Negotiation And Transactional Matters Outline

06. Negotiation and Transactional Matters

P.403-424

Lawyers as negotiators Rules 1.2(d), 4.1, 8.4(a)(c)

• In negotiation, no judge, no party under oath,

• Party has no duty to share what it learns, lawyer with greater knowledge/ better informed than opposing lawyer can exploit it to her client’s advantage.

• But negotiations also has limits

• Rule 8.4(c)

  • It is professional misconduct for a lawyer to... engage in conduct involving dishonesty, fraud, deceit or misrepresentation…

• Rule 4.1 [The NY rule has only part (a)]

  • 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

      • [Third person can include opposing lawyer or client]

    • (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

      • [If non-disclosure constitute assisting crime/ fraud by client lawyer must disclose. But need not disclosure if 1.6 prohibit such disclosure]

• Rule 4.1 comment [3]

  • Paragraph (b) states a specific application of the principle set forth in Rule 1.2(d) and addresses the situation where a client’s crime or fraud takes the form of a lie or misrepresentation

  • Ordinarily, a lawyer can avoid assisting a client’s crime or fraud by withdrawing from the representation.

  • Sometimes it may be necessary for the lawyer to give notice of the fact of withdrawal and to disaffirm an opinion, document, affirmation or the like.

  • In extreme cases, substantive law may require a lawyer to disclose information relating to the representation to avoid being deemed to have assisted the client’s crime or fraud.

  • If the lawyer can avoid assisting a client’s crime or fraud only by disclosing this information, then under paragraph (b) the lawyer is required to do so, unless the disclosure is prohibited by Rule 1.6.

• Policy: if the only way to keep from assisting crime of fraud of client is to disclose lawyer can use permitted 1.6 exceptions to confidentiality to disclose (or lawyer’s silence may have assisted it)

• NY Rule 1.6(b)(3)

  • A lawyer may reveal or use confidential information to the extent that the lawyer reasonably believes necessary:…

    • to withdraw a written or oral opinion or representation previously given by the lawyer

    • and reasonably believed by the lawyer still to be relied upon by a third person,

    • where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or

    • is being used to further a crime or fraud…

      Negotiation issues for lawyers mainly arise in one of three ways:

      1) Bad client problem P.409

• Lawyer learned that client is a fraudster and unwittingly have been assisting her fraud, or maybe she unintentionally made a material false statement and won’t now correct it

• Whether lawyer’s quiet withdrawal without warning violate the professional conduct rules

• Loyalty and confidentiality vs. interest in avoiding/ minimizing harm to innocent victims of a client’s illegal conduct or to courts and other tribunals

• KYC in law firms – since lawyers are to trust their clients, should know their client

• Rule 4.1(b) vs. Rule 3.3

  • Rule 4.1(b) In the course of representing a client: a lawyer shall not knowingly fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

  • Rule 3.3 A lawyer may have to correct fraud/ false statement in a matter before a tribunal, even if that means revealing confidences protected by Rule 1.6

  • However, under Rule 4.1(b), a lawyer shall not knowingly fail to disclose a material fact to a third person when ‘necessary’, to avoid assisting a client’s “criminal or fraudulent act… unless disclosure is prohibited by Rule 1.6”

• Lawyer who discovers that a client is perpetrating a fraud/ crime cannot assist the client (or would risk civil and criminal liability and discipline) and will have to withdraw from the particular representation Rules 1.2(d), 1.16(a)(1)

• If lawyer withdraws without alerting the former client’s intended victim before the fraud is accomplished, or when harm from it can still be avoided/ reversed

  • lawyer cannot be certain that ethics rule of confidentiality duty will preclude tort liability (as the court may interpret the tort law more expansively and find liability)

  • Also, confidential duty may turn out to be illusory in jurisdictions that have adopted Rule 4.1(b) [though NY did not adopt (b)]

• Rule 4.1(b): lawyer has to disclose unless prohibited by Rule 1.6 1.6(b) there are 4 exceptions when lawyer can disclose under 4.1(b):

  • 1.6(b)(2) lawyer can reveal confidential info to prevent client’s crime/ fraud that is reasonably certain to cause substantial financial injury to third person, if the client has used the lawyer’s services in committing the misconduct

  • 1.6(b)(3) permits disclosure even if the fraud is completed but the injury can still be prevented, mitigated, or rectified. Rectification envision retroactive correction [rectify financial harm]

  • 1.6(b)(6) permits disclosure to comply with other law/ court order (unlike 1.6(b)(2)(3), this rule is widely adopted) [lawyer to avoid violation of substantive law that will lead to civil liability for assisting a crime]

  • 1.13(c) permits lawyer for an organisation to disclose confidential info outside the organisation to protect the organisation from certain harms from constituent misconduct

• Negotiation Issues: The “Bad Client” problem

  • Client’s lie did not cause financial harm to anyone 4.1(b) seem to block disclosure

  • 3.3(a)-(c) imposes remedial obligations on lawyers who appear in tribunals but inapplicable if the department is not a tribunal

• “Noisy Withdrawal”

  • Halfway between quietly slinking away when a lawyer discovers a client’s fraudulent/ criminal conduct and invoking the authority of a confidentiality exception to warn the...

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