What are the ethical duties of lawyers engaged in negotiations? Are lawyers expected to lie on behalf of their clients in the course of negotiation of a deal? How far may a lawyer go in zealously advocating for the interests of the client without crossing the ethical boundaries?
In California, the Rules of Professional Conduct govern a lawyer’s ethical duties. The law prohibits lawyers from engaging in dishonesty. Cal. Bus. & Prof. Code § 6106. Lawyers may only employ such means as are “consistent with the truth.” Cal. Bus. & Prof. Code § 6068(d). This is also true when a lawyer is engaged in a matter that is before the court. Cal. Rules of Prof. Conduct, rule 5-200.
Applicable provisions outside California are similar. The American Bar Association Model Rules of Professional Conduct prohibit lawyers from making false statements of material fact or law to third parties, and from failing to disclose material facts when necessary to avoid assisting criminal or fraudulent conduct by a client. ABA Model Rules of Professional Conduct, rule 4.2. The ABA Model Rules also prohibit dishonesty, fraud, deceit or misrepresentation. ABA Model Rules of Prof. Conduct, rule 8.4.
Attorneys owe the highest duty of loyalty to their clients, and generally do not have a duty to opposing counsel or third party non-clients. Cal. State Bar Formal Opn. No. 2013-189. At the same time, lawyers cannot commit fraud or deceit and lawyers may not make false statements of material facts to non-clients. Id., citing Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 291. Lawyers owe a duty to other attorneys with whom they are negotiating at arms’ length not to commit fraud. Cicone v. URS Corp. (1986) 183 Cal.App.3d 194, 202.
A further complicating factor in negotiations is the instructions that a lawyer may be given by the client. A lawyer’s ethical duty of confidentiality may prohibit disclosure of information without the consent of the client. While a lawyer is obligated to follow instructions from the client regarding what to disclose, if the client directs the lawyer to make statements that constitute fraud, the lawyer must counsel the client against such conduct, and in the event the client insists, the lawyer must carefully consider whether the conduct constitutes fraud or suppression of evidence. In such a scenario, the lawyer may be obliged to withdraw from the representation of the client. Cal. State Bar Formal Op. No. 2013-189, at 3; Los Angeles County Bar Assn. Formal Op. 520.
In legal negotiations, certain types of statements ordinarily are not taken as statements of material fact, such as estimates of prices or values placed on a transaction, or the intentions of a party regarding what might constitute an acceptable settlement. Ethical Guidelines for Settlement Negotiations, ABA Section of Litigation, page 35 (August 2002). The line between permissible “puffing” and a false statement of material fact during negotiations is not always easy to draw. False statements by an attorney regarding the existence of a favorable witness are not permissible. Cal. State Bar Formal Op. No. 12-0007. Inaccurate statements regarding a party’s wages are also impermissible, as are inaccurate statements concerning insurance coverage and policy limits, when intended to mislead. Id. In contrast, statements regarding a “bottom line” settlement position of a client are generally allowable puffery. Id.
Lawyers must exercise caution when engaged in negotiations in the statements made to third parties, bearing in mind both their ethical obligations, as well as their duties to their clients.
Carole J. Buckner is the Dean of St. Francis School of Law, Co-chair of the Orange County Bar Association’s Professionalism and Ethics Committee, and a member and former Chair of the Los Angeles County Bar Association’s Professional Responsibility and Ethics Committee.