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1 Ethical Rules Applied to Contract and Settlement Negotiations ACC Houston November 13, 2012 Charlie Meacham Samantha Trahan Bass Wallace, Jr.

2 ACC Houston 11/13/12 2 Let s Start with Some Rules Texas Disciplinary Rules of Professional Conduct Texas Lawyer s Creed ABA s Model Rules of Professional Conduct ABA Section of Litigation Ethical Guidelines for Settlement Negotiations International Bar Association Principles Council of Bars and Law Societies of Europe (CCBE) Code of Conduct Texas-Mexico Bar Association International Lawyer s Creed

3 ACC Houston 11/13/12 3 It s not my fault. During settlement negotiations, you offer to settle by paying $650,000. The mediator returns with a mediation agreement listing $605,000. Do you correct the amount? Mediator mistakenly conveyed $605,000. Mediator mistyped the form agreement.

4 ACC Houston 11/13/12 4 ABA practical, user-friendly guide During settlement negotiations and in concluding a settlement, a lawyer is the client s representative and fiduciary, and should act in the client s best interest and in furtherance of the client s lawful goals. A lawyer s conduct in negotiating a settlement should be characterized by honor and fair-dealing. ABA Section of Litigation Ethical Guidelines for Settlement Negotiations

5 ACC Houston 11/13/12 5 A lawyer shall treat client interests as paramount, subject always to there being no conflict with the lawyer s duties to the court and the interests of justice, to observe the law, and to maintain ethical standards. A lawyer shall at all times maintain the highest standards of honesty, integrity and fairness towards the lawyer s clients, the court, colleagues and all those with whom the lawyer comes into professional contact. It is also true that there are different standards expected towards the client, the court or a professional colleague since the lawyer has different responsibilities towards each category. International Bar Association Principles on Conduct for the Legal Profession

6 ACC Houston 11/13/ lawyers Mr. tests positive for a deadly STD Mr. sends a demand letter to Ms. Ms. suggests their lawyers meet Mr. confides in his lawyer that his tests were false-positives. Mr. requests his lawyer keep quiet. Art Hinshaw and Jess K. Alberts, Attorney Negotiation Ethics: An Empirical Assessment

7 ACC Houston 11/13/12 7 Do you keep quiet? 62% would not agree to the client s demand Personal integrity Violation of professional conduct 19% would agree Protected attorney-client privilege Specific client request No affirmative duty to inform opposing party

8 ACC Houston 11/13/12 8 A lawyer shall not assist or counsel a client to engage in conduct that the lawyer knows is criminal or fraudulent. When a lawyer has confidential information clearly establishing that a client is likely to commit a criminal or fraudulent act that is likely to result in substantial injury to the financial interests or property of another, the lawyer shall promptly make reasonable efforts under the circumstances to dissuade the client from committing the crime or fraud. Texas Disciplinary Rules of Professional Conduct

9 ABA 4.1 Truthfulness in Statements to Others ACC Houston 11/13/12 9 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.

10 ACC Houston 11/13/12 10 Materiality depends False statement of law False statement of material fact Know its false Intend to mislead Opinion / Conjecture Estimates of prices or value Intentions as to an acceptable settlement Identification of the principal Texas Disciplinary Rules of Professional Conduct

11 ACC Houston 11/13/12 11 If a client directs the lawyer to act, in the context of settlement negotiations or in concluding a settlement, in a manner the lawyer reasonably believes is contrary to the attorney s ethical obligations or applicable law, the lawyer should counsel the client to pursue a different and lawful course of conduct. If a mutually agreeable and proper course of action does not arise from the consultation, the lawyer should determine whether withdrawal from representing the client is mandatory or discretionary, and should consider whether the circumstances activate ethical obligations in addition to withdrawal, such as disclosure obligations to a tribunal or to higher decisionmaking authorities in an organization. ABA Comment on Rule 4.1

12 ACC Houston 11/13/12 12 You snooze you lose... You are reducing the terms of a contract to a written agreement. The buyer s attorney sends back the final agreement with the buyer s signature. You notice that a hotly contested provision reverted by mistake back to previous contract version to your client s immense benefit. Do you call opposing counsel?

13 ACC Houston 11/13/12 13 CCBE Core Principle: the dignity and honour of the legal profession, and the integrity and good repute of the individual lawyer. TMBA: A lawyer owes to opposing counsel, in the conduct of legal transactions courtesy, candor, cooperation and scrupulous observance of all agreements and mutual understandings. TDRPC: As negotiator, a lawyers seeks a result advantageous to the client but consistent with requirements of honest dealing with others.

14 ACC Houston 11/13/12 14 I have a secret. Day 18 of a jury trial. Counsel negotiates over the lunch hour and plaintiff s demand is now down to $700,000. Client remained in the courtroom and overheard the jury agree to a $4,000,000 award. Client says accept the demand right now and keep your mouth shut. Do you accept in silence?

15 ACC Houston 11/13/12 15 CCBE: Loyalty to the client is of the essence of the lawyer s role. TDRP: A lawyer shall not knowingly reveal confidential information of a client to a person that the client has instructed is not to receive the information or anyone else ABA: A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent. IBA: The loyal defence of a client s case may never cause advocates to be other than perfectly candid, subject to any right or privilege to the contrary which clients choose them to exercise, or knowingly to go against the law.

16 ACC Houston 11/13/12 16 If you don t, I will. Your client has given you pictures of the opposing party s CEO. They are embarrassing. Client says Tell the lawyer I ll post them on Facebook unless they agree to renew our contract. Do you issue the Facebook threat? The pictures are / are not relevant.

17 ACC Houston 11/13/12 17 In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person. Comment: Although in most cases a lawyer s responsibility to the interest of his client is paramount to the interest of other persons, a lawyer should avoid the infliction of needless harm. Texas Disciplinary Rules of Professional Conduct

18 ACC Houston 11/13/12 18 If a lawyer finds a client s proposed strategy or goal regarding settlement to be repugnant, but not contrary to applicable law or rules, or if the lawyer has a fundamental disagreement with the client s strategy or goal, the lawyer may continue the representation on the condition that the lawyer will not be required to perform acts in furtherance of the repugnant strategy or goal, or may withdraw from the representation. ABA Comment on Rule 4.1

19 ACC Houston 11/13/12 19 Ethics Opinion 214 Wife sues husband for divorce. Husband wants his attorney to notify the wife's attorney of an affirmative defense (infidelity), to be used as "trading matter" to secure a favorable property settlement. Can you use the threat of an affirmative defense?

20 ACC Houston 11/13/12 20 Unanimous opinion In the absence of other facts indicating lack of candor to the court, the attorney may use this information in an attempt to favorably influence negotiations for settlement.

21 ACC Houston 11/13/12 21 Texas Lawyer s Creed I am passionately proud of my profession. Therefore, My word is my bond.

22 Bass Wallace, Jr. Tetra Technologies, Inc Interstate 45 North The Woodlands, TX (281) Charlie Meacham Samantha Trahan Gardere Wynne Sewell 1000 Louisiana Suite 3400 Houston, TX (713)

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