Written by Lisa A. Dolak , Angela S. Cooney Professor of Law, Syracuse University College of Law and Practice Center Contributor.

Of course, lawyers are required to observe the applicable rules of ethics in the context of negotiations, as in other settings.  However, just how those rules should be interpreted in particular situations is sometimes the subject of significant debate.  This is certainly true when the issue is whether the negotiating lawyer is free to affirmatively represent the client’s “bottom line.”

ABA Model Rule 4.1(a) provides the relevant guidance.  It provides that “[i]n the course of representing a client a lawyer shall not knowingly . . . make a false statement of material fact or law to a third person.”  However, the commentary to Rule 4.1 defines what is a “fact” for purposes of negotiation.  Specifically, according to Comment 2:

This Rule refers to statements of fact.  Whether a particular statement should be regarded as one of fact can depend on the circumstances.  Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact.  Estimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category . . ..

Thus, at least “ordinarily” (and to the extent that Model Rule 4.1(a) applies), a lawyer is free to “misrepresent” the client’s “number.”  Several justifications for this rule have been offered.  First, arguably, the lawyer is not making a statement of fact, but rather a statement regarding his client’s intentions.  Second, exaggerating what the client has indicated is its bottom line is not misleading, because in settling on its number, the client has factored in the amount that it believes the other party is willing to pay or accept.  The client’s “bottom line” thus fluctuates with the other party’s intentions.  Third, a rule that did not permit lying about what one’s client is willing to pay or accept would be unworkable in the context of negotiations.  And fourth, since such misrepresentations are very difficult to detect, the lawyer who scrupulously obeyed such a rule would be placed at a serious disadvantage.

However, the notion that an ethical lawyer can overtly misrepresent the client’s “bottom line” is not universally accepted.  As one example of an opposing viewpoint, consider the following response to a similar analysis in an earlier paper of mine:

While it may be strategic to withhold what one’s client is willing to pay or accept or the client’s “bottom line” as client confidence, this does not justify lying or misrepresentation concerning this fact.  The lawyer’s only choice is to negotiate without revealing this fact.  If this information is requested, the lawyer must state that this information is confidential and will not be revealed.

Although I disagree with the respondent’s interpretation, debate among reasonable people on this issue is not surprising, particularly given the tensions inherent among the lawyer’s duties and roles.  The Model Rules and associated commentary arguably send mixed messages relating to the lawyer’s truth-telling obligations.  For example, Model Rule 8.4(c) provides that it is “professional misconduct” to “engage in conduct involving dishonesty, fraud, deceit or misrepresentation”.  Model Rule 1.2(d) forbids a lawyer from “counsel[ing] a client to engage, or assist[ing] a client, in conduct that the lawyer knows is criminal or fraudulent . . ..”  And Comment 1 to Model Rule 4.1 states “[a] lawyer is required to be truthful when dealing with others on a client’s behalf . . ..”  But on the precise subject of false statements regarding “a party’s intentions as to an acceptable settlement of a claim” in private negotiations, the above-quoted Comment 2 to Model Rule 4.1 is the most “on point” authority.

It is important to note that the ABA distinguishes for purposes of the permitted “puffery” and “embellishment” between statements made to opposing counsel or parties in the context of private negotiations and non-judicial mediations, on the one hand, and those made to judicial officers mediating settlement.  The ABA regards the latter as governed by Model Rule 3.3(a)(1), which prohibits knowingly “mak[ing] a false statement of fact or law to a tribunal”.  In contrast, the ABA “indicated that Comment 2 to Rule 4.1 would apply to communications between advocates and nonjudicial mediators, allowing parties to engage in traditional puffing and embellishment in such settings.”

Note also that a lawyer representing a licensor in a negotiation may not misrepresent the size of an offer it has received from another potential licensee.  Such a misrepresentation is a statement of fact, and assuming the size (or existence, for that matter) of other offers is material, it is prohibited by Model Rule 4.1, and not excused by Comment 2, quoted above.  Such factual misrepresentations could also subject the lawyer and her client to liability for fraud.

Tags: ABA, ABA Model Rule 4.1, embellishment, Model Rules, professional misconduct, puffery, rules of ethics

This entry was posted on Monday, October 17th, 2011 at 09:00 and is filed under Ethics, Patent Litigation, posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.