By Brent Owen
Haynes Boone
After three years of grueling litigation, you are finally able to settle a high-exposure product defect claim for your client, a large manufacturing company. The settlement is with a single individual for a single product; but your client sold millions of the same product to millions of other individual consumers. Late one Friday afternoon — as you finalize the draft settlement agreement — your phone rings.
The CEO is on the line, and he launches into it:
Great work on the case. Glad we can put this one behind us. I thought of something. I don’t want to deal with these guys again — not ever again. Get rid of this lawyer and her whole firm.
With that, the CEO hangs up. Suddenly, as sometimes happens practicing law, you are trapped between a client’s demand and the Colorado Rules of Professional Conduct. Rule 5.6(b) prohibits you from any involvement in an agreement that restricts a lawyer’s right to practice as “part of the settlement of a client controversy.” Clients don’t like to hear “no,” and lawyers do not like to violate the Colorado Rules of Professional Conduct.
So is there a solution?
What is Rule 5.6(b)?
Attorneys, “as guardians of the law, play a vital role in the preservation of society. The fulfillment of this role requires an understanding by lawyers of their relationship with and function in our legal system.” According to the 2002 opinion in In re Pautler, “The Rules of Professional Conduct, when properly applied, serve to define that relationship.”
Rule 5.6(b) exists for three reasons.
- Ensures members of the public have access to the very best available talent to represent them, including those with experience and success in similar, prior cases.
- Ensure settlements reflect the value of claims and not just a “buy off” of plaintiff’s counsel.
- Just offering the agreement creates a conflict between the interests of present clients and those of potential future clients. This contradicts strong public policy favoring the public’s unfettered choice of counsel.
There is no published Colorado appellate opinion interpreting or applying Rule 5.6(b). But the Colorado Bar Association Ethics Committee’s Formal Opinion 92 provides context and guidance. Opinion 92 explains that certain agreements other than a wholesale bar on future representation may violate the rule: “other restrictions impeding the lawyer’s ability to represent effectively other claimants against the settling party defending the claim may also be unethical.”
Also, the Colorado Supreme Court in Calvert v. Mayberry held that “when an attorney enters into a contract without complying with Rule 1.8(a), the contract is presumptively void as against public policy; however, a lawyer may rebut that presumption by showing that, under the circumstances, the contract does not contravene the public policy underlying Rule 1.8(a).” The same rationale likely applies to an agreement that violates Rule 5.6(b).
It follows that a lawyer who ignores the rule will not only face discipline but may not even achieve the client’s goal: the contractual provision prohibiting the opposing counsel or law firm from representing future clients is likely void as a matter of public policy.
Can you achieve indirectly what the rule prohibits directly?
One workaround for Rule 5.6(b) that counsel might consider is to restrict the lawyer’s and law firm’s use of information. A restriction on information addresses the substance of a client’s concern — the lawyer’s and law firm’s intimate knowledge of the case and defense tactics; this restriction, moreover, does not violate the letter of Rule 5.6(b). The weight of authority, however, prohibits that approach.
Guidance from the American Bar Association Standing Committee on Ethics and Professional Responsibility explains that a limitation on using information is “as a practical matter” a violation of Rule 5.6(b). That guidance explains: “A prohibition on a lawyer’s use of information gained during representation of a client is similar to a proposed settlement provision that bars a lawyer in future representations from subpoenaing certain records or fact witnesses, or using certain expert witnesses.” Both kinds of limitations are improper because “an agreement not use such knowledge is tantamount to agreeing not to subpoena or use the information.”
As Opinion 92 noted, ethics opinions from other jurisdictions have addressed other indirect workarounds and generally prohibit them.
- New Mexico: It is unethical as a condition of settlement for plaintiff’s counsel to be required to turn over attorney work product; that ethics opinion concludes that doing so restricts the lawyer’s ability to practice law.
- District of Columbia: It is unethical for an attorney as part of a settlement to agree not to refer a potential client to another attorney if that potential client has a claim against the defendant involved in the settlement.
- Arizona: A settlement agreement may not require disclosure of the names of other potential claimants as a condition of the settlement.
Hiring opposing counsel would conflict that attorney out of future representations. But no, that does not work either. Where a “buy off” is negotiated as part of a broader settlement, it is probably a violation of Rule 5.6(b).
Which restrictions might pass muster under Rule 5.6(b)?
As interpreted and applied, Rule 5.6(b)’s restrictions are expansive. Fortunately, there are at least a few options for a diligent Colorado lawyer.
First, Opinion 92 suggests the parties can keep their settlement confidential — restricting disclosure of the amount and terms of the settlement. Practically, however, that limitation does little to address the real concern because the existing lawyer and firm necessarily know the value and terms of the settlement.
Second, Opinion 92 confirms that it’s “’close, but permissible’ for a lawyer defending a class action lawsuit to ask the plaintiffs’ lawyer for settlement purposes to state that he or she has no present intention of filing suit against the defendant in similar cases.” As Opinion 92 explains, this limitation does not “materially restrict a lawyer’s ability to practice law.” Practically, this limitation is valuable for a company looking for an immediate resolution and at least some short-term certainty that the same lawyer won’t follow the settlement with a demand letter.
Finally, a separate consulting agreement not negotiated as part of a settlement may pass muster in certain circumstances. Given the restrictions and guidance around 5.6(b), a prudent lawyer should ensure that there is no argument that any consulting agreement was negotiated “as part of” a settlement.
Sometimes the best answer is “no.”
The hypothetical client’s desire to not face a cut-and-paste of a just-settled lawsuit from the same lawyer is both reasonable and prudent. But, as discussed above, your options as outside counsel are limited. And, as the case law reveals, attorneys can get in very hot water trying to prevent the future lawsuits. So, sometimes, the answer is “no” — or “not really” — and to make the best of the situation while steering clear of any ethical violations.
– Brent Owen is a partner at Haynes Boone in the firm’s litigation practice group. His practice focuses on high-stakes trial work in both state and federal courts before judges and juries and in arbitration tribunals. Contact him at [email protected].