Ethics Marathon with Stephen Gillers

1. Ethics Marathonwith Stephen Gillers April 1, 2014

2. 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)

3. TRUTH AND CONFIDENCES In Negotiation and Litigation

4. 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?

5. Negotiation and Confidentiality

6. NY Rule 1.2* • (d) A lawyer shall not counsel a client to engage, orassist 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.

7. 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.

8. 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.

9. NY Rule 1.6 • “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).

10. NY Rule 1.6(b)(the OPM “noisy withdrawal” exception) • “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?

11. 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.]

12. 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).

13. 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 whichthe 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;

14. Litigation and Confidentiality

15. 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.

16. 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

17. 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. ....

18. 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.

19. 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.

20. ABA and NY Rule 3.3 • (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.]

21. When is a statement “false?”

22. The “False” Statement Riddle • 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.”)

23. But We’re In Lawyer Land.. • 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).

24. What Can You Say in Negotiation: ABA Opinion 06-439 • “My client won’t take less than $200.” • Client has authorized $150 • “We have an eyewitness that will [identify] [exonerate] the accused.” • None exists.

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

26. What Can You Say in Negotiation: ABA Opinion 06-439 • “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

27. 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.

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

29. 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

30. 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

31. Arithmetical Error • 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.”

32. 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

33. 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)

34. Lawyer Liability for Negligent Misrepresentation (or other theory)

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

36. 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.”

37. From Slotkin… • 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)

38. Today, in N.Y. … • 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)

39. Three other cases that may discomfort lawyers • 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.

40. Three other cases that may… • 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.

41. Three other cases that may… • 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?

42. How to protect yourself… • 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.

43. The No-Contact Rule (see also attached material)

44. ABA Model Rules 4.2* • [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.

45. New York Rule 4.2(b)(not in the ABA Rule) • (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.

46. 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.

47. ABA Rule 4.2 • 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.

48. Niesig v. Team I (NY 1990) • “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]

49. Niesig v. Team I (NY 1990). • Niesig excludes former agents and employees from the operation of the rule.

50. But Be Careful BecauseNiesig Concludes: • “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.