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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