1 Ethical Negotiations: How Far is Too Far? Gregory T. Presmanes * & Phillip C. Kuck ** Bovis, Kyle, Burch & Medlin, LLC 200 Ashford Center North, Suite 500 Atlanta, Georgia 30338 Telephone: 770-391-9100 Fax: 770-668-0878 * Gregory T. Presmanes, Esq. is a Partner in the workers’ compensation defense practice at Bovis, Kyle, Burch & Medlin LLC ** Phillip C. Kuck is a third-year J.D. candidate at Georgia State University College of Law
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Ethical Negotiations: How Far is Too Far?
Gregory T. Presmanes* & Phillip C. Kuck**
Bovis, Kyle, Burch & Medlin, LLC
200 Ashford Center North, Suite 500
Atlanta, Georgia 30338
Telephone: 770-391-9100
Fax: 770-668-0878
* Gregory T. Presmanes, Esq. is a Partner in the workers’ compensation defense practice at Bovis, Kyle, Burch & Medlin LLC ** Phillip C. Kuck is a third-year J.D. candidate at Georgia State University College of Law
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Ethical Negotiations: How Far is Too Far?
“Negotiation, we may say, ought strictly to be viewed simply as a means to an end; it is the road
the parties must travel to arrive at their goal of mutually satisfactory settlement. But like other
means, negotiation is easily converted into an end in itself; it readily becomes a game played for
its own sake and a game played with so little reserve by those taken up with it that they will
sacrifice their own ultimate interests in order to win it.”1
From the first step into law school and beyond, lawyers are taught to be zealous
advocates for their clients, unwavering, and willing to do whatever it takes to win. Indeed, the
preamble to the Model Rules of Professional Conduct explicitly states that “[a]s advocate, a
lawyer zealously asserts the client’s position under the rules of the adversary system.”2 This
desire to win extends to lawyers’ behavior during negotiations. The preamble to the Model Rules
further states, “[a]s negotiator, a lawyer seeks a result advantageous to the client but consistent
with requirements of honest dealings with others.” 3 Whether attorneys employ truthful or
deceptive negotiation tactics, however, largely depends on the individual.4
1 Lon L. Fuller, Anatomy of the Law 128 (1968).
2 MODEL RULES OF PROF’L CONDUCT, Preamble [2]; Notably, comment 1 to Model Rule 1.3 which used to
reference to a lawyer’s duty to act “with zeal in advocacy upon the client’s behalf” was deleted because zealous
advocacy is often invoked as an excuse for unprofessional behavior.
3 MODEL RULES OF PROF’L CONDUCT, Preamble [2].
4 Andrea Schneider, Shattering Negotiation Myths: Empirical Evidence on the Effectiveness of Negotiation
Style, 7 Harv. Neg. L. Rev. 143, 185-189 (2002) (two types of negotiation styles: problem solving and adversarial).
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Negotiation can best be described as “a consensual bargaining process in which the
parties attempt to reach agreement on a disputed or potentially disputed matter.”5 Negotiation is
used in almost all fields of law to resolve disputes in a variety of ways.6 Outside of a litigation
context, negotiations are generally informal, less stressful, and cheaper than adjudication. Even if
a lawsuit is pending, negotiations may still be taking place continually to reach a mutually agreed
upon settlement.
Can Lawyers Lie?
The laws governing lawyers’ conduct in negotiations have remained largely unchanged
since their initial adoption in 1983 by the American Bar Association.7 In addition, the rules—as
stated in the Model Rules of Professional Conduct—governing negotiations have been almost
universally adopted by each state’s highest court.8 A plethora of rules may govern negotiations in
5 NEGOTIATION, Black’s Law Dictionary (10th ed. 2014).
6 Douglas R. Richmond, Lawyers’ Professional Responsibilities and Liabilities in Negotiations, 22 Geo. J.
Legal Ethics 249, 249-50 (2009).
7 History – ABA Model Rules of Professional Conduct (pre-2002), LEGAL INFORMATION INSTITUTE,
8 Topical Overview – Index of Narratives, LEGAL INFORMATION INSTITUTE,
https://www.law.cornell.edu/ethics/comparative/index.htm#4.1 (last visited Jan. 16, 2017). Note that New York’s
rules are based on the previous Model Code and California has its own rules.
See also, Joan C. Rogers, Cal. Rules Redo Marries Borrowed Rules With Old and New, BLOOMBERG BNA,
https://www.bna.com/cal-rules-redo-n73014444653/ (last visited Jan. 16, 2017). Interestingly, the California
legislature is currently in the midst of adopting all of the rules governing negotiation as laid out by the American Bar
Association.
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certain situations including: ABA Model Rules 1.2(a), 1.2(d), 1.3, 1.4, 1.6, 3.1, 3.3(a), 3.4, 4.1,
4.3, 4.4(a), and 8.4(c). The most relevant rules governing negotiation are Rule 4.1 and 8.4(c).
Rule 8.4(c) broadly prohibits dishonesty, fraud, deceit, or misrepresentation in any aspect
of a lawyer’s professional life.9
Rule 3.3 may also apply in some situations during negotiations and it overlaps with Rule
8.4(c). Model Rule 3.3 prohibits a lawyer from knowingly making a false statement of fact or
law or failing to disclose controlling legal authority to a tribunal.10 This rule does not require that
the false statement of fact or law be material—unlike Rule 4.1 discussed in detail below. Rule
3.3 may come into play in a negotiation setting where a judge mediates settlement negotiations.
If the judge mediator asks a party a fact, under Rule 3.3, your options are seemingly limited to
either telling the truth or respectfully declining to answer.11
Rule 4.1 more narrowly states that in the course of representing a client, while
communicating to a third person, a lawyer shall not knowingly make a false statement of
material fact or law or fail to disclose a material fact when disclosure is necessary to avoid
assisting a criminal or fraudulent act by a client, unless disclosure is protected by attorney-client
privilege.12 In addition, the prohibitions on misrepresentations of material facts or law apply
equally in the context of all types of settlement negotiations, whether conducted privately by
9 MODEL RULES OF PROF’L CONDUCT, r. 8.4(c) (2016).
10 MODEL RULES OF PROF’L CONDUCT, r. 3.3(a-b) (2016). Note before the 2002 amendments to the ABA
Model Rules, Rule 3.3 prohibited lawyers from making false statement of “material” fact or law. Many states have
opted to keep their respective Rule 3.3’s to cover only “material” facts or law.
11 For an example, see Richmond, supra note 4, at 286. “Judge, with all due respect, I don’t think I have to
tell you my strategy. But, out of respect for you, I will say that I think we can settle this case for less than a million.
My client and I would like to get this done now for $750,000. Please reiterate that offer to the plaintiff.”
Alternatively, you may say something like, “Respectfully judge my client does not want to pay more than $750,000
to settle,” or” my client shouldn’t have to pay more than $750,000.”; See also A.B.A. Formal Op. 06-439 (2006). 12 MODEL RULES OF PROF’L CONDUCT, r. 4.1(a-b) (2016).
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parties or with the assistance of a neutral.13 If these rules applied literally, both parties would
have a hard time doing anything but telling the whole truth during negotiations. However, the
ABA, scholars, and case law have clarified the application of this rule to the context of
negotiation.
False Statements of Material Fact or Law, Prohibited
According to the “Ethical Guidelines for Settlement Negotiations” published by the ABA
Litigation Section “a lawyer must comply with the rules of professional conduct and applicable
law during the course of settlement negotiations . . . and must not knowingly make a false
statement of material fact (or law) to a third person [in the course of negotiating or concluding a
settlement].”14 That said, the ABA guidelines allow for certain kinds of “puffery” or “posturing”
during settlement negotiations. 15 Statements about a party’s willingness to compromise or
resolve a dispute, a party’s value placed on the subject of the case, the strength or weakness of a
party’s factual or legal positions or case, and a party’s goals or objectives all qualify as allowable
embellishments under Rule 4.1, not material misrepresentations.16
13 ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 06-439 (2006). The formal opinion states that
“the ethical principles governing lawyer truthfulness do not permit a distinction to be drawn between the caucused
mediation context and other negotiation settings” and “[t]he Model Rules do not require a higher standard of
truthfulness in any particular negotiation contexts; nor is a lower standard of truthfulness warranted because of the
uniqueness of the mediation process.”
14 ABA Section of Litigation, Ethical Guidelines for Settlement Negotiations, guidelines 3.3.1 and 4.1.1
(2002).
15 Id.; MODEL RULES OF PROF’L CONDUCT, r. 4.1 cmt. 2 (2016) “Under generally accepted conventions in
negotiation, certain types of statements ordinarily are not taken as statements of material fact. Comments which fall
under the general category of “puffing” do not violate this rule.”
16 Richmond, supra note 4, at 268.
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Express Misrepresentation of Fact
Model Rule 4.1 subsection (a) states, “In the course of representing a client a lawyer shall
not knowingly . . . make a false statement of material fact or law to a third person.”17 In
addressing express misrepresentations, the second comment to Model Rule 4.1 provides
clarification on whether a fact is material. The comment says that whether a statement is one of
material fact “depends on the circumstances” in which the statement was made.18 Rather than
stating what a statement of material fact is, the comment instead gives examples of what a
statement of material fact is not.19 The ABA notes several generally accepted conventions of
negotiations that are not taken as statements of material fact, including estimated price or value
on the subject of the transaction, the party’s intentions as to an acceptable settlement of a claim,
and the existence of an undisclosed principal, except where nondisclosure of the principal would
constitute fraud.20 In analyzing this provision of Model Rule 4.1, it is important to establish a
basic understanding of the meanings given to certain words within the provisions by various
courts.
Curiously, neither rule 4.1 nor its comments address what constitutes “material law,”
leaving lawyers with only the following dictionary definition: “law that is either significant or
17 MODEL RULES OF PROF’L CONDUCT, r. 4.1(a) (2016).
18 MODEL RULES OF PROF’L CONDUCT, r. 4.1 cmt. 2 (2016).
19 Id.
20 Id.
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essential to the negotiation.”21 Issues concerning whether to disclose material law could also
occur during settlement negotiations. For instance, during settlement negotiations, opposing
counsel has failed to find case law that would support their position. Does an attorney have an
affirmative duty to tell his opponent about the case law they do not know about? The answer
seems well established that the lawyer has no affirmative duty to inform an opposing party of
relevant law.22
Courts evaluate “materiality” on a case-by-case basis.23 In Ausherman v. Bank of Am.
Corp. the District Court of Maryland defined “material” in its relation to Rule 4.1 as a statement
of fact or law that “reasonably may be viewed as important to a fair understanding of what is
being given up and, in return, gained” in the agreement or settlement.24 The court further posited
that “it seldom is a difficult task to determine whether a fact is material.” 25 In clarifying
Ausherman’s definition of “material,” the District Court of Maryland in Hanlin-Cooney v.
Frederick County said that it means that a fact is “material if it is relevant to a person’s decision
of how to act.”26 In support of the Ausherman definition, Black’s Law Dictionary proscribes a
statement as “material” if it is “significant” or “essential.”27
21 MATERIAL LAW, Black’s Law Dictionary (10th ed. 2014); See also Art Hinshaw & Jess K. Alberts,
Doing the Right Thing: An Empirical Study of Attorney Negotiation Ethics, 16 Harv. Negot. L. Rev. 95, 104; See
also Richmond, supra note 4, at 269.
22 MODEL RULES OF PROF’L CONDUCT, r. 4.1 cmt. 1 (2016). But note, the lawyer would have a duty to
disclose adverse law or statutes if the other side did not mention them in a court proceeding pursuant to Rule
3.3(a)(3).
23 Ausherman v. Bank of Am. Corp. 212 F. Supp. 2d 435, 449 (D. Md. 2002).
24 Id.
25 Id.
26 Hanlin-Coony v. Frederick County, 2014 U.S. Dist. LEXIS 93602.
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In examining materiality, consider the following hypothetical. Plaintiff sprained his ankle
in a premises liability case. May the lawyer representing the client describe the pain the client is
experiencing as “the worst and most horrific pain imaginable?” Yes, a lawyer can exaggerate the
extent of pain from an injury as well as the extent of the client’s ability to exert himself.28
However, may the lawyer claim that the client’s sprained ankle is actually broken or that he
needs to use special appliances to get around? No, both of those representations would be
material misstatements of fact because such facts are significant and essential to the evaluation
of the opposing party’s decision of whether to settle or not, or for how much.
After considering whether a misrepresented fact or law is material or not, one must
determine whether that misrepresentation was knowingly made. A violation of Rule 4.1 will also
depend on whether an attorney “knowingly” omitted or misrepresented a material fact.
According to Rule 1.0(f), “knowingly” denotes actual knowledge and the lawyer’s “actual
knowledge” may be inferred from the circumstances.29 To satisfy this element of a Rule 4.1
violation, the lawyer does not need “evil intent or bad purpose.” 30 Accordingly, innocent
misstatements do not implicate Rule 4.1.31 However, if a lawyer makes an innocent misstatement
of fact believed to be true and later learns the statement is false, the attorney must make the
27 MATERIAL, Black’s Law Dictionary (10th ed. 2014).
28 See e.g., Statewide Grievance Comm. v. Gillis, No. CV939478677SM 2004 WL 423905 (Conn. Super. Ct.
Jan. 28, 2004).
29 MODEL RULES OF PROF’L CONDUCT, r. 1.0(f) (2016).
30 In re Edison, 724 N.W.2d 579, 584 (N.D. 2006).
31 People v. Chambers, 154 P.3d 419, 425-26 (Colo. 2006) (holding no Rule 4.1 violation for innocent
misstatement of amount of previous claims and lawsuits).
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correction and notify the third person to whom the misrepresentation was made. 32 And as
discussed above, if an attorney consummates a settlement without disclosing knowledge of that
materially false fact or law, then the attorney has violated Rule 4.1.33 It remains debatable
whether statements made with reckless disregard for the truth implicate Model Rule 4.1.34
Similarly, if the misrepresentation is not made to a third person, it will not trigger a Rule
4.1 violation. A “third person” is anyone other than the lawyer’s client.35 Opposing counsel
would therefore qualify as a “third person.” However, other rules cover misrepresentations to
clients.36
In addition to defining “material,” “knowingly,” and “third person,” there seems to be
controversy surrounding the disclosure of settlement authority. In at least two opinions—once in
1993 and again in 2006—the ABA has opined that misrepresenting one’s bottom line is a
material fact and as such should not be misrepresented.37 It should be noted, however, that the
1993 opinion further stated that it is never appropriate to disclose a client’s “bottom line” or
settlement authority without first obtaining informed consent from the client.38 Note that the
ABA opinions are persuasive authority on a court, but certainly not binding.
32 In re Carpentino’s Case, 651 A.2d 1, 4 (N.H. 1994) (relying on Rule 4.1(a)).
33 Kath v. Western Media, Inc., 684 P.2d 98 (Wyo. 1984).
34 In re Wagner, 744 N.E. 2d 418, 421 (Ind. 2001) (citing State ex rel. neb. State Bar Ass’n v. Holscher, 230
N.W.2d 75 (Neb. 1975).
35 Richmond, supra note 4, at 268; Ausherman 212 F. Supp. 2d at 449.
36 See e.g., MODEL RULES OF PROF’L CONDUCT, r. 8.4(c) (2016).
37 ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 93-370 (1993); ABA Comm. On Ethics &
Prof’l Responsibility, Formal Op. 06-439 (2006).
38 ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 93-370 (1993).
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If the Model Rules prohibit an attorney from lying about one’s “bottom line” as a
material misrepresentation or that attorneys may not disclose their settlement authority without
informed consent, the question becomes: why is the opposite practice so prevalent among
attorneys? The State Bar of California, which is one of the only states that has refrained from
adopting all ABA’s model rules, opined in its own “Advisory Opinion” that “[a]n intentional
misstatement of a client’s ‘bottom line’ or other settlement goal is permissible posturing and is
not an ethics rule violation . . . .”39 Chances are that the majority of attorneys—particularly those
who regularly disclose or exaggerate their “bottom line”—would agree with the California
advisory opinion. Exaggerating one’s bottom line has become so customary that lawyers
practically expect such a misrepresentation from opposing counsel during negotiations and can
hardly be said to rely on it to such a degree as to make it material. Therefore, in the highly
unlikely event that opposing counsel even finds out that an attorney misrepresented their
settlement authority, it would be difficult to prove damages (even if they were able to get past the
evidentiary hurdle of Rule 408, which prohibits the use of statements made in settlement
negotiations) or that you relied on that misrepresentation alone in choosing to settle (or not to
settle) the case.
To gauge our understanding of the misrepresentation of an attorney’s settlement authority,
consider the following hypothetical. Plaintiff’s attorney has settlement authority for anything
over $100,000 and Defendant’s attorney has settlement authority for up to $130,000. Plaintiff
demands $150,000 as its final offer and Defendant offers $70,000 as its final offer. Have the
attorneys violated Rule 4.1? No, as long as neither attorney represented to the other that the
actual limits of settlement authority were those numbers. If either attorney had made such a