Monday, November 5, 2007
Here's an interesting twist on the complexities of handling parallel civil and criminal proceedings. State Farm Insurance filed a lawsuit against Mississippi's attorney general, claiming that the AG reopened a criminal investigation in violation of an agreement to drop the inquiry in exchange for the company's reconsideration of thousands of policyholder's claims after Hurricane Katrina.
Victoria Pynchon wrote a provocative post on this at the IP ADR Blog -- State Farm v. State of Mississippi: Withdrawing Criminal Charges to Settle a Civil Action? -- raising ethical questions about the underlying agreement. Pynchon, a copyright mediator, says that she often faces the question whether a plaintiff may agree to withdraw criminal charges in exchange for a settlement of civil claims. She refers to an AP news report in the New York Times describing State Farm's lawsuit:
State Farm Insurance is suing Mississippi's attorney general, accusing him of violating an agreement to end a criminal investigation of the insurer’s handling of claims on the Gulf Coast after Hurricane Katrina, according to court papers unsealed Friday.
State Farm’s lawsuit claims that the attorney general, Jim Hood, reopened a criminal investigation of the company and its employees “for the purpose of harassment” and to coerce the insurer into settling civil litigation spawned by the Aug. 29, 2005, hurricane.
State Farm says Mr. Hood agreed in January to end his office’s criminal inquiry as part of a settlement agreement that called for the company to reopen and possibly pay thousands of policyholder claims.
On Pynchon's reading, such an agreement would be unethical:
State Farm suing Mississippi for failing to honor an agreement to drop a criminal inquiry in exchange for the settlement of civil claims? I must be missing something because the settlement sounds unethical and the lawsuit without merit because civil claims were settled in exchange for the termination of a criminal investigation.
The law is far from uniform on the ethics of using criminal charges to civil settlement negotiations. In New York, following the Model Code of Professional Responsibility, DR 7-105 provides: "A lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter." The ABA abandoned this rule when it adopted the Model Rules of Professional Conduct. Pynchon cites ABA Ethics Op. 920-363 (1992) (allowing a lawyer to use a threat of a criminal referral to obtain advantage if the civil claim and criminal matter are related and well-founded). Some states that adopted the Model Rules chose to retain the prohibition. New Jersey's RPC 3.4(g), for example, provides: "A lawyer shall not ... present, participate in presenting, or threaten to present criminal charges to obtain an improper advantage in a civil matter."
I've always found this rule intriguing and a bit troubling. First, the language of both DR 7-105 and NJ RPC 3.4(g) leaves open a possible distinction between bringing or threatening criminal charges and withdrawing or offering to withdraw charges, although as a matter of legal ethics and public policy it is hard to see why that distinction should matter. Pynchon points to a California ethics opinion (Formal Op. 1991-124) extending the prohibition to dismissal of criminal charges.
More fundamentally, while the prohibition seems nice in theory, I wonder whether it really makes sense. The theory, as I understand it, is that citizens ought to report crimes (or not) as a matter of civic responsibility, not for personal gain. The criminal process, on this theory, should be reserved for its public purpose, not as a private tool in civil litigation. But I wonder whether that idea hold up. Criminal sanctions are supposed to encourage good behavior. If fear of criminal punishment persuades a wrongdoer to make right a wrong, isn't that a good thing? That, of course, assumes the legitimacy of the criminal charges and civil claims, but to the extent parties threaten illegitimate charges, couldn't we deal with that through the law of extortion or similar doctrines, rather than through an ethics rule that prohibits or chills consideration of criminal proceedings for civil advantage even in connection with legitimate claims?
Finally, even if we were to accept the theoretical justification for the prohibition, isn't it one of the least realistic rules in the book? Any civil defendant accused of serious wrongs understands the possibility of criminal proceedings. The implicit threat of such proceedings is present in the civil settlement dynamic, whether expressed openly or not. The defendant knows that one of the advantages of resolving civil claims to the satisfaction of those who have been harmed is that satisfied claimants are less anxious to pursue other avenues to obtain justice. Isn't that the reality, regardless of whether the ethics rules force lawyers to keep their mouths shut about it? And if it is the reality, what's so bad about it?
In the State Farm case, by the way, it is not clear to me whether Pynchon fairly characterizes the deal as "an agreement to drop a criminal inquiry in exchange for the settlement of civil claims." Did the company reopen policyholder claims as part of a civil settlement? Is there a difference between plaintiffs' attorneys using criminal charges to drive a settlement of their clients' claims, versus the state using criminal charges to drive a settlement of citizens' claims? The State Farm situation does not neatly fit the usual DR 7-105 scenario. Keep in mind, in any event, that we're talking about third-hand info: an agreement described in a lawsuit described in a newspaper article described in a blog. In January I blogged on a failed earlier attempt at an agreement between State Farm and Mississippi (Birnbaum, Scruggs and the Katrina Settlement), but until now I had not continued to follow the saga.
Update: Thanks to Ted Frank for pointing out David Rossmiller's post on the State Farm action at the Insurance Coverage Law Blog. Rossmiller has links to the complaint and other documents, as well as an extensive post on the suit. He also has a shorter post on the subject at Point of Law, calling this "the most unusual development yet" in Katrina litigation.