SCHOOLED IN ETHICS By: Paula Schaefer* University of Tennessee College of Law
CONFIDENTIALITY PROVISIONS IN SETTLEMENT AGREEMENTS Can a confidentiality provision in a client’s settlement agreement cause a Tennessee lawyer to violate the Rules of Professional Conduct? One Tennessee attorney feared that the confidentiality requirements of a settlement proposed by opposing counsel would result in the violation of RPC 5.6(b), and asked the Tennessee Board of Professional Responsibility for a formal ethics opinion. With Tennessee Formal Ethics Opinion 2018-F-166, Tennessee joins the growing list of jurisdictions that have opined that certain confidentiality provisions in settlement agreements can result in professional misconduct for attorneys on both sides. The Confidentiality Conundrum: Keeping the Lawyer Silent, Too Confidentiality provisions are a common feature of settlement agreements. When a controversy settles, one or both of the parties may insist on confidentiality for a number of reasons. For example, the defendant may settle not because it admits liability, but because it judges litigation to be too expensive, risky, or reputationally harmful. The parties are generally free to contract with each other to keep certain aspects of a settlement confidential, like the value of the settlement. But how far does that freedom go? In its recent Formal Ethics Opinion, the Board addressed an increasingly common but controversial confidentiality demand: the defendants in a product liability action sought to prevent the plaintiff ’s lawyer “from discussing any facet of the settlement agreement with any other person or entity, regardless of the circumstances.” Tenn. Formal Ethics Op. 2018-F-166 ( June 8, 2018). And by “any facet,” the defendant meant any facet—the provision was intended to bar any future mention of “the incident central to the plaintiff ’s case, the year, make, and model of the subject vehicle, or the identity of the [d]efendants.” Id. Ultimately, the Board concluded that such a confidentiality provision violates Tennessee’s RPC 5.6(b) and that a lawyer may not “propose or accept a provision” that would prohibit that lawyer’s future use or disclosure of information learned in the representation, if doing so would hinder the lawyer’s ability to represent other clients with similar claims. Tenn. Formal Ethics Op. 2018-F-166 ( June 8, 2018). The Forbidden Provisions: Restricting the Lawyer’s Right to Practice In determining that Tennessee’s professional conduct rules prohibit such a restrictive confidentiality provision, the Board cited ethics opinions from no fewer than nine other jurisdictions that have recently confronted the same or similar provisions aimed at silencing a plaintiff ’s lawyer. The Board, like most of those other jurisdictions, rooted its reasoning in RPC 5.6(b). Tennessee’s RPC 5.6(b), which tracks the language of Model Rule 5.6(b), prohibits a lawyer from “offering or making,” as part of the settlement of a client’s controversy, any agreement that will restrict a lawyer’s ability to practice law. As the Board noted, the ABA has identified three distinct policy reasons behind Model Rule 5.6(b) and its prohibition of such agreements. First, the agreements harm the public by restricting their access to lawyers who may be best suited to represent them in a particular matter. Second, defendants may be motivated to settle for the improper purpose of trying to “buy off ” the lawyer. And third, the agreements create a direct conflict between the current client’s interests and those of potential future clients. See ABA Formal Op. 93-371 (Apr. 16, 1993). The Board found that the confidentiality provision here, in restricting the plaintiff ’s lawyer from ever again referencing details of the controversy (including publicly known and discoverable information), would have the effect of preventing the lawyer from litigating similar claims in the future or claims against the same defendant. Such an agreement would violate RPC 5.6(b).
What Kind of Confidentiality Provisions Are Still Fair Game? The Board’s opinion clearly proscribes one category of confidentiality provisions. What is less clear is whether other confidentiality provisions are problematic and whether a violative provision will be enforceable. Other jurisdictions have split on both questions. Tennessee’s Rules of Professional Conduct continue to permit at least “the most common confidentiality provisions,” like those that “prohibit disclosure of the terms of a specific settlement, including the amount of the payment.” Tenn. Formal Ethics Op. 2018-F-166 ( June 8, 2018). The same goes for provisions that prohibit “dissemination of the fact of or terms of the settlement agreement,” so long as “that information is not publicly known.” Id. On the other end of the spectrum, Tennessee’s rules forbid provisions that “prohibit[] a lawyer from future use of information learned during the representation or disclosure of information that is publicly available” or discoverable in other cases, to the extent that the restriction would limit the lawyer’s ability to represent other potential clients. Id. The Board’s opinion leaves a fair amount of daylight between what is permitted and what is prohibited. The opinions of authority jurisdictions may be instructive. As recognized by the Pennsylvania Bar Association (whose reasoning Tennessee’s Board found persuasive), social media’s power to quickly disseminate and amplify news makes the need for confidentiality “more acute” than ever. Pa. Bar Ass’n Comm. on Legal Ethics & Prof ’l Responsibility, Formal Op. 2016-300 (Nov. 2016). For that reason, Pennsylvania’s professional responsibility committee rejected the idea of imposing a per se prohibition on confidentiality and non-disparagement clauses in settlement agreements, finding that such clauses could be harmonized in some instances with the lawyer’s duty of confidentiality to the client under professional conduct rules. Id. Indiana has gone a step further, positively endorsing non-disparagement clauses that operate to prohibit the plaintiff ’s lawyer from making public statements about the controversy outside of the bounds of legal advocacy, as in advertising or promoting her business. Ind. State Bar Ass’n, Op. No. 1 of 2014 ( July/Aug. 2014). So long as the clauses do not prohibit the lawyer from using information learned during that controversy in the course of the lawyer’s future advocacy, in private discussions with potential clients, or in providing evidence to a party investigating a similar claim, they do not run afoul of Indiana’s professional conduct rules. Id. But Tennessee lawyers should exercise caution if they consider an Indiana-style non-disparagement clause. Tennessee’s Board, in rather broad language, observed that other jurisdictions interpret RPC 5.6(b) as prohibiting provisions “that restrict a lawyer from publicly naming the particular parties against whom their client has settled.” Tenn. Formal Ethics Op. 2018-F-166 ( June 8, 2018). One such jurisdiction is South Carolina, which flatly advises its lawyers to avoid becoming bound by their clients’ settlement agreements. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 10-04 (2010). Beyond the disciplinary consequences of a confidentiality provision that violates RPC 5.6(b), the question remains whether a court would enforce such a provision. This issue has generated little case law, although some courts have indicated that such an agreement may be void as against public policy. Samson Habte, Confidentiality Clause Scuttles Malpractice Settlement, ABA/BNA Lawyers’ Manual on Professional Conduct, Current Reports, Vol. 33, No. 8 (Apr. 19, 2017). But beware: some courts have enforced restrictive provisions against the lawyer bound by the agreement, reasoning that disciplinary authorities are more than capable of addressing the lawyer’s ethical violation. See, e.g., Feldman v. Minars, 230 A.D.2d 356, 361 (N.Y. App. Div. 1997).
*Thanks to my research assistant Benjamin Merry, UT Law Class of 2019, for his work on this column.
If you have an idea for Schooled in Ethics column, please contact Cathy Shuck at 541-8835. December 2018
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