Note: All information found within the below may be outdated. Readers are strongly encouraged to recheck rules, cited sources, ethics opinions, etc.

Ethics Articles: Secret Litigation Settlements

Secret Litigation Settlements
By Thomas K. Byerley, Regulation Counsel
MBJ September 1998

    A plaintiff's personal injury lawyer is faced with the following scenario: The lawyer's client is the widow of a man who died when a kitchen appliance exploded during normal use. The case mediated for $2 million and the lawyer feels that this is a fair approximation of what the case would generate at trial. Discovery has disclosed that many other individuals have died under similar circumstances and the appliance manufacturer had knowledge of this. The manufacturer could have cured the defect in design with a $.50 part, but chose not to do so for financial reasons.

    After mediation, counsel for the appliance manufacturer offers to settle the case for $3 million, under the following conditions:

    • The court file must be "sealed," and the terms of the settlement must be "secret";
    • Plaintiff's counsel must agree to return all discovery materials and not retain copies;
    • The expert witnesses lined up by plaintiff's counsel must agree to not testify in future similar cases; and
    • Plaintiff's counsel must agree to not represent any new clients in similar cases against the appliance manufacturer.

    This offer is communicated to the client, who wishes to accept immediately. The client is not concerned about any of the "conditions," since they do not directly affect her. The lawyer, however, wishes to represent additional plaintiffs in similar cases and finds the conditions to be unacceptable.

    In keeping the "best interests" of the client in mind, must the lawyer accept the settlement offer? MRPC 1.2(a) states that "a lawyer shall abide by a client's decision whether to accept an offer of settlement." Can the lawyer ethically accept the terms of this offer? Has defense counsel violated ethics rules by making such an offer of settlement?

    MRPC 1.3 provides, simply, that "a lawyer shall act with reasonable diligence and promptness in representing a client." The comment to that rule states: "A lawyer should pursue a matter on behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and may take whatever lawful and ethical measures are required to vindicate a client's cause or endeavor." Although helpful, this rule certainly does not fully address the ethical dilemma facing the lawyer.

    Most states, including Michigan, do not have any court rules or ethics rules that specifically govern all aspects of this scenario. Some states have enacted "sunshine laws" pertaining to court files. In 1991, Michigan followed New York and Texas and enacted court rules to discourage "sealed" court files. That court rule, MCR 8.105(D), provides:

      "(1) Except as otherwise provided by statute or court rule, a court may not enter an order that seals court records, in whole or in part, in any action or proceeding, unless

        (a) a party has filed a written motion that identifies the specific interest to be protected,

        (b) the court has made a finding of good cause, in writing or on the record, which specifies the grounds for the order, and

        (c) there is no less restrictive means to adequately and effectively protect the specific interest asserted.

      (2) In determining whether good cause has been shown, the court must consider the interests of the public as well as of the parties.

      (3) The court must provide any interested person the opportunity to be heard concerning the sealing of the record.

      (4) For purposes of this rule, 'court records' includes all documents and records of any nature that are filed with the clerk in connection with the action. Nothing in this rule is intended to limit the court's authority to issue protective orders pursuant to MCR 2.302(C).

      (5) A court may not seal a court order or opinion, including an order or opinion that disposes of a motion to seal the record.

      (6) Any person may file a motion to set aside an order that disposes of a motion to seal the record, or an objection to entry of a proposed order. MCR 2.119 governs the proceedings on such a motion or objection. If the court denies a motion to set aside the order or enters the order after objection is filed, the moving or objecting person may file an application for leave to appeal in the same manner as a party to the action.

      (7) Whenever the court grants a motion to seal a court record, in whole or in part, the court must forward a copy of the order to the Clerk of the Supreme Court and to the State Court Administrative Office."

    Therefore, sealed court files are only allowed in rare circumstances, and are greatly discouraged in Michigan.

    Some lawyers insert a clause in their retainer agreement which requires the client to agree that "I will not agree to settle a case which requires that the settlement remain secret." Other lawyers take the position that if the client is satisfied with the settlement, secrecy of the settlement is not important. At the current time there is no rule that prohibits a lawyer from agreeing to keep the terms of the settlement confidential or "secret," as long as the client consents.

    There are legal ethicists that contend that a new ethics rule is needed to prevent secret settlements. One such ethicist, Richard A. Zitrin of California, has proposed a new ethics rule that would read:

    "A lawyer shall not participate in offering or making an agreement, whether in connection with a lawsuit or otherwise, to prevent or restrict the availability to the public of information that the lawyer reasonably believes directly concerns a substantial danger to the public health or safety, or to the health or safety of any particular individual(s)."

    Although no state has yet enacted such an ethics rule, similar proposals may be considered by the American Bar Association's Ethics 2000 Committee, which is commissioned to make recommendations to update the model rules.

    Under the current rules, a lawyer is not prohibited from agreeing to return discovery materials, if an agreement to do so does not otherwise violate ethics rules. Upon settlement of the case, there is arguably no reason for the lawyer to insist on the retention of all discovery materials. Although some lawyers may feel that they have a moral obligation to retain (or even publish) the damaging discovery material, there currently is no ethics obligation to do so. Therefore, under current ethics rules, a lawyer could ethically agree to return discovery materials to the defendant in return for an agreement to settle the litigation. This decision is made complicated when the lawyer believes that the information, if disclosed, would protect the public safety.

    The Michigan Rules of Professional Conduct do not allow a lawyer to agree to make an expert witness unavailable for future proceedings. MRPC 3.4(a) provides that a lawyer shall not "unlawfully obstruct another party's access to evidence." Further, MRPC 3.4(f) states that a lawyer shall not:

      "...request a person other than a client to refrain from voluntarily giving relevant information to another party, unless:

        (1) the person is a relative or an employee or other agent of a client; and

        (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information."

    Since an expert witness is not the "client" of the lawyer, it is not ethically permissible for the lawyer to "bind" the expert witness in future cases. Therefore, as part of a settlement, the lawyer may not agree that the expert witness will not be used in future cases.

    The final issue presented in the scenario involves whether or not the lawyer may "agree" to not represent other plaintiffs in similar actions. Such an agreement would violate MRPC 5.6(b), which provides: "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." The recorded comment to this rule states flatly that "paragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client." This rule of professional conduct was enacted to prohibit lawyers from entering into agreements to restrict an attorney-client relationship. Therefore, a lawyer may not ethically agree to refrain from representing other clients with similar claims against the defendant.

    Of the four "strings" attached to the defendant's offer of settlement in the scenario presented at the beginning of this article, the lawyer may only ethically "accept" the conditions to keep the terms of the settlement secret and to return the discovery materials. As discussed, it is ethically impermissible to agree to seal the court file (without court approval) and to make the expert witness unavailable for future cases. The ethics rules also prohibit a lawyer from agreeing to not represent new clients in similar cases.

    The debate continues nationwide on the ethics of secret litigation settlements. Weighing the public's "right to know" against the defendant's desire to quietly settle litigation, is an issue that will be discussed for years to come. The State Bar will continue to monitor this issue as discussions continue during the American Bar Association's "Ethics 2000" project.