Negotiator’s Duties to Others – Model Rule 4.1
Terms:Model Rule 4.1 – Truthfulness in Statements to Others:
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Model Rule 8.4 discussed previously is a catch-all which overlaps, to some degree, with other Rules. The Rule 4.1(a) prohibition about making a “false statement of material fact” could certainly fall under Rule 8.4’s prohibition against “dishonesty, fraud, deceit or misrepresentation.” That said, we here turn our attention explicitly toward statements made by an attorney to a third party while in the course of negotiating on her client’s behalf.
Situations in which an attorney outright lies to the opposition clearly fall within the scope of Rule 4.1. A bald-faced lie about some matter material to the negotiation will never be tolerated. But what about a fact which the attorney believes to be true because it was provided to her by her client?
EXAMPLE: Sally and Jesse are opposing parties to a lawsuit involving ownership of their day spa, “Raphael’s.” The two opened the spa together, with Sally doing the accounting and tending to the other business affairs while Jesse took care of the customers. When Jesse realized their personal differences were irreconcilable, he sued Sally to gain full ownership of the spa, claiming that he had paid off the loans and invested vast sums of his own money, and that the salary Sally drew over the years was more than fair compensation given her limited input. John is representing Jesse and Sarah is representing Sally. John opens negotiations by asking Sarah if her client would accept a lump-sum cash payment to settle the suit and sign over ownership of the spa. Sarah brings the question back to Sally who says that the spa currently has $100,000 in cash in its accounts (she has been doing the books) and that if Jesse pays her that much, she’ll let him keep the spa itself. Sarah passes this information along to John. Jesse agrees, and the settlement agreement (contract) is drawn up. The day before the agreement is scheduled to be signed, Sally tells Sarah, in confidence, that the “books were cooked” and that the spa is actually broke and that she’s thrilled to be getting this six-figure payoff for walking away from a bust business.
Has Attorney Sarah violated Rule 4.1? The amount of cash which the business has is certainly a fact material to the negotiations, and the statement Sarah made to John was certainly false. However, because Sarah did not knowingly make a false statement she is, thus far, safe from a Rule 4.1 violation.
EXAMPLE: Sally, Sarah, Jesse, and John meet on Friday afternoon to sign the final agreement. Sarah, having read Rule 4.1 after the prior day’s discussion with Sally, feels somewhat guilty about leaving Jesse in a bad situation, but also feels confident that she is in no way running afoul of any ethical rules. “In fact,” thinks Sarah, “revealing my client’s confidence would breach a different ethical rule. I’ll just keep quiet and think about my planned weekend getaway to the country.”
Unfortunately, Sarah’s thinking here might land her in a heap of trouble. According to the Supreme Court of New Hampshire in
"Making a false statement includes the failure to make a statement in circumstances in which nondisclosure is equivalent to making such a statement. Thus, where a lawyer has made a statement that the lawyer believed to be true when made but later discovers that the statement was not true, in some circumstances failure to correct the statement is equivalent to making a statement that is false." (Citation omitted, emphasis in original.)
Therefore, if a negotiated settlement depends on the truth of some fact passed along to the opposition, which fact the attorney later learns is false, the attorney who gave that false information may have an obligation to correct the mistake. Of course, whether that obligation exists in any given situation is a factual question, and there may be some circumstances in which competing obligations (such as confidentiality) outweigh the burden imposed by Rule 4.1.
The above hypothetical also comes close to making Sarah liable for a Rule 4.1(b) violation, if by staying silent in the face of Sally’s revelation Sarah would be “assisting…a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6 (Confidentiality)” (Model Rule 4.1(b), emphasis and parenthetical added). So here, too, the duty to avoid misrepresenting a material fact might conflict with the duty to keep client confidences. Suffice it to say that before jumping to reveal facts in a negotiation in order to avoid a Rule 4.1 violation, it is vital to consider whether revealing such facts to the opposition would constitute a violation of some other Rule.