Aggressive Bargaining: The Legal and Ethical Boundaries of “Me Too”-era Settlements (at Frankfurt Kurnit’s Litigation Ethics Summit)

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07_Hand_wPenThe second panel of the day focused on the ethical and legal limits of aggressive bargaining in the settlement context, with a special focus on settlements of harassment and discrimination cases in the “Me Too”-era.  The panel featured plaintiff’s-side employment discrimination attorney Alexandra Harwin from Sanford Heisler Sharp LLP and John B. Harris, Wendy Stryker, and Viviane Scott of Frankfurt Kurnit.

Here’s a brief summary of some of the legal and ethical points the panel discussed:

The duty of truthful disclosure in settlement negotiations.

While the ethical rules prohibit a lawyer from knowingly making a “false statement of fact or law” to a third person (New York Rule of Professional Conduct (“RPC”) 4.1), it is generally understood that parties may posture or “puff” in negotiation tactics.  Indeed, statements regarding a party’s ultimate settlement position or the party’s assessment of the strength or weakness of the adversary’s position, are generally considered hyperbole, and are unlikely to be relied upon by the adversary.

Still, there are limits on puffery.  For example, John Harris noted authorities stating that a higher degree of candor may be required in settlement discussions before a judge.  Furthermore, misstating matters of fact such as the existence of an eyewitness in a criminal case, the inability of a fired plaintiff to find a new job or the amount of insurance coverage, could constitute fraud sufficient to merit discipline or set aside a settlement.

Extortion or hard bargaining? 

Threats of dire consequences if a case proceeds are inherent in settlement discussions and even the threat of future litigation can be coercive.  Where is the line between permissible hard bargaining and impermissible extortion or coercion?  Viviane Scott noted that although the law and ethics rules forbid threats of criminal charges unless they are “honestly claimed” in order to obtain reasonable restitution for harm done to the client (such as a remedy for theft), the law is filled with cases where lawyers crossed the line into extortionate conduct.  “The hook here is that the threat must be connected to the criminal harm,” said Scott.  Lawyers may generally not make threats regarding conduct bearing no relation to the harm the client sustained. And where the settlement offer and threat include a demand solely for the lawyer’s personal gain and unrelated to making the client whole, they may also constitute extortion.

“Me Too”-era non-disclosure agreements. 

An increasing number of states have passed laws seeking to limit non-disclosure agreements in sexual harassment and assault cases.  According to Alexandra Harwin, the variance among those laws demands that lawyers consider important nuances before constructing a settlement agreement in a given jurisdiction:

  • Do the state’s restrictions apply only to sexual harassment claims, or are discrimination and retaliation claims covered as well?
  • Is there an outright ban on confidentiality clauses or can these terms be included if the complainant prefers them?
  • What disclosures must the complainant be permitted to make?
  • Are private employers covered?

Harwin also discussed the potentially problematic work-arounds that some lawyers may be considering in response to these laws, such as by conditioning the settlement upon the accuser’s acknowledgment that they prefer the settlement to be confidential; by offering to purchase the exclusive rights to the accuser’s story to prevent them from going public with their claims; and by including a provision that the agreement be covered by the laws of a different jurisdiction with less protections for accusers.  Harwin cautioned that some of these tactics may be prohibited, and the degree to which they “violate the spirit” of the underlying laws, likely puts them beyond the ethical pale.

Limits upon the future actions of the plaintiff’s lawyer in settlement. 

Important ethical questions are also emerging in light of lawyers’ increasing efforts to impose limits in settlement agreements on the future actions of plaintiff’s lawyers.  As Wendy Stryker highlighted, RPC 5.6 likely bars many such efforts; that rule prohibits lawyers from offering or making an agreement “in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy.”  The rule also reflects the recognition that restrictions on what a lawyer may do or say interfere with the principle that “[c]omplainants should be able to hire the lawyer of their choice,” said Stryker.  A defendant may have a greater right to limit advertising and marketing statements by a plaintiff’s lawyer where the underlying dispute is non-public.

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