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.
The California State Bar now proposes to issue its own ethical opinion on the subject of truthfulness in negotiation. It has proposed Formal Opinion Interim No. 12-0007 which states the issue as follows:
When an attorney is engaged in negotiations on behalf of a client, what conduct constitutes permissible "puffing" and what conduct constitutes improper false statements of material fact?
Statements made by counsel during the course of negotiations are, generally, subject to those rules prohibiting an attorney from engaging in deceit or collusion. (See Business and Professions Code sections 6068(d) and 6128(a)). Thus, it is improper for an attorney to make false statements of material fact during the course of a negotiation. However, statements about a party's negotiating goals or willingness to compromise may include allowable "puffery" provided those statements do not contain false statements of material fact. (See http://www.calbar.ca.gov/Portals/0/documents/publicComment/2014/2014_PuffinginNegotiations.pdf)
The opinion then provides different factual scenarios (in the context of an automobile accident), occurring at a "settlement conference" (rather than mediation) such that mediation confidentiality does NOT attach.
In the first example, the plaintiff's attorney asserts she has an eyewitness which will testify that defendant was texting while driving and so is totally at fault. In truth, the attorney has no witness. As you might guess, the authors of the proposed opinion state that this constitutes a material misrepresentation, not "puffing", and so is not permissible.
In the second example, again at a settlement conference, the plaintiff attorney 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, the opinion deems this to be a material misrepresentation, 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 tell the settlement officer a higher number as the "bottom line". To the authors of this proposed opinion, this "overstatement" of the "bottom line" is not an ethical violation: if anything- it would be a breach of the attorney client privilege to reveal it.
In the fourth example, defense counsel represents that the insurance policy is $50,000 when in truth it is $500,000. As you may suspect, the authors view this as an intentional misrepresentation of fact, and thus impermissible.
In the fifth example, defense counsel advises that her client is prepared to litigate, and if she loses, to file bankruptcy. The authors of this proposed opinion waffle on this example, stating that it is all a matter of present intent. If defense counsel made such statements knowing full well that her client does not qualify for bankruptcy protection, then making such a threat to gain a negotiating advantage is impermissible. However, if the defendant is indeed considering the bankruptcy option at the time, then to state so is a permissible negotiating tactic.
The final example is muddled. 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 and wage claim. During that month, plaintiff obtains a new job. Recognizing that this will affect her wage claim, plaintiff instructs her attorney not to tell the other side about it "at the upcoming mediation" (sic?). The plaintiff's attorney pushes to have the settlement conference session occur the day before plaintiff starts her new job so that technically, Plaintiff is still unemployed. The authors of this proposed 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 authors state that the attorney must advise her client that the attorney cannot do this.
Thus, the opinion concludes, like the ABA Formal Ethics Opinion, that:
Attorneys are prohibited from making false statements of material fact, including during the course of negotiating with a third-party. However, attorneys may engage in permissible "puffery" during negotiations; "puffery" may include statements regarding a client's negotiation goals or willingness to compromise. Engaging in "puffery" during negotiations does not constitute making a false statement of material fact. (Id.)
To me, the opinion does not really clarify anything. There is a very fine line between "puffing" and "misrepresentation" and to many, the difference lies in the eyes of the beholder.
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. 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 can be overturned; the alleged false facts or intentional mispresentations leading up to it can be admitted into evidence.
I am not sure of the value of this proposed opinion. The state bar is accepting comments through May 19, 2014. (http://www.calbar.ca.gov/AboutUs/PublicComment/201402.aspx)
By Phyllis G. Pollack