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Ethics Marathonwith Stephen Gillers

April 1, 2014

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TIMED AGENDA Introduction (5 minutes) Truth and confidences in negotiation and

litigation (35 minutes) When must a lawyer correct an opponent’s

errors? (25 minutes) The no-contact rule including in entity

representation, when the opponent is the government, and in the use of testers. (25 minutes)

Playbook conflicts (15 minutes) Q&A (15 minutes)

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TRUTH AND CONFIDENCES

In Negotiation and Litigation

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The Problem

In a negotiation, what do you do if your client makes a false statement of fact (whether or not knowingly), or you do (innocently), and you then come to know of the falsity as a result of a confidential communication?

In a litigation, what if your client or your witness makes a false statement (whether or not knowingly), or you do (innocently), and you then come to know of its falsity as a result of a confidential communication?

Negotiation and Confidentiality

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NY Rule 1.2* (d) A lawyer shall not counsel a client to

engage, or assist a client, in conduct that the lawyer knows is illegal or fraudulent, except that the lawyer may discuss the legal consequences of any proposed course of conduct with a client.

*The ABA rule is substantially the same.

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New York Rule 8.4 A lawyer [or law firm] shall not:…

(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation…

The ABA rule is the same except the ABA lacks the bracketed words.

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NY Rule 1.6 (a) A lawyer shall not knowingly reveal

confidential information, as defined in this Rule, or use such information to the disadvantage of a client or for the advantage of the lawyer or a third person.

NY Rule 1.6

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“Confidential information” consists of information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney-client privilege, (b) likely to be embarrassing or detrimental to the client if

disclosed, or (c) information that the client has requested be kept

confidential. “Confidential information” does not ordinarily

include (i) a lawyer’s legal knowledge or legal research or (ii) information that is generally known in the local community or in the trade, field or profession to which the information relates.

So non-privileged information is confidential only if it is within (b) or (c).

NY Rule 1.6(b)(the OPM “noisy withdrawal” exception)

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“A lawyer may reveal or use confidential information to the extent that the lawyer reasonably believes necessary:... (3) to withdraw a written or oral opinion or

representation previously given by the lawyer and reasonably believed by the lawyer still to be relied upon by a third person, where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud.”

But what if you have not given a witten or oral opinion but unwittingly aided the fraud or crime?

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ABA Rule 4.1 In the course of representing a client a lawyer

shall not knowingly: (a) make a false statement of material fact or law

to a third person; or (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, unless disclosure is prohibited by Rule 1.6.

[Paragraph (b) is not in the NY rule.]

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ABA Rule 1.6 (a) A lawyer shall not reveal information

relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

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ABA Rule 1.6(b) (b) A lawyer may reveal information relating to

the representation of a client to the extent the lawyer reasonably believes necessary: (2) to prevent the client from committing a crime or

fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services;

(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;

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Litigation and Confidentiality

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NY Rule 1.0(w)ABA Rule 1.0(m) “Tribunal” denotes a court, an arbitrator in

an [ABA: a binding] arbitration proceeding or a legislative body, administrative agency or other body acting in an adjudicative capacity. A legislative body, administrative agency or other body acts in an adjudicative capacity when a neutral official, after the presentation of evidence or legal argument by a party or parties, will render a [ABA: binding] legal judgment directly affecting a party’s interests in a particular matter.

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NY and ABA Rule 3.3(a) A lawyer shall not knowingly:

(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer

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NY and ABA Rule 3.3(a) A lawyer shall not knowingly:

(3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. ....

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NY and ABA Rule 3.3(b)

A lawyer who represents a client before a tribunal and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.

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ABA Rule 3.3 cmt. [12] (NY Rule 3.3 cmt. [12] is similar) Lawyers have a special obligation to

protect a tribunal against criminal or fraudulent conduct that undermines the integrity of the adjudicative process, such as bribing, intimidating or otherwise unlawfully communicating with a witness, juror, court official or other participant in the proceeding, unlawfully destroying or concealing documents or other evidence or failing to disclose information to the tribunal when required by law to do so.

ABA and NY Rule 3.3

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(b) A lawyer who represents a client [in an adjudicative proceeding] [before a tribunal] and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.

(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6.

[Red in ABA rule only. Green in NY only.]

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When is a statement “false?”

The “False” Statement Riddle

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Lawyers are forbidden to make a “false statement of fact or law to a tribunal” and have certain remedial obligations in matters before a tribunal. NY and ABA Rule 3.3(a)

In negotiation, lawyers are forbidden to make a “false statement of material fact or law to a third person.” NY and ABA Rule 4.1(a). (The NY version of Rule 4.1(a) omits “material.”)

But We’re In Lawyer Land..

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So what is false? When is exaggeration or posturing allowed? When is a literally true if overly precise statement disallowed? NB: A statement can be false even if the speaker

does not mean to lie at the time the statement is made. The word “false” refers to the statement, not the speaker’s state of mind.

So a statement may be “false” though not “fraudulent” or perjury (even if under oath).

What Can You Say in Negotiation: ABA Opinion 06-439

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“My client won’t take less than $200.”Client has authorized $150

“We have an eyewitness that will [identify] [exonerate] the accused.” None exists.

What Can You Say in Negotiation: ABA Opinion 06-439

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In labor negotiation, “That benefit will cost the company $200.” In fact, it would cost $20.

“Immunity is off the table. We’ll be researching possible charges.” Prosecutor has no intention of

indicting the defendant

What Can You Say in Negotiation: ABA Opinion 06-439

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“We have documentary proof of the claim.” None exists.

“If you don’t lower your price, my client will buy elsewhere.”Client has said there is no other source

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What is False? A good rule of thumb is that an incorrect

statement of historical fact will be “false” within the meaning of the rule, as contrasted with a prediction or perhaps an opinion.

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When Is There A Duty to CorrectAn Opponent’s Drafting Error?

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Questions to Ask (to begin with) Is it an error of law or fact? If it’s an error of fact, is it mechanical

(arithmetical) or based on superior investigation?

The death of a client

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Death of a Party If it’s the death of a party in a matter in court,

you will likely have to reveal that under court rules for substitution or the jurisdiction’s ethics rules.

Virzi v. Grand Truck Warehouse (E.D.Mich. 1983); Matter of Forrest, (N.J. 1999

Arithmetical Error

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If it’s an arithmetical or transmittal error, the issue becomes harder but the courts seem to require correction.

Sumerel v. Goodyear Tire & Rubber Co. (Colo. App. 2009) “When plaintiffs' counsel reviewed Brooks's charts, they

immediately recognized the cause of the parties' six-figure discrepancy. At this point, the proper course was obvious to us: plaintiffs' counsel should have called Brooks, identified the discrepancy, and concluded the matter without further delay.”

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Drafting Error An error in drafting a provision to which the

parties have orally agreed will likely have to be corrected. California Op. 2013-189

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An Opponent’s Errors:Additional Authorities State v. Addison (Neb. 1987)(discipline for

failure to correct opponent’s misunderstanding of insurance policy amounts)

Brown v. County of Genesee (6th Cir. 1989)(because of misunderstanding, plaintiff’s lawyer in discrimination case bargained for reinstatement at a lower pay grade than plaintiff was entitled)

Whitaker v. Assoc. Credit Services, Inc. (6th Cir. 1991)(typographical error in offer to settle)

ABA Op 86-1518 (error in draft memorializing an agreement)

California Op. 2013-189 (a detailed analysis with many authorities cited and two helpful hypothetical problems)

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Lawyer Liability for Negligent Misrepresentation

(or other theory)

Slotkin v. Citizens Casualty Co (2nd Cir. 1979).In re McGrath (1st Dep’t 1983)

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Lawyer stated that “to the best of his knowledge” defendant had only $200,000 in insurance. Plaintiff settled for $185,000. In fact, defendant had an additional $1 million

policy which the lawyer had in his file.

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Slotkin, cont’d We believe that the jury could properly find that

Christopher McGrath's conduct rendered him liable under New York law as charged…. McGrath stipulated that “to the best of his knowledge” there was only $200,000 worth of coverage in spite of the information in the documents in his possession. McGrath's insistence that the policy limit was $200,000 renders him liable under the New York definition of scienter as “a reckless indifference to error,” “a pretense of exact knowledge,” or “(an) assertion of a false material fact ‘susceptible of accurate knowledge’ but stated to be true on the personal knowledge of the representer.”

From Slotkin…

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Lawyer’s “insistence that the policy limit was $200,000…renders him liable under the New York definition of scienter as reckless indifference to error, a pretense of exact knowledge, or (an) assertion of a false material fact susceptible of accurate knowledge but stated to be true on the personal knowledge of the representer.” (internal quotes omitted)

Today, in N.Y. …

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The claim would likely assert negligent misrepresentation rather than a variety of fraud (why is that?). Prudential Ins. Co. of America v. Dewey Ballantine

(NY 1992)(recognizing negligent misrepresentation claims against lawyers)

Three other cases that may discomfort lawyers

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1. Lawyers Title Ins. Co. v. Baik (Wash. 2007)

Estate’s lawyer responds to title insurer in connection with sale of estate land: “By this letter I am informing you that, based on our tax

preparation, no estate taxes are due and owing to the state or federal government. Likewise, to my knowledge, no other taxes are outstanding against the estate.”

Insurer does not exclude tax liability from policy and IRS then levies against property for unpaid inheritance taxes.

Insurer sues lawyer.

Three other cases that may…

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2. Hoyt Properties, Inc. v. Production Resource Group, L.L.C. (Minn. 2007) In settling a suit against a subsidiary with a

release to the parent, “Steve Hoyt asked, ‘I don't know of any reason how we could pierce the veil, do you?’ Hoyt alleges that PRG's attorney responded, ‘There isn't anything. PRG and Entolo are totally separate.’”

Effort to open settlement and assert new claims. Allegation of fraudulent misrepresentation but

same allegations could support negligence.

Three other cases that may…

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3. Petrillo v. Bachenberg (N.J. 1995) How many passed perc tests out of how many

tried? 2/7 or 2/30? Did lawyer’s act contribute to buyer’s reasonable

false inference?

How to protect yourself…

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Do not make statements of fact or implied fact to an opposing counsel or party, at least not without a disclaimer or preceded by “My client tells me….” Don’t endorse (including by repetition) a statement of fact or fact/law you’re not prepared to stand behind.

If you client makes a material false statement in a negotiation, either correct it (with permission if necessary) or withdraw, possibly a noisy withdrawal.

The No-Contact Rule

(see also attached material)

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ABA Model Rules 4.2*

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[1] In representing a client, a lawyer shall not [2] communicate about [3] the subject of the representation with a person the lawyer [4] knows to be represented by another lawyer in the matter, unless the lawyer [5] has the consent of the other lawyer or [6] is authorized to do so by law or a court order.

NY Rule 4.2(a) is substantially the same. Numbers in brackets added.

New York Rule 4.2(b)(not in the ABA Rule)

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(b) Notwithstanding the prohibitions of paragraph (a), and unless otherwise prohibited by law, a lawyer may cause a client to communicate with a represented person unless the represented person is not legally competent, and may counsel the client with respect to those communications, provided the lawyer gives reasonable advance notice to the represented person’s counsel that such communications will be taking place.

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NY Rule 4.2 Cmt. [11]: Persons represented in a matter

may communicate directly with each other. A lawyer may properly advise a client to communicate directly with a represented person, and may counsel the client with respect to those communications, provided the lawyer complies with paragraph (b)…. A lawyer may also counsel a client with respect to communications with a represented person, including by drafting papers for the client to present to the represented person.

ABA Rule 4.2

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Cmt. [4]: “Parties to a matter may communicate directly with each other, and a lawyer is not prohibited from advising a client concerning a communication that the client is legally entitled to make.” The scope of this language is addressed in ABA

Opinion 11-461.

Niesig v. Team I (NY 1990)

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“The test that best balances the competing interests... is one that defines "party" to include [1] corporate employees whose acts or omissions in the matter under inquiry are binding on the corporation (in effect, the corporation's "alter egos") or [2] imputed to the corporation for purposes of its liability, or [3] employees implementing the advice of counsel. All other employees may be interviewed informally.”

[Bracketed numbers added]

Niesig v. Team I (NY 1990).

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Niesig excludes former agents and employees from the operation of the rule.

But Be Careful BecauseNiesig Concludes:

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“Defendants' assertions that ex parte interviews should not be permitted because of the dangers of overreaching, moreover, impel us to add the cautionary note that, while we have not been called upon to consider questions relating to the actual conduct of such interviews, it is of course assumed that attorneys would make their identity and interest known to interviewees and comport themselves ethically.”

Do not seek to elicit privileged or strategic information.

ABA Rule 4.2

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Cmt. [7]: “In the case of a represented organization, this Rule prohibits communications with a constituent of the organization who [1] supervises, directs or regularly consults with the organization’s lawyer concerning the matter or [2] has authority to obligate the organization with respect to the matter or [3] whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability. Consent of the organization’s lawyer is not required for communication with a [4] former constituent.” [Bracketed numbers added. Accord Restatement of Law

Governing Lawyers §100. NY Rule 4.2 cmt. [7] is substantially the same.]

What About Testers?

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Can a lawyer supervise a tester consistent with the no-contact rule? What is a tester?

Gidatex, S.r.L v. Campaniello Imports, Ltd. (S.D.N.Y. 1999): “These ethical rules should not govern situations where a party is legitimately investigating potential unfair business practices by use of an undercover posing as a member of the general public engaging in ordinary business transactions with the target. To prevent this use of investigators might permit targets to freely engage in unfair business practices which are harmful to both trademark owners and consumers in general.”

See also Hill v. Shell Oil Co. (N.D. Ill. 2002).

ABA Opinion 95-396

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[A] lawyer representing the organization cannot insulate all employees from contacts with opposing lawyers by asserting a blanket representation of the organization.

ABA Model Rule 3.4

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A lawyer shall not…(f) request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or an employee or

other agent of a client; and (2) the lawyer reasonably believes that the

person's interests will not be adversely affected by refraining from giving such information.

When the Government is the Adversary

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ABA Opinion 97-408 reads Rule 4.2 to permit contact with government officials “who have authority to take or to recommend action in the matter, provided that the sole purpose of the lawyer’s communication is to address a policy issue, including settling the controversy.” See also NYS Opinion 812.

When the Government is the Adversary

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Contact is forbidden where the official lacks the authority to do these things or where the purpose is to “develop evidence” or learn relevant information.

Also notice of intended contact must first be given to government counsel “to afford an opportunity for consultation…on the advisability of…entertaining the communication.”

Ethics Opinions

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ABA Opinion 06-443 and NYC Opinion 2007-1 (contact with organization’s in house lawyer).

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“Playbook” Conflicts

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NY and ABA Rule 1.9(a) (a) A lawyer who has formerly represented a

client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

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What Does Rule 1.9(a) Protect? Confidential information –

But how? The risk of false positives and false negatives

An ongoing duty of loyalty

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“Playbook” Conflicts Lawyers may not switch sides on the same

or a substantially related matter. “Same” is easy. “Substantially related” can be hard,

requiring judgment, knowledge of the caselaw, and prediction. Essentially, the question is this: Could the

lawyer have acquired information in the former representation that can now be used against the former client in the new adverse matter.

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“Playbook” Conflicts “Substantially related” is a proxy or

surrogate for an actual investigation of the confidential information, which courts don’t want to do because: It takes too much time It forces disclosure of the very information the

former client’s DQ motion seeks to avoid The inevitability of false positives and false

negatives One possible antidote for false negatives

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“Playbook” Conflicts The “playbook” question:

Is DQ appropriate if the former client’s information allegedly at risk is not matter specific information but at a higher level of generality?

And how high can you go without preventing the former firm from ever opposing the former client?

“You Don’t Know Anything” Some authorities in the attached material