Opinion #225. Non-Disclosure Clauses in Settlement Agreements

Issued by the Professional Ethics Commission

Date Issued: July 5, 2022

Primary Questions

  1. May a settlement agreement require a lawyer to keep all information obtained during the legal representation confidential?

  2. Under what circumstances may a lawyer use information of a former client that is either confidential, generally known, or publicly available?

Short Answers

A settlement agreement may require that the terms of the settlement and other non-public information be kept confidential, but it may not require that "publicly available" information be confidential.

A settlement agreement may not restrict a lawyer's right to practice by limiting their use of publicly available information. A settlement agreement may not restrict a lawyer or law firm from representing clients in lawsuits against the same party, using publicly available information to solicit new clients, or using publicly available information to promote an expertise based on the settling of a particular lawsuit.

However, even when a settlement agreement may not restrict a lawyers use of information, the lawyer must consider whether their duty of client confidentiality imposes independent restrictions. A lawyer may not, without their clients consent, use a former clients confidential information, except where it is generally known. Information that is generally known is a narrower concept than information that is publicly available. Information that is available in court records, the subject of court hearings, or available in public repositories is not, standing alone, information that is generally known.

Guidance Summary

The primary question concerning restrictive covenants in settlement agreements implicates the Rules of Professional Conduct on several levels. While restrictive covenants that preclude a lawyer from using publicly available information are not permitted, a lawyer must take care that any disclosure of publicly available information concerning the lawsuit does not run afoul of their obligations of confidentiality to their client.

Applicable Rules

M.R. Prof. Conduct Rules 1.6, 1.9(c), 5.6(b).

Restrictive Settlement Agreements

A lawyer cannot make settlement offers or accept settlement agreements which restrict any lawyers right to practice by limiting the publics access to legal services or a lawyers right to advertise their services under Maine Rules of Professional Conduct 5.6(b):

5.6 Restrictions on the Right to Practice

A lawyer shall not participate in offering or making:

(b) an agreement in which a restriction on the lawyers right to practice is part of the settlement of a client controversy.

Parties to disputes often have an interest in keeping settlement agreements and information related to disputes confidential to protect their reputation, safeguard trade secrets, and to insulate themselves from further claims. Parties would sometimes like to accomplish this protection by including confidentiality provisions in settlement agreements that broadly bind all parties and lawyers involved in the matter. However, confidentiality agreements can also infringe on lawyers rights to practice. Under Rule 5.6(b), lawyers cannot offer or agree to confidentiality provisions that restrict any lawyers right to practice. Settlement agreements which require publicly available information to be kept confidential by lawyers unduly restrict the lawyers right to practice because they place more stringent restrictions on the lawyer than the duties of confidentiality the lawyer owes their client. Settlement agreements may provide that the terms of the settlement and other non-public information be kept confidential. By agreeing to the settlement terms, the client is giving instructions to the lawyer about which non-public information to keep confidential and it does not infringe on the lawyers ability to use information that is generally known. (See, e.g., ABA Formal Op. 00-417 (2000) (ABA Op. 417); Colo. Ethics Op. 92 (1993); and New Mexico Advis. Op. 1985-5 (1985)).

Requiring a lawyer to keep publicly available information confidential would restrict an attorneys ability to use public information from one case to the benefit of future clients. See ABA Op. 417 interpreting ABA Model Rule 5.6(b) which is the equivalent of M. R. Prof. Conduct 5.6(b). [S]uch a provision would necessarily limit an attorneys ability to develop or to discuss legal strategy and prior disputes with future clients, and therefore would require the attorney to either refuse to undertake particular representation, or to undertake such cases with only a limited ability to communicate with the client. Maryland Ethics Docket No. 2016-07 (2016) (construing MD provision identical to current M.R. Prof Conduct 5.6 (b)). Rule 5.6(b) preserves the publics access to lawyers who might be the best available talent for future representation of clients with similar cases.

The right to practice under Rule 5.6(b) is not limited to the ability to accept future cases. For example, settlement agreements that compel counsel to not disclose publicly available information in promotional materials or on law firm websites, such as the name of the opponent, the allegations set forth in the complaint, or the fact that the case has been settled also restrict a lawyers right to practice by limiting the publics access to information about a lawyers experience and knowledge. See District of Columbia Bar Op. 335 (2006) (DC Op. 335) (construing the DC provision nearly identical to the current M. R. Prof Conduct 5.6).

It is important to note that Rule 1.2(a) generally requires a lawyer to abide by their clients decision to settle. However, Rule 1.2(a) does not require a lawyer to follow the clients instructions where the settlement agreement would violate the lawyers other ethical duties including the duty to not agree to or propose settlement agreements that restrict any lawyers right to practice.

Restrictive covenants in settlement agreements that attempt to restrict lawyers right to practice through confidentiality provisions can be constructed in many different forms, both direct and indirect. Examples of the types of confidentiality provisions that can restrict a lawyers right to practice can be found in opinions concerning the ethical propriety of restrictive covenants by other state ethics boards. While the facts in these examples have not been presented to the Commission, lawyers should be cautious when considering similar provisions and carefully analyze whether such provisions are placing restrictions on a lawyers right to practice.

Prohibiting a lawyer from either proposing or entering into a settlement agreement containing a provision which bars the lawyer for the settling plaintiff from representing other claimants against the opposing party: No. Carolina RPC 179 (1994) (construing NC R. 2.7 (b) which prohibited a lawyer from entering into an agreement which restricts her right to practice law);

Requiring disclosure of all clients with similar claims: Ohio Prof. Cond. Op. 2019-04;

Requiring counsels entire file to be turned over to defense counsel and sealed: New Mexico Advis. Op. 1985-5 (1985);

Barring a lawyer for a settling client from subpoenaing certain records, deposing certain witnesses, or using certain experts: Colo. Formal Op. 92 (1993) (construing Colorado provision nearly identical to current ME R. 5.6);

Prohibiting a lawyer from identifying the defendant corporation as part of the lawyers business efforts after significant litigation and settlement prior to trial: So. Carolina Advis. OP 10-04 (2010) (construing SC R. 5.6(b) identical to current ME R. 5.6 (b));

Interplay with the Duties of Confidentiality Owed to Clients

A lawyers use of publicly available information is not without restriction. The purpose of a confidentiality agreement in a settlement agreement is to provide the opposing party an enforcement device for confidentiality. However, a client does not need the mechanism of a confidentiality provision to enforce confidentiality with regard to their attorney. While a lawyer is prohibited from offering or agreeing to a settlement agreement that restricts their right to practice under Rule 5.6(b) even where the client would like to offer or agree, a lawyer is still bound to follow the clients decisions around information that is not generally known because of the lawyers duties under Rule 1.6 and Rule 1.9.

Rule 1.6 requires a lawyer to keep confidences and secrets of a client confidential. Rule 1.6(d) specifies that confidences are information protected by the attorney-client privilege and secrets are information that has a reasonable prospect of causing harm to the client if revealed. Once a case is over, Rule 1.9(c) requires lawyers to continue to keep confidences and secrets confidential except to the extent that information has become generally known or the lawyer obtains the clients consent.

Information that is generally known is not synonymous with information that is publicly available. In ABA Formal Op. 479 (2017) (ABA Op. 479), the definition of generally known includes information that is widely recognized by members of the public in the relevant geographic area or it is widely recognized in the former clients industry, profession or trade. Information may become generally known through print and electronic media, including websites and social media. Within an industry, profession, or trade, information can become generally known if it is announced, discussed, or identified in print or online sources. ABA Op. 479 makes clear the fact that the information may have been discussed in open court or may be available in court records or in public libraries, or in other public repositories does not, standing alone mean that the information is generally known for Model Rule 1.9 (c) (1) purposes. Id.

Courts considering the issue of the scope of generally known information versus publicly available information have acknowledged the narrow nature of the generally known exception. See, e.g., Turner v Commonwealth, 726 S.E.2d 325, 333 (Va. 2012) (concurring op.) (There is a significant difference between something being a public record and it also being generally known.); In re Marzen, 779 N.W. 2d757 (Iowa 2010) (disclosure of former clients lawsuit against a probation officer for sexual misconduct, notwithstanding the allegations could be accessed in court records); Pallon v. Roggio, 2006 US Dist. LEXIS 59881 *24 (D.N.J. August 23, 2006) (internet availability of the pleadings does not make the information generally known); Sealed Party, 2006 US Dist. LEXIS 28392, at *62 (the fact that information is in the public record does not necessarily make the information 'generally known); Akron Bar Assn v. Holder, 810 N.E.2d 426, 435 (Ohio 2004) (an attorney is not free to disclose embarrassing or harmful features of a clients life just because they are documented in public records); In re Bryant, 61 P. 3d 641 (Kan. 2003) (information previously disclosed in court records retains confidentiality); In re Anonymous, 654 N.E.2d 1128, 1129-30 (Ind. 1995) (Rule 1.6 violated by disclosing information relating to client even though information was readily available from public sources and not confidential in nature).

While lawyers may not offer or agree to settlement agreements which restrict a lawyers right to practice by requiring a lawyer to keep publicly available information confidential, lawyers must remember that their duty to their client may be greater than their duty under a settlement agreement. If information that falls under the definition of confidence or secret in Rule 1.6 is publicly available and cannot be required to be kept confidential under a settlement agreement, the lawyer must seek the clients consent before disclosing the information in any form including in advertising, promotions, or representing other clients if the information is not generally known. For the above reasons, lawyers are prohibited from offering or accepting broad confidentiality provisions in settlement agreements unless the provision excludes public information and does not expand beyond a lawyers duties under 1.6 and 1.9 to keep information confidential.

Enduring Ethics Opinion