Concept
Consequences of Misrepresentation
Lawyer as negotiator
Consequences of Misrepresentation
A negotiator who lies answers to more than Rule 4.1(a), which forbids a lawyer to knowingly make a false statement of material fact or law to a third person.1 The earlier sections of this chapter fixed what that rule covers: which statements count as facts, how far it reaches into statements of law, what the lawyer must know, and which bargaining conventions take a remark outside the category of material fact. This section asks what follows when a lawyer crosses the line anyway.
Several forces deter the lie. One is conscience, another is reputation, and a third is law.2 The law works in three ways. A fraudulent or material misrepresentation that induces the other party to settle makes the settlement voidable at that party's option. The misrepresentation may also support liability in tort. And the lawyer may be reprimanded, suspended from practice, or disbarred.3 A single knowing falsehood can therefore set off all three consequences at once.
The three consequences test different things. Discipline is complete once a lawyer knowingly speaks a material falsehood, whether or not anyone relied on it, as the earlier section on harm explained. A settlement is voidable only if the misrepresentation actually induced it. A lawyer can thus be disciplined for a lie that failed, and a client can lose a settlement because of a lie that worked.
No consequence guarantees honesty. One cannot be sure that everything a counterpart says in settlement negotiations is true, and the adversarial negotiator stays suspicious of what the other side tells her.4 The two parts below take the sanctions in turn: professional discipline, which targets the lawyer's license, and then civil and criminal exposure, which can reach lawyer and client alike.
Professional Discipline
A lawyer who knowingly makes a false statement of material fact or law to a third person while representing a client violates Rule 4.1(a), and the violation belongs to the disciplinary system as well as to the parties.5 Sanctions run from reprimand through suspension to disbarment, and misrepresentations made in settlement negotiations can draw any of them.6 Discipline rests on more than one rule. Rule 4.1 covers statements to third persons made in representing a client, and Rule 8.4(c) reaches deception more broadly.
Rule 8.4(c) imposes a duty to refrain from "dishonesty, fraud, deceit or misrepresentation," and that duty applies whether or not the lawyer is engaged in the practice of law.7 A lawyer who commits civil fraud transgresses the rule and deserves an appropriate sanction, and so does a lawyer who knowingly defames a person with scurrilous and harmful statements.8 One lie at the bargaining table can therefore violate both rules.
The Oregon Supreme Court tested how far the general ban reaches in re Conduct of Gatti. The case arose under Oregon's former disciplinary rules, so it illustrates the principle without applying the Model Rules directly.9 Gatti, a lawyer investigating a company for a client, telephoned two of its employees. He told one that he was a chiropractor and told the other that he performed medical examinations and wanted to work there. Both statements were false, and he made them to draw out damaging remarks about the company.10
The court held that the Oregon prohibition on dishonesty, fraud, deceit, and misrepresentation is not limited to litigation or even to representing clients. To establish a violation, the bar must prove, at a minimum, that the lawyer knowingly misrepresented a material fact.11 The court also found a violation of the separate rule against knowingly making a false statement of law or fact. That rule focuses on the falsehood, so it does not matter whether the recipient was misled, and a lawyer who misrepresents identity and purpose to someone likely to be adverse to the client violates it.12
Gatti asked the court to carve out an exception for misrepresentations limited to identity or purpose and made solely to discover information. Private lawyers, he argued, need that freedom to "root out evil" as government lawyers do.13 The court declined.14 The refusal fits a prohibition built around the falsehood. An exception keyed to the lawyer's goal would let each lawyer decide which lies are permitted, and a lawyer who deceives a witness will almost always believe the end is good.
The ban does not reach ordinary talk at the bargaining table, and the line is the one this chapter has drawn throughout, between checkable facts and statements that a listener expects to discount.
Both remarks are the kind negotiators ordinarily discount, so neither is a statement of material fact under Rule 4.1, and neither is the serious breach of truth that Rule 8.4(c) is best read to reach.15 Gatti's invented occupation was different. It was a fact his listeners had no means of testing, and he supplied it to open a door.
The general ban also has a limit of its own, which keeps it from policing a lawyer's whole life. A code of professional discipline should deter and punish conduct of special significance to the profession, and it should not concern itself with ordinary misconduct. The general censure of "dishonesty" is no warrant to intrude into a lawyer's personal relationships or to police the truthfulness of public speech.16 Because the word sits beside "fraud," "deceit," and "misrepresentation," it is best understood to mean comparably serious breaches of truth with a concrete negative effect, probably of a kind that would support a civil or criminal complaint.17 When a lawyer acts in a purely private capacity or speaks on public matters apart from practicing law, the disciplinary authority is at its lowest ebb, and privacy and free speech are at their zenith.18
Discipline also does not hinge on Rule 4.1 alone. In Gamble, a Kansas hearing panel found that a lawyer's email to an unrepresented biological mother contained false statements of material fact and law. It found no evidence that he knew the statements were false, so it found no violation of Rule 4.1.19 The panel nonetheless held that his failure to investigate the facts before sending the email was professional misconduct, and that recklessly making a false statement of material fact was prejudicial to the administration of justice, the conduct Rule 8.4(d) prohibits.20 It also held that his intentional bullying tactics reflected directly on his fitness to practice law and violated Kansas's Rule 8.4(g).21
A lawyer who reasons "I did not know, so no discipline" therefore stops one rule too soon, because the knowledge element protects the lawyer only against Rule 4.1. The opposite error treats Rule 8.4(c) as a license to punish every personal flaw, which ignores the limit described above.
Civil and Criminal Liability
The lie that exposes a lawyer to discipline can also undo a deal. A reprimand or suspension does nothing for the person who acted on the falsehood, so the law of settlements and the law of fraud protect that person separately. If a fraudulent or material misrepresentation induces the other party to settle, the settlement is voidable, meaning the deceived party may choose to undo it, and the misrepresentation may also support liability in tort.23
The civil tests demand more than Rule 4.1(a), which is why a lie can be sanctionable yet leave a settlement standing. Discipline for a false statement does not depend on whether the recipient was misled.24 Fraud has five elements: a false statement of fact; knowledge of its falsity or reckless disregard for the truth; intent that the plaintiff rely on it; justifiable reliance; and resulting damage.25 Something like a proximate cause requirement also limits the scope of liability.26
Both lawyers knowingly made a false statement of material fact to a third person, so both violated paragraph (a), and neither one's exposure to discipline depends on what the plaintiff's side did next.27 Only Pryor's lie induced anything. Reliance and damage are elements of fraud, so only Pryor's plaintiff has the foundation for a fraud claim and can ask to undo the settlement the lie produced.28 An answer that calls Vance's settlement voidable because Rule 4.1 was violated skips the inducement element, and an answer that clears Vance entirely because the other side checked skips discipline.
The lawyer's own exposure to the other side is a separate question, because a lawyer ordinarily owes duties to a client and not to the person across the table. Hansen v. Anderson, Wilmarth & Van Der Maaten shows that the lawyer's role does not shield deliberate fraud. An Iowa transactional lawyer helped a client fabricate corporate documents so that the client could sell a business he never owned.29 The Iowa Supreme Court held that the lawyer for the defrauded buyers could obtain indemnification from the opposing lawyer who perpetrated the fraud. It approved the proposition that a lawyer who makes fraudulent misrepresentations to a nonclient, including a lawyer representing another client, is subject to liability when the other elements of that tort are satisfied.30 The court tied the result to the duty from the start of this chapter: "[b]ecause of confidentiality prohibitions, a lawyer may generally refuse to provide information without breaching any duty. However, once the lawyer undertakes to provide information, that lawyer has a duty to provide the information truthfully."31 Neither the buyers' status as nonclients nor the involvement of another lawyer on the receiving side took the seller's lawyer outside the tort.
Liability to nonclients is narrower for the sufficiency of legal opinions. As the federal court in In re Enron Corp. Securities, Derivative & ERISA Litigation recounted, the Fifth Circuit in Abell v. Potomac Insurance Co. reaffirmed that lawyers are accountable only to their clients for the sufficiency of their legal opinions. It reasoned that a significant increase in lawyer liability to third parties could undercut the duties to avoid conflicting obligations, to remain loyal to the client, and to keep client confidences. Third-party suits were recognized, in general, only when the nonclient could prove that the lawyer prepared specific legal documents that explicitly represented the lawyer's legal opinions for the plaintiff's benefit.
The lawyer in Trust Company of Louisiana v. N.N.P. stood on the other side of that line. He assured a nonclient payee of notes that his firm was custodian of the certificates securing them, when he knew the firm held only assignments of interest in the certificates. The Fifth Circuit concluded that the payee had satisfied the elements of negligent misrepresentation under Louisiana law and of primary liability under Rule 10b-5. The difference between that lawyer and the one protected by Abell is the act of speaking: he made a direct representation to the person who relied on it.
Securities decisions draw the same line in terms of speech. Describing the Sixth Circuit's en banc decision in Rubin v. Schottenstein, Zox & Dunn, the Enron court explained that an attorney for an issuing corporation, who agreed to speak directly to two potential investors about the corporation's finances, could initially have remained silent. Once he chose to speak for the issuer, he had a duty to be accurate and complete about material matters and could not hide behind the attorney-client privilege.32 In the Sixth Circuit's words, a seller's lawyer "may not always be under an independent duty to volunteer information about the financial condition of his client," but "he assumes a duty to provide complete and nonmisleading information with respect to the subjects on which he undertakes to speak."33 A Third Circuit panel in Klein v. Boyd reached a similar result. Once the law firm "elected to speak" by creating, or participating in creating, documents it knew would be distributed to investors, it could not make material misrepresentations or omit material facts in drafting the non-confidential documents. The duty arose from the affirmative act of communicating with investors and not from any fiduciary relationship with them.34 These decisions apply federal securities law and not Rule 4.1, but they run on the principle that organizes this chapter: nothing obliges a lawyer to start speaking to a nonclient, and a lawyer who does speak takes on the obligation to speak truthfully.
Criminal law adds a final consequence for lawyers whose filings carry a fraud forward. The Second Circuit in United States v. Maniego affirmed the conviction of a lawyer whom a jury found to have knowingly prepared immigration documents based on fraudulent marriages, in violation of 18 U.S.C. §§ 371 and 1546. The Sixth Circuit in United States v. Zalman affirmed the conviction of a lawyer who failed to disclose a fraudulent marriage, in violation of 18 U.S.C. § 1001.35 United States v. Lew points the same way, since it involved an attorney convicted of making false statements to the Department of Labor.36 In immigration practice, a lawyer who makes a material representation and later discovers it to be false must take "appropriate remedial measures."37 These are criminal prosecutions, and none applies Rule 4.1. They show that a lawyer's role as advocate does not insulate a knowingly false filing from prosecution. The final section of this chapter turns from these consequences to the candor owed a tribunal.