State Bar of Arizona Ethics Opinions
90-06: Confidentiality of Information; Restrictions on Right to Practice
Settlement agreement which prohibits attorney from representing certain clients in the future, and required him to dismiss any Bar complaints he filed against other attorneys involved in the case.
July 18, 1990
The inquiring attorney was retained by two franchisees to investigate potential claims of franchise fraud and to negotiate a buy-back of their franchises from the franchisor (“Corporation A”). When the inquiring attorney was unable to negotiate a settlement with the attorneys for Corporation A, his clients, the two franchisees, retained another attorney to litigate the matter.
The inquiring attorney believes that the attorneys for Corporation A engaged in ethical violations during the litigation.
A settlement was eventually reached by the parties. Although the inquiring attorney was not part of the settlement negotiations, he was to be a signatory to the proposed settlement agreement. The attorneys for Corporation A have advised their client not to execute the settlement agreement unless it contains certain provisions. These provisions, in substance, are set forth below:
1. Concurrently with the execution of this Release and Settlement Agreement, the franchisees and the attorneys representing the franchisees agree to supply to the attorneys for Corporation A a full complete list of all Corporation A's franchisees who have been contacted by any of the foregoing, whether by mail or telephone, or by any other means, or who have communicated in any way with any of the foregoing concerning any legal action or potential legal action to be brought by any franchisee against corporation A or any of the other parties named in this Release and Settlement Agreement. The franchisees and their attorneys verify, warrant and guarantee that the list supplied herewith is a complete and accurate list of any and all of corporation A's franchisees who have been contacted in any way or who have contacted them in any way in connection with any action or potential action against Corporation A or any of the other parties named in this Release and Settlement Agreement.
2. The franchisees and the attorneys representing the franchisees hereby agree not to solicit or contact any franchisee of Corporation A concerning any legal action or potential legal action brought or to be brought by any franchisee against Corporation A or any of the other parties named in this Release and Settlement Agreement. The franchisees and their attorneys also hereby agree not to participate voluntarily in any way in any legal action brought or potential legal action to be brought by any franchisee against Corporation A or any of the other parties named in this Release and Settlement Agreement. The franchisees and their attorneys hereby further agree not to defame or disparage in any way any of the parties to this Release and Settlement Agreement, including the parties' business operations and affairs.
3. The parties hereto agree to dismiss any and all bar complaints currently pending against any of the attorneys representing any of the parties hereto.
- Is it ethically permissible for an attorney to enter into a settlement agreement in which he must comply with these provisions?
ETHICAL RULES INVOLVED
ER 1.6. Confidentiality of Information
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation . . .
ER 5.6. Restrictions on Right to Practice
A lawyer may not participate in offering or making:
(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties.
ER 8.3. Reporting Professional Misconduct
(a). A lawyer having knowledge that another lawyer has committed a violation of the rules of professional conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.
Supreme Court Rule 54(g), Delay Caused by Complainant
Neither unwillingness nor neglect of the complainant to sign a complaint nor to prosecute a charge, nor settlement, nor compromise between the complainant and lawyer, nor restitution by the respondent, shall, in itself, justify abatement of the processing of any charge or complaint.
It is the opinion of the Committee on the Rules of professional Conduct that the inquiring attorney may not ethically enter into the proposed settlement agreement.
In regard to the first paragraph of the settlement agreement, disclosure of the inquiring attorney's attorney/client relationships with various franchisees would violate ER 1.6(a), which prohibits a lawyer from revealing information relating to the representation of a client, unless the client consents after consultation, or the disclosure is impliedly authorized to carry out representation. The rule of confidentiality set forth in ER 1.6 is subject to certain exceptions relating to the client's intention to commit a crime, and controversies between a lawyer and his client, that are not applicable here.
This committee has already determined that in some situations a client's name is information relating to representation, and that disclosure of the client's name is not necessarily impliedly authorized to carry out the representation. In Opinion 87-22, the committee decided that an attorney may not reveal the name and address of a former client to parties with potential claims against the client, if the client does not authorize him to do so. The Committee determined that this would be the case even if the client's name were a matter of public record. The Committee continued:
In normal circumstances, it would be reasonable to imply that the client has consented to the revelation of his name and address to the adverse party when representation is terminated. In many cases, the attorney may be justified in implying that the client would wish to have his name and address revealed so that effective communication could be maintained and the potential problem resolved. ... Here, however, this usual exception of implied consent does not apply because the attorney has inferred that the former client does not wish to have either his name or address revealed.
Opinion 87-22 at 2-3. In the present matter, the inquiring attorney has not specified whether any franchisees have instructed him to not disclose their names. However, the revelation of the names of the franchisees by the inquiring attorney would be at a minimum highly embarrassing, and possibly very damaging to them, given the nature of the franchisee/franchisor relationship, where Corporation A could use this information to hinder future dealings with the franchisees.
Therefore, the Committee concludes that the inquiring attorney may not disclose the names of any franchisees who have consulted with him in any matters regarding Corporation A, unless they consent to have their name revealed after consultation. Otherwise, to do so would violate ER 1.6(a). Of course, to the extent that the inquiring attorney has contacted any franchisees as third parties, outside of any attorney/client relationship and unrelated to the representation of any client, he may disclose these contacts to opposing counsel.
The second paragraph of the proposed settlement agreement forbids the inquiring attorney from contacting any franchisees in the future with regard to any action to be taken against Corporation A, or any other party to the pending litigation. The inquiring attorney, of course, cannot agree to the proposed clause without violating ER 5.6(b), which plainly prohibits a lawyer from offering or making an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties. The comment to ER 5.6 makes this prohibition even more clear:
Paragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.
The second paragraph of the proposed settlement agreement falls within the prohibition of ER 5.6(b). Therefore, the respondent cannot, with ethical propriety, consent to this portion of the settlement agreement.
Finally, with respect to the third paragraph of the proposed settlement agreement, it should be noted that, as a practical matter, it would not be within the inquiring attorney's control to dismiss any disciplinary proceedings already pending against the attorneys for Corporation A. This is because Rule 54(g), Ariz.R.S.Ct., leaves the decision of whether to pursue a disciplinary matter in the hands of Discipline Department of the State Bar. The inquiring attorney's unwillingness to assist in the prosecution of a disciplinary charge, in itself, would not justify abatement in the pursuit of any disciplinary matters pending against opposing counsel.
Additionally, the inquiring attorney cannot agree to not file any Bar complaints against the attorneys for Corporation A to the extent the agreement would run afoul of his obligations to report misconduct pursuant to ER 8.3. This rule requires an attorney who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, to inform the appropriate professional authority. This duty is mandatory, and the inquiring attorney may not agree to withhold reporting any misconduct of this nature.
Obviously, it follows that if the inquiring attorney has a mandatory duty to report misconduct, he cannot advise his clients to not report the misconduct themselves. Such conduct could potentially violate ER 8.4(a), which prohibits a lawyer from violating the Rules of Professional Conduct through the acts of another.
Therefore, the inquiring attorney in this matter may not agree to withhold filing any disciplinary charges against the opposing attorneys, to the extent that the opposing attorney's misconduct would be reportable under the terms of ER 8.3(a).
In conclusion, it is the opinion of the Committee on the Rules of professional Conduct that the inquiring attorney may not ethically enter into any of the three proposed paragraphs that would be part of the settlement agreement.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.
©State Bar of Arizona 1990