Civil Settlement That Includes Agreement Not to Report to Law Enforcement Authorities
Adopted: January 23, 2009
Opinion rules that, provided the agreement does not constitute the criminal offense of compounding a crime and is not otherwise illegal, and does not contemplate the fabrication, concealment, or destruction of evidence, a lawyer may participate in a settlement agreement of a civil claim that includes a non-reporting provision prohibiting the plaintiff from reporting the defendant's conduct to law enforcement authorities.
Inquiry:
Attorney represents Client who has been sued in a civil action for misappropriation of funds under the exercise of a durable power of attorney. The complaint alleges that Client engaged in conduct that is both a civil wrong and a crime. Law enforcement was not contacted by the plaintiff and has never been involved in the matter. A settlement is offered by the plaintiff which includes a condition that the plaintiff will not contact law enforcement to report the alleged crime, but specifies that the plaintiff will cooperate with law enforcement in any investigation that may occur on the authorities' own initiative to the extent required by law (so as not to constitute obstruction of justice). Attorney believes that the settlement agreement is in Client's best interest and would like to recommend to Client that he accept the settlement offer.
May Attorney participate in the negotiation and settlement of the civil suit if the settlement includes the non-reporting condition?
Opinion:
Yes, provided the non-reporting condition does not constitute the criminal offense of compounding a crime and is not otherwise illegal, and the agreement does not contemplate the fabrication, concealment, or destruction of evidence, including witness testimony.
98 FEO 19 provides guidance for a lawyer representing a victim with a civil claim that also constitutes a crime and is analogous to the current inquiry. In 98 FEO 19, the victim's civil claim for fraud was related to the criminal charges of conspiracy to defraud. The opinion rules that if the victim's attorney has a well-founded belief that both the civil claim and the criminal charges are warranted by the law and the facts, and the victim's attorney has not attempted to exert or suggest improper influence over the criminal justice system, the victim's attorney does not violate the Rules of Professional Conduct by proposing that the victim acquiesce to a plea agreement in exchange for a confession of judgment from the defendant in the civil action. A critical component of the opinion is the condition that the proposed settlement of the civil claim may not exceed the amount to which the victim may be entitled under applicable law.
The purpose of the latter condition is to prevent the common law crime of compounding a felony which occurs when one with knowledge that another has committed a felony agrees not to inform the authorities in exchange for something of value. State v. Hodge, 142 N.C. 665, 55 S.E.2d 626 (1906).
98 FEO 19 rules that a lawyer may present, participate in presenting, or threaten to present criminal charges to resolve a civil matter provided the criminal charges are related to the civil matter and the lawyer reasonably believes that the charges are well-grounded in fact and warranted by law and, further provided, the lawyer's conduct does not constitute a crime under the law of North Carolina. The ABA Standing Committee on Ethics and Professional Responsibility has opined that under these same circumstances, a lawyer is permitted to partipate in a settlement agreement in which his client agrees to refrain from instigating prosecution. See ABA Comm. on Ethics and Professional Responsibility, Formal Op. 363 (1992); see also New York City Op. 1995-13 (lawyer whose client could be charged with both civil and criminal offense may offer a settlement in the civil matter that includes a condition that the opponent not inform law enforcement authorities of the criminal matter). Similarly, the Committee on Legal Ethics of the West Virginia State Bar held that, under limited circumstances, civil litigants should not be prevented from agreeing to forego the filing of criminal charges in exchange for money paid to resolve their civil suits. See Committee on Legal Ethics v. Printz, 416 S.E.2d 720 (1992). The opinion cautioned lawyers, however, that they must be careful not to use the threat of criminal prosecution to obtain more than is owed or have their clients agree not to testify at future criminal trials. ''Seeking payment beyond restitution in exchange for foregoing criminal prosecution or seeking any payments in exchange for not testifying at a criminal trial ... are still clearly prohibited.'' Id. at 727.
Although there is no express prohibition in the Rules of Professional Conduct against such an agreement, a lawyer must be careful to avoid the criminal offense of compounding a crime, which in turn would violate the prohibition in Rule 8.4(b) against "criminal act[s] that reflect adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects." This means that the amount paid to settle the civil claim may not exceed the amount to which the plaintiff would be entitled under applicable law; in other words, no compensation may be paid to the plaintiff for the plaintiff's silence. Moreover, the lawyers for both the plaintiff and the defendant must also be careful to avoid any implication that the settlement includes the client's agreement to testify falsely or to evade a subpoena in a criminal proceeding should criminal charges subsequently be brought by the authorities. Such conduct clearly violates the prohibitions in Rule 3.4(a) and (b) on counseling or assisting another to destroy or hide evidence, testify falsely, or avoid serving as a witness. Finally, if there is a legal requirement to report certain conduct to the authorities, as, for example, there is with child abuse and neglect, a lawyer may not participate in a settlement agreement that includes a non-reporting provision that is illegal. See e.g. N.C.G.S. 7B-301.
Provided the settlement agreement does not constitute the criminal offense of compounding a crime, is not otherwise illegal, and does not contemplate the fabrication, concealment, or destruction of evidence (including witness testimony), a lawyer may participate in a settlement agreement of a civil claim that includes a provision that the plaintiff will not report the defendant's conduct to law enforcement authorities.