Ethics Opinion 260
Agreements Limiting the Professional Liability of Lawyers to Former Clients
A lawyer may not condition settlement of a pending fee dispute on the agreement of the lawyer’s unrepresented former client to release the lawyer from malpractice liability unless, prior to negotiating such a release, the lawyer advises the former client of any facts and circumstances known to the lawyer that he reasonably believes might give rise to a claim of malpractice liability.
A lawyer may agree to forgo full payment of fees in exchange for a release from or waiver of liability to a client as to a malpractice claim that the lawyer knows might have been resolved in the client’s favor, providing the lawyer first gives timely written notice to the client that independent counsel should be obtained prior to negotiating such a settlement or release. Under no circumstances may a lawyer ask a former client to execute a release prohibiting the client from filing a complaint with Bar Counsel.
- Rule 1.8(g) (Conflict of Interest: Prohibited Transactions)
- Rule 8.3(a) (Reporting Professional Misconduct)
- Rule 8.4 (Misconduct)
The Inquirer has requested an opinion based on the following hypothetical fact situation:
A retained lawyer provides substantial legal services for a client over an extensive period of time. When a disagreement occurs, the client discharges the lawyer. The lawyer then sues the client for non-payment of fees. During settlement discussions, the lawyer agrees to accept a portion of the fee that the lawyer believes is due in exchange for a written release from the client. That release states: “I agree to waive and release this firm, including the lawyers employed by the firm, from all claims, complaints or causes of action of any nature as a result of or relating to this firm’s representation of and billings to me through the date of this agreement.”
Based on this hypothetical, Inquirer asks the following questions:
- Is this a violation of the ethical standards in the District of Columbia Rules of Professional Conduct?1
- Are the following factors outcome determinative:
- whether the client was represented by different counsel at the time the release was executed;
- whether the lawyer has filed suit against the client for non-payment of fees;
- whether the lawyer was aware of any potential malpractice claims against him?
- Can a lawyer agree to forgo full payment of fees in exchange for a release or waiver of the lawyer’s liability to the client in a malpractice suit that the lawyer knows may have resulted in a verdict favoring the client?
- Under what circumstances, if any, may a lawyer ask a client to execute a release prohibiting the client from filing a complaint with Bar Counsel?
We conclude that the lawyer in the hypothetical would violate Rule 8.4(c) if: (i) the former client was not represented at the time the release was executed; (ii) the former client was executing the release in consideration for the lawyer’s release of the former client from any liability arising out of the lawyer’s claim for unpaid fees; and (iii) the lawyer was aware of facts and circumstances that the lawyer reasonably believed might give rise to a claim of malpractice. We further conclude that a lawyer may agree to forgo full payment of fees in exchange for a release from or waiver of liability to a client in a malpractice claim that the lawyer knows might have been resolved in the client’s favor, providing the lawyer first gives timely written notice to the client that independent counsel should be obtained prior to negotiating such a settlement or release. Finally, we conclude that under no circumstances may a lawyer seek to execute a release that would bar a lawyer’s client from filing a complaint with Bar Counsel. The bases of these conclusions are discussed below.
A. Rule 8.4(c): Conduct Involving Dishonesty, Fraud, or Misrepresentation
Rule 8.4(c) provides that a lawyer engages in professional misconduct when he or she engages “in conduct involving dishonesty, fraud, deceit, or misrepresentation.” In D.C. Bar Op. 79 (1979), we interpreted the term “fraud” as including a false or misleading statement, and we have recognized “that ‘fraud’ almost always means acts of affirmative representation rather than failure to disclose material facts.”2 Where a lawyer is seeking to settle a claim filed for unpaid fees against a former client who is unrepresented in exchange for the former client’s release of malpractice liability, the former client must be able to compare the value of the offered fee reduction with the value of the lawyer’s potential malpractice liability in order to determine whether the settlement offer is fair. The lawyer’s failure to disclose facts of which he has knowledge that would reasonably give rise to malpractice liability would violate the prohibition in Rule 8.4(c) against dishonest or fraudulent conduct. Absent such a requirement, the former client might not be fully apprised of potential malpractice claims where, as in the hypothetical presented, the client waives rights to pursue “all claims, complaints or causes of action of any nature,” and the drafting lawyer seems intent on obfuscating the meaning of the agreement, and not merely limiting malpractice liability. To find otherwise would allow a lawyer to provide the former client with “false or misleading” information about the agreement.
In reaching our conclusion that the facts presented in the hypothetical would run afoul of Rule 8.4(c), we wish to stress that each of the factors raised in Inquirer’s second inquiry is outcome-determinative. First, Rule 8.4(c) would not require disclosure if the lawyer had not filed suit to collect unpaid fees. Otherwise, there would be no consideration to support the former client’s promise to release the lawyer from any future malpractice liability. Second, Rule 8.4(c) would not apply if the former client were represented, because the client’s new counsel would be capable of evaluating the existence and value of the client’s malpractice claim through discovery. And third, Rule 8.4(c) would only require disclosure of facts known to the lawyer that the lawyer reasonably believes would give rise to malpractice liability, since one cannot withhold or misrepresent information about which one has no knowledge or that one does not reasonably believe is relevant.
Finally, the Committee wishes to emphasize that its opinion about a lawyer’s duty under Rule 8.4(c) is limited to the facts presented in this hypothetical: whether disclosure is required in the context of a negotiation between a lawyer and a former client to settle a fee dispute between them. The Committee is not concluding that a lawyer has a general duty to disclose malpractice liability to a former client in the absence of these circumstances.
B. Rule 1.8(g)(2): Agreements Limiting a Lawyer’s Malpractice Liability to an Unrepresented or Former Client
Rule 1.8 prohibits certain lawyer-client transactions as conflicts of interest, including the making of certain agreements with a client to limit a lawyer’s professional liability. Rule 1.8(g). Under Rule 1.8(g)(2), “[a] lawyer shall not settle a claim for . . . [malpractice] liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith.” This provision refers to the negotiation and execution of an agreement to limit or release a lawyer’s professional liability once representation has commenced or has been terminated.
A lawyer “settling a claim” under Rule 1.8(g)(2) owes certain duties to a former client. For example, a discharged lawyer must advise a former client in writing that independent representation is appropriate. When a former client has already filed a claim for malpractice and has already obtained independent counsel for that action, the discharged lawyer need not provide this notice, as discovery will unearth the relevant facts.
A discharged lawyer also must allow the former client a reasonable period of time to consult and/or retain new counsel regarding the effect of a release of malpractice claims and, if needed, to negotiate and execute such a settlement or release on the former client’s behalf. Where a former client opts not to retain independent counsel after receiving such notice, the discharged lawyer has nonetheless fulfilled this obligation.
Therefore, a lawyer may agree to forgo full payment of fees in exchange for a release or waiver of the lawyer’s liability to the client in a malpractice suit that the lawyer knows might have resulted in a verdict favoring the client if the lawyer first gives timely written notice to the client that independent counsel should be obtained prior to negotiating such a settlement or release and allows the client a reasonable period of time to retain new counsel.
C. Rule 8.4(d): Agreements Limiting a Lawyer’s Exposure to Disciplinary Action
Rule 8.4 makes subject to discipline several types of behavior characterized as “professional misconduct,” including conduct that “seriously interferes with the administration of justice.” Rule 8.4(d).3 We believe that an agreement whereby an unrepresented client or former client executes a release in which the client agrees not to file a complaint with Bar Counsel against the lawyer constitutes conduct that “seriously interferes with the administration of justice.”4
The organization of the Bar of the District of Columbia serves, inter alia, “to aid the Court in carrying on and improving the administration of justice; to foster and maintain on the part of those engaged in the practice of law high ideals of integrity, * * * and high standards of conduct; * * * to the end that the public responsibility of the legal profession may be more effectively discharged.” District of Columbia Court Rules Ann., D.C. Bar Rule I (1994) (hereinafter “D.C. Bar Rule __”). To accomplish these goals, the Bar has adopted the Rules of Professional Conduct and established procedures by which members of the Bar who violate those Rules shall be disciplined. D.C. Bar Rules X, XI. Allowing a lawyer to bargain with a client to avoid those procedures, would significantly impair the Bar’s ability to regulate its members as well as protect the courts, the legal profession, and the public’s confidence in the integrity and competence of the judicial system, thereby “seriously interfere[ing] with the administration of justice.”
It is irrelevant, in our opinion, that a lawyer seeks to preclude the filing of a complaint by a client or negotiates for the withdrawal of an existing complaint as part of an agreement to settle a malpractice claim or fee dispute with a former client.5 Under no circumstances may a lawyer seek to thwart the Bar’s duty to oversee, regulate and discipline its members by eliciting a former client’s agreement not to file a complaint with Bar Counsel.
Of course, where the former client has obtained counsel for the settlement agreement, the former client’s counsel has a duty to report any unprivileged misconduct that is discovered to Bar Counsel if the conduct fits within the standards set forth in Rule 8.3(a). Rule 8.3(a) requires that:
A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects, shall inform the appropriate professional authority.
In this Committee’s Opinion No. 246 (1994), we determined that Rule 8.3(a) imposed an absolute duty on a lawyer to report another lawyer’s misconduct. To be sure, a lawyer’s “failure to report would itself be an ethical violation.” Id. at 62. This rule allows Bar Counsel to help maintain the Bar’s integrity and prevents the use of such information as a threat during negotiations to obtain a bargaining advantage.6
1. See D.C. Rules of Professional Conduct (hereinafter “Rule ____”), D.C. Court Rules Ann., app. A (1994).
2. D.C. Bar Op. 119 (1983) at 203 (quoting Note, Legal Ethics and the Destruction of Evidence, 88 Yale L.J. 1665, 1667 (1979)).
3. ABA Model Rule 8.4(d) prohibits conduct “prejudicial” to the administration of justice.” D.C. rejected that term as overly vague and, instead, adopted the language used to explain the meaning of the term “prejudicial.” Proposed Rules of Professional Conduct and Related Comments, Showing the Language Proposed by the American Bar Association, Changes Recommended by the District of Columbia Bar Model Rules of Professional Conduct Committee, and Changes Recommended by the Board of Governors of the District of Columbia Bar 249, at ¶ 10 (submitted to the D.C. Court of Appeals Nov. 19, 1986). Thus, the Rule was not intended to convey a different meaning. Rule 8.4(d) cmt 2. DR-1-102(A)(5) was the Model Code equivalent to Rule 8.4(d) and ABA Model Rule 8.4(d).
4. Accord In re Blackwelder, 615 N.E.2d 106, 108 (Ind. 1993) (applying Rule 8.4(d); Ariz. State Bar Op. No. 91-23 (Nov. 4 25, 1991), digested in Lawyers Man. at 1001:1404 (agreement barring filing of disciplinary complaint “undermin[es] the Bar’s efforts at self-regulation” and limits “the integrity of the profession”; citing Rules 8.4(d) and 1.8(h)); Maine Op. 68 (1986), digested in Lawyers Man. at 901:4202 (attorney’s attempt to be released from past or future ethical misconduct is “ineffective” and prohibited by ethics rules).
5. E.g., People v. Bennett, 810 P.2d 661, 663-66 (Colo. 1991) (attorney may not ask former client to withdraw grievance to bar committee, whether or not request is a condition to a settlement of a malpractice claim); applying DR 1-102(A)(5)); People v. Moffitt, 801 P.2d 1197, 1198 (Colo. 1990) (same); Committee on Legal Ethics of the W. Va. State Bar v. Smith, 156 W. Va. 471, 194 S.E.2d 665, 667-69 (1973) (once complaint has been filed with state ethics board, that board must hear it whether or not the complainant has subsequently agreed to withdraw the complaint); N.C. Op. 83 (1989), digested in Lawyers Man. at 901:6615 (attorney against whom malpractice suit has been filed may not condition its settlement on withdrawal of or promise not to file disciplinary complaint against attorney; applying state’s equivalent of D.C. Rule 8.4(a), (d)).
6. See also Rule 8.4(g), which states: “It is professional misconduct for a lawyer to seek or threaten to seek criminal or disciplinary charges solely to obtain an advantage in a civil matter.”