within the committee. The committee, however, does not publish formal opinions that are the subject of any pending litigation involving the inquirer. If you have an ethical question that you would like the committee to consider, you can mail your written inquiry to Los Angeles County Bar Association, Professional Responsibility and Ethics Committee, P.O. Box 55020, Los Angeles, CA 90055-2020, or e-mail your inquiry marked "Confidential" to Member Services at email@example.com.