TOPIC: Restrictive Practice
Agreements; Settlement Agreements.
DIGEST: A lawyer may not enter into
a settlement agreement that restricts her own or another lawyer's
ability to represent one or more clients, even if such an
agreement may be enforceable as a matter of law.
CODE: DR 2-108(B).
May a lawyer offer or agree to enter into
an agreement, in connection with the settlement of a dispute,
which provides that a lawyer shall not represent the same client,
or different clients, in disputes against the same opposing
In a 1997 decision, the Appellate Division,
First Department, N.Y., disqualified plaintiff's counsel because
their representation violated the settlement agreement in a prior
action, which provided as follows:
[Neither the settling plaintiff's law]
firm, nor any of its employees, agents, or representatives
will assist or cooperate with any other parties or attorneys
in any . . . action against the settling defendants arising
out of, or related in any way to the investments at issue in
the actions or any other offerings heretofore or hereafter
made by the settling defendants . . . nor shall they
encourage any other parties or attorneys to commence such
action or proceeding.
See Feldman v. Minars, 230
A.D.2d 356, 357, 658 N.Y.S.2d 614, 615 (1st Dept. 1997). This
decision reversed the decision of the New York State Supreme
Court, New York County (Herman Cahn, J.), which had denied the
disqualification motion, holding that the prior settlement
agreement was unenforceable as against public policy, based on
the provisions of DR 2-108(B).
The Appellate Division held that the
initial settlement agreement was not against the public policy of
the State of New York. As part of the justification for its
holding, the court noted that it "would appear
unseemly" to permit the "offending attorneys [to use]
their own ethical violations as a basis for avoiding obligations
undertaken by them." Feldman, 230 A.D.2d at 359, 658
N.Y.S.2d at 616. Cf. Cohen v. Lord, Day & Lord,
75 N.Y.2d 95, 551 N.Y.S.2d 157 (1989) (invalidating, as violative
of DR 2-108(A), provision of law firm partnership agreement which
imposed financial disincentive on withdrawn partner who competed
with former firm).
The Appellate Division's decision in Feldman
that the settlement agreement was enforceable involves a matter
of law, which is beyond the purview of this Committee. However,
the Feldman court stated that "a strong case can be
made" that such an agreement violates DR 2-108(B), and left
such decision to the "appropriate disciplinary
authorities." In that context, we believe it is appropriate
for this Committee to express our view concerning the ethical
propriety of such agreements.
DR 2-108(B) provides as follows:
In connection with the settlement of a
controversy or suit, a lawyer shall not enter into an
agreement that restricts the right of a lawyer to practice
22 NYCRR 1200.13(b).
We believe that this rule is unambiguous in
its application to agreements not to represent present or future
clients in litigation against a settling defendant. We therefore
join numerous other bar committees in concluding that such
agreements are improper. See also ABA Comm. on Ethics and
Professional Responsibility, Formal Op. 93-371 (1993) (reaching
same conclusion with regard to Model Rule 5.6(b)); Ala. State Bar
Disciplinary Comm'n, Op. 92-01 (same); CA Eth. Op. 1988-104
(1988) (reaching same conclusion with regard to California DR
2-109(A)); Colo. Bar Ass'n Ethics Comm., Formal Op. 92 (applying
Model Rule); Dist. of Columbia Bar Assoc., Op. 130 (1983)
(applying Model Code); Maryland St. Bar. Op. 82-53 (1982) (same);
N.C. Sate Bar Assoc., Op. 179 (same); N. Mex. State Bar Advisory
Opinions Comm., Op. 1985-5 (same); Ore. Eth. Op. 1991-47 (1991)
(same); Phila. Eth. Op. 95-13 (1995) (applying Model Rule).
This understanding of DR 2-108(B) is
supported by the history of the provision. As adopted by the ABA
House of Delegates in August 1969, DR 2-108(B) of the Model Code
of Professional Responsibility provided:
[i]n connection with the settlement of
a controversy or suit, a lawyer shall not enter into an
agreement that broadly restricts his right to
practice law, but he may enter into an agreement not to
accept any other representation arising out of a transaction
or event embraced in the subject matter of the controversy or
suit thus settled. (Emphasis added.)
The model disciplinary rule was revised in
1970 to delete the underlined provisions. The Chair of the ABA
Committee on Ethics and Professional Responsibility, Walter P.
Armstrong, Jr., explained the basis for deleting these provisions
a covenant of that type would, in
effect, restrict . . . a lawyer's ability to engage in the
practice of law by agreeing in advance before he had
considered any of the merits, that he would not represent
certain types of clients. Secondly, we [the Committee] felt
that a covenant of that type would inevitably involve a
conflict of interests.
See ABA Comm. on Ethics and
Professional Responsibility, Formal Op. 93-371 (1993).
We also conclude that DR 2-108(B) is
directed to lawyers on both sides of the restrictive agreement.
Because the rule prohibits a lawyer from entering into an
agreement that restricts "the right of a lawyer to
practice law," it applies regardless of whether the lawyer
entering the agreement is restricting her own right to practice
law or that of another. In this respect, the Code is broader than
Model Rule 5.6(b), which provides 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 controversy between private parties."
Rule 5.6(b) (Restrictions on Right to Practice) of the Model
Rules of Professional Conduct (emphasis added).
Possible Revision of DR 2-108(B).
The Committee notes that the Feldman court
questioned whether there is a persuasive rationale for DR
2-108(B). Feldman, 230 A.2d at 360, 658 N.Y.S.2d at 616.
Other commentary regarding DR 2-108(b) and its Model Rule
counterpart, Rule 5.6(b), is split. Compare Stephen
Gillers, A Rule Without A Reason: Let the Market, Not the Bar,
Regulate Settlements that Restrict Practice, A.B.A.J., Oct.
1993, at 118 (describing DR 2-108(b) and Rule 5.6(b) as
"anachronisms"); with Mary Lindgren Cohen, A
Threat to the Profession?, 54-MAR Or. St. B. Bull. 36 (1994)
(praising continuing need to enforce DR-2-108(b)). See also
Cynthia Cotts, May a Lawyer Deal Away Right to Practice?, Nat'l
L. J., at A1 (Mar. 30, 1998) (citing opposing commentary on
continuing validity of DR 2-108(b)); Mary C. Daly, Are
Restrictive Practice Agreements Fair Game after Feldman?,
NYPRR 5 (June 1998).
The Committee takes no position as to
whether DR 2-108(B) should be revised or eliminated. However, the
rule's clear command must be followed so long as it remains part
of the Code.
For the foregoing reasons, the Committee
concludes that settlement agreements that restrict the right of a
lawyer to represent other plaintiffs violate DR 2-108(B).
Issued: March, 1999