Negotiation Ethics For In House Counsel (S Cohen 04 14 11)


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In-house counsel presentation hosted by Connecticut Law Tribune on April 14, 2011

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Negotiation Ethics For In House Counsel (S Cohen 04 14 11)

  1. 1. Negotiation Ethics for In-House Counsel Stephanie Cohen April 14, 2011 BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON
  2. 2. Ethics in Negotiations <ul><li>Truthfulness while seeking advantage </li></ul><ul><li>Balance: zealous advocacy and confidentiality vs. duty of candor </li></ul><ul><li>In-house lawyers: deeper knowledge and relationships with their clients </li></ul><ul><li>Actions: urge client; withdrawal; disclosure; self-defense </li></ul>
  3. 3. The Preamble to the Model Rules of Professional Conduct “ As a negotiator, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealings with others.”
  4. 4. Rule 4.1 Truthfulness in Statements to Others “ [A] lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person;”
  5. 5. Rule 4.1, cont’d “ [A] lawyer shall not knowingly: (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 ….”
  6. 6. “ Material Fact” <ul><li>“ Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact.” </li></ul><ul><li>- Comment 2 of the Model Rules </li></ul><ul><li>“ a party’s negotiating goals or its willingness to compromise, as well as … negotiation ‘puffing,’ ordinarily are not considered ‘false statements of material fact’ ….” </li></ul><ul><li>- ABA Formal Opinion 06-439 (2006) </li></ul>
  7. 7. The Courts Lean Toward Disclosure <ul><li>Death of a client ( Virzi v. Grand Truck Warehouse & Cold Storage Co. , 571 F.Supp. 507 (E.D. Mich. 1983)); </li></ul><ul><li>Insurance policies ( Ex rel Nebraska State Bar Ass’n v. Addison , 412 N.W.2d 855 (Neb. 1987); c ontra, NY County Ethics Opinion 731 (2003)). </li></ul><ul><li>Misrepresenting settlement terms ( In re Eadie , 36 P.3d 468 (Ore. 2001)); </li></ul><ul><li>Changes to the terms of a contract or settlement agreement ( In re Rothwell , 296 S.E.2d 870 (S.C. 1982)); </li></ul><ul><li>Statements that were true when made but are now false ( In re Williams , 840 P.2d 1280 (Ore. 1992)); </li></ul><ul><li>Side deal with party’s lawyer ( In re Zaruba , 177 N.J. 564 (2003)); </li></ul><ul><li>Procuring sham transaction ( In re Hiller, 694 P.2d 540 (Ore. 1985)) ; and </li></ul><ul><li>Concealing financing terms, ( Vega v. Jones Day, 121 Cal. App. 4 th 282 (Cal. App. 2004)). </li></ul>
  8. 8. Hypothetical One: <ul><li>During a settlement conference, the judge orders you to tell him or her your absolute bottom line. </li></ul>
  9. 9. Discussion: <ul><ul><li>“ You know neither one of us can discuss our authority – let’s talk about a fair settlement to the case.” </li></ul></ul><ul><ul><li>“ Comment 2 to Model Rule 1.4 defines statements about settlement authority not to be material.” </li></ul></ul><ul><ul><li>Keep in mind Rule 3.3 requires candor towards the tribunal. </li></ul></ul><ul><ul><li>Patrick Longan, Ethics In Settlement Negotiations, 52 Mercer L. Rev. 807, 813 (2001): </li></ul></ul>
  10. 10. “ Knowingly” <ul><li>ABA Model Rule 1.0(f) </li></ul><ul><ul><li>“ Knowingly,” “known,” or “knows” denotes actual knowledge of the fact in question. A person’s knowledge may be inferred from circumstances. </li></ul></ul><ul><li>Comment [1] to Rule 4.1: </li></ul><ul><ul><li>A misrepresentation can occur if the lawyer incorporates or affirms a statement of another person that the lawyer knows is false. Misrepresentations can also occur by partially true but misleading statements or omissions that are the equivalent of affirmative false statements. </li></ul></ul>
  11. 11. Rule 1.6 Duty of Confidentiality <ul><li>(b) A lawyer may reveal information … </li></ul><ul><li>(1) to prevent the client from committing crime or fraud </li></ul><ul><li>(2) to prevent, mitigate or rectify substantial injury … from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services </li></ul>
  12. 12. Measures Available <ul><li>Rule 1.6, Comment 3: </li></ul><ul><ul><li>“ Ordinarily, a lawyer can avoid assisting a client’s crime or fraud by withdrawing from representation . . . </li></ul></ul><ul><ul><li>“ In extreme cases, substantive law may require a lawyer to disclose information relating to representation to avoid assisting a client’s crime or fraud.” </li></ul></ul>
  13. 13. Hypothetical Two: <ul><li>You are about to close on the sale of one of your company’s properties. </li></ul><ul><li>The business person on the transaction calls you to congratulate you on working out a great deal. </li></ul><ul><li>She then adds that it is a good thing that the company is selling the property because the EPA just notified her team of serious contamination on the property, which you had not known about. </li></ul>
  14. 14. Hypothetical Three: <ul><li>You are negotiating settlement of a breach of contract action your company brought against a supplier. </li></ul><ul><li>You say, truthfully “five major customers cancelled their purchase contracts after the defendant’s breach.” </li></ul><ul><li>But you know they cancelled for reasons unrelated to the breach. </li></ul>
  15. 15. The Dishonesty Rule Model Rule 8.4, often referred to as the “dishonesty rule,” makes it a violation of the rules for an attorney to break, or assist another in breaking, a rule, committing a criminal act, or engaging in fraud, dishonesty, or deceit.
  16. 16. Hypothetical Four: <ul><li>While reviewing documents to produce in response to plaintiff’s discovery requests in a fraud case, you find emails between the sales representatives joking about the lies they told the plaintiff. </li></ul><ul><li>Before you produce the emails, plaintiff’s counsel calls you to say that his or her elderly client has no real recollection of the sale and would be willing to go away for nuisance value. </li></ul>
  17. 17. Discussion <ul><li>Rules 1.6(a) and 4.1(b): </li></ul><ul><ul><ul><li>Here, the client has engaged in fraud. The emails evidence lies, thus, the “lawyer cannot continue negotiations without reference to the true state of affairs.” The lawyer should attempt to rectify the situation. </li></ul></ul></ul><ul><ul><li>Geoffrey Hazard, Jr. & W. William Hodes, The Law of Lawyering § 37.3 (3d ed. 2007): </li></ul></ul>
  18. 18. Hypothetical Five: <ul><li>The adversary serves you with notices of deposition for every board member. </li></ul><ul><li>You know that one member’s testimony will almost definitely establish liability. </li></ul><ul><li>You negotiate a deal with your adversary where he or she agrees to one specific board member’s testimony (not the one you were concerned about) in lieu of other discovery concessions. </li></ul>
  19. 19. Negotiations Unlike Proceedings <ul><li>Only “material” facts </li></ul><ul><li>Record </li></ul><ul><li>Statements: by client or lawyer? </li></ul><ul><li>Multiple channels </li></ul><ul><li>Multiple tactics </li></ul>
  20. 20. Themes <ul><li>Balance of power </li></ul><ul><li>Sophistication </li></ul><ul><li>Degree of disadvantage </li></ul><ul><li>Pattern </li></ul>
  21. 21. Common Element <ul><li>The deal reflects a serious misunderstanding </li></ul><ul><ul><li>AND </li></ul></ul><ul><li>Lawyer’s “fingerprints” </li></ul><ul><li>Either by action or inaction </li></ul><ul><li>The lawyer’s services were used </li></ul>
  22. 22. Actions <ul><li>Persuade client to correct </li></ul><ul><li>Withdraw </li></ul><ul><ul><li>Or, retain outside ethics counsel </li></ul></ul><ul><li>Disclose </li></ul><ul><li>Self-defense </li></ul>
  23. 23. Tactics <ul><li>Say “do not rely” </li></ul><ul><li>Withdraw prior statements </li></ul><ul><li>Add conspicuous clauses </li></ul><ul><li>Insist that they investigate </li></ul>
  24. 24. Protective Measures <ul><li>Reduce the risk of allegations of misrepresentations: </li></ul><ul><li>Give outside counsel responsibility for conveying positions to his/her counterpart (shifts burden on reasonable reliance to opposing counsel). </li></ul><ul><li>Memo to other party before negotiation setting out participants’ roles. </li></ul><ul><li>Maintain a record of representations made. </li></ul><ul><li>In mediation, convey positions and representations through the mediator. </li></ul>
  25. 25. Role Definition <ul><li>In-house attorneys: </li></ul><ul><li>is the other party represented? </li></ul><ul><li>who is your counterpart? </li></ul><ul><li>Measures: </li></ul><ul><li>document the roles </li></ul><ul><li>“ groundrules” (who makes representations) </li></ul>
  26. 26. Challenge for In-House Counsel <ul><li>Duty to police internal compliance. </li></ul><ul><li>Your role: business, legal or both? </li></ul><ul><li>Additional rules for your own conduct. </li></ul><ul><li>Consequences are personal, not just corporate. </li></ul>
  27. 27. In Conclusion: <ul><li>Lawyers are presumed to know the rules </li></ul><ul><li>Will be held to a higher standard </li></ul><ul><li>Courts are not forgiving of dishonesty and deceit </li></ul><ul><li>Err on the side of disclosure and honesty. </li></ul>
  28. 28. In Conclusion: <ul><li>All of this is even more difficult for an in-house lawyer because of unique relationship with the client. </li></ul><ul><li>Keep in mind: </li></ul><ul><ul><li>In-house lawyers seen as the conscience of a corporation. </li></ul></ul><ul><ul><li>A heightened awareness of the boundaries of ethical negotiation is essential to the in-house lawyer’s practice. </li></ul></ul>
  29. 29. Thank you. Stephanie Cohen McCarter & English, LLP BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON [email_address] 973.639.2026