MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2021-03
PROPRIETY OF BINDING AN ATTORNEY TO A CONFIDENTIALITY/NON-DISPARAGEMENT CLAUSE AS PART OF A PRE-SUIT SETTLEMENT
In your email of October 2, 2020, you requested an opinion concerning the demand of a Virginia defendant that you become a signatory on a pre-suit release of your client’s personal injury claim. The Committee on Ethics of the Maryland State Bar Association considered and approved the following as our written opinion on the matter you raised.
QUESTION PRESENTED: Whether an attorney ethically may sign a client’s pre-suit release of a personal injury claim containing language that contractually obligates the attorney to maintain confidentiality and non-disparagement.
CONCLUSION: It is not ethically proper for an attorney to sign a client’s settlement agreement of a personal injury claim if the document broadly obligates the attorney to maintain confidentiality and non-disparagement such that it could act to restrict the attorney’s right to practice. This applies irrespective of whether settlement occurs before or after suit is filed. It would be permissible for the attorney to sign a client’s settlement agreement containing a narrow requirement that the attorney maintain confidentiality over such things as the existence and terms of the settlement agreement, provided such information is not publicly available. Likewise, it would be permissible for the attorney to sign a client’s settlement agreement requiring non-disparagement unless the agreement directly or indirectly limits the lawyer’s ability to represent vigorously new clients against the settling party.
FACTS PRESENTED FOR CONSIDERATION: Your client is resolving a personal injury claim against a tortfeasor-driver before filing a lawsuit. The releasee’s Virginia insurance carrier asked you to sign the settlement agreement and release of your client’s claim only as it relates to confidentiality and non-disparagement. Aware of our opinion (Ethics Docket No. 2016-07) concerning the propriety of an attorney for a party in litigation signing a settlement agreement containing confidentiality terms, the Virginia insurer draws the distinction that the present settlement is occurring pre-suit, thus before any information about the incident has become public.
ANALYSIS/DISCUSSION: Ethics committees and boards of professional conduct across the United States have extensively addressed the topic of confidentiality provisions in settlement agreements. While the underlying facts vary based upon the language and scope of the requested confidentiality provisions, and the extent to which each jurisdiction has adopted ABA Model Rules of Professional Conduct, the analysis of the issues is generally consistent and principally focused upon the state’s version of ABA Model Rule of Professional Conduct 5.6(b).
This Committee most recently addressed the issue of confidentiality agreements in Ethics Docket No. 2016-07. There, the issue revolved around a defendant’s attempt via a settlement agreement to bind the plaintiff’s attorney never to discuss or disclose the underlying facts of the case. After analyzing our past opinions, and those of ethics committees of our sister states, we concluded that in our opinion a settlement agreement requiring a lawyer for a party never to discuss or disclose the underlying facts of the case would violate Maryland Attorneys’ Rules of Professional Conduct Rule 19-305.6. Ethics Docket No. 2016-07. That Rule, in its relevant part, reads, “An attorney shall not participate in offering or making: … (b) an agreement in which a restriction on the attorney's right to practice is part of the settlement of a client controversy.” (1) Rule 19-305.6.
Although our 2016 opinion expressly addressed settlement of a suit in litigation, thus discussed the matter before it in the context of publicly available information, we believe the policies that underpin Rule 19-305.6 apply with equal force to a pre-suit settlement.
Three policy considerations justify the prohibition on settlement terms that effectively limit an attorney’s ability to represent future clients against the settling party. First, public policy favors full access to qualified legal counsel but broad confidentiality provisions restrict the public’s access to lawyers who may be the most capable to handle a particular claim. ABA Formal Op. 93-371. See, e.g., D.C. Bar Ethics Op. 335 (2006)(There is a “basic principle ... that clients should have the opportunity to retain the best lawyers they can employ to represent them.”) Second, a settlement containing a broad confidentiality provision may reflect the defendant’s desire to “buy off” plaintiff’s counsel rather than provide appropriate compensation based upon the merits of the claim. ABA Formal Op. 93-371. Third, such agreements create a conflict of interest between the lawyer’s present client and potential future clients. ABA Formal Ops. 93-371 and 00-417.
In our opinion, these policy considerations come into play irrespective of whether settlement occurs before or after commencement of a suit. See Bar Ass’n of San Francisco Ethics Comm., Op. 2012-1(“Although this opinion posits a factual scenario involving settlement of existing litigation, the Committee believes that the same issues would be raised with regard to the settlement of a non-litigation matter.”).
For example, if an attorney representing the employee in an employment discrimination case obtains a “smoking gun” memorandum, a settlement agreement that would prevent the attorney from using that document (or knowledge of that document) in any future case against the employer would materially limit the attorney’s ability to represent effectively new clients against that employer, and thus, compel the attorney to decline such representation. (2) This is because of the interplay between Rule 19-301.9 (Conflict of Interest-Former Client) and Rule 19-301.7 (Conflicts of Interest).
Absent certain circumstances irrelevant here, Rule 19-301.9 prohibits a lawyer from revealing information relating to representation of a former client without client consent, a consent the former client likely could not give without violating a confidentiality provision if one exists in the former client’s settlement agreement. Rule 19-301.7 (in part) prohibits representing a client when there is a significant risk that the lawyer’s responsibilities to a former client will materially limit the lawyer’s representation. Thus, a contractual prohibition barring a lawyer from using information learned from representation of a client is effectively a restriction upon the lawyer’s right to practice. ABA Formal Op. 00-417.
The same would hold true if the confidentiality clause were to apply to any other form of knowledge gained by the attorney during the representation, such as familiarity with the policies and practices of the releasee. Pre-suit or post suit, a contractual restriction on the ability of the releasor’s attorney to utilize such knowledge in future cases would restrict the attorney’s ability to practice and represent new or other existing clients against the settling releasee. In our opinion, Rule 19-305.6 prohibits this.
To assist Maryland lawyers examining proposed confidentiality provisions in settlement agreements, we agree with the approach suggested by the Colorado Bar Association Ethics Committee, “[A] claimant’s attorney should not agree to a settlement restriction giving the attorney significantly less discretion in the prosecution of a claim than an attorney independent of the agreement would have.” Colo. Bar Ethics Comm. Op. No. 92 (1993).
Moreover, people in need of representation typically assess the competence and qualifications of a prospective lawyer in terms of that lawyer’s experience with handing matters similar to the one presented by the potential client. Therefore, a confidentiality provision limiting the attorney’s ability to disclose information that might influence the retention decision, such as the attorney’s experience in a specific area (e.g., representing employees in a particular industry in employment discrimination matters), or that the attorney has experience handling matters against a particular person or entity, in our view would constitute a restriction on the attorney's right to practice in violation of Rule 19-305.6. See Bar Ass’n of San Francisco Ethics Comm., Op. 2012-1 (Even if attorney’s areas of experience are not public, a settlement provision barring attorney from advertising experience in substantive area of LGBT harassment, or against a specific defendant, is unethical).
Accordingly, it is the Committee’s view that the propriety of a confidentiality clause does not turn upon whether a settlement occurs before or after filing suit. Under Rule 19-305.6, the salient issue is whether the confidentiality provision directly or indirectly poses a restriction on the attorney’s right to practice. The resolution of that issue depends upon the specific language of the confidentiality clause.
You have not provided us with the confidentiality clause that the Virginia carrier asked you to sign so we cannot comment further about your individual situation except to emphasize that provisions broadly prohibiting disclosure of information are generally impermissible. Narrowly tailored or limited prohibitions generally are permissible. Examples of a narrowly tailored confidentiality provision routinely found to be ethically acceptable include the existence of a settlement and the terms and conditions of the settlement agreement itself, provided such matters are not already public information. See Ethics Docket No. 2016-04.
The considerations that apply to confidentiality also apply to non-disparagement. Whether an attorney for a party may sign a non-disparagement clause in a settlement agreement depends upon how broadly drafted the clause is. As the Ethics Committee of the Indiana State Bar Association observed:
If the clause is interpreted to ban either the filing of a new action against the defendant or statements made in the course of such an action, on the ground that a complaint or other statements made in the course of the litigation are “disparaging,” then the agreement would clearly violate Rule 5.6(b).
Indiana Ethics Op. No. 2014-1.
Accordingly, it is our opinion that a non-disparagement clause that essentially limits the lawyer’s ability to represent other clients to the same degree as any other lawyer could is impermissible under Rule 19-305.6. In contrast, a settlement provision that prevents the lawyer from making malicious public statements concerning the settling party outside the context of representing a client, in our view, likely does not restrict the lawyer’s ability to prosecute future claims on behalf of other clients, and thus would not violate Rule 19-305.6. See, Ohio Bd. of Prof. Conduct Op. 2019-4.
In conclusion, we observe that our opinions herein focus “solely on what an attorney may agree to or request in a settlement agreement. To the extent that Rule 1.6 otherwise may permit a client to require that an attorney maintain certain information in confidence, Rule 5.6 does not limit a client’s ability to do so or an attorney’s obligation to abide by such a request.” Ethics Docket No. 2016-04.
We hope this response is helpful. Thank you for contacting the Committee on Ethics.
Very truly yours,
MSBA COMMITTEE ON ETHICS
(1) We see no benefit in repeating in the present opinion the many ethics opinions from Maryland and elsewhere cited and discussed in Ethics Docket No. 2016-07.
(2) To the extent our tentative language in Ethics Docket No. 1998-10 could be read to suggest otherwise, it is hereby overruled.
REFERENCES:
Rules cited:
MARPC Rule 19-301.7
MARPC Rule 19-301.9
MARPC Rule 19-305.6
Ethics Docket Nos. cited:
Ethics Docket No. 2016-07
Ethics Docket No. 1998-10
Other authority cited:
ABA Model Rule of Professional Conduct 5.6(b)
ABA Formal Op. 93-371.
ABA Formal Op. 00-417
Bar Ass’n of San Francisco Ethics Comm., Op. 2012-1
Colo. Bar Ethics Comm. Op. No. 92 (1993)
D.C. Bar Ethics Op. 335 (2006)
Indiana Ethics Op. No. 2014-1.
Ohio Bd. of Prof. Conduct Op. 2019-4.
DISCLAIMER: Opinions of the Maryland State Bar Association (MSBA) Ethics Committee are an uncompensated service of the MSBA. This Committee’s opinions are not binding on the Maryland Court of Appeals, Maryland Attorney Grievance Commission, MSBA or this Committee. The reader is advised that subsequent judicial opinions, revisions to the rules of professional conduct, and future opinions of this Committee may render the Opinions stated herein outdated. As such, the Committee’s opinions are advisory only and neither the Committee nor the MSBA assumes any liability whatsoever with respect thereto. Accordingly, reliance upon the opinions of this Committee is solely at the risk of the user.