LEGAL ETHICS OPINION 1715 SETTLEMENT AGREEMENT; FUTURE
CONFLICTS; RESTRICTION OF LAWYER'S
PRACTICE
This responds to your letter dated December 15, 1997, requesting
an advisory opinion that addresses a proposed settlement
agreement concluding an employment discrimination case that a
former employee, represented by Lawyers A and B, brought against
the former employer, XYZ Company and a supervisor. The relevant
provisions of the settlement agreement are, as follows:
1. Payment to Plaintiff. Within five business days of the
signing of this Agreement by all parties, XYZ Co. will pay
Plaintiff and her attorneys the sum of
__________________________ thousand dollars ($___,000.00).
2. Employment Counseling and Training for XYZ Co. and its
Parent. The Parties recognize that Plaintiff's attorney,
Lawyer A and Lawyer B, have as a result of the discovery
process in the litigation, gained an insight into XYZ Co.'s
employment policies that could be extremely useful in
furthering the goals of (1) XYZ Co. and its parent company
to comply with the letter and the spirit of employment-
related laws, and (2) Plaintiff and her attorneys to help
promote employment policies that are beneficial to the many
other employees, black and white, of those companies and to
advance the objectives of the various federal and state laws
at issue in the litigation. Therefore, the Parties agree
that Lawyer A and Lawyer B shall within 90 days of the
execution of the Agreement, sit down with various managers
from XYZ Co. and from the parent of XYZ Co. for a total of
at least eight hours on two different days, at a place of
XYZ Co.'s choosing in __________ County, Virginia, and based
upon what they learned in the litigation and additional
employment-related information confided to them in the
meeting, provide advice and counseling to XYZ Co. and its
parent on any changes to employment policies and/or
practices that either of the attorneys believes would be
both practical and beneficial to the companies, including
but not limited to advice on how to deal with current
employment issues raised by the managers and how to avoid
future employment-related litigation. In exchange for this
advice and counseling XYZ Co. shall pay $3,250 in advance to
each Lawyer A and Lawyer B. While XYZ Co. and its parent
would like to have further advice and counseling from Lawyer
A and Lawyer B beyond the initial meetings, neither Lawyer A
nor Lawyer B is obligated to provide such further advice or
counseling.
XYZ Co. shall pay $200 per hour to each of Lawyer A and
Lawyer B for additional time (including travel) spent beyond
the initial eight hours.
13. Disclosure and Waiver of Possible Conflict/No
Reapplication for Employment. Plaintiff recognizes that, as
a result of this settlement, it is likely that neither
Lawyer A nor Lawyer B would be able to represent her in a
further employment-related dispute against XYZ Co., its
employees or its parent. Plaintiff also recognizes, however,
that, as a result of this settlement she has given up any
such claim. Because Plaintiff hereby promises, as part of
this settlement, never again to apply for employment with
XYZ Co. or its parent, she recognizes that she cannot have
any future employment-related claims against XYZ Co., its
employees, or its parent. Furthermore, as plaintiff has
stated from the outset of this litigation, she did not bring
this litigation for the money; she brought it in order to
improve things at XYZ Co. for the employees who work there,
some of whom are her friends. Plaintiff sincerely desires
XYZ Co. and its parent to have the benefit of the above-
described counseling from lawyer A and Lawyer B because such
counseling will help accomplish her objective in this
litigation. Therefore, Plaintiff hereby voluntarily waives
any actual or apparent conflict of interest inherent in or
created by this Agreement.
In the facts you present, plaintiff and defendants agree that
plaintiff's lawyers are in a unique position, by reason of their
intensive discovery of defendants' employment records, to provide
valuable advice to defendants that will assist defendants in
conforming employment practices to the requirements of applicable
law. In the facts you present, plaintiff's lawyers have not
represented any other client adverse to defendants and do not
have a present expectation of such representation in the future.
Finally, in the facts you present, plaintiff's stated objective
in bringing the litigation against defendants will be furthered
if defendants' employment practices are improved in conformity
with applicable law as a result of advice provided to defendants
by plaintiff's lawyers following the settlement agreement.
Based on the facts presented, you have asked the committee to
address the following questions:
1. Does the proposed settlement agreement violate DR 2-106(B)
which prohibits a lawyer from entering into a settlement
agreement which "broadly restricts" the lawyer's right to
practice law?
2. Does the proposed agreement offend the ethical precepts set
forth in Ethical Considerations 9-2 and 9-6? And
3. Does DR 5-105(D) prohibit the proposed settlement agreement
under which Plaintiff's former attorneys will undertake to
represent Defendants in a "substantially related" matter?
The appropriate and controlling disciplinary rules relative to
your inquiry are:
DR 2-106(B): In connection with the settlement of a
controversy or suit, a lawyer shall not enter into an
agreement that broadly restricts his right to practice
law. (emphasis added).
DR 5-101(A): A lawyer shall not accept employment if
the exercise of his professional judgment on behalf of
his client may be affected by his own financial,
business, property, or personal interests, except with
the consent of his client after full and adequate
disclosure under the circumstances.
DR 5-105(D): A lawyer who has represented a client in
a matter shall not thereafter represent another person
in the same or substantially related matter if the
interests of that person is adverse in any material
respect to the interest of the former client unless the
former client consents after disclosure.
EC 9-2: Public confidence in law and lawyers may be
eroded by irresponsible or improper conduct of a
lawyer. On occasion, ethical conduct of a lawyer may
appear to laymen to be unethical. In order to avoid
misunderstandings and hence to maintain confidence, a
lawyer should fully and promptly inform his client of
material developments in the matters being handled for
the client. While a lawyer should guard against
otherwise proper conduct that has a tendency to
diminish public confidence in the legal system or in
the legal profession, his duty to clients or to the
public should never be subordinate merely because the
full discharge of his obligation may be misunderstood
or may tend to subject him or the legal profession to
criticism. When explicit ethical guidance does not
exist, a lawyer should determine his conduct by acting
in a manner that promotes public confidence in the
integrity and efficiency of the legal system and the
legal profession.
EC 9-6: Every lawyer owes a solemn duty to uphold the
integrity and honor of his profession; to encourage
respect for the law and for the courts and the judges
thereof; to observe the Code of Professional
Responsibility; to act as a member of a learned
profession, one dedicated to public service; to
cooperate with his brother lawyers in supporting the
organized bar through the devoting of his time,
efforts, and financial support as his professional
standing and ability reasonably permit; to conduct
himself so as to reflect credit on the legal profession
and to inspire the confidence, respect, and trust of
his clients and of the public; and to strive to avoid
not only professional impropriety but also the
appearance of impropriety.
In 1985, the committee expressed its opinion that "It is improper
for a plaintiff's attorney to enter into a settlement agreement
which includes, as a condition of settlement, that the
plaintiff's attorney will not thereafter accept cases or
prosecute similar claims against the same defendant." LEO 649,
citing DR 2-106(B) and not elaborating on its prohibition against
only those settlement agreements that broadly restrict a lawyer's
right to practice law. The Alabama ethics panel permitted a
provision in a class action settlement agreement that plaintiff's
lawyer would not prosecute any other actions against the class
action defendants which involved the same violations alleged
against them in the settled action. Such a provision, it was
concluded, did not "broadly" restrict the lawyer's right to
practice law. Alabama State Bar Opinion 85-115 (1986).
Whether a lawyer has entered into an agreement that "broadly"
restricts the right to practice law is a fact-intensive question
and cannot be answered in an all-encompassing fashion. For
example, if a law firm with a boutique employment discrimination
law practice in a community agrees as a term of a client's
settlement not to prosecute future employment discrimination
claims against the community's only significant employer, it is
likely that the agreement broadly restricts the right to practice
law. A different conclusion may obtain, however, if the law
firm's practice is not substantially limited to employment
discrimination, or if the employer is but one of many significant
employers in the community.
In the facts you present, neither Lawyer A nor Lawyer B has his
office in the same community as XYZ Co. Lawyer A's office is in
a town near XYZ Co.'s facility; Lawyer B's office is in a large
city. Although Lawyer A has a local practice, and Lawyer B a
broad geographical practice, employment discrimination law does
not constitute the sole practice of either of them. Neither of
them represented a client against XYZ Co. before their
representation of plaintiff, and neither of them has an
expectancy of such a representation in the future.
Even if not prosecuting future claims against a single defendant
"broadly restricts" the lawyer's right to practice law, which is
problematic on the facts presented, the pivotal issue is whether
the restriction is contained in an agreement that the lawyer
entered into. The settlement agreement in your hypothetical,
unlike the settlement agreement in LEO 649, does not include a
provision that Lawyers A and B will thereafter refuse to
prosecute similar claims against XYZ Co. The settlement
agreement itself does not restrict Lawyers A and B from
subsequent representation adverse to XYZ Co. Rather, the
restriction is rooted in DR 5-105(A) and (B), governing
representation adverse to a current client and in DR 5-105(D),
governing representation adverse to a former client. Such
representation may be ethically permissible with the clients'
informed consent. The source of the restriction is significant
since DR 2-106(B)'s prohibition is that a lawyer shall not enter
into "an agreement that broadly restricts his right to practice
law." (italics supplied.) The agreement in your hypothetical
does not set forth any such restriction to which Lawyers A and B
have agreed. The common thread in the settlement agreements
uniformly disapproved by other ethics panels was an explicit
provision that prohibited representation of future clients
against the same defendant. See ABA/BNA Lawyers' Manual on
Professional Conduct 51:1209-51:1212 (1995).
It can be argued that XYZ Co.'s employment of plaintiff's
counsel, as a term and condition of the settlement agreement, is
merely a ruse to circumvent DR 2-106(B). The committee
necessarily takes the settlement agreement on its face and cannot
speculate about, let alone analyze, the motive or subjective
intent of the parties. As recited in the agreement, defendants
are to employ Lawyers A and B in a substantial way to seek their
guidance on how to reform their existing employment policies and
practices. According to the agreement, this is also plaintiff's
primary objective, paramount to any monetary compensation derived
from the settlement. DR 7-101(A) obligates Lawyers A and B to
seek the lawful objectives of their client by all available means
permitted by law and the Disciplinary Rules. The facts presented
in your hypothetical do not suggest that defendants are trying to
"buy off" plaintiff's counsel, or that defendants are
deliberately seeking to "conflict out" successive employment of
Lawyers A and B by prospective clients with similar employment-
related claims.
In the facts you present, the committee believes that the
proposed agreement does not place plaintiff's counsel at risk of
violating DR 5-105(D). Under the terms of the proposed
agreement, plaintiff has released any and all claims she has or
may have against defendants arising out of her employment at XYZ
Co. and further agrees never to seek employment with that company
in the future. Consequently, plaintiff would not have any
employment related claims in the future against defendants. XYZ
Co.'s employment of plaintiff's counsel upon conclusion of the
present case would not be adverse to any interest of plaintiff.
Even if successive employment of plaintiff's counsel by
defendants were in some way adverse to plaintiff's interests, by
the terms of the agreement she has authorized her lawyers to
counsel and advise defendants and has expressly waived any
conflict of interest. Therefore, the committee concludes that
there is no violation of DR 5-105(D).
In considering the settlement agreement, and defendants'
employment of plaintiff's lawyers post-settlement, the committee
also examined DR 5-103(A)'s prohibition against a lawyer
acquiring a proprietary interest in the cause of action or
subject matter of litigation conducted for a client. The
committee is of the opinion that the provision of the settlement
agreement calling for defendants' payment of legal fees to
plaintiff's lawyers for post-settlement advice to defendants does
not constitute the acquisition of a proprietary interest in
plaintiff's cause of action or the subject matter of plaintiff's
litigation. See C. Wolfram, Modern Legal Ethics 8.13 at 491
(1986); ABA, Annotated Model Rules of Professional Conduct, Rule
1:8(j) comment (3rd ed. 1996) (prohibition rooted in common law
doctrines of maintenance and champerty). ABA Informal Opinion
1397 (1977) illustrates the proscribed proprietary interest
contemplated in DR 5-103(A). There the lawyer, as consideration
for legal services, had acquired a one-fourth interest in the
client's real estate that was the subject of the dispute in which
he represented the client. In People v. Franco, 698 P.2d 230
(Colo. 1985), there was a violation of DR 5-103(A) where a
lawyer, as security for the payment of fees, took a deed of trust
on real estate that was the subject of a court-ordered sale and
division of proceeds between the husband and the wife. See LEO
1653.
In contrast, Lawyers A and B have not acquired a proprietary or
financial interest in their client's cause of action. On the
facts presented, the client's cause of action has been settled by
some monetary payment and, in fulfillment of the client's express
desire, by XYZ Co.'s employment of Lawyers A and B to conform its
employment practices to applicable laws. The employment of
Lawyers A and B is not, however, an element of her cause of
action against XYZ Co. The employment is derivative of the
settlement but not of the cause of action itself.
The committee observes, however, that the provision of the
settlement agreement for defendants' payment of legal fees to
plaintiff's lawyers for post-settlement legal advice constitutes
a financial or business interest on the lawyers' part under DR 5-
101(A). Since such an interest may affect the lawyers'
professional judgment on behalf of plaintiff in negotiating the
settlement agreement, DR 5-101(A) requires full and adequate
disclosure to plaintiff and consent from plaintiff with respect
to her lawyers' interest in the settlement. If plaintiff's
stated consent in the settlement agreement is a product of her
lawyers' full and adequate disclosure, which the settlement
agreement suggests has occurred, then defendants' post-settlement
employment of plaintiff's lawyers with her consent does not
offend DR 5-101(A).
[DRs 2-106(B), 5-101(A), (B), (D), 5-103(A), 5-105(D), 7-101(A);
ECs 9-2, 9-6; LEOs 649, 1653; Ala. State Bar Op. 85-115 (1996);
ABA/BNA Manual 51:1209-51:1212 (1995); C. Wolfram, Modern Legal
Ethics 8.13 at 491 (1986); ABA, Annotated Model Rules of
Professional Conduct, Rule 1:8(j) comment (3rd ed. 1996); ABA
Informal Opinion 1397 (1977); People v. Franco, 698 P.2d 230
(Colo. 1985)]
Committee Opinion
February 24, 1998
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