June 15, 2022 – What happens when a very favorable outcome for your client could mean a restriction on your right to represent future clients?

Question

I represent a client in a defective product claim against a manufacturer. While I represent only one client now, both sides are aware that there are certainly many more people with potential claims.

In settlement negotiations, defense counsel made an offer very favorable to my client, but stated that the manufacturer wanted to retain my firm to provide “general legal services,” and it was important to have an understanding on my agreement on that point.

I stated that I was uncomfortable that the opposing side was seeking to conflict me out of taking future cases against the manufacturer, but opposing counsel insists that it is important to their client that this be part of the agreement.

May I – or must I – accept this very favorable offer on behalf of my client?

Answer

SCR 20:5.6 states, in relevant part:

A lawyer shall not participate in offering or making:

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(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy.

This rule is an exception to the requirement found in SCR 20:1.2(a) that lawyers abide by clients’ decisions regarding settlement. The purpose of this rule is to avoid defendants being able to remove competent counsel from the market for legal services by requiring lawyers to accept a client’s decisions to accept settlements that would contractually prevent the lawyer from representing future clients against the defendant.

Thus a lawyer must refuse to participate in any sort of settlement that would restrict a lawyer’s ability to represent clients in the future.¹

The issue in this scenario is whether a retention agreement is an impermissible, if indirect, restriction on the right to practice, and is based upon two disciplinary decisions.

In In re Brandt,² the respondent was one of several lawyers from different firms representing plaintiffs against a tool manufacturer. The facts of this case are complex and it’s worth reading, but essentially defense counsel wanted to settle all current claims and prevent future claims by hiring respondent to provide legal services.

The lawyers in the matter were aware of Oregon’s then-current equivalent of SCR 20:5.6(b),³ but defense counsel believed that inserting a “retention” clause in the settlement agreement would not violate the rule. Plaintiffs’ counsel disagreed and refused to discuss “retention” in connection with settlement. Eventually, the plaintiffs’ lawyers agreed to execute retention agreements that were to be held “in escrow” by a mediator until all the plaintiffs signed off on the settlement.

In a subsequent disciplinary proceeding, the Oregon Supreme Court had little difficulty in determining that the respondent lawyer agreed to a restriction on the right to practice that was part of the settlement of a client matter, and imposed a 13-month suspension.

In Florida Bar v. St Louis,⁴ the respondent lawyer represented multiple farmers in claims against DuPont alleging that a fungicide had damaged crops. As part of the settlement, Dupont’s counsel sought to retain respondent as a “legal consultant” and insisted that such an arrangement was consistent with the rules.

The respondent accepted, failed to inform his clients of the arrangement, and threatened clients with withdrawal if they did not accept the settlement. In a subsequent disciplinary proceeding, the respondent unsuccessfully challenged the constitutionality of Florida Rule 5.6(b) and was disbarred.

Conclusion: Conditions Matter

While the facts of both these cases are complicated, they are both clear examples that “indirect” measures, such as seeking to conflict out a lawyer or firm from future representations by making a retention agreement a part of settlement, will still violate 5.6(b).

The respondent lawyers in these matters also had other problems, such as the conflict involved in job negotiations with an opposing firm (Wisconsin Ethics Op. EF-19-01) and failing to fully inform the clients of the terms of the settlements.

That said, simply hiring a former opposing law firm for a legitimate legal matter is not prohibited by the disciplinary rules. What is prohibited is making retention an explicit or implicit condition of settlement of a client matter.

Endnotes

¹ All representations may result in conflicts for the lawyer, but the conflict rules impose duties to current and former clients. SCR 20:5.6 prevents opposing parties from “buying” competent lawyers off the market. As explained in ABA Formal Ethics Opinion 371:

First, permitting such agreements restricts the access of the public to lawyers who, by virtue of their background and experience, might be the very best available talent to represent these individuals. Second, the use of such agreements may provide clients with rewards that bear less relationship to the merits of their claims than they do to the desire of the defendant to ‘buy off’ plaintiffs' counsel. Third, the offering of such restrictive agreements places the plaintiff's lawyer in a situation where there is conflict between the interests of present clients and those of potential future clients.

² In re Brandt 10 P.3d 906 (Or. 2000).

³ The opinion mentions that some of the lawyers had also read ABA Formal Ethics Opinion 371.

⁴ Florida Bar v. St Louis, 967 So.2d 108 (Fla. 2007).