Can a lawyer negotiate a civil settlement that includes the plaintiff's promise not to report the defendant's conduct to law enforcement?

Plain-English summary

A lawyer's client was sued civilly for misappropriating funds under a durable power of attorney, conduct alleged to be both a civil wrong and a crime. Law enforcement was never involved. The plaintiff offered to settle on the condition that the plaintiff would not contact law enforcement to report the alleged crime, while agreeing to cooperate with any investigation the authorities began on their own to the extent the law requires. The question is whether the defendant's lawyer may participate in negotiating and settling on those terms.

The opinion answers yes, subject to conditions, drawing heavily on 98 FEO 19. That opinion permits a lawyer to present, participate in presenting, or threaten to present criminal charges to resolve a civil matter if the charges are related to the civil matter, the lawyer reasonably believes the charges are well-grounded in fact and warranted by law, and the lawyer's conduct does not constitute a crime. The opinion notes that the ABA (Formal Op. 363 (1992)), New York City (Op. 1995-13), and West Virginia (Committee on Legal Ethics v. Printz) reach similar conclusions, with the caution that a lawyer may not use the threat of prosecution to obtain more than is owed or have a client agree not to testify.

Although the Rules of Professional Conduct contain no express prohibition on such an agreement, the opinion identifies three limits. First, the lawyer must avoid the common-law crime of compounding (agreeing, with knowledge that another committed a felony, not to inform authorities in exchange for something of value), which would violate Rule 8.4(b)'s bar on criminal acts reflecting adversely on the lawyer's honesty, trustworthiness, or fitness; this means the settlement may not exceed the amount the plaintiff is legally owed, so no compensation is paid for silence. Second, both sides' lawyers must avoid any implication that the settlement includes the client's agreement to testify falsely or evade a subpoena, which would violate Rule 3.4(a) and (b). Third, where a law requires reporting (for example, child abuse and neglect under N.C.G.S. 7B-301), a lawyer may not participate in a settlement with an illegal non-reporting provision.

In practice

Under the North Carolina rules as they stood at the time of the opinion, a lawyer may negotiate and recommend a civil settlement that includes a non-reporting condition, but only within limits the opinion identifies. Per the opinion, the settlement amount may not exceed what the plaintiff is legally owed, because paying for the plaintiff's silence would be compounding a crime and would violate Rule 8.4(b); the agreement may not contemplate false testimony or evading a subpoena (Rule 3.4(a), (b)); and it may not include a non-reporting provision where a statute requires reporting (for example, N.C.G.S. 7B-301 for child abuse and neglect).

Common questions

Q: Can a civil settlement include the plaintiff's promise not to report a crime?

A: Yes, within limits. The opinion concludes a lawyer may participate in such a settlement provided it is not compounding a crime, is not otherwise illegal, and does not contemplate fabricating, concealing, or destroying evidence.

Q: How do I keep a non-reporting settlement from being "compounding a crime"?

A: The opinion concludes the settlement amount may not exceed what the plaintiff is legally owed, so no compensation is paid for the plaintiff's silence; paying for silence would be compounding and would violate Rule 8.4(b).

Q: Can the settlement require a party not to testify or to avoid a subpoena?

A: No. The opinion concludes any implication that a party will testify falsely or evade a subpoena violates Rule 3.4(a) and (b)'s prohibitions on assisting in destroying or hiding evidence, false testimony, or avoiding service as a witness.

Q: What if a law requires the conduct to be reported?

A: Then a non-reporting provision is illegal and the lawyer may not participate. The opinion gives the example of child abuse and neglect, which N.C.G.S. 7B-301 requires to be reported.

Background and rules framework

The opinion applies North Carolina Rule 8.4(b) (criminal acts reflecting adversely on the lawyer's honesty, trustworthiness, or fitness, here the common-law crime of compounding) and Rule 3.4(a), (b) (fairness to opposing party and counsel: no destroying or hiding evidence, counseling false testimony, or helping a witness evade service). These are the North Carolina analogues of Model Rules 8.4 and 3.4. It builds on 98 FEO 19 and out-of-state authority on threatening or presenting criminal charges to resolve civil matters.

Citations and references

Rules of Professional Conduct:

• MR 8.4 / NC Rule 8.4(b) (criminal acts reflecting adversely on the lawyer's fitness; the crime of compounding)
• MR 3.4 / NC Rule 3.4(a), (b) (no destroying or hiding evidence; no counseling false testimony or witness evasion)

Statutes:

• N.C.G.S. 7B-301 (mandatory reporting of child abuse and neglect).

Cases:

• State v. Hodge, 142 N.C. 665, 55 S.E. 626 (1906), the crime of compounding a felony.
• Committee on Legal Ethics v. Printz, 416 S.E.2d 720 (W. Va. 1992), limits on agreements to forgo criminal charges in civil settlements.

Other opinions cited:

• NC 98 FEO 19: a lawyer may present, participate in presenting, or threaten criminal charges to resolve a related civil matter within limits.
• ABA Formal Op. 363 (1992); New York City Op. 1995-13: a lawyer may participate in a settlement under which a client agrees to refrain from instigating prosecution.

See also

• ABA Formal Op. 92-363: Threatening Prosecution
• NC State Bar 2019 FEO 2: ERISA Plan Conditions

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2008-formal-ethics-opinion-15/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

Attorney represents Client who has been sued in a civil action for misappropriation of funds under the exercise of a durable power of attorney. The complaint alleges that Client engaged in conduct that is both a civil wrong and a crime. Law enforcement was not contacted by the plaintiff and has never been involved in the matter. A settlement is offered by the plaintiff which includes a condition that the plaintiff will not contact law enforcement to report the alleged crime, but specifies that the plaintiff will cooperate with law enforcement in any investigation that may occur on the authorities' own initiative to the extent required by law (so as not to constitute obstruction of justice). Attorney believes that the settlement agreement is in Client's best interest and would like to recommend to Client that he accept the settlement offer.

May Attorney participate in the negotiation and settlement of the civil suit if the settlement includes the non-reporting condition?

Opinion:

Yes, provided the non-reporting condition does not constitute the criminal offense of compounding a crime and is not otherwise illegal, and the agreement does not contemplate the fabrication, concealment, or destruction of evidence, including witness testimony.

98 FEO 19 provides guidance for a lawyer representing a victim with a civil claim that also constitutes a crime and is analogous to the current inquiry. In 98 FEO 19, the victim's civil claim for fraud was related to the criminal charges of conspiracy to defraud. The opinion rules that if the victim's attorney has a well-founded belief that both the civil claim and the criminal charges are warranted by the law and the facts, and the victim's attorney has not attempted to exert or suggest improper influence over the criminal justice system, the victim's attorney does not violate the Rules of Professional Conduct by proposing that the victim acquiesce to a plea agreement in exchange for a confession of judgment from the defendant in the civil action. A critical component of the opinion is the condition that the proposed settlement of the civil claim may not exceed the amount to which the victim may be entitled under applicable law.

The purpose of the latter condition is to prevent the common law crime of compounding a felony which occurs when one with knowledge that another has committed a felony agrees not to inform the authorities in exchange for something of value. State v. Hodge, 142 N.C. 665, 55 S.E.2d 626 (1906).

98 FEO 19 rules that a lawyer may present, participate in presenting, or threaten to present criminal charges to resolve a civil matter provided the criminal charges are related to the civil matter and the lawyer reasonably believes that the charges are well-grounded in fact and warranted by law and, further provided, the lawyer's conduct does not constitute a crime under the law of North Carolina. The ABA Standing Committee on Ethics and Professional Responsibility has opined that under these same circumstances, a lawyer is permitted to partipate in a settlement agreement in which his client agrees to refrain from instigating prosecution. See ABA Comm. on Ethics and Professional Responsibility, Formal Op. 363 (1992); see also New York City Op. 1995-13 (lawyer whose client could be charged with both civil and criminal offense may offer a settlement in the civil matter that includes a condition that the opponent not inform law enforcement authorities of the criminal matter). Similarly, the Committee on Legal Ethics of the West Virginia State Bar held that, under limited circumstances, civil litigants should not be prevented from agreeing to forego the filing of criminal charges in exchange for money paid to resolve their civil suits. See Committee on Legal Ethics v. Printz, 416 S.E.2d 720 (1992). The opinion cautioned lawyers, however, that they must be careful not to use the threat of criminal prosecution to obtain more than is owed or have their clients agree not to testify at future criminal trials. ''Seeking payment beyond restitution in exchange for foregoing criminal prosecution or seeking any payments in exchange for not testifying at a criminal trial ... are still clearly prohibited.'' Id. at 727.

Although there is no express prohibition in the Rules of Professional Conduct against such an agreement, a lawyer must be careful to avoid the criminal offense of compounding a crime, which in turn would violate the prohibition in Rule 8.4(b) against "criminal act[s] that reflect adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects." This means that the amount paid to settle the civil claim may not exceed the amount to which the plaintiff would be entitled under applicable law; in other words, no compensation may be paid to the plaintiff for the plaintiff's silence. Moreover, the lawyers for both the plaintiff and the defendant must also be careful to avoid any implication that the settlement includes the client's agreement to testify falsely or to evade a subpoena in a criminal proceeding should criminal charges subsequently be brought by the authorities. Such conduct clearly violates the prohibitions in Rule 3.4(a) and (b) on counseling or assisting another to destroy or hide evidence, testify falsely, or avoid serving as a witness. Finally, if there is a legal requirement to report certain conduct to the authorities, as, for example, there is with child abuse and neglect, a lawyer may not participate in a settlement agreement that includes a non-reporting provision that is illegal. See e.g. N.C.G.S. 7B-301.

Provided the settlement agreement does not constitute the criminal offense of compounding a crime, is not otherwise illegal, and does not contemplate the fabrication, concealment, or destruction of evidence (including witness testimony), a lawyer may participate in a settlement agreement of a civil claim that includes a provision that the plaintiff will not report the defendant's conduct to law enforcement authorities.