Dear Fellow Members:
Below you will find a link to an online copy of the Maryland Rules of Professional Conduct. We have provided this link in hopes of making your search for answers to your legal ethics questions easier. As always, if you need additional guidance, please do not hesitate to call the Legal Ethics Committee hotline at the number listed in the current issue of your bar newsletter.
MD Rules of Professional Conduct
Legal Ethics Hotline Volunteers
Ethical Considerations Concerning
Confidentiality Clauses In Settlement Agreements
Rule 7.2 of the Maryland Lawyers’ Rules of Professional Conduct and its comments make clear that the public’s need to know about the availability of legal services can be fulfilled, in part, through advertising, so long as the advertising is neither misleading nor overreaching. See, comment 1 to Rule 7.2. Law firms, large and small, consistent with this Rule, actively promote the services they have undertaken and will agree to undertake; law firm websites frequently provide information about cases which have been handled and resolved which is intended to invite the attention of those seeking legal assistance. Lawyer blogs continue to proliferate as communication through social media has become the norm.
Tension arises, however, between lawyers’ rights to promote the services they provide to those seeking legal assistance and the resolution of existing client disputes. This tension comes to the fore when lawyers seek to provide information to the public in order to promote their experience to other prospective clients. This tug-pull has manifested itself in the increasing use of confidentiality clauses in settlement agreements as parties for various reasons desire to keep aspects of settlement agreements out of the public eye.
In the context of lawyer advertising, confidentiality clauses in settlement agreements are generally viewed as ethical so long as they do not restrict a lawyer’s right to practice. Rule 5.6 (b) of the MLRPC entitled “Restrictions on the Right to Practice” provides, in pertinent part, 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 any settlement of a client controversy. (Emphasis supplied) Accordingly, when confidentiality clauses are considered for use in settlement agreements ethical concerns present themselves. Ethical considerations which may arise relate to, inter alia, how restrictive any such agreement is and the nature of the information sought to be protected.
An example of the type of clause that may violate Rule 5.6 (b) could be an offer by counsel, as a term of the settlement agreement, that would require opposing counsel to refrain from disclosing information concerning the lawsuit that is already public, including the identities of counsel, if the effect of such an offer would be to restrict counsel’s right to practice law including the right to advertise within the bounds of MLRPC 7.2. Another example of improper language in a confidentiality clause could be an offer which seeks the imposition of an absolute ban on future representation by counsel in claims involving the opposing party. (See comment 4 to MLRPC concerning notice per Rule 7.3 to members of a class in class action litigation.)
Other rules of professional conduct that may be implicated with respect to confidentiality clauses seeking to limit a lawyer’s right to practice are Rule 1.1 (“Competence”), Rule 1.3 (“Diligence”) and Rule 5.4(c) (“Professional Independence of a Lawyer”).
There are several reasons why a client may desire the protections afforded by a confidentiality clause. Among these considerations is the strong public policy in favor of settling disputes, with confidentiality as to the terms of the settlement recognized as a valuable tool in effectuating many settlements. Each side has its own incentive for including such clauses. Defendants may not want the fact of settlement or the amount to become public knowledge in order to minimize the risks of disclosure to other potential claimants. A plaintiff may desire to keep private how much or how little consideration was received as well as other terms of the agreement. In summary, allowing the parties to settle disputes privately and to maintain confidentiality on their own terms promotes dispute resolution with recognition of the uncertainty and expense of litigation and without any admission of liability.
On the other hand, ethical and public policy arguments against certain provisions in confidentiality clauses in settlement agreements are also well-recognized. First, confidentiality promotes the continuation of wrongful conduct thereby stifling protection of the public. In addition, secrecy may be perceived as or in fact may protect repeat offenders and thereby exposing the public to harm thereby creating the perception that the legal system fails to promote justice. Indeed, some states have statutes specifically prohibiting the concealment of various public hazards and latent defects. See, e.g. FLA. STAT. § 69.081 (2014); CAL. CIV. CODE § 1793.26 (2014).
Other arguments which weigh against the enforcement of certain provisions of confidentiality clauses relate to the threat they may pose to the overall integrity of the judicial system. One such concern is the social desirability of preserving the public’s access to experienced lawyers. If access to information about cases is restricted by a broad confidentiality clause, potential claimants could be denied access to the identities of experienced lawyers in an area of practice concentration. There is a school of thought that confidentiality does not promote settlement, a concern since the majority of cases are settled short of trial. See Ronald L. Burdge, Bad for Clients, Bad for Lawyers, Bad for Justice, GP SOLO, Nov./Dec. 2012, at 25, 25-26. By logical extension, yet another reason against fostering broad confidentiality clauses is that lawyers are unreasonably restricted in determining the settlement potential of a case if they are unable to compare their cases to other similar cases.
Violation a confidentiality clause could have serious consequences, potentially causing a settlement agreement to become void, resulting in a forfeiture of the settlement payment or in the payment of liquidated damages. Further, a violation of the confidentiality clause could put the attorney at risk professionally. Accordingly, caution should be used when drafting or reviewing settlement agreements containing confidentiality clauses.
This writer has not found any published opinions in Maryland on this point. However, numerous other jurisdictions have addressed the issue of ethical considerations which confidentiality clauses raise. The District of Columbia Bar Legal Ethics Committee has opined that settling parties are prohibited from agreeing to keep confidential that information which is already in the public domain. See D.C. Ethics Op. 335 (2006). Other jurisdictions have concluded that any confidentiality clause that restricts a lawyer from practicing by interfering with his or her ability to inform potential clients of the lawyer’s relevant expertise and experience is a violation of the equivalent of MLRPC 5.6 (b). See, e.g., Prof'l Ethics of the Florida Bar Op. 04-2 (2005); NHBA Ethics Comm., Op. 2009-10/6 (2009).
The breadth of confidentiality clauses varies significantly, ranging from simply protecting the amount of the settlement to prohibitions on counsel representing other current or future clients. Because this issue has not been addressed in a reported decision in Maryland this analysis should be used for informational purposes and to promote awareness of ethical considerations which affect the use of confidentiality clauses.
With this caveat in mind, however, tips to consider in drafting confidentiality clauses in settlement agreements so as to avoid potential ethical violations include the following: First, make it clear that both the terms of the agreement and the agreement itself are strictly confidential. It may also be desirable to make clear that the underlying dispute and any negotiations leading to the settlement are confidential. Bear in mind that the clause should avoid any effort to keep confidential information that is already in the public domain. It may also be noted in the agreement that any breach of the confidentiality clause may be deemed a material breach of the settlement agreement and that in the event of a breach, the defaulting party may be required to pay liquidated damages of a sum certain. The agreement can also identify any exclusions to disclosure such as providing information to professionals such as attorneys or accountants or by court order or other lawful process. Finally, in cases involving confidential documents, provision may be made for the destruction of documents produced in discovery.
Rand Gelber, Committee Member
Daniel L. Shea, Co-Chair
Samuel M. Shapiro, Co-Chair
Samuel M. Shapiro
Daniel L. Shea
December 18, 2014*
January 15, 2015
February 19, 2015
March 19, 2015
April 16, 2015
May 21, 2015
June 18, 2015
*to be held in the lower level conference room of the Bar Association building
Meetings will be held at 4:30 p.m. on the 3rd Thursday of the month in the upstairs conference room of the Bar Association building, unless otherwise noted.
None Currently Scheduled