Formal Opinion 1991-2

Formal Opinion 1991-2

April 30, 1991

ACTION: Formal Opinion

OPINION:

Litigants burdened with the economic and psychological costs of protracted litigation may become frustrated with the process and conclude that if they were able to circumvent the lawyers and speak directly with their adversaries (who, they assume, are equally concerned by the escalating legal costs), then the dispute could be more easily and cheaply resolved. Such a client may simply communicate with the adversary, without alerting counsel for either side. In other cases, the client may inform his or her lawyer first and ask whether such a direct client-to-client communication would be permissible or advisable. The lawyer may, in fact, believe that direct client communication would promote efforts efficiently to settle or resolve the litigation.

In this Opinion, the Committee addresses two ethical issues arising from these circumstances:

May a lawyer, without opposing counsel’s consent, advise a client to communicate with a represented adverse party directly in order to explore settlement?

What are the ethical obligations of a lawyer who is informed by a client that the client either intends to communicate with or has already communicated with a represented party in order to engage in direct settlement negotiations?

We conclude that (1) a lawyer may not advise or encourage a client to communicate directly with an adverse party known to be represented by counsel, without the counsel’s consent; (2) a lawyer is not ethically obligated to discourage or interfere with client-initiated direct communications with an adverse party; and (3) if a client-initiated communication results in subsequent negotiations, a lawyer may not ethically assist or advise the client in the conduct of those negotiations, a lawyer may not ethically assist or advise the client in the conduct of those negotiations, without the knowledge and consent of opposing counsel.

DR 7-104(A) of the Lawyer’s Code of Professional Responsibility states:

“During the course of the representation of a client a lawyer shall not: (1) Communicate or cause another to communicate on the subject of the representation with a party the lawyer knows to be represented by a lawyer in that matter unless the lawyer has the prior consent of the lawyer representing such other party or is authorized by law to do so.”

Under this provision, a lawyer is unambiguously prohibited from communicating with an adverse party known to be represented by counsel without either consent of counsel or some legal authorization. This rule “does not admit of exceptions”. N.Y. City 79-13; see also N.Y. State 463 (1977) (“[w]here a person is represented by counsel, there is an absolute proscription which serves to bar any and all communications relating to the matter for which that person has retained counsel”). n1

n1 DR 7-104(A) is not limited to where the lawyer is representing a client in litigation or other adversarial proceedings, although the issues addressed in this Opinion arise in that context.

In explaining the rationale for DR 7-104(A)(1), this Committee has previously said:

“Ours is an adversary system of justice, and that system ‘in its broadest sense functions best when persons in need of legal advice or assistance are represented by their own counsel.’ DR 7-104(A)(1) is designed to protect the adverse party’s right to effective representation of counsel.” N.Y. City 81-29 (1981) (citing N.Y. City 80-46 (1980)).

The rule “preserves the proper functioning of the attorney-client relationship” by preventing interference with the adverse party’s ability to retain, and seek the advice of, his or her own counsel in all phases of the case, including settlement. American Bar Foundation, Annotated Code of Professional Responsibility 332 (1978) (hereafter “Annotated Code”) (“the rule is designed to prevent opposing counsel from impeding an attorney’s performance”); N.Y. County 405 (1952) (“the adverse party is entitled to the advice of his attorney in negotiating a settlement”). Thus, the rule is intended not only to “prevent situations in which a represented party may be taken advantage of by adverse counsel” (Frey v. Department of Health and Human Services, 106 F.R.D. 32, 34 (E.D.N.Y. 1985), quoting Wright v. Group Health Hosp., 103 Wash. 2d 192, 691 P.2d 564, 567 (1984); see also Annotated Code at 332-33), but also to prohibit a lawyer’s inadvertent or well-intentioned communication with a represented adverse party. See, e.g., N.Y. City 81-29 (lawyer prohibited from communicating with opposing party directly to discuss settlement, despite evidence that opposing counsel “will obstruct efforts at a peaceful resolution”); see also In re McCaffery, 549 P.2d 666, 668 (Or. 1976) (a lawyer’s inadvertent or negligent direct communication with adverse party violated DR 7-104(A)(1)).

In addition, DR 7-104(A)(1) specifically prohibits a lawyer from “caus[ing] another” to communicate with an adverse party where the lawyer could not do so. At a minimum, this provision means that a lawyer may not circumvent the prohibition of DR 7-104(A)(1) by delegating the task to a nonlawyer, In re Burrows, 291 Or. 135, 629 P.2d 78 (1979), or by using another person to communicate in a manner that would be impermissible if engaged in by a lawyer. Schantz v. Eyman, 418 F.2d 11, 13-14 (9th Cir. 1969), cert. denied, 397 U.S. 1021 (1971). See ABA/BNA Lawyer’s Manual on Professional Conduct, 71:302 (1988).

We conclude that the lawyer’s client is “another” for purposes of this prohibition. This view is consistent with several other opinions on the subject, including one by this Committee. N.Y. City 302 (1934) (lawyer may not direct client’s settlement negotiations with represented adversary); see also In re Marietta, 569 P.2d 921 (Kan. 1977) (lawyer sanctioned for preparing release and advising client to pass it on to represented adverse party); Va. St. Bar 771 (1986) (lawyer who is party represented by counsel may not discuss settlement directly with represented adverse party where the discussion is “merely a device by which counsel to the party litigant attorney accomplishes by his client that which he might not do directly”); and S.F. Bar Informal Opinion 1985-1 (1985) (“it would be inappropriate . . . for [a] lawyer to use the client as an indirect means of communicating with the adverse party” in settlement negotiations).

Thus, under DR 7-104(A), absent consent of opposing counsel or authorization by law, a lawyer may not “cause” his or her client to communicate directly with a represented adverse party. Before discussing further the question of what constitutes “causing” the client to communicate, we turn first to the issue of whether a lawyer has any obligation to attempt to dissuade a client who has decided on his or her own to engage in such communication.

II.

The ABA Committee on Ethics and Professional Responsibility first addressed the issue of client-initiated communications with a represented adverse party in Formal Opinion 75 (1932). There, counsel for both parties had entered into a stipulation which permitted the plaintiff to move the Court for entry of judgment upon notice. After plaintiff gave the notice, defense counsel asked whether he could “advise or sanction an effort by his client to procure a compromise adjustment of the suit, through a personal interview with the plaintiff, without the knowledge of plaintiff’s counsel”. The ABA Committee, engaging in an analysis similar to ours, answered this question in two parts. The Committee first concluded that the lawyer could not advise his or her client to communicate with the represented adverse party because doing so would violate the then existing Canon 9, a predecessor to DR 7-104(A)(1). n2 The Committee then went further, ruling that the lawyer had an affirmative obligation to dissuade the client from communicating with the other side, even when the communication was proposed by the client:

“Even should the client suggest a personal interview for the purpose of compromise without the consent of the adversary’s attorney, it would be the duty of his attorney to endeavor to dissuade him from so doing, as Canon 16 provides, ‘A lawyer should use his best efforts to restrain and prevent his client from doing those things which the lawyer himself ought not to do.'” Formal Opinion 75 (1932).

n2 Canon 9 stated: “A lawyer should not in any way communicate upon the subject of controversy with a party represented by counsel, much less should he undertake to negotiate or compromise the matter with him, but should deal only with his counsel.”

Subsequent opinions of other bar associations followed the holding of Formal Opinion 75, including the “duty to dissuade” language, even though the Code of Professional Conduct had replaced the original Canons. See, e.g., N.Y. County 618 (1973) (lawyer must inform opposing counsel of client’s intention to meet with represented third party); S.F. Informal Opinion 1973-25 (under DR 7-104(A)(1), lawyer obligated to inform opposing counsel of client-initiated communications without notice to opposing counsel, lawyer “should either advise against any similar future conduct and/or seek to restrain his client from doing so”); ABA Informal Opinion 524 (1962) withdrawn in Formal Opinion 84-350 (1984) (“a lawyer should use his best efforts to restrain and prevent his client from communicating with the other party without the consent of the other party’s attorney”).

The ABA Model Rules, adopted in 1983, have led to a different approach. The comment to Model Rule 4.2 — a rule substantially identical to DR 7-104(A)(1) — states that “parties to a matter may communicate directly with each other”. In Formal Opinion 84-350 (1984), the ABA Committee withdrew Formal Opinion 75 and Informal Opinion 524, both of which required lawyers to discourage direct client-to-client communications. The Committee gave little explanation for its decision, stating only that the withdrawn opinions were inconsistent with the Model Rules and the Model Code. n3 Other bar associations, apparently following the ABA Committee’s lead, have recently held that lawyers are not obligated to discourage direct communications between represented parties. See Va. St. Bar 771 (1986) (“it is not ethically improper for a party litigant to contact an adverse party litigant directly”, unless the communication is a device by counsel to bypass opposing counsel); S.F. Informal Opinion 85-1 (1985) (lawyer not obligated to discourage clients from attempting to negotiate a settlement between themselves); but see Mich. St. Bar CI 1206 (1988) (lawyer representing himself in lawsuit may not communicate with represented adversary directly without permission of opposing counsel).

n3 Formal Opinion 84-350 (1984) leaves it unclear whether both parts of Formal Opinion 75 are withdrawn, or just the part regarding client-initiated communications with represented adversaries. We believe the ABA Committee intended to withdraw only the latter part of the opinion. Formal Opinion 84-350 describes the withdrawn opinion as “sanctioning attempt by client to reach compromise settlement by direct communication with adverse party”. (Emphasis added.) Thus, the new opinion focused only on the part of Formal Opinion 75 which concerned client-initiated communications with adversaries, not the part which concerned whether a lawyer could “advise” direct client communications.

In any event, to the extent Formal Opinion 84-350 withdrew the prohibition against lawyers advising their clients to communicate with represented adverse parties, we decline to follow it. For the reasons stated in Part I of this opinion, such advice, in our opinion, would violate DR 7-104(A)(1).

We conclude that DR 7-104(A)(1) does not require a lawyer to attempt to dissuade or prevent his or her client from engaging in client-initiated communications with a represented adverse party. Similarly, the rule does not require a lawyer to advise opposing counsel, whether the lawyer learns about such communication in advance or only after the fact.

This conclusion is supported by the language of the rule. DR 7-104(A)(1) prohibits a lawyer from “communicat[ing] or caus[ing] another to communicate”, with another party absent counsel’s consent. (Emphasis added.) When the client independently initiates communications with the other side, i.e., acts on his or her own, the lawyer cannot fairly be said to have “cause[d]” the client’s acts. In addition, we find nothing in the Code that requires lawyers actively to discourage their clients from doing what the lawyers themselves cannot do, except, of course, criminal or fraudulent conduct. See, e.g., DR 7-102. In this aspect, the Code is clearly different from the original Canons, on which Formal Opinion 75 (1932) was based. Former Canon 16 required lawyers to use “best efforts to restrain and prevent [their] clients from doing those things which the lawyer[s] [themselves] ought not to do”.

Finally, our conclusion comports with “the interest of the public in the proper administration of justice: an interest which requires that the judicial machinery be kept free of unnecessarily protracted litigation”. N.Y. State 478 (1978). At common law, the parties to a lawsuit have “an absolute right to settle a case without the consent of [their] attorney[s]”. Raabe v. Universe Tankships, 263 F. Supp. 786, 787 (S.D.N.Y. 1966); accord, Lewis v. S.S. Baune, 534 F.2d 1115, 1122 (5th Cir. 1976); Cook v. Moran Atlantic Towing Corp., 76 F.R.D. 481, 484 (S.D.N.Y. 1977). Requiring a lawyer who learns of direct client-to-client settlement negotiations to discourage or disrupt those negotiations would interfere with that right and could possibly cause the parties to continue to participate in litigation unnecessarily.

III.

We have concluded that a lawyer may not ethically “cause” his or her client to communicate directly with a represented adverse party but has no obligation to discourage the client from doing so. We now turn to the issue of what actions would constitute “causing” the client so to communicate.

We conclude that “caus[ing] another to communicate with a party” in this context includes not just using the client as an agent for or in place of the lawyer for making the communication (i.e., where the lawyer directs, supervises or plans the substance of the communication), but also the act of suggesting or recommending to the client that he or she engage in such communication, even though the lawyer has no further involvement in or knowledge of the substance of the communication that subsequently takes place, or the endorsement or encouragement of such a course of action, even when it is first raised or proposed by the client. The implicit objective in any such suggestion or recommendation is the exclusion of opposing counsel from the settlement negotiation, which would deprive the adverse party of his or her lawyer’s assistance. EC 7-18; N.Y. City 81-29. Even where the lawyer does not suggest to or discuss with the client the substance of a potential communication with the other party, the lawyer can still in fact “cause” the client to communicate by observing or advising that it might be desirable for the client to by-pass opposing counsel and speak directly to the adverse party, if the lawyer’s action is a material factor in the client’s final decision to engage in such a communication. Therefore, we would deem the suggestion or recommendation by the lawyer that the client communicate directly with the adverse party to be intended to cause the client to so act and, as such, to be in violation of DR 7-104(A)(1). n4

n4 There will be close questions as to whether a particular communication is in fact client-initiated or “cause[d]” by the lawyer. We would focus not on the client’s actual subjective decision-making process but instead on whether the lawyer’s words and actions would reasonably be understood to suggest or encourage that the client engage in the communication. Even that distinction might be seen to invite circumvention through carefully worded discussions between the lawyer and client. Obviously, such circumvention would be less likely if, for example, the lawyer had an affirmative obligation to dissuade or try to prevent such direct communication, if made known to him or her, or even if a lawyer were prohibited from discussing the subject altogether. However, we do not want to articulate a rule that would unnecessarily curtail the assistance of counsel available to a client. In any event, we believe that the distinction between client-initiated and lawyer-caused communication is consistent with the Code and is meaningful and workable.

In sum, we conclude that a lawyer violates DR 7-104(A)(1) by proposing or suggesting to a client that the client communicate directly with a represented adverse party or by encouraging or recommending such action where the client raises the matter. Therefore, if a client asks the lawyer whether he or she should approach the adverse party directly, the lawyer may not ethically recommend or endorse such action. The lawyer may inform the client that such communication is not prohibited and that the client has the right to engage in it if he or she independently decides to do so. As a matter of prudence, however, we believe that the lawyer should also advise the client promptly that the lawyer cannot assist, direct or otherwise participate in such communication, absent the consent of opposing counsel. Similarly, although we conclude that lawyers need not discourage or interfere with client-initiated settlement negotiations between represented adverse parties, a lawyer who learns that a client has initiated settlement negotiations with the adverse party may not, thereafter, advise the client as to how to proceed with those negotiations or otherwise assist in them in any other manner that would constitute using the client as a vehicle for communicating with the represented adverse party, absent notice to and consent from opposing counsel.

IV.

As a caution, we note that, despite the restrictions articulated above, there can be situations where a lawyer may not be able prudently or ethically simply to stand by while the clients engage in settlement negotiations, even though those negotiations are party-initiated and conducted.

For example, the lawyer may not, consistent with his or her professional obligations to the client, fail to take action if the lawyer is aware that the client is engaged in or contemplating conduct that would be detrimental to the client’s interest in the context of the representation. DR 7-101(A)(3) prohibits the lawyer from “intentionally . . . prejudic[ing] or damag[ing] the client during the course of the professional relationship . . .,” and EC 7-8 states:

“A lawyer should exert best efforts to insure that decisions of the client are made only after the client has been informed of relevant considerations. A lawyer ought to initiate this decision-making process if the client does not do so.”

Thus, if the lawyer learns that the client, as a result of direct discussions with the adverse party, is about to enter into an unfavorable settlement or commit some other act prejudicial to the client’s position, the lawyer may be obligated to take some action to attempt to protect the client’s interests.

At the same time, a lawyer may not stand idly by if he or she becomes aware that the client is in the process of the settlement negotiations engaged in defrauding the adverse party. The Code provides that a lawyer may not “assist the client in conduct that the lawyer knows to be illegal or fraudulent”. DR 7-102(A)(7). If the lawyer learns that the client has perpetrated a fraud on the adversary in the course of direct communications, then the lawyer “shall promptly call upon the client to rectify the same” and, if the client refuses to do so, “shall reveal the fraud to the affected person or tribunal, except when the information is protected as a confidence or secret”. DR 7-102(B)(1).

We believe that in either of these circumstances, the lawyer should ask the client for permission to disclose to and seek consent from the opposing lawyer to participate or assist in the negotiations, consistent with DR 7-101(A)(1). If the client refuses to give this permission, the lawyer may decide to withdraw from the representation under DR 2-110(C)(1)(c) (where the client “insists that the lawyer pursue a course of conduct which is . . . prohibited under the Disciplinary Rules”) or DR 2-110(C)(1)(d) (where client “renders it unreasonably difficult for the lawyer to carry out employment effectively”), if withdrawal can be accomplished consistent with DR 2-110(A).

Finally, we note that difficult questions can easily arise in this area, and we would advise that care and prudence will often dictate that the lawyer urge his or her client to agree to the notification of opposing counsel of the fact of the discussions, particularly if and when the lawyer learns that the client-initiated communications are likely to develop into a significant dialogue. The parties then can conduct negotiations directly without lawyers present, if they so choose, but still receive separately counsel and advice about the negotiations from their individual lawyers, without presenting their lawyers with difficult ethical issues. The lawyer will best be able to satisfy both the lawyer’s ethical obligations under Canon 7 and his or her responsibilities to the client where the lawyers for all parties are at least informed that settlement negotiations between the parties are occurring.