Can lawyers lie to help their clients?

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Can lawyers lie when they are negotiating business for their clients? Are exaggerations or bluffing permitted by attorneys in commercial negotiations? We asked a leading legal scholar on negotiations to explain whether and when attorneys can lie when negotiating on behalf of clients.

Note: Additional obligations apply to lawyer negotiations relating to civil or criminal litigation.

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An Interview with Legal Ethics Expert, Prof. Carrie Menkel-Meadow of U.C. Irvine School of Law

Joel Cohen (host): Are lawyers in negotiations, are we permitted– or when are we permitted– to lie on our client’s behalf?

Professor Carrie Menkel-Meadow (Prof. Menkel-Meadow): My favorite question. The rule is Model Rule Professional Conduct 4.1, which says ‘a lawyer shall not make a material statement that is false with respect to any material fact or law.’ So, notice the lawyer wiggle worms in that, right? What is “material''? What is a “material fact”, and what is “material law”? And to a “third person,” so does that mean anybody on the other side of a negotiation, someone who's not involved in the case? So, the black letter rule is what I just told you: you can't make a material misstatement of law or fact, but the comments to Rule 4.1. What the rule giveth, the comment taketh away... And the comment says, there are three specific things that you don't need to be truthful about. You can puff or bluff, believe it or not, in the rules meaning that nobody expects you to honestly say what your bottom line is, or what value you place on an item if you're selling something or buying something.

JC: So we won't settle for anything less than 10 million dollars here, even though you know for a fact your client would be happy with half a million.

CM: Exactly right, and that is the kind of classic example that's always given. And one of the reasons I say this is my favorite comment, is the comment says ‘generally accepted conventions of negotiation are such that we know that lawyers and people exaggerate when they are negotiating.’ That phrase that I've just given you, ‘generally accepted conventions of negotiation’, was put forth by J.J. White, a former professor at Michigan, who said, we know lawyers do all these things, they puff, and they bluff, and they won't share their actual bottom line. And the ethical rules can't change that behavior because negotiations are conducted in private, and there are no witnesses. I may say that you lied to me, and then you'll deny it. And it's "he said, she said." So in 2000, twenty years ago, the ABA said ‘oh, you're right, we can't possibly monitor this.’ So we're going to put in our rules and an acceptability of generally accepted behavior which we know is puffing and bluffing and not representing the true value.

JC: In the rules that say you can't lie about a material fact or material law, what is a material fact?

CM: Well, material fact– believe it or not– is a fact. There's a lot of case law on this, but for example, what's not a fact that you're allowed to misrepresent or puff or bluff about, is your opinion about the value of something. So, if I tell you I have this great necklace or I have a great wonderful company that I'm going to sell you, and I tell you in my opinion– this necklace is worth this much or my company is worth this much– that's my opinion. And a lot of case law says that's my opinion and I have no obligation to say exactly the value. It's your job as the person on the other side of the negotiation to investigate what the facts are, and to determine what you think the value is. I have no obligation to honestly state it.

JC: So I could say that "Joel Co." is worth 10 million dollars, even though we don't particularly have any revenue. But in my mind it's worth a whole lot of money, and 10 million dollars sounds right.

CM: Right.

JC: But how about with relation to projections? Can I say it will be worth 15 million dollars next year if my numbers when I've done internal audits suggests that will still be worth much less?

CM: If you have done an internal audit, and you know what the actual facts are, but you say something else, you have now affirmatively and assertively stated an untruth– meaning you know what the truth actually is. That is actionable under state fraud law. So, the ethical rules may say you may not make a misstatement of material fact. If you have done that, you've probably committed an act of fraud. That can, in some cases, wind up in criminal fraud. But in a sales situation, it's more likely to be civil fraud.

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