2023 Formal Ethics Opinion 2

Confidentiality Clause that Restricts a Lawyer’s Right to Practice

Opinion rules that a confidentiality clause contained in a settlement agreement that restricts a lawyer’s ability to practice law violates Rule 5.6.

Background:

Lawyer A represents Plaintiff in a tort action that has been publicly filed and pending for several years. The trial court issued an extensive written summary judgment decision that includes important analyses and applications of North Carolina law. Certain issues were appealed to the North Carolina Court of Appeals. The Court of Appeals issued a published opinion that included new law. The parties thereafter agree at mediation to settle the case and sign a Memorandum of Mediated Settlement Agreement, which, along with the settlement amount and other terms, states that the parties will agree to a “standard” confidentiality clause. Lawyer B, counsel for the defendants, later provides a draft Settlement Agreement and Release that includes proposed confidentiality language. Instead of an agreement to keep non-public information (such as the settlement terms) confidential, this provision purports to make publicly available information[1] (such as the facts of the case, the names of the parties, and the jurisdiction where the case was filed) confidential. It also seeks to restrict Lawyer A’s use of and reference to the case, including public court decisions, by prohibiting disclosure to “any person for any reason” other than in “similar cases” and even then, only as “minimally required.”

Inquiry #1:

As part of a settlement agreement between private parties, may Lawyer B restrict or otherwise limit Lawyer A’s disclosure and/or use of publicly available information concerning or stemming from the case, including court decisions and opinions?

Opinion #1:

No. Rule 5.6(b) provides that a lawyer shall not participate in 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. Rule 5.6 is intended to “(1) preserve the public’s access to lawyers who, because of their background and experience, might be the best available talent to represent these individuals, (2) to prevent parties from ‘buying off’ the opposing lawyer, and (3) to prevent a conflict between a lawyer’s present clients and the lawyer’s future ones.” ABA Formal Ethics Opinion 93-371 (1993).

In Formal Opinion 00-417, the ABA Standing Committee on Ethics and Professional Responsibility addressed the application of Rule 5.6(b) to a settlement agreement that prohibited counsel from using information learned during the existing representation in any future representation against the same opponent. Finding that the restriction was impermissible under Rule 5.6(b), the committee explained that, even though it was not a direct ban on any future representation, as a practical matter, “[it] effectively would bar the lawyer from future representations because the lawyer’s inability to use certain information may materially limit his representation of the future client and, further, may adversely affect that representation.” The committee also concluded that such a provision would undermine an important policy rationale underlying Rule 5.6(b). By preventing the use of information learned during the prior representation, the provision would restrict the public’s access to the services of a lawyer who, “by virtue of [his] background and experience, might be the most qualified lawyer available to represent future clients against the same opposing party.” Id.

Similarly, Rule 5.6(b) prohibits settlement provisions that restrict a lawyer from disclosing publicly available information. For example, a confidentiality provision prohibiting a lawyer from disclosing publicly available information regarding the lawyer’s handling of a particular type of case against the settling defendant would be an impermissible restriction on the lawyer’s right to practice and would deprive potential clients of information important to their evaluation of the competence and qualifications of potential counsel. Such conditions have the purpose and effect of preventing the lawyer from informing potential clients of their experience and expertise, thereby making it difficult for future clients to identify well-qualified counsel and employ them to bring similar cases.

The ABA has concluded that settlement agreements containing indirect restrictions on the lawyer’s right to practice – such as the restriction proposed in this inquiry – violate Rule 5.6(b). We agree. Rule 5.6 prohibits not only express restrictions on a lawyer’s right to practice but also prohibits settlement terms whose practical effect is to restrict the lawyer from undertaking future representations. As noted in RPC 179, "Although public policy favors settlement, the policy that favors full access to legal assistance should prevail." The public and prospective clients must be empowered to identify and receive legal services from qualified counsel who are not restricted in their use of publicly available information, particularly court orders and opinions that have a direct impact on the law at issue in the client’s case. Permitting the restriction proposed in this inquiry harms the public and the administration of justice by depriving potential clients of qualified, experienced counsel. Lawyer B may not propose such a restriction, and Lawyer A may not agree to such a restriction.

Inquiry #2

Are there any circumstances under which Lawyer A may agree to a settlement of a client’s claim that restricts Lawyer A’s ability to use or disclose information concerning the case?

Opinion #2

Yes.

Confidentiality provisions cannot be used to completely bar a lawyer from disclosing at least some information related to disputes they have handled and resolved. This does not mean that all confidentiality clauses are prohibited. A settlement agreement may provide that the terms of the settlement and other non-public information may be kept confidential, see 2003 FEO 9, but it may not require that public information be confidential. There is no ethical prohibition under the Rules of Professional Conduct against the most common confidentiality provisions, which prohibit disclosure of the terms of a specific settlement, including the amount of the payment. Negotiating for, agreeing to, and ultimately including a confidentiality provision precluding disclosure of the fact of or terms of the settlement agreement (if the information is not publicly known) is not prohibited. A settlement condition providing for nondisclosure of aspects that are not public, including the settlement amount, the terms of a settlement, the underlying facts, or the identity of the parties is permissible.

The Alabama Office of General Counsel reached a similar conclusion. They opined that (1) it is ethically permissible to agree to enter or recommend a confidentiality agreement that prevents the disclosure of the settlement amount; (2) it is also ethically permissible to agree to maintain confidentiality over certain facts, or the identities of individuals or corporate entities that are not in the public record; and (3) it is ethically permissible to agree not to publish or disseminate the manner in which a case has been resolved. Alabama Office of General Counsel Rule 18 Ethics Opinion (February 7, 2022).

We agree. A settlement agreement cannot include a confidentiality clause that prohibits a lawyer from using or disclosing publicly available information, but may restrict a lawyer’s ability to use or disclose non-public information concerning the case as described above.

Inquiry #3

Does the “right to practice” under Rule 5.6(b) include a lawyer informing members of the Bar about developments in the law of which the lawyer is aware through CLE presentations, articles in professional publications, conversations, or email communications? If so, would a restriction in a private settlement agreement seeking to prevent Lawyer A from including the case in any updates on legal development to members of the Bar infringe on the “right to practice”?

Opinion #3

Yes and yes. Prioritizing one party’s settlement terms over the ability of an experienced lawyer to educate other lawyers on legal developments through continuing legal education harms the profession and the clients they serve. Lawyer A may share publicly available information in a public forum. See Opinion #1.

Inquiry #4

Are there any other Rules of Professional Conduct that prevent a lawyer from insisting on or agreeing to provisions in a private settlement agreement that would inhibit the lawyer from being able to fully disclose and discuss publicly available court decisions in a case or to a court in the future?

Opinion #4

Yes. First, limiting the ability of a lawyer to discuss prior cases implicates Rule 1.7 (Conflict of Interest: Current Clients). Rule 1.7(a)(2) provides that a lawyer may not represent a client if the representation of the client may be materially limited by a personal interest of the lawyer. Including a confidentiality clause in a proposed settlement agreement that restricts a lawyer’s ability to represent future clients, or to use and/or disclose publicly available information creates a conflict of interest between the lawyer and her current client. The lawyer has a personal interest to be able to use and disclose the public elements of one client matter to assist a new client or to educate other lawyers. The client, however, has an interest in signing a settlement agreement even if the agreement includes language that restricts the lawyer. Lawyers may not, therefore, prepare or agree to a private settlement agreement that includes a confidentiality clause that restricts a lawyer’s ability to practice in violation of Rule 5.6. The second rule implicated is Rule 3.3 (Candor Toward the Tribunal). Rule 3.3(a) provides in pertinent part that a lawyer shall not knowingly fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel. Should new litigation be filed either with similar facts and/or against the same defendant, each lawyer has a professional responsibility to inform the court of any prior controlling opinions. Furthermore, under Rule 3.4 (Fairness to Opposing Party and Counsel), lawyers generally should not seek to obstruct another lawyer’s or individual’s access to evidence. Lastly, “any attempt to prevent a lawyer from using information he has or knows about when trying to assist a client would violate Rule 8.4(d) (Misconduct) since such limitations would be prejudicial to the administration of justice.” Alabama Office of General Counsel Rule 18 Ethics Opinion (February 7, 2022).