Concept
Non-Actionable Negotiation Statements
Rule 4.1(a): Knowingly false statements of material fact or law to a third person
Non-Actionable Negotiation Statements
Rule 4.1(a) forbids a lawyer to “make a false statement of material fact or law to a third person.”1 Read literally, ordinary bargaining breaks that rule all day long. Sellers call their property worth more than it is, plaintiffs announce a floor they would in fact go below, and buyers’ lawyers decline to say who is paying. The rule survives because it reaches only statements of material fact, and whether a statement is one depends on the circumstances and on what the people at the table expect.2
Comment 2 to the rule names three kinds of statements that, under generally accepted conventions in negotiation, ordinarily are not taken as statements of material fact: estimates of price or value placed on the subject of a transaction; a 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.3
Reliance explains all three. The rule confines a lawyer’s duty of honesty to material facts, so it reaches only those matters significant enough to induce reasonable reliance by the other person.4 A listener who knows that value talk is inflated, that bottom lines are guarded, and that lawyers act for clients they need not name has no good reason to rely on any of it. In that setting the lawyer’s duty is truthfulness within the conventions of the dialogue, not a duty of candor.5
The shelter is exactly as wide as the listener’s habit of discounting. It covers value opinions, bargaining postures, and exaggeration, and it never covers a specific, checkable assertion of fact. The first three subsections take the three categories in turn, and the fourth marks where posturing ends and lying begins. Each time, ask one question: would a reasonable person in that bargaining setting treat the statement as something to rely on or as something to discount?
Puffery and Value Estimates
Negotiators expect exaggeration from one another. When parties haggle over a business deal or the settlement of a dispute, “a certain degree of puffery and exaggeration is expected as part of the back and forth haggling.”6 Comment 2 explains why the rule tolerates it: the rule exists to ensure accuracy in factual representations, so it separates statements about facts, which must be made truthfully, from expressions of opinion, which it does not regulate.7 Value estimates fall on the opinion side. An estimate of price or value placed on the subject of a transaction is ordinarily not a statement of material fact.8
The worth of the subject is the very question the parties are negotiating. Each side arrives with its own number and expects the other’s to differ, so a listener answers an estimate with a counter-estimate and does not rely on it. A statement that induces no reasonable reliance deceives no one, and a rule that punished every inflated number would sanction statements that mislead nobody.
The lawyer’s private doubt changes nothing, because the character of a statement turns on the circumstances in which it is made and the expectations of the persons involved.9
Calling a statement puffing does not end the inquiry, because the line between a misrepresentation of fact and an expression of opinion about value is not always clear.10 Two considerations do the sorting. Specificity comes first: a vague superlative gives the listener nothing to check, while a precise assertion invites reliance. Context comes second: the same words may be discounted in one setting and credited in another, depending on whether exaggeration is expected there. Fraud law draws on the same distinction. Its first element is a false statement of fact, and its fourth is justifiable reliance,11 which a listener accustomed to discounting sales talk will find hard to show.
A price does not make a statement safe. Telling a buyer that the house next door sold last month for $400,000 reports a past event that the buyer can verify, so it ordinarily belongs with the factual assertions even though it concerns price.
Bargaining Position and Intentions
The Standing Committee on Ethics and Professional Responsibility of the American Bar Association reasons that, consistent with Rule 4.1(a), “a lawyer may downplay a client’s willingness to compromise, or present a client’s bargaining position without disclosing the client’s ‘bottom-line’ position, in an effort to reach a more favorable resolution.”13 Comment 2 supplies the textual basis: a party’s intentions as to an acceptable settlement of a claim are not ordinarily taken as a statement of material fact.14
Take a plaintiff’s lawyer who tells the defense, “$190,000 is as low as we can go,” although the client has authorized settlement at $150,000. The lawyer knows the statement is untrue, speaks to a non-client, and speaks while representing a client. Only one element fails. The statement is not one of material fact, because it reports the client’s settlement intentions, and the comment places that subject outside the category.15
Lawyers say such things because the number moves the outcome. Suppose the defendant will pay up to $200,000. If the defense lawyer learns that the plaintiff’s bottom line is $150,000, settlement may land anywhere from $150,000 to $200,000. If she comes to believe it is $190,000, she sees room only between $190,000 and $200,000.16 The comment therefore “defines away, as not material,” representations about a bottom line, even though that line is perhaps the most material information in the negotiation.17
Tort law makes the carve-out look odd. A present state of mind is as much a present fact as anything else, so a person who claims an intention or a belief he does not hold misrepresents a fact.18 A client’s settlement intentions are exactly such a state of mind. The comment nonetheless withdraws them from the rule, because bluffing is generally considered fair play in negotiation and few lawyers are naive enough to accept uncritically a counterpart’s account of its bottom line.19 The listener discounts the statement, so no reasonable reliance follows.
Because an outright misstatement invites that skepticism, the more common technique is to project confidence in one’s case and a lack of interest in settling.20 Those postures assert nothing a listener could check, so they fit the comment’s category even more easily.
The shelter covers a party’s own intentions. It does not cover facts about the world, even when a dollar sign is attached.
Both statements put a figure in front of the listener, and the figure is all they share. The $190,000 floor describes a decision inside the client’s head that the other side expects to be shaded. The $100,000 limit describes a document that exists whatever either party intends. A lawyer asked about the limit may decline to answer, because a lawyer ordinarily is not obliged to share information with a third person at all, but she may not answer falsely.21
Exam answers go wrong in two directions. One treats any knowing lie about a number as a violation because the statement was false and important, but the analysis stops at the subject: a number that reports the client’s own settlement intentions is not a material fact. The other stretches the convention to every figure mentioned in a negotiation, and the policy-limit answer shows why that fails.
Undisclosed Principals
The comment’s third category is the existence of an undisclosed principal, which ordinarily is not a statement of material fact unless nondisclosure of the principal would constitute fraud.23 The principal is the person for whom the lawyer acts, and the principal is undisclosed when the other side does not know who that person is. A lawyer who negotiates the purchase of a parcel for a client who wants to stay anonymous leaves the principal undisclosed. Her silence about the client’s identity makes no false statement, so paragraph (a) is not engaged.
Anonymity serves legitimate ends. A developer assembling land may know that a seller who learns who is buying will raise the price. The lawyer owes that client loyalty, and she ordinarily is not obliged to share information with a third person at all.24 The seller is not misled in any way the rule cares about, because everyone who negotiates with a lawyer understands that lawyers act for others and may decline to name them. The duty in this setting is truthfulness within the conventions of the dialogue, not candor.25
The convention covers silence and nothing more. A lawyer who chooses to speak must make her statement sufficiently complete that it is not deliberately misleading.26 A direct question from the seller puts that line in plain view.
The first lawyer’s refusal is the silence the convention protects. The second lawyer’s “No” is an assertion with a checkable answer, and the seller would reasonably rely on it in deciding what to ask. The same holds for a cover story, such as describing the buyer as a family looking for a home: once a lawyer volunteers a description of the principal, she must make it true. The comment shelters the existence of an undisclosed principal, not a lie about the principal.
The comment’s exception for fraud marks the other limit. The convention assumes that the seller loses nothing it is entitled to when the principal stays unnamed. Where the principal’s existence or identity is the very thing the other side is being deceived about, keeping the principal hidden is itself the deception, and the shelter falls away. The exception turns on the substantive law of fraud, so the question on a fact pattern is whether the concealment would be fraudulent on the facts given. That the other side would have bargained differently had it known does not answer the question, because the same is true of almost every undisclosed principal.
A fact pattern about an anonymous buyer or seller therefore calls for two questions in order: did the lawyer say anything about the principal, and if so, was it true? A lawyer who said nothing is protected unless the concealment would amount to fraud. A lawyer who denied or misdescribed the principal has made a statement, and the convention no longer applies.
When Posturing Becomes a Lie
The shelter ends where the listener’s habit of discounting ends. A lawyer has no duty to volunteer that she has failed to find any eyewitness to an event, but she may not falsely tell the opposing side that she has found one.28 The two halves rest on different reasons. Declining to volunteer is ordinary advocacy and misleads no one. An affirmative falsehood about whether a witness exists corrupts the other side’s decision, because the witness is a fact about the world that bears on liability and value and that the listener often cannot check during the call.
The instinct that costs points on an exam is to reason that anything said in a settlement conference is posturing. The question is whether the statement is the kind of thing a listener discounts or the kind of thing a listener must be able to rely on.
What changed between the calls was the kind of statement Carl made. An opinion label does not return a checkable fact to the sheltered category: “In my view, three physicians have confirmed it” still asserts how many physicians there are. A single sentence can also hold both kinds. A claim that the case is worth a million dollars because three physicians have confirmed a permanent injury pairs a sheltered valuation with a factual assertion, and only the assertion is policed.
Silence can also carry a falsehood. Misrepresentations can occur through partially true but misleading statements or omissions that are the equivalent of affirmative false statements.29 In a wrongful-discharge case, the plaintiff’s lawyer may not hide that the plaintiff has found new employment at a higher salary, because that fact would make any claim for continuing lost wages fraudulent.30 The demand itself asserts that the client’s loss goes on, so the omission completes a false assertion the lawyer chose to make. A lawyer who demands only the wages for the months the client was out of work asserts nothing untrue and may stay silent about the new job.
Silence about an adversary’s mistake is a different matter, and students tend to analyze it too harshly. A lawyer who notices that opposing counsel is working from a mistaken belief has made no statement, and a lawyer ordinarily is not obliged to share information with a third person at all.31
Even the silent lawyer’s settlement may not be secure, because contract law runs separately from discipline. Nondisclosure of a material fact can make a contract unconscionable, and unilateral or mutual mistake can make it voidable.32 The law of mistake asks how far a court should readjust the parties’ legal relations to account for performances and expenditures made before the mistake came to light.33 Those questions belong to the next topic, the relationship between discipline and civil liability. Here the only question is whether the lawyer made a false statement.
The expectations behind the conventions differ from listener to listener. The argument that a loose statement was only posturing is strongest between two lawyers, each of whom knows the other is paid to talk up a position. An unrepresented person who has never negotiated a claim may take the same words as information. A lawyer negotiating with an unrepresented party must ensure that the person understands that the lawyer is not disinterested and represents only the client’s interests, and she must take care not to give legal advice. The better practice is to advise the person to retain a lawyer of her own.34
Step three decides the silence cases, because a lawyer who made no assertion and pressed no position built on a known falsehood has made no false statement. A statement that clears all four steps still needs the remaining elements, so a falsehood about a checkable fact violates paragraph (a) only if the lawyer knew it was false and the fact was material.