In litigation and transactional work, negotiations with another party’s counsel are inevitable. The better the picture you can paint of your client’s position, the better the resolution you might obtain. However, new Rule 4.1 of the California Rules of Professional Conduct (CRPC) limits what you can say to gain that advantage.
Rule 4.1(a) provides that a lawyer shall not knowingly “make a false statement of material fact or law to a third person.” Included in this prohibition is a lawyer’s affirmation of a client’s factual statement that the lawyer knows to be false. (CRPC 4.1, comment 1.)
What constitutes a statement of “fact,” however, depends on the circumstances. Comment 2 to Rule 4.1 explains that “in negotiation, certain types of statements ordinarily are not taken as statements of material fact,” and “[e]stimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category.”
Thus, puffery and other subjective statements unlikely to induce reliance – e.g., “I’ve never had a case with such clear-cut liability as this one,” “no jury is going to believe your witness,” or “this car is worth $50,000 easy” – are likely permissible notwithstanding Rule 4.1. Similarly, bluffing (“If you don’t agree to this demand, my client is going to tell me to sue you”) and posturing (“My client’s not going to pay more than $100”) may be permissible negotiation tactics. But pure statements of fact that the lawyer knows to be false, such as “I’ve got an eye witness to support my client’s story” or “my client’s policy limits are just $100,000,” are most likely impermissible. (See also Cal. State Bar Formal Opn. 2015-194 [under previous CRPC].)
As a general matter, a lawyer does not have an affirmative duty to inform opposing counsel of facts relevant to the litigation or transaction. (CRPC 4.1, comment 1.) However, “[a] nondisclosure can be the equivalent of a false statement of material fact . . . where a lawyer makes a partially true but misleading material statement or material omission.” (Id.; see also CRPC 8.4(c) [professional misconduct to “engage in conduct involving dishonesty, fraud, deceit or reckless or intentional misrepresentation”].)
In addition, Rule 4.1(b) provides that a lawyer shall not knowingly “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 [Bus. & Prof. Code 6068(e)(1) or Rule 1.6]” because it would reveal a client confidence. If the client is pursuing a crime or fraud, the attorney must advise the client that the lawyer cannot participate in it (Rule 1.4(a)(4)), and if the client does not relent and forbids the attorney from making the disclosure, the attorney should consider whether Rule 1.16 requires withdrawal from representation.
Carl W. Chamberlin is an attorney, adjunct professor, and member of the BASF Legal Ethics Committee. The views expressed in this article are his own.