The prohibtion of communication with adverse parties in civil negotiations: Protecting clients...

INTRODUCTION

The Model Rules of Professional Conduct promulgated by the American Bar Association (the "ABA"), as well as their predecessor, the Model Code, contain language prohibiting a lawyer from communicating with any adverse party on the subject matter of the representation if the lawyer knows that the other party is represented by counsel.' The drafters of the provision apparently intended to prohibit attorneys from directly communicating with opposing clients in all civil litigation settings, including negotiations. Although client-client contact is permissible, under this "no-contact" rule an attorney cannot avoid the ban by using her own client as a tool for obtaining information in anticipation of litigation or a negotiation session.2 Some authorities have proposed that the rule should not be strictly construed against prosecutors in criminal settings, although fewer arguments have been asserted for such a relaxed application in the civil context.3

Proponents of the no-contact rule claim that the lay client is in a poor position to analyze or meaningfully evaluate information received from opposing counsel.4 Although the Sixth Amendment right to counsel does not apply in civil cases, the right to choose one's own counsel has been recognized.5 The no-contact rule's prohibition against direct communication is particularly problematic where a party has chosen to retain counsel in a criminal or a civil case, reflecting a judgment that the individual is unable, without the aid of an attorney,

to best protect their own interests.6

The ethical rules do not offer much guidance about what functions the no-contact rule serves. Nonetheless, two primary purposes are cited to justify the rule: 1) protection of the interests of clients, who might otherwise fall prey to manipulative opposing counsel; and 2) prevention of attorneys misleading opposing parties with impunity.8 To determine whether the benefits of allowing direct communication in negotiation outweigh the corresponding risk that egregious attorney behavior undermining the purposes of the rule will go unreprimanded, this Note will examine the acts that Model Rule 4.2 was designed to prevent.9 A report on the application of the no-contact rule by courts and disciplinary boards in the civil settlement context will precede an examination of whether the rule is successful in deterring and/or reprimanding attorney misconduct. The Note will examine the merits of a more flexible application of the no-contact rule whereby contact by negotiating attorneys that does not frustrate the purposes of Rule 4.2 is examined on a case-by-case basis. Finally, this Note will explore alternatives to a prophylactic ban that Model Rule 4.2 currently establishes.

1. APPLICATION OF THE No-CONTACT RULE

Model Rule 4.2 states an absolute prohibition on adverse client contact, rather than a restriction on the time, place, or manner of communication.'O In the civil settlement context, counsel's conduct in communicating with a represented party has long been held to be unethical where counsel was guilty of deceit or defamation," or where counsel was found guilty of encroachment or solicitation.12 Significantly, in disciplinary decisions involving a civil settlement context and an oral communication alone, counsel's conduct in orally communicating

with a represented party was also held to be unethical in the absence of a finding of deceit, defamation, encroachment, or solicitation.13

Courts and disciplinary authorities, such as state ethics boards, have interpreted Model Rule 4.2 literally, even prohibiting clients themselves from waiving the ban. 14 Notably, the general practice is to vigorously enforce the Rule, regardless of whether the contact is beneficial to the client. Communication limited to ascertaining the needs and interests of opposing parties or limited to brainstorming for agreeable settlements is prohibited as much as communication made with the intent to manipulate and to gain an advantage in negotiations. Courts discipline attorneys, despite a claim that the violation was not motivated by ill will or malice, even when the opposing party initiated the contact.15 Thus, an attorney may be disciplined for communications that lead to the development of solutions that are advantageous for both parties, as well as for manipulative tactics employed in competitive negotiations.16

Notably, a few courts have employed more of a case-by-case inquiry as to whether Rule 4.2 has, in fact, been violated and have found lack of scienter

relevant when deciding on a motion to disqualify counsel based on an alleged violation of the Rule. 17 Further, the ABA has interpreted the "authorized by law" exception to Rule 4.2 to allow an individualized inquiry as to whether or not the communication in question has, in fact, been harmful or was motivated by an intent to take advantage of the opposing client. 18 In fact, ABA ethics opinions interpreting the "authorized by law" exception in the plain language of Rule 4.2 and DR 7-104(A)(1) focus on the purposes underlying the no-contact rule as the central point of inquiry when adding flexibility to the Rule's application.19 The most common application of Model Rule 4.2 by the courts, very few of which evaluate on a case-by-case basis whether the manipulative acts that the no-contact rule was designed to prevent actually occurred, may also be understood by first examining the purposes underlying the development of the prohibition.

11. THE ATTORNEY MISCONDUCT THAT A PROPHYLACTIC APPLICATION OF THE No-CONTACT RULE Is DESIGNED To PREVENT

Why do most courts and disciplinary boards interpret Model Rule 4.2 to prohibit contact by negotiating attorneys even if it does not rise to the level of manipulation or is not otherwise harmful? This section will explore the merits of a prophylactic application of the no-contact rule with respect to each of the risks of misconduct that the rule was designed to prevent: 1) the risk that an attorney will undermine the opposing party's confidence in his lawyer in the negotiation context; 2) the risk that an attorney will obtain an unduly advantageous settlement agreement in negotiation; and 3) the risk that an attorney will obtain privileged information, damaging admissions, or otherwise helpful information in negotiation.2

A. THE RISK THAT AN ATTORNEY WILL UNDERMINE THE OPPOSING PARTY'S CONFIDENCE IN HIS LAWYER IN THE NEGOTIATION CONTEXT

First, Model Rule 4.2 is designed to prevent an attorney from undermining the opposing party's confidence in his lawyer.21 Lidge asserts that without the protection of the Rule a lawyer can drive a wedge between the opposing party and his attorney because parties to negotiations are often in an emotionally vulnerable state that makes them particularly susceptible to exploitation by experienced attorneys.22 A lawyer can cause the opposing party to lose confidence in his attorney or even terminate the relationship by implying that she has the true interests of the other party in mind. Significantly, such an undermining of the attorney-client relationship can generate great costs not just for clients, but also for society. If lawyers were able to shake opposing parties' confidence in their attorneys, our adversary system as a whole would be undermined, and courts would have to take a more active role in policing settlements.23

In regard to the heightened need to protect the attorney-client relationship in an adversarial system, proponents of a prophylactic ban assert that Model Rule 4.2 decreases the likelihood that the attorney will be surprised by opposing counsel's use of information obtained from the client.24 For example, an attorney may unexpectedly find that an admission obtained from her client in her absence completely alters her bargaining power in negotiations. While adversarial tactics may seem more necessary in a litigation context, competitive bargaining may also occur in the transactional context, as parties maneuver for positions over specific terms of an agreement whereby their interests are directly opposed.25

Notably, the fact that a client cannot waive the Rule's prohibitions and consent to communication makes the evaluation of benefits potentially gained from a client's direct contact with opposing counsel during negotiations problematic. It is therefore more difficult to determine whether benefits such as decreased process costs and an increase in optimal solutions outweigh the risk that an attorney will undermine the relationship of the opposing client and her counsel. Furthermore, placing the right to consent in the hands of the lawyer contrasts with a growing body of cases recognizing the right of a client to be informed of all matters and to exercise control over important decisions.26 Particularly in

transactional negotiations, the idea that one lawyer must be present to "neutralize the presence of another lawyer" is not necessarily sound because sophisticated business clients may be better able than their lawyers to conduct negotiations or decide whether they should communicate with opposing counsel directly.27 This section will explore the disadvantages of a prophylactic rule; the benefits of the alternative approach of determining whether manipulation has occurred on a case-by-case basis; and the transaction costs associated with the current enforcement of the Rule.

1. DisADVANTAGES OF A PROPHYLACTic RuLE

The over-breadth of a prophylactic ban, which prohibits direct contact not only when harmful, but also when beneficial, may justify a more flexible interpretation of Model Rule 4.2. For example, the ABA, in an informal opinion, discussed a hypothetical situation in which a court might punish direct communication with an adverse client, even when contact was necessitated by the failure of the party's own attorney to communicate settlement offers.28 The ABA Committee stated that communication of offers directly by opposing counsel was not permissible and that the lawyer should instead bring to the attention of the court facts showing that the attorney of the contacted client was failing to communicate settlement offers.29 Such a course of action ensures not only that costs associated with the no-contact rule, i.e., the increased policing of the courts, will be borne by society rather than the individuals involved in the litigation or the transaction, but also preserves enforcement of the no-contact rule even when such protection happens to be, ironically, adverse to the interest of the client.33 Significantly, attorney misconduct in failing to inform one's own client of a potential solution might be even less likely to be recognized, reported, and reprimanded than a breach of the no-contact rule motivated by a desire to gain an advantage. Once the represented party's attorney discovers the breach by an opposing attorney, he will be sure to take action if the opposing party gained an advantage for its case. However, an attorney will never report himself for withholding information - from the client or from opposing counsel - that might prove advantageous to the client. Even more significantly, communication with an adverse party that is limited to the

search for solutions that are commensurate with the opposing party's needs would not overburden the court with a case-by-case determination of whether an attorney sought to unduly influence a represented client, because it is unlikely that actions will be brought on behalf of clients who benefit from integrative negotiations. As presently construed by most courts, the Rule is "sweeping and inflexible" because it prohibits conduct entirely, rather than banning conduct that actually undermines the attorney-client relationship.3"

2. PLAusiBILITY OF AN INQUIRY As To ACTUAL MANIPULATION

The paternalistic notion that a prophylactic ban waivable solely by an attorney is necessary because a party truly is incapable of giving an "informed" waiver of the no-contact rule stands in contrast to the idea that clients should have the power to consent to communication in their own cases.32 NLRB v. Autotronics, Inc., involving an agency attorney negotiating settlement offers directly with a party, illustrates the potential for direct communication to undermine the attorney-client relationship. In Autotronics, an attorney was held in violation of the no-contact rule for "lulling [an adverse party] into believing the ... attorney could represent his interests."33 A significant question is raised by the court's finding of actual manipulation of the adverse client: does the mere potential, rather than the actual presence, of abuse justify a prophylactic ban prohibiting useful communication when courts, as in NLRB v. Autotronics, are capable of determining whether manipulation has, in fact, caused the client to consent to his detriment? Perhaps the benefits that can be gained by allowing direct communication, such as ensuring that needs and interests are communicated to adverse parties, as well as allowing brainstorming and consideration of potentially advantageous settlement offers that may never filter from the opposing attorney to the client, outweigh the risk that tactics intended to undermine the opposing attorney-client relationship will go undetected or unreprimanded.

3. TRANSACTION COSTS OF A PROPHYLACTIc BAN

Notably, a strict application of the no-contact rule not only potentially covers within its ambit communications that may be helpful to the contacted party, but a prophylactic ban also exacts a high toll in transaction costs, "[r]equiring both lawyers to be present whenever one is present [or to consent to every communication when not able to be present] imposes inconvenience and

expense."34 Although developing creative solutions in integrative bargaining can reduce transaction costs in terms of the expense of the process and the costs of a less than optimal solution,35 the prohibition on communicating directly with an opposing client may offset these benefits of integrative techniques. For instance, an attorney's inability to apply a client's previously stated reservation price, the price above which the client refuses to strike a deal, to creative terms that do not involve an outright payment of cash may lead to so much back-and-forth bargaining between client and counsel, and then counsel and counsel, that the frustration escalating on either side may lead to stalemate.

In addition to the transaction costs of the no-contact rule in the litigation arena, in the transactional arena it can be very expensive, and sometimes impractical, for the client to become sufficiently informed about the attorney's area of expertise or for the attorney to learn enough about her client's business to make informed decisions.36 If counsel recognizes the potential value of pursuing a possible solution further but cannot get essential information needed from opposing counsel or his client, then the cost of the no-contact rule may not be restricted to a less than optimal solution, but may be a complete failure to make a deal.37

Consequently, the strict application of Rule 4.2 - prohibiting all direct communication without considering on a case-by-case basis whether the attorney has sought to take advantage of the opposing client in his attorney's absence - in both the litigation and transactional arena may compromise solutions which are Pareto Optimal by satisfying the interests of both parties, and by reducing transaction costs relating to process and solution. Nonetheless, most courts believe that the risk that attorney misconduct will undermine the contacted party's own attorney-client relationship justifies a prophylactic ban on contact.

B. THE RISK THAT ATTORNEYS WILL OBTAIN AN ADVANTAGEOUS SETTLEMENT AGREEMENT IN THE NEGOTIATION CONTEXT

A second action which the no-contact rule seeks to prohibit is negotiating directly with the opposing party and/or obtaining an advantageous settlement agreement.38 The assumption underlying the no-contact rule is that all negotiations are conducted in an adversarial fashion, causing negotiators to be prone to

manipulation. Such an assumption is commensurate with the common view that "the critical difference between those who are successful negotiators and those who are not lies in [the] capacity to both mislead and not to be mislead."39 However, while "competitive argument consists of rhetorical and psychological maneuvering designed to coerce an adversary, sometimes subtly and sometimes not, into deferring into one's view when, if fully informed, he would not or should not,"40 problem-solving negotiations are likely to have different information sharing processes. This section will explore whether differences between integrative, problem-solving negotiations and competitive bargaining necessitate, and make functional, a case-by-case determination of whether manipulation has, in fact, occurred when an attorney negotiates directly with an opposing party in the absence of her attorney.

1. PROBLEM-SOLVING APPROACH

If competitive and integrative negotiation tactics are distinguishable in practice, Model Rule 4.2 might be adapted to cure its over-breadth by permitting an attorney to communicate directly with an opposing party solely to ask questions designed to ascertain needs and interests of the opposing party. Menkel-Meadow states that when the goal is to develop solutions which meet the parties' needs by revealing his own needs or objectives, while at the same time trying to learn about the other party's needs, the process consists of asking questions in search of classification and information, rather than making statements or arguments designed to persuade the other party to accept one's own world view.41

The principle underlying Menkel-Meadow's problem-solving approach is that unearthing a greater number of actual needs of the parties will create more possible solutions because not all needs will be mutually exclusive; "[a]s a corollary, because not all individuals value the same things in the same way, the exploitation of different or complementary needs will produce a wider variety of solutions that will more closely meet the parties' needs."42 Consequently, the fear that a negotiator might obtain an advantageous settlement may actually prevent the protected client from reaching an optimal solution that would have been discovered had the client been permitted to communicate her needs directly to opposing counsel. Because some prohibited contact would enable the parties to

come up with a solution to the benefit of both parties, "identifying in each case whether the communication was helpful or harmful," to avoid "tossing out the good with the bad," may be optimal.43

2. ALTERNATIVE TO A PROPHYLACTIC BAN: DETERMINING WHETHER MANIPULATION HAS OCCURRED ON A CASE-BY-CASE BASIS

In the litigation context, the impossibility of knowing whether an opposing negotiator will employ a competitive bargaining negotiation strategy or a problem-solving technique - of knowing whether direct communication will be helpful or harmful - may necessitate a prophylactic ban. However, even in divorce cases - where one could assume that adversarial techniques will predominate - courts have distinguished competitive and integrative negotiating techniques after the fact and enforced the Rule according to whether counsel sought to take advantage of another party. For instance, in Mussman, counsel's unauthorized oral communication with the represented wife of his divorced client was held to be unethical where the husband brought his wife to counsel's office and induced her to sign a stipulation which dispensed with any alimony or support for her and which waived any and all of her interest in property.44 In contrast, another court exonerated an attorney for communicating orally and in writing with a client's former wife, after "noting the woman's testimony that she had no complaint against counsel and that he did nothing to take advantage of her."45 Thus, the possibility that the facts presented to the court in each case might be relied upon to determine whether an act that the Rule was designed to prevent - acts of manipulation designed to obtain an advantageous agreement have occurred is not a completely impractical suggestion.

C. ADVANTAGE OF A PROPHYLACTIC BAN - NO RISK OF UNDETECTED MISCONDUCT

In both the litigation and transactional arena, the risk that an attorney may utilize the permissibility of direct communication to obtain an advantageous settlement is present. Notably, in the transactional context, the assumption that parties seek to take advantage of one another is less warranted because transactional deal-making is a value-creating enterprise, whereas, litigation is primarily distributive. Parties to a deal are looking for trades that make one or both better off; otherwise, they would not partake in the deal.46 However, the risk that counsel will seek to take advantage of an opposing client is not absent in the transactional setting. Although a transactional negotiation is prone to integrative,

rather than competitive, bargaining because deals involve bundles of terms that negotiators can trade, bargaining is distributive with respect to any one term. Furthermore, as in all deals in which parties will have a continuing relationship, there will be the potential for "postcontractual opportunism" - one person may pursue his private interests at the other's expense after the contract is signed.48

Although it is possible for courts to sanction abuse after-the-fact by distinguishing between communications made in execution of competitive and integrative negotiation strategies,49 the reality that abuse of the no-contact rule may not be sanctioned may lead to the conclusion that the risks associated with a flexible application are not worth its advantages. Because there are "no witnesses other than the party who has been misled, who is a poor witness," allowing communication would make it virtually impossible to police misleading behavior.50 Consequently, most courts have adopted the strict application of Model Rule 4.2 - prohibiting all direct communication without any consideration of whether the attorneys has, in fact, sought to take advantage of the opposing client in his attorney's absence. The risk that parties may be unable to prove inducement or manipulation in a given case may justify prohibiting communication that facilitates the development of Pareto Optimal solutions satisfying the interests of both parties, which are agreed upon in a manner that reduces the transaction costs of negotiating.

D. THE RISK THAT AN ATTORNEY WILL OBTAIN PRIVILEGED INFORMATION, DAMAGING ADMISSIONS, OR OTHERWISE HELPFUL INFORMATION IN THE NEGOTIATION CONTEXT

Two additional acts that the Rule was designed to prevent are obtaining privileged information from the opposing party and obtaining damaging admissions or any helpful information from the opposing party outside of the normal discovery process.51 Thus, the Rule is in line with the view that the "ability of the adversary system to develop the truth is best served by limiting an attorney's access to parties in exchange for other benefits." Because clients can become confused and make inaccurate statements, or can give damaging admissions that do not reflect the truth, the Rule's restrictions on the search for truth "can actually

serve the search for truth."52 Proponents of a prophylactic ban stress the need for strict accuracy and clarification because they believe that damage done in the absence of an attorney is irreparable. However, advocates of a flexible application of the no-contact rule believe that a case-by-case determination of whether its purposes have actually been violated would be more commensurate with the liberal discovery rules that govern the adversarial system.53

Admittedly, the claim that Model Rule 4.2 is overbroad because it prevents a party from divulging not only privileged information, but also any information, unless the information is released through the normal discovery process or with the consent of the party's attorney, has merit. However, the concerns underlying the strict application are especially important in the litigation context in light of the fact that the privileged information and damaging admissions might be used against the party at trial if negotiations fail to produce a settlement agreement. Notably, the Supreme Court of New York detected and reprimanded such misuse by looking to the facts of a particular case.54 The court held that it was improper for an attorney to have conferred with an opposing client and to take note of their conversation relating to her matrimonial problems after finding that the attorney subsequently used the conversation in framing the complaint and questioning her at examination before trial.55 Yet, the same problems discussed previously with regard to detecting the other two types of misconduct that the Rule seeks to prevent - acts undermining the attorney-client relationship and acts designed to obtain an advantageous settlement - would likely exist if courts were required to determine on a case-by-case basis that an attorney has obtained privileged information, or unprivileged, yet "unfairly" obtained, advantageous information. Consequently, most courts sanction attorneys for direct contact regardless of whether one of the acts that the Rule was designed to prevent actually, in fact, occurred in a particular case.

III. ALTERNATIVES TO A PROPHYLACTIC BAN

In conclusion, the risk of the misconduct that the no-contact rule was designed to prevent will occur in the negotiation context undoubtedly exists, whether in litigation disputes or the transactional arena. Whether the risk that such misconduct will be undetected or unprovable is great enough to justify a strict application of the no-contact rule depends upon the value one places on the "helpful," but not "harmful," information that is suppressed by the over-breadth of a prophylactic ban. Significantly, detection of attorney misbehavior that takes

advantage of opposing parties is "difficult and imperfect."56 Consequently, the benefits of potentially more optimal solutions and reduced transaction costs may never be strong enough to justify the risk that tactics employed to take advantage of the opposing party will be undetected; "[the risk of abuse] seems a tolerable price, particularly in light of the fact that on balance what can be said for permitting communications does not appear to be very substantial."57

Is there an alternative to a prophylactic ban on all direct contact if counsel for both parties cannot be present? Perhaps a standard seeking to protect represented persons from being taken advantage of by lawyers who represent adverse interests might accomplish its goal while not suppressing "helpful" information. Although Vincent Johnson's suggestion that a rule might prohibit communications with a represented person about the subject matter "if those communications involve fraud or other forms of misrepresentation or amount to undue influence" would involve the same problems of provability as discussed previously, his other suggestions might ensure that abuse is detected and reprimanded on a case-by-case basis.58 Johnson's further suggestions include requiring that all communications be in writing and that copies of such writings be retained by their originator or provided to an appropriate party; conditioning permissibility of the lawyer's conduct on consent by the represented person; and, requiring opposing counsel to notify the attorney for the represented person of each communication, either before it occurs or after it takes place.59

Interestingly enough, the fact that the tactics associated with integrative negotiation are characterized quite differently than the tactics associated with competitive bargaining might reduce the risks of a flexible application of the no-contact rule. Perhaps the concerns regarding undetected misconduct could be addressed by specifically delineating the method of communication that is permissible. Because an integral part of communication in integrative, problemsolving negotiations involves questions designed to ascertain needs and interests, which are quite different from statements attempting to induce the other party to accept one's position, a very narrow exception to the no-contact rule might limit the method of contact to the form of questions designed to ascertain an opposing party's needs and interests. Emphasizing a distinction in the method of permissible communication is a plausible alternative to the prophylactic ban because "revealing particular pieces of evidence or facts is different from revealing the parties' ultimate preferences or desires."60 Any discussion or questioning regarding facts and evidence might be prohibited. Most significantly, the risk of questioning limited to needs and interests would be minimal: "It

certainly has little to do with the ultimate trial result if parties know each other's underlying objectives. If the case is litigated it will be decided on the legal merits, not on the parties' needs or objectives."6' Thus, the risks associated with the possibility that integrative negotiations will evolve into competitive bargaining or that the dispute will proceed to litigation will also be minimal because the direct communication of facts or evidence that could later be used against the client would remain prohibited under Model Rule 4.2.

However, the prophylactic application may be justified because the plausibility of distinguishing questions associated with an integrative negotiation strategy from those employed in a competitive strategy is not reason enough to adopt a weaker application. In reality, the level of risk is independent of the form of the question asked by the attorney; the danger of a flexible application of the Rule lies with the answer of the client - the information that may be divulged by a client whose counsel is absent. Consequently, under the currently dominating application of the no-contact rule, an attorney will be sanctioned for meeting with an opposing party if that party is not accompanied by her own attorney, even if the client believes the contact to be in her best interest and consents, as well as if no manipulation is found to have occurred after-the-fact.