In 2006, the American Bar Association issued an ethical opinion- ABA Formal Ethics Op. 06-439 entitled A Lawyer’s Obligation of Truthfulness When Representing a Client in Negotiation: Application to Caucused Negotiation. At issue was whether an attorney has to be as truthful in a caucused mediation as she is obliged to be during a negotiation in general. The Ethics Committee concluded yes.
A few years later, the California State Bar proposed its own interim ethical opinion (Formal Opinion Interim No. 12-0007) on the subject of truthfulness in negotiation. With a few slight wording modifications, that interim opinion has been issued as Formal Opinion No. 2015-194 (“Opinion”). It states the issue as follows:
When an attorney is engaged in negotiations on behalf of a client, are there ethical limitations on the statements the attorney may make to third parties, including statements that may be considered “puffing” or posturing?
It summarizes:
Statements made by counsel during negotiations are subject to those rules prohibiting an attorney from engaging in dishonesty, deceit or collusion. Thus, it is improper for an attorney to make false statements of fact or implicit misrepresentations of material fact during negotiations. However, puffery and posturing, such as statements about a party’s negotiating goals or willingness to compromise, are generally permissible because they are not considered statements of fact.
The Opinion then provides different factual scenarios (in the context of an automobile accident), occurring at a court sponsored settlement conference (rather than mediation) presided over by a local attorney volunteer. This settlement conference occurs prior to the conducting of any discovery. (NOTE: Mediation confidentiality does NOT attach.)
The facts are that as a result of the automobile accident, Plaintiff incurred $50,000 in medical expenses and advises her counsel that she is no longer able to work. Prior to the accident, Plaintiff was earning $50,000 a year.
In the first example, the Plaintiff’s attorney asserts she has an eyewitness which will testify that defendant was texting while driving immediately prior to the accident and so is totally at fault. In truth, the attorney has no witness. As you might guess, the Opinion states that counsel’s statements “… are improper false statements of fact, intended to mislead defendant and his lawyer” (Id. at 6) and so constitute a material misrepresentation, not “puffing”, and is not permissible.
In the second example, the Plaintiff attorney in talking privately with the settlement officer, asserts that her client’s wage loss claim is $25,000 more than the client actually makes. The attorney makes this statement, knowing that the settlement officer will convey it to the other side.
Again, this Opinion deems counsel’s private overstatement of her client’s earnings to be an improper false statement and an intentional misrepresentation of a fact, and not permissible.
The third example is seemingly “puffing”. In a separate conversation between client and attorney only, they decide what is the “bottom line” that Plaintiff will accept. However, they then tell the settlement officer a higher number as the “bottom line”. This Opinion advises that this “overstatement” of the “bottom line” is not an ethical violation: it is allowable “puffery” as it constitutes a party’s negotiating goals or willingness to compromise.
In the fourth example, defense counsel responds to this demand by representing that the insurance policy is $50,000 when in truth it is $500,000. The Opinion views this inaccurate misrepresentation of fact regarding policy limits “as an intentional misrepresentation of fact intended to mislead Plaintiff and her lawyer…” (Id.) and thus improper.
In the fifth example, defense counsel advises that his client is prepared to litigate, and if he loses, to file bankruptcy. The Opinion advises that whether this is a permissible negotiating tactic hinges “… on the specific representations made and the facts known.” (Id.) If defense counsel made such statements knowing full well that his client does not qualify for bankruptcy protection, then making such a threat to gain a negotiating advantage is a false representation of fact and thus impermissible. However, if defense counsel does not know whether his client intends to file for bankruptcy protection or is even eligible, “… the conclusion may be different.” (Id.)
The final example is complex. The matter does not settle at the settlement conference and so the parties decide to continue it for a month to provide time to exchange information regarding Plaintiff’s medical expenses, wage claim and efforts to find new employment. During that month, Plaintiff obtains a new job at a salary of $75,000/ year or $25,000 more than she was making previously. Recognizing that this will affect her future wage claim, Plaintiff instructs her attorney not to tell the other side about it and not to include information regarding this particular employer as part of her efforts to find employment at the upcoming settlement conference. At the settlement conference, Plaintiff’s counsel makes a settlement demand listing a specific dollar amount attributable to future lost earnings as an item of damages.
The Opinion finds two violations: counsel is suppressing a material fact (that her client has just gained new employment) and the attorney has been asked to take part in a cover-up by not disclosing this fact of new employment. With respect to the latter, the Opinion states that the attorney must advise her client that the attorney cannot fail to disclose and cannot suppress such information. If the client still refuses, then the attorney must withdraw.
The Opinion concludes:
Attorneys are prohibited from making false statements intended to be relied upon, including during the course of negotiating with a third party and even where those negotiations occur through a third party neutral. Such prohibited communications include an attorney’s implicit misrepresentations. However, attorneys may engage in permissible posturing or “puffery” during negotiations and may generally make statements regarding a client’s negotiation goals or willingness to compromise because such statements are not the type of statements upon which parties to a negotiation ordinarily would justifiably be expected to rely. (Id. at 8.)
To me, there is often a very fine line between “puffing” and “misrepresentation” and to many, the difference lies in the eyes of the beholder. It does not appear to be as bright of a line or as clear cut as this Opinion makes it appear.
During mediation, it is often difficult, if not impossible, to tell when a party is merely “exaggerating” versus outright lying. Sometimes the parties, themselves, cannot even tell the difference. (They have told their tale so often that they, themselves, believe it to be true.) Many times, I, as a mediator, cannot tell: I do not know when or where to draw that line.
However, the real issue, is not whether a party is “puffing” but whether I or any other mediator am being given the critical information necessary to assist the parties in meeting their interests and goals and thus to resolve their dispute. A party’s failure to be open and candid with me or any other mediator may not only be improper (according to the Ethics Committee), but may lead to the possibility of overturning a settlement because it was based on false facts. Unlike the ABA Formal Opinion which is couched in terms of mediation and thus includes “mediation confidentiality”, this California proposed opinion is couched in terms of a “settlement conference” to which “confidentiality” does not attach. Thus, unlike a settlement reached during mediation, a settlement reached during a settlement conference will be much easier to overturn. While California Evidence Code section 1123(d) creates an exception to mediation confidentiality by expressly allowing a mediated settlement to be admitted into evidence to show fraud, duress, or illegality relevant to the dispute, any settlement reached at a settlement conference need not jump through such hoops. The alleged false facts or intentional misrepresentations leading up to it will be readily and easily admitted into evidence.
…. Just something to think about.
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