Formal Opinion 2017-3: Ethical Limitations on Seeking an Advantage for a Client in a Civil Dispute by Threatening Ancillary Non-Criminal Proceedings against an Adverse Party

VIEW REPORT

TOPIC: Threatening ancillary non-criminal proceedings against an adverse party

DIGEST: Rule 3.4(e) the New York Rules of Professional Conduct (the “Rules”) prohibits lawyers from threatening criminal charges solely to obtain an advantage in a civil matter, but does not apply to threats to instigate ancillary non-criminal proceedings against an adverse party, e.g., where a lawyer, on behalf of a client, threatens to report an adverse party’s misconduct to an administrative or regulatory agency unless the adverse party agrees to the client’s settlement demand.  The inapplicability of Rule 3.4(e) to threats to instigate ancillary non-criminal proceedings, however, does not mean that lawyers are free to make such threats with impunity.  Such threats may violate criminal laws against extortion, and, if so, they will likely violate Rules 8.4(b) and Rule 3.4(a)(6).  Where such threats do not violate criminal law, they may nonetheless violate Rule 8.4(d), which prohibits conduct prejudicial to the administration of justice.  Whether such a threat violates Rule 8.4(d) will generally depend on whether the threat concerns matters extraneous to the parties’ dispute or, conversely, would serve as an alternative means of vindicating the same alleged claim of right or of obtaining redress for the same alleged wrong.  Additionally, if such a threat is made without a sufficient basis in fact and law, it may violate, inter alia, Rule 4.1 or Rule 8.4(c).

RULES: 3.1, 3.4(a), 3.4(e), 4.1, 4.4(a), 8.4(b), 8.4(c), 8.4(d)

QUESTION: What ethical constraints apply to a lawyer seeking to obtain an advantage for his client in a civil dispute by threatening to instigate an ancillary non-criminal proceeding against the adverse party?

OPINION:

I.          Rule 3.4(e) Does Not Prohibit Threats to Instigate Non-Criminal Proceedings

Rule 3.4(e) provides: “A lawyer shall not . . . present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter.”  Rule 3.4(e) is the same as its predecessor, New York Disciplinary Rule (“DR”) 7-105(A).  New York DR 7-105(A) was the same as DR 7-105(A) of the Model Code of Professional Responsibility of the American Bar Association (“ABA”).

In 1983, the ABA Commission on Evaluation of Professional Standards decided to eliminate DR 7-105(A).  The Commission’s reasoning, as described in Formal Opinion 92-363 (July 6, 1992) of the ABA Standing Committee on Ethics and Professional Responsibility, was that DR 7-105 was both redundant and overbroad.  The rule was redundant in that it prohibited extortionate conduct that violated criminal law and was therefore barred by other ethical rules.  At the same time, the rule was overbroad because it prevented lawyers from threatening prosecution in legitimate furtherance of a client’s interests.  As ABA Formal Op. 92-363 explained:

Model Rule 8.4(b) provides that it is professional misconduct for a lawyer to “commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects.”  If a lawyer’s conduct is extortionate or compounds a crime under the criminal law of a given jurisdiction, that conduct also violates Rule 8.4(b).  It is beyond the scope of the Committee’s jurisdiction to define extortionate conduct, but we note that the Model Penal Code does not criminalize threats of prosecution where the “property obtained by threat of accusation, exposure, lawsuit or other invocation of official action was honestly claimed as restitution for harm done in the circumstances to which such accusation, exposure, lawsuit or other official action relates, or as compensation for property or lawful services.” . . . .

[A] general prohibition on threats of prosecution . . . would be overbroad, excessively restricting a lawyer from carrying out his or her responsibility to “zealously” assert the client’s position under the adversary system. . . . Such a limitation on the lawyer’s duty to the client is not justified when the criminal charges are well founded in fact and law, stem from the same matter as the civil claim, and are used to gain legitimate relief for the client. When the criminal charges are well founded in fact and law, their use by a lawyer does not result in the subversion of the criminal justice system that DR 7-105 sought to prevent.

ABA Formal Op. 92-363 (italics in original; underlining added).[1]

ABA Formal Op. 92-363 identified other provisions of the ABA Model Rules, in addition to Model Rule 8.4(b), as sufficient to prevent improper threats of criminal prosecution in the absence of the blanket prohibition in DR 7-105(A):  Model Rules 3.1 (assertion of frivolous claims); 4.1 (truthfulness in statements to others); 4.4 (conduct with no substantial purpose other than to embarrass, delay or burden a third person); 8.4(d) (conduct prejudicial to administration of justice); and 8.4(e) (stating or implying ability to improperly influence government agency or official).

Despite the ABA’s decision to eliminate the prohibition against threats of criminal prosecution, New York, as well as a number of other jurisdictions, retained it.[2]  New York Rule 3.4(e), like its predecessor DR 7-105(A), is silent as to non-criminal charges.  For this reason, the New York State Bar Association (“NYSBA”) Committee on Professional Ethics declined to extend DR 7-105(A) to threats to file non-criminal complaints with regulatory agencies.  NYSBA Ethics Op. 772 (Nov. 14, 2003).

Opinion 772 considered a scenario in which a lawyer represented a stock brokerage customer whose funds had been misappropriated by the broker.  The question was whether the lawyer, having sued or made a demand on the broker for return of the funds, would violate DR 7-105(A) if he thereafter threatened to (i) file a complaint against the broker with a criminal prosecutor or (ii) file a complaint against the broker with a self-regulatory body such as the New York Stock Exchange (“NYSE”).  Opinion 772 explained that threatening to file the criminal complaint would violate DR 7-105(A) if the lawyer’s sole purpose in doing so was to obtain the return of the client’s funds, as that would be an advantage in the civil matter against the broker.[3]  However, threatening to file a non-criminal complaint with the NYSE would not violate DR 7-105(A), even if the lawyer’s sole purpose was to obtain an advantage in the form of return of the funds, because the language of the rule referred only to criminal charges.  Opinion 722 thus concluded that “the threatened . . . filing of complaints with . . . administrative agencies or disciplinary authorities lies outside the scope of DR 7-105(A).”

Recently, in considering whether a lawyer may threaten to file a disciplinary complaint against another lawyer, this Committee similarly concluded that such a threat would not violate Rule 3.4(e) because that rule, by its terms, applies only to threats of criminal charges.  NYCBA Formal Op. 2015-5 (June 26, 2015).  We reasoned that “the plain language of Rule 3.4(e) should govern,” and “declin[ed] to extend the rule by analogy to threats of disciplinary action against attorneys.”  Id.  We also observed that “it may be appropriate to threaten disciplinary action in order to induce the other lawyer to remedy the harm caused by his misconduct, such as returning improperly withheld client funds or correcting a false statement made to the court.”  Id. § IV (emphasis added).

In Opinion 2015-5, we acknowledged but expressly declined to follow the contrary decision of the Nassau County Bar Association Committee on Professional Ethics in Opinion 1998-12 (Oct. 28, 1998).  There, a lawyer had information indicating that opposing counsel had made a misrepresentation to the court.  Opinion 1998-12 concluded that the lawyer could communicate with opposing counsel about the necessity of correcting the misrepresentation, but that “an actual threat to file a [disciplinary] grievance if [opposing counsel] would not offer a better settlement would . . . violate DR 7-105.”  In reaching this conclusion, Opinion 1998-12 explained that “[t]hreatening to file a grievance has been construed to constitute the same violation as to threaten to file criminal charges,” citing People v. Harper, 75 N.Y.2d 313 (1990).  However, People v. Harper did not involve a threat to file a disciplinary grievance; rather, it referred to DR 7-105 for the proposition that “it is improper to use the threat of criminal prosecution as a means of extracting money in a civil suit.”  Id. at 320.[4]

In concluding that Rule 3.4(e) does not apply to threatened disciplinary charges, our Opinion 2015-5 cautioned that this “does not mean . . . that lawyers are free to threaten disciplinary charges with impunity,” because “other ethical rules impose limits on such threats.”  Id.  We emphasized that Opinion 2015-5 should not be interpreted as an “unfettered license to threaten . . . adversaries with disciplinary violations.”  Id.  “Given the opportunities for abuse, . . . the right to threaten a disciplinary grievance is subject to important limitations” such as those in Rules 3.1 (non-meritorious claims and contentions), 3.4(a)(6) (knowing engagement in illegal conduct), 4.1 (truthfulness in statements to others), 4.4(a) (conduct with no substantial purpose other than to cause embarrassment or harm), 8.4(b) (illegal conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness), 8.4(c) (conduct involving dishonesty, fraud, deceit or misrepresentation), 8.4(d) (conduct prejudicial to administration of justice) and 8.4(h) (conduct adversely reflecting on fitness as lawyer).  See also ABA Formal Op. 94-383 (July 5, 1994) (Model Rules do not prohibit threat to file disciplinary charges to obtain advantage in civil case, but such threats are constrained by Model Rules 3.1, 4.1, 4.4, 8.4(b) and 8.4(d)).

In light of NYSBA Opinion 772 and NYCBA Opinion 2015-5, we conclude that Rule 3.4(e) does not prohibit a lawyer from seeking to obtain an advantage for his client in a civil matter by threatening to instigate an ancillary non-criminal proceeding against an adverse party.^[5]  We therefore turn to the principal ethical rules that constrain such threats, discussed below.[6]

II.        Threats in Violation of Law

Whether a particular threat constitutes criminal extortion is a substantive legal issue outside the purview of this Committee.  For our purposes, it is sufficient to note that under certain circumstances, threats to instigate non-criminal proceedings in order to obtain an advantage in a civil matter may violate laws against extortion or other criminal statutes, just as certain threats to file disciplinary or criminal charges may violate such laws.  See NYCBA Formal Op. 2015-5 (discussing N.Y. Penal Code §115.05); Rule 3.4 Cmt. [5] (use of threats in negotiation may constitute crime of extortion).  A threat that constitutes criminal extortion or a similar offense will likely violate Rule 3.4(a)(6), which provides that “[a] lawyer shall not . . . engage in . . . illegal conduct,” and Rule 8.4(b), which provides that “[a] lawyer. . . shall not . . . engage in . . . illegal conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness as a lawyer.”  Such a threat may also violate Rule 8.4(h), which provides that “[a] lawyer. . . shall not . . . engage in any . . . conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness as a lawyer.”

III.       Threats Without Sufficient Basis in Law and Fact

In some circumstances, a lawyer will be subject to discipline for threatening an ancillary non-criminal proceeding that the lawyer knows is legally or factually baseless.  Such knowingly baseless threats, including a definitively stated threat to instigate a proceeding that the lawyer does not in fact intend to instigate, may violate Rule 4.1or Rule 8.4(c).  Rule 4.1 provides that “[i]n the course of representing a client, a lawyer shall not knowingly make a false statement of fact or law to a third person,” while Rule 8.4(c) provides that “[a] lawyer . . . shall not . . . engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”  See District of Columbia Ethics Op. 339 (April 2007) (threat to report debtor to criminal authorities if debt is not paid may be impermissibly misleading if a selective and inaccurate reference is made to the applicable law). [7]

This is not to say that all legally or factually unsupported threats are impermissibly misleading.  Especially in the course of negotiations with another lawyer, a threat may not rise to the level of an express or implied assertion of fact or law or of the lawyer’s intended future conduct.  See Rule 4.1, cmt. [2] (“Whether a particular statement should be regarded as one of fact can depend on the circumstances.  Under generally accepted conventions in negotiations, certain types of statements ordinarily are not taken as statements of fact.”).  But if a lawyer makes a threat that is baseless either because the lawyer has unequivocally stated an intention that does not exist or because the threatened proceeding would lack a sufficient legal or factual basis under Rule 3.1, ^[8] it may be knowingly false or misleading to seek an advantage by making such a threat.  This is especially so if the lawyer is making the threat to a non-lawyer who might reasonably be expected to rely to his detriment on the lawyer’s express or implied assertion that there is a legitimate basis for the threat.

IV.       Threats for No Substantial Purpose Other Than Harassment or Harm

Rule 4.4(a) provides: “In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass or harm a third person.”  Rule 3.1(b)(2) similarly provides that a lawyer’s conduct is “frivolous” for purposes of Rule 3.1 if it “serves merely to harass or maliciously injure another.”  There could be circumstances where a threat to instigate a non-criminal proceeding against an adverse party is largely or entirely the result of a client’s desire to embarrass, harm, harass or maliciously injure an adverse party, in which event these rules would be implicated.  In most cases, however, a substantial purpose of the threat will be to gain advantage in the underlying civil dispute by causing the adverse party to settle or drop his claims.  Where that is so, the threat would not appear to “serve[] merely to harass or maliciously injure another” or “have no substantial purpose” other than to cause embarrassment or harm.  

V.        Threats Prejudicial to Administration of Justice

A threat that is adequately grounded in law and fact, has a substantial purpose other than harassment or harm, and is not extortionate under criminal law may nonetheless violate Rule 8.4(d), which provides: “A lawyer . . . shall not . . . engage in conduct that is prejudicial to the administration of justice.”  Rule 8.4(d), which addresses conduct that may or may not be addressed by other ethical rules, seeks to prevent substantial harm to the justice system:

The prohibition on conduct prejudicial to the administration of justice is generally invoked to punish conduct, whether or not it violates another ethics rule, that results in substantial harm to the justice system comparable to those caused by obstruction of justice, such as advising a client to testify falsely, paying a witness to be unavailable, altering documents, repeatedly disrupting a proceeding, or failing to cooperate in an attorney disciplinary investigation or proceeding. . . . The conduct must be seriously inconsistent with a lawyer’s responsibility as an officer of the court.”

Rule 8.4 Cmt. [3] (emphasis added).^[9]

Clearly, a baseless threat may be prejudicial to the administration of justice where it would tend to undermine the truth-seeking process or otherwise distort the adjudicative proceeding.  See, e.g., NYCBA Formal Op. 2015-5 (opining that a threat to file disciplinary charges against opposing counsel, if not supported by a good faith belief that opposing counsel is engaged in unethical conduct, would violate Rule 8.4(d)); In re Smith, 848 P.2d 612 (Or. 1993) (finding that it was prejudicial to the administration of justice for a lawyer to baselessly threaten to sue a doctor if the doctor did not render a helpful expert opinion).[10]

The question, then, is whether a threat that does have a sufficient basis may nonetheless violate Rule 8.4(d).  Two ABA opinions, ABA Formal Op. 92-363 (July 6, 1992) and ABA Formal Op. 94-383 (July 5, 1994), recognize that it may be improper to threaten to take otherwise lawful action, such as filing criminal or disciplinary charges for which there is an adequate legal and factual basis, in order to pressure an opposing party to settle a civil case on favorable terms.  These opinions suggest that the propriety of such a threat turns on whether the threatened proceeding provides an alternative means of vindicating the rights at issue in the civil case or whether the lawyer is threatening unrelated harm in order to obtain leverage or a bargaining chip for settlement.

For example, ABA Formal Opinion 92-363, which concerned threats to instigate criminal proceedings, emphasized that if the criminal offense was unrelated to the underlying civil matter, threats would tend to prejudice the administration of justice by distorting the parties’ negotiations:

A relatedness requirement . . . tends to ensure that negotiations will be focused on the true value of the civil claim, which presumably includes any criminal liability arising from the same facts or transaction, and discourages exploitation of extraneous matters that have nothing to do with evaluating that claim.  Introducing into civil negotiations an unrelated criminal issue solely to gain leverage in settling a civil claim furthers no legitimate interest of the justice system, and tends to prejudice its administration.

ABA Formal Op. 92-363 (July 6, 1992) (emphasis added).  See also Roy D. Simon & Nicole Hyland, Simon’s New York Rules of Professional Conduct Annotated (2016 ed.) at 1159 (purpose of civil justice system is to enable private parties to resolve disputes peaceably by presenting facts to neutral tribunal and negotiating in good faith; threat of criminal charges may give one party excessive settlement leverage, enabling him to coerce unfair settlement and deter other party from pursuing meritorious claims or defenses, which would “frustrate the purpose of the civil justice system”).

We agree that threatened ancillary proceedings – whether criminal or non-criminal – generally will not prejudice the administration of justice when they concern the same subject matter as the underlying civil dispute and would serve as an alternative means of vindicating the same alleged claim of right or of obtaining redress for the same alleged wrong.  A typical scenario would be one where a plaintiff who brings a civil suit to recover damages threatens to enlist the aid of an administrative agency in the recovery of those damages.  For example, as in NYSBA Opinion 772, an investor suing a stockbroker for misappropriated funds may threaten the stockbroker with an NYSE proceeding asserting the same misappropriation.  Similarly, a consumer suing a contractor for shoddy work may threaten to report his claim to the Attorney General’s Bureau of Consumer Frauds & Protection, a civil bureau that helps consumers obtain restitution.  In such cases, where the threatened proceedings seek the same relief as the underlying civil claim, there is no “exploitation of extraneous matters that have nothing to do with evaluating that claim” and no resulting prejudice to the administration of justice of the kind contemplated by ABA Formal Opinion 92-363.

In contrast, if the subject matter of the threatened proceeding and the underlying civil dispute are unrelated, the threat is likelier, in our view, to prejudice the administration of justice, because it will be extortionate in nature, whether or not it rises to the level of extortion under criminal law.  This is illustrated in North Carolina Formal Ethics Opinion 2005-3 (July 24, 2005), which concluded that a lawyer may not threaten to report an opposing party or witness to immigration officials to gain an advantage in civil settlement negotiations.  There, defense counsel learned during discovery that the plaintiff (and some of plaintiff’s witnesses) might be in the country illegally, but the plaintiff’s immigration status was “entirely unrelated” to the civil suit.  The issue before the North Carolina Ethics Committee “involve[d] the threat, not of criminal prosecution, but of disclosure to immigration authorities.”  Id.[11]  In any event, there was no rule prohibiting threats of criminal prosecution to gain advantage in a civil matter, as North Carolina had previously eliminated that rule.  Consequently, the permissibility of defense counsel’s threat to report to immigration authorities turned on whether that would be prejudicial to the administration of justice under Rule 8.4(d) or violate other rules.

The North Carolina Ethics Committee reasoned that even where a threat to report a party or a witness to immigration authorities to gain leverage in a civil matter does not constitute criminal extortion, the “exploitation of information unrelated to the client’s legitimate interest in resolving the lawsuit raises some of the same concerns as threatening to pursue the criminal prosecution of the opposing party for an unrelated crime,” including prejudice to the administration of justice.  Id.  Citing, inter alia, ABA Formal Op. 92-363 and Rule 8.4(d), the Ethics Committee concluded:

There is no valid basis for distinguishing between threats to report unrelated criminal conduct and threats to report immigration status to the authorities: the same exploitation of extraneous matters and abuse of the justice system may occur. . . . The threat to expose a party’s undocumented immigration status serves no other purpose than to gain leverage in the settlement negotiations for a civil dispute and furthers no legitimate interest of our adjudicative system. Therefore, a lawyer may not use the threat of reporting an opposing party or a witness to immigration officials in settlement negotiations on behalf of a client in a civil matter.

(Emphasis added.)[12]

As noted above, Comment [3] to Rule 8.4 explains that the prohibition on conduct prejudicial to the administration of justice is intended to address conduct that “results in substantial harm to the justice system” – harm that is “comparable to,” for example, the harm caused by “paying a witness to be unavailable.”  In North Carolina Opinion 2005-3, defense counsel’s threat to report plaintiff and some of his witnesses to immigration authorities may not appear as egregious as paying a witness to be unavailable.  Yet it could cause comparable harm, by using matters extraneous to the substantive and procedural merits of the case to derail the fair adjudication of plaintiff’s claims and deprive him of his day in court.  It may be rare for a threat against an adverse party to cause such substantial harm to the justice system, but given the potential for broad pretrial discovery to turn up unrelated information that could be deployed against an adverse party, it is appropriate to clarify that such threats may violate Rule 8.4(d).

VI.       Conclusion

Rule 3.4(e) does not prohibit a lawyer from threatening non-criminal proceedings against an adverse party to obtain an advantage in a civil matter, but this does not mean that that there are no ethical constraints on such threats.  Such threats may violate criminal laws against extortion, and if so they will likely violate Rules 8.4(b) and 3.4(a)(6).  Where such threats do not violate criminal law, they may nonetheless violate Rule 8.4(d), which prohibits conduct prejudicial to the administration of justice.  Whether such a threat is prejudicial to the administration of justice will generally depend on whether the threat concerns matters extraneous to the parties’ dispute.  Additionally, a threat made without a sufficient basis in fact and law would violate, inter alia, Rule 3.1, and if it included a false statement of fact or law would also violate, inter alia, Rule 4.1.