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ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS

Year 1999 Ethics Opinions
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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK

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FORMAL OPINION 1999 - 03

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).

QUESTION

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 party?

OPINION

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).

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 law.

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 as follows:

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.

CONCLUSION

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


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