The following question was recently posed to the South Carolina Ethics Advisory Committee (the “Committee”): As part of a confidential settlement agreement that does not require court approval, can the settling defendant require the plaintiff’s lawyer to not identify or use the defendant’s name for “commercial or commercially-related publicity purposes,” even if the matter is of public record and nothing was filed in the case under seal? [1] By these terms, the settling defendant essentially sought to “prevent…[plaintiff's lawyer] from advertising for clients in cases involving alleged similar conduct by this defendant.” [2] In Opinion 10-04, the Committee found that such a condition placed an unfair restriction on a lawyer’s right to practice and his or her First Amendment right to advertise and solicit clients. [3]
S.C. Rule of Professional Conduct 5.6(b)
Although the Committee first began its analysis by analogizing the above scenario to the prohibition of “secret settlements” contained in South Carolina Rule of Civil Procedure 41.1, the Committee’s main argument focused on South Carolina Rule of Professional Conduct 5.6(b) [4].
South Carolina Rule of Professional Conduct 5.6(b), which is identical to the American Bar Association ("ABA") Model Rule 5.6(b), requires 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 the settlement of a client controversy.” [5] Therefore, settlements cannot force a lawyer to “contract…away rights associated with the practice of law.” [6] As explained in ABA Formal Opinion 93-371, permitting settlement agreements to contract away a lawyer's rights to practice law would “restrict…the access of the public lawyers, who by virtue of their background and experience, might be the very best available talent to represent these individuals.”
Further, Comment 2 to South Carolina Rule of Professional Conduct 5.6(b) (also identical to Comment 2 to the ABA Model Rule 5.6) “prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.” [7] As such, the combined effect of Rule 5.6(b) and Comment 2 would be to prevent settlement agreements that attempt to contract away a lawyer’s right to represent other clients and his or her rights associated with practicing law.
Advertising and Solicitation as Rights Associated with the Practice of Law
For more than 30 years, the U.S. Supreme Court decision Bates v. Arizona [8]and its progeny have firmly established that a lawyer’s right to advertise his or her services is considered commercial speech, and as such, is afforded a degree of First Amendment protection. [9] Further, subject to a number of exceptions, a lawyer’s ability to solicit clients has also been considered a right that would be afforded a degree of First Amendment protection. [10]
Drawing on these established rules that lawyer advertising and solicitation is commercial speech and thus afforded limited protection by the First Amendment, and that ABA Model Rule 5.6(b) prevents settlement agreements that attempt to contract away lawyer's rights, in Texas Ethics Opinion 505, the Texas Committee on Professional Ethics reasoned that settlement agreements that attempted to limit legitimate client solicitation would be considered unethical. [11] In particular, Opinion 505 announced that solicitation that was permitted under a state’s bar rules and other legal authority “is a part of the practice of law and therefore cannot be more severely restricted in a settlement agreement that it is restricted in the Rules and applicable law.” [12] As such, any settlement agreement that placed further limitations on a lawyer’s ability to solicit clients “would be a limitation on the practice of law” and thus violate Rule 5.6(b). Following the precedent established in Rule 5.6(b), Bates and Texas’ Opinion 505, the Committee similarly found that a settlement agreement that prevented a plaintiff's attorney from identifying or using the defendant's name for advertising or solicitation purposes would be an unethical restriction on the lawyer's right to practice law.
Best Practices
In evaluating whether such settlement agreements violate Rule 5.6(b)’s prohibition on a lawyer’s right to practice, the Committee adopted the test proposed by the Colorado Bar in its Ethics Opinion 92. [13] Essentially, the test “of the propriety of a settlement provision under Rule 5.6(b) is whether it would restrain a lawyer’s exercise of independent judgment on behalf of other clients to an extent greater than that of an independent attorney not subject to such a limitation.” [14] Therefore, to violate Rule 5.6(b), the settlement agreement does not have to completely prohibit the lawyer’s right to practice, but must only impair the lawyer’s independent judgment or some right to practice law, including advertising and solicitation. As it has been stated, “[w]hen restrictions on the practice of law become bargaining chips between parties, the integrity of the profession is threatened.” [15]
1. Essentially, the plaintiff's attorney would only be able to identify the settlement in the following manner: “a settlement was achieved against an industry.”
2. S.C. Bar Ethics Adv. Op. #10-04. A copy of Opinion 10-04 may be found on the S.C. Bar’s website at www.scbar.org/member_resources/ethics_advisory_opinions/&id=686 (last visited Oct. 6, 2010).
3. Id. at 2.
4. S.C. R. Civ. P. 41.1 concerns, inter alia, filing settlement agreements that require court approval under seal. The settlement agreement at hand did not require court approval, so thus, Rule 41.1 did not apply. However, the Committee noted that Rule 41.1 “expresse[d] a clear public policy in favor of public access to settlement information, where, as here, the public resources of the judicial system have led to it.” S.C. Bar Ethics Adv. Op. #10-04 at 2.
5. S.C. Rules of Prof’l Conduct 5.6(b); Model Rules of Prof’l Conduct R. 5.6(b).
6. S.C. Bar Ethics Adv. Op. #10-04 at 2.
7. S.C. Rules of Prof’l Conduct 5.6(b) cmt. 2.
8. 433 U.S. 350 (1977).
9. See, e.g., Fla. Bar v. Went For It Inc., 515 U.S. 618, 622 (1995) (stating that“[i]t is now well-established that lawyer advertising is commercial speech and, as such, is accorded a measure of First Amendment protection.")
10. See, e.g., Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985) (striking Ohio rule that categorically prohibited solicitation of legal employment for monetary gain, even though solicitation was truthful and nondeceptive.)
11. Tex. Comm. on Prof’l Ethics, Op. 505. A copy of Opinion 505 may be found on the Texas Center for Legal Ethic's website at www.txethics.org/Opinion.aspx?id=486 (last visited Oct. 7, 2010).
12. Id.
13. Colo. Bar Ethics Op. 92. A copy of Opinion 92 is available on the Colorado Bar Association’s website at www.cobar.org/index.cfm/ID/386/subID/1813/CETH/Ethics-Opinion-92:-Pract… (last visited Oct. 7, 2010).
14. Id.
15. Joanne Pitulla, Co-Opting the Competition: Beware Of Unethical Restrictions In Settlement Agreements, 78 A.B.A. J., 101 (1992).