We’ve been talking about negotiations on Wednesdays here for several months now. And while most of that discussion has focused on how to reach principled agreements, even with parties you may not like, there is no denying the fact that sometimes, people lie when negotiating. Or, at the very least, they shade the truth.
This tendency makes sense. To the extent that negotiations are an exchange of information about what agreements will provide the most value to both sides, and to the extent that we all leak information without knowing it, it is just sound strategy to try to keep some information private. There are several ways one can do this. One is to outright lie; another is simply to use accurate information to mislead.
And there are other tactics that can, under certain circumstances, succeed at reaching an agreement even if they’re not commonly accepted or liked. One can use the ruse of an agreement to gain valuable information from the other side. Similarly, one can use threats or intimidation to force an agreement where one might not otherwise exist. (For example, corporate defendants–and courts–often worry that plaintiffs’ lawyers use class actions to leverage small, easily resolved individual complaints into large cases that will justify large attorneys’ fees by threatening bet-the-company litigation.)
So what is to keep lawyers from doing all of this? Is there any law that regulates negotiations? Well, sort of.
First of all, lawyers are not above the law itself. So laws that prohibit outright fraud or other forms of deceptive conduct that might arise in negotiation will apply equally to lawyers. But, in addition, the law governing lawyers’ professional duties has evolved to regulate some of this conduct as well. The best-known of these rules is probably the ABA Guidelines on Settlement Negotiations. And while these are not the last word on lawyers in negotiations, they do provide a good starting point.
First and foremost, the ABA Guidelines say that a lawyer cannot outright lie about a material fact.
"In the course of representing a client a lawyer shall not knowingly:
(a) make a false statement of material fact or law to a third person; or
(b) fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6."
(ABA Guideline 4.1.) Unlike fraud, these prohibitions against misstatements do not require the other side to actually rely on the misstatement. (In other words, it is the misrepresentation itself that is a problem, not the harm it does to the other side. This makes sense; lawyers have enough PR problems without being known to condone lying.) That said, the ABA is quick to clarify that by misstatements, it does not mean all misstatements. Just the ones about provable facts.
The prohibition against making false statements of material fact or law is intended to cover only representations of fact, and not statements of opinion or those that merely reflect the speaker’s state of mind.
The Guidelines point out that this allows a certain amount of "puffing," or strategic misinformation. (As one colleague once pointed out, they allow him to react to settlement offers by talking about how angry he is, even if the offer is well within what his client has told him is acceptable.)
Moreover, a lawyer sometimes has a duty to disclose certain information, at least to correct misrepresentations by his client.
The duty to disclose may arise in at least three situations: (1) a lawyer has previously made a false statement of material fact or a partially true statement that is misleading by reason of omission; (2) a lawyer learns of a client’s prior misrepresentation of a material fact; and (3) a lawyer learns that his or her services have been used in the commission of a criminal or fraudulent act by the client, “unless such disclosure is prohibited by the ethical duty of confidentiality.”
Nor may lawyers use the settlement process "in bad faith." (ABA Guideline 4.3.1.) What does that mean?
It is not bad faith for a party to refuse to engage in settlement discussions or to refuse to settle. Settlement is not an obligation, but an alternative to litigation. The choice to pursue it to fruition should be that of the client. However, it may be impermissibly deceptive, and thus an act of bad faith, for a lawyer to obtain participation in settlement discussions or mediation or other alternative dispute resolution processes by representing that the client is genuinely interested in pursuing a settlement, when the client actually has no interest in settling the case and is interested in employing settlement discussions or alternative dispute resolution processes solely as a means of delaying proceedings or securing discovery.
A lawyer may not attempt to obtain a settlement by extortionate means, such as by making extortionate or otherwise unlawful threats.
(ABA Guideline 4.3.2.) The ABA is quick to add that, of course, that threatening a party with a valid civil claim is permissible, as is "reminding" the party of the costs of fighting a civil claim in court. So there is some leeway for lawyers to use the threat of a lawsuit to
Now, as with any subject matter involving lawyers–who have, as a profession, never met a rule they couldn’t argue around–these ethics rules are not the last word on what lawyers may (or may not) do in the service of negotiating for their clients. Like the Pirate Code, they turn out to be more of a guideline. That is one reason why the ABA Guidelines alone are 71 pages of rules and commentary, instead of a quick, bullet-point list of commandments. And, of course, the barriers to making a complaint to the appropriate licensing body can create some more space for underhanded tactics. But the ABA Guidelines do mark an important starting point. And I will be revisiting exactly what kinds of tactics have been upheld as legitimate and what have not.
Meanwhile, however, it is worth remembering that while underhanded tactics may occasionally work, they carry a heavy cost. A party that believes that it has been treated unfairly will not trust the trickster a second time. And reputations spread. Negotiators known to be dishonest or to employ underhanded tactics will find it harder to reach agreements with other parties as well; also, no one likes to be branded as untrustworthy. And it is these threats, as much as any worry about ethical sanctions, that keep many lawyers in line.