Negotiation Conventions

Rule 4.1(a) bars a lawyer from knowingly making a false statement of material fact or law to a third person.¹ The text does not say which statements made across a bargaining table count as statements of fact, and the comment fills the gap. “Under generally accepted conventions in negotiation,” it explains, “certain types of statements ordinarily are not taken as statements of material fact.”² Three kinds qualify: 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, the last subject to an exception where nondisclosure of the principal would constitute fraud.³

One idea underlies all three. The rule confines a lawyer's duty of honesty to “material” facts, those significant enough to induce reasonable reliance by the other person.⁴ Statements of these three kinds do not meet that description, because each side to a negotiation expects the other to shade them. A claimant's lawyer who says the client will never take less than a stated sum, or a seller's lawyer who announces that the property is worth far more than the buyer is offering, speaks in a register that every experienced negotiator recognizes as positional. No reasonable listener hears such words as a report about the world, and so the deception the rule targets has no room to occur.

The test is therefore objective. The question is how a reasonable participant in that negotiation would hear the statement, and the speaker's private meaning does not control the answer. Whether the speaker knew the statement was false is a separate inquiry, covered in the discussion of the knowledge requirement above.

The conventions also have an edge. They protect statements that are positional in context, and they do not turn a fact into an opinion because the speaker borrowed the vocabulary of opinion. As one court put it, the mere fact that a statement takes the form of an expression of opinion is not always conclusive.⁵

Estimates of Value

Estimates of price or value lead the comment's list, and they show most plainly why the conventions exist. A lawyer who tells the other side that the property on the table is worth far more than the offer is giving a judgment, and the comment does not treat a judgment of that kind as a representation that something is true of the world.⁶

Value is a conclusion that each side reaches for itself. What a building is worth depends on what it can earn, what shape it is in, where the market is heading, and how much risk a buyer will tolerate, and reasonable people weigh those inputs differently. Each side also knows that the other's figure reflects what the other stands to gain, so a seller's estimate arrives already discounted and the buyer answers with an estimate of its own. A rule that punished the estimate would reach ordinary haggling and protect no one who was actually misled.

Fraud law shows the same structure from the civil side. A fraud plaintiff must prove a false statement of fact, intent that the plaintiff rely on it, and justifiable reliance,⁷ and a buyer who discounts a seller's interested figure has nothing it can justifiably rely on. Paragraph (a) has no reliance element of its own, but the expectation that defeats justified reliance in fraud also explains why the comment withholds the status of fact from an estimate. The boundary is still blurry: the line between a misrepresentation of fact and an expression of opinion about value, mere “puffing,” is not always clear.⁸

Exam stems built on this convention usually set a statement about worth beside a statement about something checkable, and ask which one violates paragraph (a).

Both statements share a subject and a dollar figure, and they differ in what the buyer can do with them. The estimate invites a counter-estimate, so the buyer keeps full control of its own judgment. The appraisal claim hands the buyer a fact it has good reason to treat as settled, and a lie about it substitutes the speaker's invention for the buyer's own evaluation. The convention shelters the estimate and does not shelter the facts offered to support it.

Drawing that line takes care, because a speaker can pack a checkable fact into the vocabulary of valuation. A claim that the warehouse nets $400,000 a year in rent supports the same conclusion as a claim that it is worth over three million, yet the first is a primary fact and the second a conclusion drawn from facts like it. When a statement falls between the two, ask whether the listener could test it against something concrete. Two opposite errors recur on exams: treating every dollar figure as a statement of fact, which would condemn the lawyer who says the warehouse is worth over three million, and treating anything phrased as value as protected, which would shelter the invented appraisal.

Settlement Positions and Bottom Lines

A party's intentions as to an acceptable settlement of a claim are the comment's second category.¹⁰ The ABA's Standing Committee on Ethics and Professional Responsibility reads Rule 4.1(a) to mean that “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.”¹¹ Professors Monroe Freedman and Abbe Smith add that, given the “expected and accepted norms of behavior within a group,” calling a lawyer's posturing a lie in that setting is “simply silly.”¹²

A bottom line is the most a party will give or the least it will accept to make a deal, which negotiators also call its reservation value, and it is the information a competitive negotiator most wants from the other side.¹³ The standard illustration is a plaintiff's lawyer who tells the defense, “$190,000 is as low as we can go,” while holding the client's authority to settle for $150,000. Suppose the defendant will pay up to $200,000. Any figure between $150,000 and $200,000 would satisfy both sides, but a defense lawyer who comes to believe that the plaintiff's floor is $190,000 will believe that the settlement zone runs only from $190,000 to $200,000.¹⁴ The bluff pays by shrinking the other side's picture of the zone, so any settlement lands near the top of the true range. Under the comment the statement does not ordinarily violate Rule 4.1(a), because a party's intentions as to settlement are not ordinarily taken as statements of material fact.¹⁵

Two features of the setting let the bluff pass. A lawyer who announces the client's limit obviously has an interest in making it sound firmer than it is, so few lawyers are naive enough to accept a counterpart's account of its own bottom line uncritically, and misrepresenting a bottom line is hard to distinguish from bluffing, which negotiators generally treat as fair play.¹⁶ A statement that its listeners are expected to discount cannot induce reasonable reliance, and reasonable reliance is what makes a fact material under the rule.¹⁷ The most common way to mislead about a bottom line is to project confidence in one's case and a lack of interest in settling.¹⁸ The convention has a price, since the bottom line is the very information the competitive negotiator most wants and the convention puts it beyond paragraph (a). The rule accepts that price because it ties materiality to reasonable reliance, and nobody reasonably relies on the other side's account of its own limits.

The convention covers the client's intentions about settlement and nothing underneath them. The facts on which a claim rests stay protected by paragraph (a), because the listener cannot discount them and they directly determine what the claim is worth. A lawyer for a plaintiff in a wrongful-discharge case may not hide the fact that the plaintiff has found new employment at a higher salary, because that fact would make any claim for continuing lost wages fraudulent.¹⁹ A lawyer who went further and affirmatively said the client was still out of work would have made a false statement of fact outright. Nor may a lawyer falsely tell the opposing side that she has found an eyewitness.²⁰ The same lawyer in the same negotiation may say that $190,000 is as low as the client will go, provided the account of the lost wages is true.

Hypothetical Illustration

In a product-liability negotiation, Whitaker, who represents the manufacturer, tells plaintiff's counsel, “My client has no interest in settling anywhere near your number and would rather go to trial.” Whitaker knows the client has authorized an offer of up to $300,000 and wants to avoid a trial. A few minutes later Whitaker adds that the manufacturer's brake expert has inspected the vehicle and found no defect, although no expert has been retained. The first statement describes the client's settlement intentions, which plaintiff's counsel expects to be shaded and will discount, so it is ordinarily not a statement of material fact. The second asserts that an inspection happened and reached a conclusion. That is a checkable fact, plaintiff's counsel cannot discount it, and the value of the case depends on it, so Whitaker has made a false statement of material fact to a third person.

Exam answers go wrong in two directions here. One condemns a lawyer who merely bluffs about the client's limit. The other stretches the bluffing convention until it excuses a falsehood about the evidence, as though “it's just negotiation” covered anything said at a bargaining table. The convention shelters the lawyer's account of what the client will accept and leaves untouched the facts that give the claim its value.

Undisclosed Principals

Rule 4.1(a) reaches only false statements of material fact or law,²² and the comment removes a third kind of negotiating statement from the category of material fact: “the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud.”²³ An undisclosed principal is the person for whom an agent acts when the agent does not tell the other side that anyone stands behind the dealing. A lawyer who negotiates to buy a tract for a developer, without saying who the developer is or even that one exists, is dealing for an undisclosed principal. The first two conventions concern statements the listener is expected to discount. This one rests on a different footing, which is that in most transactions the identity of the person behind the lawyer is not what the other side is bargaining over.

The reason lies in what the other side must actually decide. A seller who receives the agreed price on the agreed terms gets the same thing whoever's money it is, so the buyer's name usually bears on nothing the seller is choosing. A lawyer who simply declines to name the client has said nothing false, and paragraph (a) reaches statements. Silence that misleads is a different problem, taken up in the next section. If every unnamed client counted as a misrepresentation, a lawyer could not act through an agent in the ordinary way, and routine acquisitions made through counsel would become ethical violations without anyone having been deceived about anything that mattered.

The exception applies the same reasoning in reverse. The convention holds only while the principal's identity does not bear on the decision the other side must make. Once identity is the reason the other side would act or refuse to act, concealing or misdescribing it deceives that side on the very point that drives its choice. The comment supplies the test by pointing to fraud, so the negotiator asks whether the nondisclosure would constitute fraud under the substantive law, and no special ethics standard applies.²⁴ Fraud requires a false statement of fact, scienter, intent that the other side rely, justifiable reliance, and resulting damage.²⁵ The comment to the rule adds that partially true but misleading statements or omissions can be the equivalent of affirmative false statements.²⁶

Fleetwood Corp. v. Mirich applies that fraud standard to a buyer's identity. The plaintiffs were original investors in Fleetwood, a corporation that paid no dividends from its inception in 1967 through 1972, when the disputed sales occurred, and there was testimony that it needed its retained earnings for expansion.²⁷ The plaintiffs testified that they would not have sold their stock had they known that the corporation was the purchaser, and the court held the misrepresentation as to the purchaser's identity material.²⁸ For these sellers, who was buying determined whether they would sell at all.

It was also asserted that the plaintiffs could not rely on Brown's statement that they were obligated to sell, because it was only his personal opinion. The court observed that the mere fact that a statement takes the form of an expression of opinion is not always conclusive.²⁹ That observation matches the limit stated at the start of this unit. Fleetwood is a fraud decision and not a disciplinary one. It belongs here because the comment's exception borrows from fraud law, and it shows what that law asks when the thing misdescribed is the identity of the buyer.

The developer's lawyer and the speaker in Fleetwood differ in two ways at once. The lawyer withheld a name, while the speaker in Fleetwood affirmatively misrepresented who the buyer was, and the landowner's decision turned on price while the shareholders' decision turned on who was buying. Silence about a principal whose identity does not matter is the convention's core case, and a false description of a principal whose identity decides the matter is the exception's clearest case.

Exam Analysis Steps

A stem about an unnamed or misnamed client can be worked in four steps, because the convention shelters silence about a principal and gives way once concealment becomes fraud.

Sort the conduct: did the lawyer only withhold the principal's name or existence, or say something false or misleading about who the principal is?
Ask whether the other side's decision turns on who the principal is, as the sellers' decision did in Fleetwood.
Test the nondisclosure against fraud's elements: a false statement of fact, scienter, intent that the other side rely, justifiable reliance, and resulting damage, remembering that a misleading statement or omission can be the equivalent of an affirmative false statement.³⁰
If the nondisclosure would not be fraud, treat the principal's existence as outside paragraph (a). If it would be, the convention drops away and the ordinary Rule 4.1(a) analysis, including the knowledge requirement, governs.

Two opposite errors recur. One treats every anonymous client as a misrepresentation, which ignores that the comment expressly tolerates an undisclosed principal. The other treats the convention as a license to lie about who is buying, which ignores the exception that the same sentence of the comment contains.