Is one’s bottom line (or reservation price or walk away point) in negotiation a material fact under Rule 4.1?  If so, why is that?  I’ve been wrestling with these two questions in a piece I’m writing on attorney negotiation ethics (thanks to those who gave me feedback on the article at the AALS Works-in-Progress conference – was it already a couple of weeks ago?).  My thoughts on this are preliminary, so I’m reserving the right to distance myself from these remarks in the future.

 

Anyhow, the portion of the paper dealing with this issue is pasted below (footnotes and all).  Do you agree or disagree? What do you think?

 

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Since one’s party’s intentions as to an acceptable settlement of a claim are ordinarily not considered to be material facts, it appears that one’s bottom-line easily falls outside the material fact purview.[1]  In fact, lies about bottom lines are so prevalent in negotiation generally that many consider them to be acceptable bluffs.[2]  Indeed, 62% of the respondents thought the former girlfriend’s bottom line was not a material fact.  However, the ABA’s ethics committee concludes that one’s bottom line is a material fact:

 

While . . . a certain amount of posturing or puffery in settlement negotiations may be an acceptable convention between opposing counsel, a party’s actual bottom line or the settlement authority given to a lawyer is a material fact.  A deliberate misrepresentation or lie. . . in pretrial negotiations would be improper under Rule 4.1.[3]

 

And a recent ABA ethics opinion confirms that conclusion:

[S]tatements regarding negotiaton goals or willingness to compromise. . . ordinarily are not considered statements of material fact within the meaning of the Rules.  Thus, a lawyer may downplay a client’s willingness to compromise, or present a client’s bargaining position without disclosing the client’s “bottom line” position, in an effort to reach a more favorable resolution.[4]

 

Neither opinion, however, explains why one’s bottom line falls outside of the general rule related to estimates of price or value or intentions as to an acceptable settlement of a claim.[5] 

Clearly there is something special about the phrase “bottom line” in conjunction with Rule 4.1.  One potential explanation requires a step back to look at the meta-process of negotiation more generally.  One of the most fundamental negotiation concepts is the bargaining zone, the area between the maximum amount where a buyer will pay and the minimum amount where a seller will accept.[6]  As Professor Russell Korobkin notes:

 

All negotiation activities and tactics can be understood as attempts to (a) identify whether there is in fact a bargaining zone (otherwise a negotiated agreement is impossible), (b) expand the bargaining zone so that a resulting agreement is more valuable to both negotiators, (c) capture most or all of the value represented by the bargaining zone, or (d) find a method of agreeing on a deal at a specific point within the bargaining zone.[7]

 

Since a negotiator’s “bottom line” sets one end of the bargaining zone, it is the most critical piece of information the other side tries to learn in a negotiation.[8]  When one openly lies about his bottom line and that statement is relied upon, a false bargaining zone is created limiting one party’s potential gain in the negotiation.[9] 

          But the analysis does not stop there as the other lawyer’s reliance on the statement must be reasonable.[10]  The Model Rules specifically classify conduct involving dishonesty, fraud, deceit or misrepresentation as professional misconduct.[11]  Since violating this rule is a basis for professional discipline,[12] the ethics committee’s opinions imply that it is inherently reasonable to rely on a lawyer to follow this prohibition from outright lying.[13]  Thus, in order to maintain consistency between Rules 4.1 and 8.4, one must conclude that one’s bottom line in negotiation is indeed a material fact.[14]