CHAPTER 16 ETHICAL CONSIDERATIONS IN NEGOTIATING A PURCHASE AND SALE AGREEMENT

• Jurisdiction: United States

Oil & Gas Agreements: Purchase & Sale Agreements
(May 2016)
CHAPTER 16
ETHICAL CONSIDERATIONS IN NEGOTIATING A PURCHASE AND SALE AGREEMENT
Nancy L. Cohen. ¹
Partner
Lewis Brisbois Bisgaard & Smith LLP
Denver, CO

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NANCY L. COHEN is a partner in the Denver office of Lewis Brisbois Bisgaard & Smith LLP. She focuses her practice on the representation of lawyers and law firms in legal malpractice matters and grievance defense and provides ethics advice to law firms and in-house counsel. Additionally, Ms. Cohen defends other professionals on matters concerning professional licensure issues. Over the course of her career, she has handled a variety of matters, including commercial litigation matters, contract disputes, and personal injury litigation. Ms. Cohen has extensive experience in complex commercial litigation and employment law matters. Ms. Cohen is avidly involved in the legal community as President-Elect of the Denver Bar Association, and a special advisor to the ABA Center for Professional Responsibility Committee on Professional Discipline. In addition, she has been elected to the American Law Institute and appointed to the Colorado Supreme Court Advisory Committee, and was the Chief Deputy Regulation Counsel for the Colorado Supreme Court Office of Attorney Regulation Counsel. Ms. Cohen has been selected as a Preeminent AV-rated® by Martindale-Hubbell, a Top 100 Colorado Super Lawyer for 2015-2016, and a Top 50 Colorado Women Super Lawyers for 2014-2016, and has been Colorado Super Lawyer Professional Liability-Defense since 2013.

I. INTRODUCTION

Oil and gas lawyers face potential ethical issues in a variety of situations. Knowing the ethical rules regarding conflicts of interests, confidentiality and who the lawyer represents can help avoid potential malpractice claims and grievances. Additionally, transactional lawyers often represent clients who have properties and interests that are not limited by a particular state jurisdiction. Understanding the potential pitfalls of providing legal services under these circumstances can assist in avoiding the unauthorized practice of law.

Oftentimes, a basis for a malpractice claim is an alleged breach of an ethical duty to the client. If a client can allege a conflict of interest or is being charged an unreasonable fee, even if the lawyer has not sued for fees, these alleged breaches can push the litigation in a certain direction.

To prove a legal malpractice claim, the client must prove: (1) the attorney owed a duty of care to the plaintiff; (2) the attorney breached that duty; and (3) this breach proximately caused damage to the plaintiff.² Legal malpractice typically refers to an attorney's breach of two related, but distinct duties: (1) a duty to exercise reasonable care in the representation of a client, i.e., not to be negligent; and (2) a fiduciary duty generally premised on notions of undivided loyalty.³

In general, an attorney-client relationship must exist before any claim for legal malpractice may lie. Absent fraud, malice or negligent misrepresentation, an attorney is not liable to a non-client. However if the non-client relies on the lawyers services, such as where the lawyer provides an opinion that the lawyer knows or reasonably knows will be relied on by the non-client, liability can follow.

II. HOW LIKELY IS A MALPRACTICE CLAIM

According to Mallen and Rhodes, a lawyer can expect to be the subject of three legal malpractice claims before finishing his or her legal career.⁴ On a national level the ABA

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Standing Committee on Lawyers' Professional Liability prepared a Profile of Legal Malpractice Claims: 2008-2011 that lists the different types of practices and the likelihood of a claim. The most common claims were against real estate attorneys (20.33% of claims), plaintiffs' personal injury attorneys (15.59%), family law attorneys (12.14%), estate, trust, and probate attorneys (10.67%), and collection and bankruptcy attorneys (9.20%). This time period includes the great recession during which loan defaults and foreclosures were high.

Substantive errors generate 45.07% of legal malpractice claims. Substantive errors include failing to know or properly apply the law, and inadequate investigation or discovery of facts. Legal malpractice claims may also result from administrative errors. Administrative errors include tickler system errors, clerical and delegation errors, lost file or document errors, and procrastination. Administrative errors account for 30.13% of all legal malpractice claims.

Lawyers are also being sued by third parties for a variety of claims, including negligent misrepresentation, aiding and abetting the client in a breach of its fiduciary duties, and other torts that would be considered intentional. Despite the general rule that lawyers do not owe duties to third parties, these non-clients are alleging claims that can be difficult to get dismissed immediately.

III. NEGOTIATING WITH THE OPPOSING PARTY OR COUNSEL

Lawyers have an obligation to be truthful in the statements they make to opposing counsel or parties, including those statements made during negotiations. American Bar Association Model Rules of Professional Conduct ("ABA Model Rules") Rule 4.1.⁵ This obligation includes those statements made during negotiations, whether it is for settlement of a litigation matter or negotiating the terms of a transaction. A lawyer who makes a false material statement during negotiations can be subject to discipline. See e.g. Ausherman v. Bank of Am. Corp. 212 F.Supp2d 435 (D. Md. 2002).

Transactional lawyers' duties are to try get the best deal for their clients as they negotiate the various terms of an agreement. Yet, lawyers must be careful in the statements made during these negotiations.

[M]ost negotiations are "mixed motive", they include both opportunities for joint gain, and opportunities for grabbing more from the other side. . . [S]trategies that are wise for creating are often opposite from those that are wise for claiming (e.g., deception about positions and power is necessary for claiming, while deception about interests is disruptive for creating). But all negotiations include both elements, and few...