Ethics in Contract Drafting
By Alexandra Sickler
The North Dakota Rules of Professional Conduct( Rules) govern attorney conduct in transactional matters even though attorneys commonly conceptualize them as litigation-oriented. Much of our training and exposure to the Rules presumes zealous advocates in an adversarial posture with a judge as neutral arbiter of a dispute. 1 The Rules, in some instances, even expressly guide attorney conduct in connection with litigation. Rule 3.1, for example, expressly applies to a lawyer’ s initiation or defense of a“ proceeding” or her assertion an issue of law or fact in a“ proceeding.” 2 The comments to Rule 3.1 speak of attorney conduct in using legal procedure and more specifically in the context of filing or defending an action. 3
Despite the Rules’ general litigation orientation, many of them apply equally to a transactional context or at least adapt to it. Rule 1.7, which governs conflicts of interest, proscribes conduct in terms of“ representation” 4 and undoubtedly applies without regard for the nature of the representation – litigation or transactional. Similarly, Rule 2.1, which requires a lawyer to exercise“ independent professional judgment and render candid advice,” guides attorney conduct in all representations. 5
Perhaps less obvious is how the Rules address an attorney’ s professional obligations in drafting contracts. They appear to impose only limited restrictions relating primarily to fraudulent misrepresentation arising out of an invalid clause in a contract. 6
The relevant rules here are Rule 1.2( d), 4.1, and 8.4( c). Rule 1.2( d) prohibits a lawyer from counseling“ a client to engage in, or assist [ ing ] a client, in conduct that the lawyer knows is... fraudulent.” 7 Rule 4.1 requires truthfulness in interactions with third parties. It precludes a lawyer from knowing factual and legal misrepresentations to third parties in connection with a representation, irrespective of the materiality of the representation. 8 Finally, Rule 8.4( c) prohibits a lawyer from engaging in conduct that involves“ dishonesty, fraud, deceit or misrepresentation.” 9 Fraud or fraudulent conduct means“ conduct having a purpose to deceive.” 10 Negligent misrepresentation or negligent nondisclosure does not count. 11 An attorney potentially runs afoul of these rules by including a clause in a contract that she knows to be invalid for the purpose of deceiving a party as to his rights. 12
An example of attorney conduct implicating these obligations under the Rules may include non-compete clauses in employee agreements. With very narrow statutory exceptions, such clauses are prohibited and unenforceable in North Dakota. 13 This statutory bar derives from public policy concerns about the relatively weaker bargaining power of employees vis-à-vis their employers and employees’ ability to earn a livelihood. Nonetheless, invalid non-compete restrictions continue to appear in some employee agreements governed by North Dakota law. There may be some plausible reasons for the persistent
Alexandra Sickler is an assistant professor at UND School of Law. She joined the faculty in 2012 and teaches contracts and other commercial law courses. She earned her bachelor of arts from the College of William and Mary and her juris doctor from the George Washington University Law School. appearance of these invalid clauses: perhaps an attorney negligently uses a form to create an employment agreement without the requisite research of North Dakota law, or perhaps a client insists on its inclusion even after being advised as to its unenforceability.
An attorney potentially violates the Professional Conduct Rules where she includes a non-compete clause on behalf of an employer in an employee contract. By including the clause, the attorney is making an implied misrepresentation to both her client and a third party, the employee, that the non-compete is legally enforceable. Such conduct implicates Rules 1.2( d), 4.1, and 8.4( c).
The invalidity of the clause standing alone does not, however, necessarily constitute attorney misconduct. There must be knowledge of the invalidity of the clause or intent to mislead the third-party employee as to her rights. 14 Negligently including the clause by irresponsible use of a form or exemplar, for example, would not likely satisfy this threshold. 15
The question then becomes whether a lawyer’ s knowledge of the invalidity of the clause is sufficient to impute the requisite intent. Under the Rules, knowledge means“ actual knowledge,” which“ may be inferred from the person’ s conduct in the circumstances.” 16 Arguably, given the potentially adhesive nature of the transaction and the relatively weaker bargaining power of the employee, particularly where he is unrepresented by counsel, knowledge could be inferred by the attorney’ s decision to include an invalid clause. 17 Certainly knowledge exists where an attorney includes the invalid non-compete at the client’ s insistence after advising the client as to the provision’ s unenforceability.
Another question that arises is whether an
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