Can a lawyer mention possible criminal charges against a non-paying contractor while negotiating a civil settlement for unpaid subcontractors?

Plain-English summary

An owner paid a general contractor who certified by affidavit that all subcontractors were paid; unpaid subcontractors then threatened mechanic's liens, and the owner determined the general contractor had not paid them and had violated S.C. Code Sections 29-7-10 and 29-7-20 (a criminal statute). The attorneys for the owner and the subcontractors asked whether they could advise clients of the right to file criminal charges under Section 29-7-20, mention the possible criminal charges during settlement negotiations with the contractor, and agree (or have clients agree) to refrain from presenting those charges as part of a settlement in return for payment.

The committee emphasized that South Carolina, unlike the ABA Model Rules, retained Rule 4.5, taken from DR 7-105 of the prior Code, barring a lawyer from presenting, participating in presenting, or threatening to present criminal charges solely to obtain an advantage in a civil matter. It distinguished the West Virginia Printz decision (decided under DR 7-105 before West Virginia adopted the Model Rules) and grounded its conclusions in South Carolina's adopted Rule 4.5. Drawing on prior opinions, it held that attorneys may advise their clients of the right to file criminal charges (a distinction between advising and directing, per Advisory Opinion 92-17), but should avoid counseling or assisting clients in presenting or threatening such charges. Distinguishing Opinions 89-18 and 92-1 (where threats were used or the charges were unrelated to the parties' direct interests), the committee reasoned that here the damages flowed directly from the contractor's statutory violation and the injured parties could benefit directly from restitution on conviction. It concluded that attorneys may mention the possible related criminal charges in negotiating a settlement only if they can demonstrate the mention was not made solely to obtain an advantage in the civil matter; even then, the negotiations must otherwise comply with the Rules and be in good faith, with relief limited to reasonable restitution based on actual losses, or the attorneys risk violating Rules 4.5 and 8.4. Finally, attorneys and clients may agree to refrain from presenting the charges as part of a settlement for payment, but the committee cautioned that substantive law raises questions about the validity and enforceability of such agreements and whether entering them could constitute compounding a crime, so both attorneys and clients should act with caution.

Currency note

This opinion was issued in 1992, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer threaten criminal charges to win a civil settlement in South Carolina?

A: No. The committee stressed that South Carolina retained Rule 4.5, which bars presenting or threatening criminal charges solely to obtain an advantage in a civil matter.

Q: Can a lawyer mention possible criminal charges during settlement at all?

A: Only conditionally. The committee said a lawyer may mention possible related charges only if able to demonstrate the mention was not made solely to obtain an advantage, the relief is limited to reasonable restitution, and the negotiation otherwise complies with the Rules.

Q: Can the parties agree to drop criminal charges as part of the settlement?

A: The committee said the Rules do not prohibit agreeing to refrain from presenting the charges in return for payment, but warned that substantive law questions the agreements' validity and whether they could amount to compounding a crime, so caution is required.

Background and rules framework

The opinion applied South Carolina's Rule 4.5 (threatening criminal prosecution), a rule South Carolina adopted from DR 7-105 of the former Code and did not carry into the Model Rules, together with Rule 8.4 (misconduct), which corresponds to like-numbered Model Rule 8.4. The analysis turned on whether mention of charges was made solely to obtain a civil advantage.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 4.5 (from DR 7-105): a lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter.
• South Carolina RPC 8.4 / Model Rule 8.4: misconduct.

Statutes:

• S.C. Code Sections 29-7-10 and 29-7-20 (contractor's misapplication of funds; related criminal liability).

Cases:

• Committee on Legal Ethics of West Virginia State Bar v. Printz, 416 S.E.2d 720 (W. Va. 1992), distinguished as decided under DR 7-105 before West Virginia adopted the Model Rules.

Other opinions cited:

• SC Bar Advisory Opinions 92-17 (advice vs. direction), 89-18, and 92-1.

See also

• SC Bar Ethics Op. 93-20: A Promise Not to Testify
• SC Bar Ethics Op. 93-16: Reaching a Represented Party
• SC Bar Ethics Op. 92-36: Suing a Former Client Twice Over

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-92-32/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 92-32

Owner made payment to General Contractor on a construction project. General Contractor provides Owner with an affidavit certifying that all subcontractors have been paid in full. After having made the payment to the General Contractor, various subcontractors and materialmen advise Owner that they have not been paid and threaten mechanic's lien actions. Upon investigation Owner determines that General Contractor has not paid its subcontractors and materialmen and that General Contractor is in violation of Sec. 29-7-10 and 29-7-20 of the South Carolina Code of Laws.

Issues:
May attorneys for Owner and unpaid subcontractors and materialmen:
(1) Advise their respective clients of their right to file criminal charges against General Contractor under Sec. 29-7-20?
(2) Mention the possible related criminal charges under Sec. 29-7-20 when negotiating a resolution with the General Contractor?
(3) Agree or have their clients agree to refrain from presenting criminal charges against General Contractor under Sec. 29-7- 20 as a part of settlement agreement in return for payment?

Summary:
Attorneys for Owner and unpaid subcontractors and materialmen:

(1) May advise their respective clients of their right to file criminal charges against General Contractor under Sec. 29-7- 20; (2) May mention the possible related criminal charges under Sec. 29-7-20 when engaging in settlement negotiations where the relief sought has a legal basis, is limited to restitution, and is otherwise consistent with the Rules of Professional Conduct if said attorneys can demonstrate that the mention of the possible related criminal charges is made by the attorneys for reasons other than to obtain an advantage in the negotiation; and (3) Agree, or have their clients agree, to refrain from presenting criminal charges against General Contractor under Sec. 29-7-20 as a part of a settlement agreement in return for payment that is tantamount to reasonable restitution; however, such agreements may be contrary to principles of substantive law.

Opinion:
It is significant at the outset to note that Rule 4.5 of the Rules of Professional Conduct in South Carolina was not included in the ABA Model Rules of Professional Conduct, but rather was specifically adopted by South Carolina and taken directly from specifically adopted by South Carolina and taken directly from DR7-105 of the Code of Professional Responsibility which governed the conduct of attorneys prior to the adoption of the current Rules.

The Committee is aware of the recent decision of the Supreme Court of Appeals of West Virginia in Committee on Legal Ethics of West Virginia State Bar v. Printz, 416 S.E.2d 720 (1992)1. However, the West Virginia decision was based upon conduct governed by DR7-105 of the Code of Professional Responsibility prior to the time West Virginia adopted the Model Rules of Professional Conduct. West Virginia did not adopt DR7-105 as did South Carolina for policy reasons stated by the Supreme Court of Appeals of West Virginia in its decision. This Committee does not disagree with the reasoning or logic set forth by the Supreme Court of Appeals of West Virginia. However, the conclusions of this Committee must be based upon the Rules of Professional Conduct as adopted by South Carolina; therefore, credence must be given to Rule 4.5 which has been included in the Rules of Professional Conduct as adopted by this State.

In Advisory Opinion 92-17 which involved surreptitious recording of conversations a distinction was made between (1) advising a client as to certain conduct and (2) directing a client to engage in such conduct. It was concluded that the Rules should not be interpreted to prevent lay persons from obtaining legal advice concerning contemplated future conduct. However, the Opinion also admonished the Bar that the distinction between advice and direction may be a fine one, and attorneys should follow a prudent course to ensure they do not become implicated as participants in conduct that may be proper for laymen but improper for attorneys. Therefore, while attorneys for Owner and unpaid subcontractors and materialmen may advise their respective clients of their right to file criminal charges against General Contractor under Sec. 29-7-20, in rendering such advice they should avoid counseling or assisting their client in presenting or threatening such charges.

In Opinion 89-18 the question presented was purely hypothetical with no specific facts given. However, it could be gleaned from the Opinion that an attorney desired to threaten to report income by an adverse party in ongoing litigation in order to force a settlement of that litigation. The thrust of the inquiry in that Opinion appeared to be whether or not such a threat was tantamount to a threat of criminal prosecution; and the committee concluded that it was.

The facts presented in Opinion 92-1 also were very general. The inquiry was whether an attorney in a domestic case could notify opposing counsel that criminal charges would be filed against his client if the case were not settled. The committee, without much discussion, concluded that such conduct was in violation of Rule 4.5.

There are important distinctions in the facts presented in the present case and those addressed in Opinions 89-18 and 92- 1. In Opinion 89-18 the committee clearly was presented with a factual situation where an attorney was invoking threats upon a third party. The use of threats in the legal sense is not consistent with what is generally considered to be legitimate settlement negotiations. Furthermore, the facts presented in that Opinion did not indicate that the dispute between the parties involved the suspected failure of the adverse party to report income or that the reporting party could benefit directly from any action taken by the Internal Revenue Service against the adverse party.

Opinion 92-1 involves a domestic case where the facts presented also did not indicate whether the factual basis for the criminal charges was related to the pending domestic proceedings or whether the reporting party could benefit directly as a result of the criminal conviction.

It would seem that rules of legal ethics were not intended to preclude attorneys from engaging in otherwise legitimate settlement negotiations. It would further appear that Rule 4.5 and its predecessor DR7-105 were intended to prevent misuse of the criminal justice system by using it to coerce or force unfair settlements in civil litigation or to place a party at an unfair advantage in negotiating such settlements.

In the present case the single issaue involved is how money is going to be recovered from General Contractor to pay the unpaid subcontractors and materialmen. As distinguished from the factual situations addressed in 89-18 and in 92-1, the damages which have been sustained by Owner and unpaid subcontractors and materialmen are a direct result of a violation by General Contractor of the statutes which the attorneys wish to address in their settlement negotiations. Furthermore, Owner and unpaid subcontractors and materialmen are subject to benefit directly from the criminal prosecution if restitution were to be ordered upon a conviction. Notwithstanding the foregoing, if the attorneys desire to mention the possible related criminal charges in attempting to negotiate a settlement with the General Contractor, they must demonstrate that the mention of the possible related criminal charges was not made solely to obtain an advantage in the civil matter in order for their conduct to be in compliance with Rule 4.5. This Committee is cognizant of the fact that its conclusion substantially impairs the ability of the attorneys for Owner and unpaid subcontractors and materialmen to negotiate a settlement on behalf of their clients. However, the committee cannot simply ignore Rule 4.5.

Moreover, even if the attorneys can demonstrate that their mention of possible related criminal charges under Section 29- 7-20 during settlement negotiations was not made solely to obtain an advantage in the civil matter, the negotiations with the General Contractor must otherwise be consistent with the Rules of Professional Conduct and in good faith; and the relief sought and demands made by the injured parties against General Contractor must be limited to reasonable restitution based upon their actual losses. Otherwise, attorneys for Owner and unpaid subcontractors and materialmen may find themselves not only in violation of Rule 4.5, but also in violation of Rule 8.4.

Finally, assuming the attorneys are able to demonstrate that their conduct in mentioning the possible related criminal charges was not in violation of Rule 4.5, there is no proscription under the Rules of Professional Conduct that prohibits them or their clients from agreeing to refrain from presenting criminal charges against General Contractor under Section 29-7-20 as part of a settlement agreement in return for payment.

However, there are questions of substantive law with respect to the validity and enforceability of such agreements of which the State is not a party. Furthermore, questions of substantive law may exist as to whether entering into such agreements itself may constitute the criminal offense of compounding of crime; therefore, both the attorneys and their clients should act with caution.

1 Attorney who tells client's employee that unless he makes restitution of amounts embezzled from client, attorney will press criminal charges, does not violate Disciplinary Rules, and attorney could not be prosecuted under statute which prohibits offer not to prosecute crime in exchange for return of funds lost due to crime.

Disciplinary Rule prohibiting attorney from presenting, participating in presenting, or threatening to present criminal charges solely to obtain an advantage in civil matter does not apply to otherwise legitimate negotiations undertaken on behalf of client. ABA Code of Prof. Resp., DR 7-105(A)