Ethics in negotiating ...
© Tom Adolph 2003-2008
Ethics in negotiating ...
Or how bad can I be?
© Tom Adolph 2003-2008
Gulliver’s Travels
1726
There was a society of men
among us, bred up from their
youth in the art of proving …
that white is black,
and
black is white,
according as they are paid.
… I, who am the right owner, lie
under two great disadvantages:
…first, my lawyer, being
practised almost from his cradle
in defending falsehood, is quite
out of his element when he
would be an advocate for
justice, which is an unnatural
office he always attempts with
great awkwardness, if not with
ill-will.
The second disadvantage is,
that my lawyer must proceed
with great caution, or else he will
be reprimanded by the judges,
and abhorred by his brethren, as
one that would lessen the
practice of the law.
And therefore I have but two
methods to preserve my cow.
The first is,
to gain over my adversary's
lawyer with a double fee,
who will then betray his client by
insinuating that he hath justice
on his side.
The second way is for my lawyer
to make my cause appear as
unjust as he can, by allowing the
cow to belong to my adversary:
and this, if it be skilfully done,
will certainly bespeak the favour
of the bench.
When and where did
American lawyers adopt their
first ethics rules?
1887 Alabama
1908
1969
1983
Canons
Code
Model Rules
Texas Disciplinary Rules of
Professional Conduct
Texas Lawyer’s Creed
No teeth?
Rules - misconduct charge 8.04
Rules - do not specify any penalty
Creed - expressly “aspirational”
Taping Conversations
In negotiations.
Other attorney says your client has
renegged on promise in past session.
He has taped conversation to prove it.
Taping Conversations
Professional Ethics Committee Opinion
No. 575, November 2006
Overruled two prior opinions
Taping Conversations
1. Legitimate purpose – lawyer or
client
2. Protect confidence
3. Not a serious criminal violation
4. Not contrary to a representation to
any person
Lies and Silence
You know each is false
You intend to mislead
Misrepresenting
your minimum price
Client will go as low as $1200 per unit.
Misrepresenting
your minimum price
Client will go as low as $1200 per unit.
“Client will not accept less than $1400 per
unit.”
Misrepresenting
your minimum price
Client will go as low as $1200 per unit.
$2000?
Misrepresenting
your minimum price
Client will go as low as $1200 per unit.
$4000?
Misrepresenting
your minimum price
Client will go as low as $1200 per unit.
$10,000?
Misrepresenting
your minimum price
“What’s your authority limit?”
Misrepresenting
your minimum price
“What’s yours?”
Refuse to answer
“You know neither of us can discuss
our authority. Let’s talk about what is
fair.”
Misrepresenting
your minimum price
“I would like to get ...”
“I see no reason to accept less than
...”
“I will not, under any circumstances,
accept anything less than ...”
Misrepresenting
your minimum price
“I can’t recommend anything less than
___________.”
Advise client not to give you authority
to settle
Misrepresenting
your minimum price
Blatantly lie.
Misrepresenting prior price
Client has often accepted $1,000 per
unit
Misrepresenting prior price
Client has often accepted $1,000 per
unit
“We have never accepted less than
$1200 per unit.”
Misrepresenting prior price
Client has often accepted $1,000 per
unit
“Our past prices have been in the
range of $1500 per unit.”
Misrepresenting prior prices
Client has often accepted $1,000 per
unit
Client says: “Most agreements have
been at $2,000 per unit.”
New price information
Past prices
$1,000
New price information
Past prices
$1,000
5 new agreements at $500
Misrepresenting offers, value,
or authority
Distributor A offers $1,000,000
Misrepresenting offers, value,
or authority
Distributor A offers $1,000,000
“We now have a competing offer
of $1,200,000.”
Misrepresenting offers, value,
or authority
Distributor A offers $1,000,000
“I expect another person to offer
$1,200,000.”
Misrepresenting offers, value,
or authority
Distributor A offers $1,000,000
“Client wants to license US and
Canada together at $2,000,000,
but I talk him into $1,400,000.”
Silence
Client will soon roll out a new technology that will
obsolete the technology of the negotiations.
Silence
Client will soon roll out a new technology that will
obsolete the technology of the negotiations.
Can you remain silent about the new technology?
Silence
Client will soon roll out a new technology that will
obsolete the technology of the negotiations.
If the agreement is for 5 years, can you remain
silent?
Silence
The silence could also have concerned:
A serious prior art or prior trademark use
problem
A key employee leaving
Silence
Client misrepresented that it can
grant certain rights
Client promised to include a
territory already exclusively
licensed
Silence
Client admitted to you that the new
machinery was the sole cause of this
cost savings.
“Five new customers cut their costs by
$500 per unit after using our service.”
Silence
Can you remain silent after
Supplier’s misrepresentation?
Silence
Could you make the
statement?
Silence
Purchaser has no attorney.
(1) Client may increase prices each
year no more than 3%
(2) Client must provide minimum
levels of service.
Silence
[3%]  CPI – 5.2%
accumulate increases
reasonable efforts vs specific
minimums
“essentially the agreement”
“matter of law”
Playing Your Client
Client
$1,000,000
You
$
600,000
Initial offer
$
400,000
Playing Your Client
After 1 day
$500,000
Tell client
the $400,000 offer
With another
day of hard
negotiations
maybe $550,000
Stubborn Client
Stubborn Client
Settlement overtures
Client: I will never settle. You
should never negotiate.
Stubborn Client
Angry Judge
Opportunity for discovery
Billing Issue
Recently completed a complex negotiation
for Client A.
Substantial research and discussion
8 month negotiations / 60-pages
At your standard hourly rate, the bill was
steep.
Billing Issue
Client B -- almost identical situation
You can provide an almost complete
agreement in a few hours.
Billing Issue
How do you bill Client B?
standard hourly rate?
same or similar amount you charged
Client A?
something in between?
Extraneous Matters
Undocumented alien
Unlikable Attorney
Big jerk
Easily flattered
Unlikable Attorney
We are always
looking for
good lawyers.
After we close
this deal,
come talk to
us about a
position at the
firm?
Opponent’s Mistake
Proposal:
Silent on insurance because law
requires Client carry as additional
insured
Opponent’s Mistake
What if no attorney?
Opponent’s Mistake
Negotiations have finished.
You receive signed copies from the the other side
for your client’s signature.
You discover a mistake in the agreement.
Opponent’s Mistake
An indemnity obligation that your client owes has
been omitted, or
“No-cause” termination - negotiated for seller only is now mutual.
Do you disclose the error to the seller?
Opponent’s
Confidential Information
Client wants
will accept
$1,000,000
$ 750,000
Purchaser’s counsel mistakenly faxes
to you a letter intended for his client.
The letter reveals that Purchaser will
go as high as $2,000,000.
Out of Control Attorney
You are convinced opposing
counsel is not honestly
communicating your client’s
positions to his client.
Out of Control Attorney
– Communicate
directly with his
client?
– Have your client
contact his client?
– What if his client
calls you?
Out of Control Attorney
Is what that attorney did ethical?
Can an attorney delay drafting an
agreement to kill a deal his client
wants?
Applicable Law
Texas party - Texas client
California party - California client
Far East party- Far East client