ETHICS QUESTION OF THE MONTH

This content is generated by the Texas Center for Legal Ethics and is for informational purposes only. Look for the reasoning behind the answers at legalethicstexas.com.


Let’s Make A Deal

Attorneys Jerry and Janine are attempting to settle a dispute between their respective clients. Jerry’s client, ABC Custom Parts, supplies electronic components for goods produced by Janine’s client, XYZ Manufacturing. The dispute involves a large shipment of parts sold to XYZ by ABC that were defective, preventing XYZ from filling some orders.

Janine has approached Jerry to work out a solution because, if they go to court, the litigation costs and business disruptions could be substantial for both parties. She suggests a deal: (1) ABC ramps up production to quickly remedy the backlog issue, and (2) ABC provides a discount on several future shipments to cover XYZ’s damages.

Jerry suspects that he has some negotiating leverage because XYZ will experience more significant delays if it has to locate a new supplier and wait for them to reconfigure their facility. He also knows that XYZ has a reputation for avoiding litigation and believes that they are especially eager to avoid it here. He wants to use his perceived advantage to force Janine to agree to a quick settlement on favorable terms to his client.

During the course of his settlement discussions with Janine, Jerry makes the following representations, none of which are accurate:

1. Jerry’s client cannot accept any discount over $10,000; Jerry’s client specifically authorized him to offer a discount up to $17,500.

2. An employee of ABC, Carl, will testify that the defect in ABC’s shipment was due to a mistake made by an XYZ employee who provided the wrong specifications; Jerry knows this is not true.

3. Carl is an excellent witness; Jerry knows from experience that Carl is a terrible witness.

4. Our clients’ dispute needs to get settled quickly because ABC is now negotiating with another potential customer and, if they reach a deal, ABC will not have the capacity to do any more work for XYZ; Jerry knows ABC has the capacity to accommodate the new customer and XYZ.

5. Jerry’s reading of the applicable precedents suggests that XYZ’s damages are far less than Janine says they are; Jerry knows Janine’s assessment of damages is probably accurate.


Under the Texas Disciplinary Rules of Professional Conduct, which is most accurate?

A. All of Jerry’s comments are improper because the rules state that a lawyer shall not “make a false statement of material fact or law to a third person” or “engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”
B. All of Jerry’s comments are proper because the rules permit “puffing” by an attorney when negotiating with opposing counsel.
C. 2 is improper, but the rest are not.
D. 2 and 4 are improper, but the rest are not.
E. 2, 4, and 5 are improper, but the rest are not.
F. 1 is proper, but the rest are improper.

 

Answer

Much has been written regarding the tension between Rules 4.01 and 8.04(a)(3) on the one hand—quoted in answer A above—and Comment 1 to Rule 4.01, which states that “under generally accepted conventions in negotiation,” certain statements of “opinion or conjecture” may be regarded as “negotiating positions.” Although commentators often disagree with one another—and some readers may disagree as well—the expert consensus is generally that making a false and material factual statement is not permitted, while subjective opinions about the strength of the case or the amount the client will be willing to pay are an acceptable part of the negotiation process. Jerry’s representations in 1, 3, and 5 fall into the latter category, while 2 and 4 do not because they are disprovable factual assertions. The best answer is D. For a more in-depth discussion, go to legalethicstexas.com.TBJ



ABOUT THE CENTER
The Texas Center for Legal Ethics was created by three former chief justices of the Supreme Court of Texas to educate lawyers about ethics and professionalism. Lawyers can access the Texas Disciplinary Rules of Professional Conduct, the Texas Lawyer’s Creed, and a variety of other online ethics resources by computer or smart device at legalethicstexas.com.


DISCLAIMER

The information contained in Ethics Question of the Month is intended to illustrate an ethics issue of general interest in the Texas legal community; it is not intended to provide ethics advice that applies regardless of particular facts. For specific legal ethics advice, readers are urged to consult the Texas Disciplinary Rules of Professional Conduct (including the official comments) and other authorities and/or a qualified legal ethics adviser.

 

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