September 14, 1994
A lawyer who in connection with settlement of a case receives an offer that a party will refrain from reporting alleged ethical misconduct of the lawyer's client in exchange for settlement in a specified amount, has discretion to report the offering lawyer to the Attorney Grievance Commission.
The lawyer must advise the client of the impropriety of accepting such settlement terms, and withdraw from the representation if the client persists in settlement contrary to the advice.
The lawyer is not required to report the alleged ethical misconduct of the client if the lawyer has no knowledge regarding the matter, or if the information held by the lawyer is protected as confidences and secrets.
The lawyer client has a duty to report the settlement offer to the Attorney Grievance Commission.
References: MRPC 1.2(d), 1.4(a) and (b), 1.6(a), 1.16(a), 2.1, 8.3, 8.4(a); RI-88, RI-217.
During the course of settlement negotiations a lawyer [hereafter "offering lawyer"] proposes that the receiving counsel's client, another lawyer, will refrain from reporting alleged ethical misconduct of the opposing party, to the appropriate disciplinary authorities in exchange for settlement in a specified amount. The lawyer representing the opposing party [hereafter "receiving counsel"] asks:
- Is receiving counsel required to report the conduct of the offering lawyer to the Attorney Grievance Commission?
- May receiving counsel recommend that the offer be accepted by the lawyer client?
- Is receiving counsel required to report the alleged misconduct of the lawyer client?
MRPC 8.3 states:
"(a) A lawyer having knowledge that another lawyer has committed a significant violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness, or fitness as a lawyer shall inform the Attorney Grievance Commission.
"(b) A lawyer having knowledge that a judge has committee a significant violation of the Code of Judicial Conduct that raises a substantial question as to the judge's honesty, trustworthiness or fitness for office shall inform the Judicial Tenure Commission.
"(c) This rule does not require disclosure of:
"(1) information otherwise protected by Rule 1.6; or
"(2) information gained by a lawyer while serving as an employee or volunteer of the substance abuse counseling program of the State Bar of Michigan, to the extent the information would be protected under Rule 1.6 from disclosure if it were a communication between lawyer and client."
The use of information regarding alleged ethical misconduct to induce a party to make concessions in a legal matter was addressed in RI-88, which opined that a lawyer may not offer or make an agreement restricting a party or counsel for a party from bringing information concerning a lawyer's ethical misconduct to the attention of the Attorney Grievance Commission. RI-88 states in pertinent part:
"A lawyer may not directly, or indirectly through the client, utilize the alleged misconduct as a means of obtaining an advantageous resolution of the client's own matter. A lawyer may not "threaten" an offending lawyer with reporting the misconduct if restitution is not made, or "warn" an offending lawyer that if the matter is not resolved to the satisfaction of the client, the client may report the offending conduct. See MRPC 8.4(c), RI-78. Although the lawyer is bound to maintain client confidences and client secrets at the request and bidding of the client, the lawyer may not use a threat of the alleged misconduct as a way of inducing, coercing or inviting favorable settlement on behalf of the client, even if it is in the client's interest, and the client must be so informed." Emphasis added.
If the offering lawyer's client desires that an offer of nondisclosure of alleged ethical misconduct in exchange for settlement be tendered, the offering lawyer's duties under MRPC 1.2(d) are triggered. MRPC 1.2(d) states:
"When a lawyer knows that a client expects assistance not permitted by the Rules of Professional Conduct or other law, the lawyer shall consult with the client regarding the relevant limitations on the lawyer's conduct."
If, after consultation regarding the limitations on the lawyer's conduct, the client insists that the settlement offer be made, the offering lawyer must withdraw. MRPC 1.16(a)(1).
The offering lawyer has a duty under MRPC 8.3 to report the alleged ethical misconduct of the opposing party, unless the information is protected by MRPC 1.6. MRPC 8.4(a) states "it is professional misconduct for a lawyer to violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another." In short, a lawyer may not, directly or on behalf of a client, attempt to circumvent the reporting requirements of MRPC 8.3.
Receiving counsel has knowledge of a significant violation raising a substantial question as to fitness of the offering lawyer, and is required to report the information to the Attorney Grievance Commission, unless the information is protected by MRPC 1.6. MRPC 1.6(a) states:
"'Confidence' refers to information protected by the client-lawyer privilege under applicable law, and 'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client."
In RI-217 information about a client's alleged fraudulent acts received from the opposing party was deemed a "secret" protected by MRPC 1.6, since it was information gained in the professional relationship which would be detrimental to the client. In the current inquiry, the settlement offer involves alleged ethical misconduct of the lawyer client, disclosure of which would be detrimental to the client. It appears, therefore, that receiving counsel is not required to report the offering lawyer to the Attorney Grievance Commission because it is a "secret" under MRPC 1.6(a), but is permitted to do so under MRPC 1.6(c)(2) and 8.3(c).
Lawyers are advised to carefully consider the consequences before failing to report. In re Himmel, 533 NE2d 790 (Ill 1988), a lawyer was suspended from practice for one year for failing to report information concerning predecessor counsel's conversion of client funds and instead negotiating a repayment plan. The Illinois court held that the successor lawyer's knowledge of the predecessor lawyer's misconduct was not privileged [Illinois ethics rules did not contain a definition of "secret" as found in MRPC 1.6(a)], and that the successor lawyer's duty to report another lawyer's misconduct was not discharged when the client reported the matter to disciplinary authorities, nor was the lawyer's failure to report excused by the client's instruction not to report. The court was particularly disturbed that the lawyer accepted a settlement agreement rather than report the misconduct.
Receiving counsel is under the same ethical duties as offering counsel. MRPC 1.4(a) requires receiving counsel to notify the client promptly of all settlement offers. Receiving counsel must advise the client regarding
the ethical propriety of the terms of the settlement offer, and the ethical obligations of the offering lawyer. MRPC 1.2(d). Since receiving counsel's client is a lawyer, receiving counsel should also advise regarding the client's own ethical duties. MRPC 2.1. Receiving counsel may not advise that the offer be accepted, since that would be contrary to the ethics duties of both receiving counsel and the lawyer client.
Receiving counsel currently has no knowledge concerning the alleged ethical misconduct. Without knowledge, receiving counsel's duty to report the lawyer client is not triggered. If receiving counsel seeks additional information about the conduct by asking the lawyer client, such information would be protected by MRPC 1.6. MRPC 8.3(c) would not require receiving counsel to report. If receiving counsel undertakes independent investigation of the alleged misconduct of the lawyer client in a manner not covered by MRPC 1.6 and discovers that ethical misconduct has occurred, receiving counsel may be required to report under MRPC 8.3(a).
The lawyer client has an ethical duty to report the offering lawyer under MRPC 8.3; the exception in MRPC 8.3(c) does not apply to the lawyer client. Receiving counsel must advise the lawyer client of the client's duty to report, and that the receiving lawyer's services may not be used to further an illegal or fraudulent act. MRPC 1.2(c).