December 3, 1968
Ethics Opinon 1968-2
SUBJECT: SETTLEMENT NEGOTIATIONS
Counsel for a defendant corporation attended a meeting to discuss settlement possibilities. Also at the meeting were general counsel of the parent company which owns all the outstanding shares of the plaintiff corporation and also a board member of the defendant who is general counsel of a company which had made substantial investments in the defendant. Counsel for the plaintiff was not invited to be present at the meeting. Did counsel for the defendant corporation violate any rules of professional conduct in attending the meeting outside of the presence and without the consent of counsel for the Plaintiff?
Counsel for defendant should have contacted counsel for plaintiff prior to such meetings. His failure to do so violates Rule 12 of the Rules of Professional Conduct of the State Bar of California as well as Canons 9 and 39 of the American Bar Association.
STATUTES AND CANONS
Rule 12 of the Rules of Professional Conduct of the State Bar of California reads as follows:
A member of the State Bar shall not communicate with a party represented by counsel upon a subject of controversy, in the absence and without the consent of such counsel. This rule shall not apply to communications with a public officer, board, committee or body.
Although the Canons of Legal Ethics of the American Bar Association are not binding on the members of the State Bar of California, it should be noted that Canons 9 and 39 of the American Bar Association read as follows:
"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 . . ."
The facts as related indicate that the Plaintiff was a wholly owned corporation of the parent company, a large national corporation. This would indicate that the parent company owned all of the outstanding shares of the Plaintiff and was in a position to dictate policy and operational functions of the Plaintiff relative to the lawsuit against defendants. When he arranged the settlement conference, the general counsel of the company which invested in the defendant must have thought that the general counsel for the parent company could effectuate a settlement of the controversy. Counsel for the defendant, being aware that the meeting was for the purpose of inducing the parent company to bring pressure upon the Plaintiff to settle the lawsuit, should have contacted counsel for Plaintiff prior to the meeting.
For the purposes of this Opinion it must be kept in mind that it is highly unlikely that this would have occurred had all the parties involved not been attorneys, for this obviously would have put the attorney on notice of the fact that he was dealing with the client rather than the attorney for the client. The fact, however, that all of the parties here involved are attorneys does not invalidate nor mitigate Rule 12 or Canons 9 or 39, and it is, therefore, the opinion of this Committee that because of the relationship between counsel for defendant and counsel for the plaintiff as adversaries, it was a breach of legal ethics for counsel for defendant to attend a meeting for the purpose of settling the dispute without first notifying and obtaining the consent of counsel for the Plaintiff.
As stated in Henry S. Drinker's work on legal ethics at Page 202:
"The 'wise and beneficient' aim of the Canon (meaning Canon 9) has been said to be to 'preserve the proper functioning of the legal profession as well as to shield the adverse party from improper approaches.'"
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.
EDITOR'S NOTE: Effective 1/1/75, Rule 12 is renumbered as 7-103 and some changes in wording have been made. A.B.A. Canons refer to the old series of Canons; this subject is now covered by DR 7-104 under Canon 7 of the A.B.A. Code of Professional Responsibility.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.