Can a lawyer agree to a settlement confidentiality clause that bars disclosing or publicizing the settlement terms?

Plain-English summary

A lawyer proposed settlement language requiring all parties and their attorneys to keep the agreement confidential and not to publicize its terms, with carve-outs for disclosures required by subpoena or law, by tax compliance, or to enforce the agreement, and allowing the parties to say only that the matter had been "amicably resolved." The question was whether opposing counsel could ethically agree.

The opinion concludes a lawyer may accept the terms, provided they comply with Rule 41.1 of the South Carolina Rules of Civil Procedure, which governs court-ordered settlement confidentiality, and its companion Rule 3.4(c), which bars knowingly disobeying an obligation under the rules of a tribunal. The committee then turns to Rule 5.6(b), which prohibits settlement agreements that restrict a lawyer's right to practice. Drawing on ABA Formal Op. 93-371 and ABA Formal Op. 00-417, the opinion draws the controlling line: a lawyer may agree not to disclose information relating to the representation, but may not agree to a clause that prevents the lawyer from using that information in later representation. Seeking such a use-restricting agreement also violates Rule 8.4(a).

Because the proposed clause restricted only disclosure and publication, not the attorneys' use of information for legal strategy or other purposes, the committee finds it permissible. The opinion closes by suggesting that counsel review the agreement as a whole to ensure the provisions are in the client's best interest.

In practice

Under this opinion, and under the South Carolina rules as they stood in 2016, the dividing line for settlement confidentiality is disclosure versus use. The opinion holds that a clause barring a lawyer and the parties from disclosing or publicizing settlement terms is permissible, while a clause that would bar the lawyer from using information gained in the representation in future matters violates Rule 5.6(b), and a request for such a clause violates Rule 8.4(a). The committee also notes that a court-ordered settlement must comply with Rule 41.1 SCRCP and its companion Rule 3.4(c).

Common questions

Q: Can a lawyer agree to keep a settlement's terms confidential?

A: Yes. The opinion holds a lawyer may accept a clause barring disclosure and publication of the settlement, provided it complies with Rule 41.1 SCRCP, because it does not restrict the lawyer's use of information from the representation.

Q: What kind of settlement clause crosses the Rule 5.6 line?

A: A clause that prevents the lawyer from using information gained in the representation in later representation. The opinion, citing ABA Formal Op. 00-417, distinguishes barring disclosure (allowed) from barring use (a Rule 5.6 violation).

Q: Is it improper just to propose a clause restricting future practice?

A: Yes. The opinion states that a request by counsel for an agreement restricting the lawyer's right to practice violates Rule 8.4(a), citing ABA Formal Op. 93-371.

Background and rules framework

The opinion interprets South Carolina Rules of Professional Conduct 3.4(c) (knowingly disobeying an obligation under the rules of a tribunal; Model Rule 3.4(c)), 5.6(b) (agreements restricting a lawyer's right to practice in settling a client controversy; Model Rule 5.6(b)), and 8.4(a) (violating the rules through the acts of another; Model Rule 8.4(a)). It also references Rule 41.1 of the South Carolina Rules of Civil Procedure, governing court-ordered settlement confidentiality.

Citations and references

Rules of Professional Conduct:

• MR 3.4 / SC RPC 3.4(c) (disobeying an obligation under tribunal rules)
• MR 5.6 / SC RPC 5.6(b) (restrictions on a lawyer's right to practice in settlements)
• MR 8.4 / SC RPC 8.4(a) (violating the rules through another)

Rules of Civil Procedure:

• SCRCP 41.1 (court-ordered settlement confidentiality)

Other opinions cited:

• ABA Formal Op. 93-371: settlement agreements may not restrict a lawyer's right to represent future clients
• ABA Formal Op. 00-417: a lawyer may agree not to reveal information but not to a clause barring its use in later representation

See also

• ABA Formal Op. 00-417: Settlement terms limiting use of information
• ABA Formal Op. 93-371: Restrictions on representing future clients

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-16-02/
• Original PDF: https://www.scbar.org/media/ywjmc5vt/16-02.pdf

Original opinion text

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

Ethics Advisory Opinion 16-02

SC Rules of Professional Conduct: 3.4(c) 5.6, 8.4(a)

SC Rule of Civil Procedure: 41.1

Facts:

Lawyer A, in an effort to settle a case, proposes the following terms to opposing counsel Lawyer B:

All terms of this Agreement are and shall remain confidential and shall not be disclosed to any person or entity by any party hereto, or by the attorney of any party, except as permitted herein. Each party expressly represents and warrants that it will not publicize in any manner, either personally or through an agent or representative, or undertake to or aid or assist any third party in publicizing or exploiting in any form whatsoever, by any means whatsoever, in any medium whatsoever, the terms of this Agreement.

Notwithstanding the foregoing, the parties may disclose solely that the matters described herein have been "amicably resolved." Disclosure of the terms of this Agreement to a third party may occur, to the minimum extent necessary, in the following situations: (i)insofar as disclosure is required pursuant to a subpoena issued by a court of competent jurisdiction or legislative body or otherwise required by law; (ii) as reasonably required for purposes of complying with state and federal tax laws, or (iii) if necessary to enforce the terms of this Agreement in any proceeding.

Question Presented:

May a SC lawyer agree to a confidentiality clause in the settlement of claims against the proposing firm's client?

Summary: A lawyer may accept the proposed terms of settlement, provided that they are permitted by Rule 41.1 of the SC Rules of Civil Procedure, as the terms do not restrict use of information gained in the course of representation, but instead are limited to a prohibition of disclosure and publication of the settlement.

Discussion

While this Committee typically limits opinions to discussions solely on the Rules of Professional Conduct, initial reference should be made to rule 41.1 of the South Carolina Rules of Civil Procedure (SCRCP). A SC –licensed lawyer must comply with Rule 41.1, SCRCP if negotiating a court-ordered settlement. Rule 3.4(c) of the SC Rules of Professional Conduct (SCRPC) is the companion, stating that "a lawyer shall not knowingly disobey an obligation under the rules of a tribunal…"

In addition to compliance with Rule 41.1, SCRCP and Rule 3.4(c), SCRPC, Bar members must be mindful of Rule 5.6(b), which prohibits agreements that restrict a lawyers' right to practice as part of the settlement of a client controversy. For example, an agreement as part of a civil settlement that plaintiff's attorney will not later represent other parties is a violation of Rule 5.6, and a request by counsel for such an agreement violates Rule 8.4(a). ABA Formal Op. 93-371. An additional ABA formal opinion offers a valuable distinction applicable to this inquirer: ABA Formal Op. 00-417 says that a lawyer may participate in a settlement agreement that prohibits the lawyer from revealing information relating to the representation, but may not participate in an agreement that prevents the lawyer from using such information in later representation (emphasis added). To agree that use of such information gained in a representation may not be used would be a violation of Rule 5.6. In the agreement language here, parties are agreeing to forego disclosure, and no language is included that would limit the individual attorneys' use of information gained in the course of the representation for development of legal strategy or other similar purposes.

Finally, the committee suggests that an analysis of the settlement agreement as a whole is warranted to ensure that these provisions, in context with the remainder of the agreement, are in the best interest of the client.