Ethics Corner: Secret Settlements

Langford.CarolMany of the issues that arise in mediation have been touched on before in this column; confidentiality, conflicts of interest and negotiation tactics among them.

But mediation brings a new spin to these issues, particularly because of a lack of enforceable black-letter rules. There are policy considerations as well—both advocates and mediators engage in balancing acts between the parties and, on occasion, between the client and the public welfare.

For instance, sometimes a mediation settlement is offered only on the condition of secrecy. When a mediator sees a disparity in power between the parties or a litigator sees a danger in “secretizing” a settlement about an issue that endangers the public, mediators must reconcile a personal morality and their professional obligations.

Historically, ADR was used by stipulation of the parties. As a result, formal ethics rules governing the process of mediation were slow to develop. The American Bar Association largely shied away from developing extensive rules about mediation, even during the Ethics 2000 revisions.

But over the last dozen or so years and after some false starts during the 1990s, extensive rules of conduct for mediators have been developed and adopted by several organizations and some states. Why was it so hard to do? Because the rule drafters lumped arbitration and mediation together as “ADR,” even though the two are very different.

There was already the federal Arbitration Act of 1954 that requires courts to recognize and enforce arbitration awards that are fundamentally fair, and the Uniform Arbitration Act adopted in 49 states. Because mediators were not judges and had no decision making power, codified regulations were slower to develop. But we now have the Uniform Mediation Act and the Model Standards of Conduct for Mediators. States are free to take whatever portions they want from the Act.

Like most rules that attempt to govern the conduct of all lawyers in all matters at all times, there are ethical dilemmas that are unaddressed. For example, what happens when a mediator calls an attorney in for a “private chat without the client.” The mediator then says the opposing party has made a one-time offer of $3 million dollars because there are “smoking gun” documents showing that the breast cancer treatment drug that killed the plaintiff’s wife was tainted, and directly responsible for the deaths of several other people and the near-death poisoning of others.

The offer is dependent on the plaintiff’s lawyer not giving any specifics to the client, and on the parties entering into a settlement agreement in which neither the amount nor the information about the other adverse incidents may be revealed.

Is it ethical for the plaintiff’s lawyer to meet with the mediator without her or his client? May the lawyer recommend settlement while keeping the specifics about adverse incidents from her or his client? Would a totally confidential settlement be ethical even if the attorney could tell the client what she or he knows? All hard questions, not answered by our Rules.

Secret settlements can come in several forms. Protective orders like those in the Big Tobacco cases were once routinely granted by Judge Lee Sarokin, who later stated, “I must confess that for a considerable period of time, as a routine matter I signed consent orders on the theory that since the parties agreed and the lawyers agreed, there was no reason for us to examine the agreement. But I slowly came to the realization that there were other interests involved.”[1] Those interests, of course, belong to the public.

Stipulated reversals and depublication are the worst of secret settlements in this author’s opinion; those involve agreements to wipe the trial court’s judgment in favor of the plaintiff off the books by stipulating to reverse that judgment on appeal in return for immediate payment, usually of a large sum of money. In this gold-from-dross procedure, the loser of the case becomes the de jure winner, and can trumpet that “victory.”

Secret settlements have been entered into in clergy abuse matters, the Bridgestone Tire cases, legal malpractice cases involving major misappropriations and several pharmaceutical cases. The problem with the current lack of ethics standards relating to secrecy is that many attorneys believe their duty of advocacy trumps any possibility of disclosing the potential harm to the public even if it is permitted under our confidentiality rules.

So long as the agreements are “ethical,” they will be entered into regardless of any danger to the public, on the theory that the client’s interests (usually considered by lawyers to be financial ones) come first.

A sea change on the issue of secrecy is likely to occur only when lawyers are widely prohibited from contracting away their ability to disclose known, discovered dangers to the public so that their sole client may benefit. If there is a real hidden danger to the public, such settlements should be disallowed.

Carol M. Langford is an attorney specializing in State Bar defense and attorney conduct matters. She is also a lecturer in Law at UC Berkeley Boalt Hall School of Law.

[1] Jaffe, “Public Good vs. Sealed Evidence,” Star-Ledger (Newark), Sept. 2, 1990.

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