Mediation is really nothing more than a facilitated negotiation. The mediator is not making any decisions. It is up to the parties and their counsel to engage in a process of negotiation with the assistance of the mediator. Depending upon the format and stage of the mediation, there are discussions between the parties, between counsel, and between the mediator and both the parties and their counsel. Even though the negotiation process in a mediation is an informal process, there are some limitations. If counsel or his or her client goes too far, it could give rise to subsequent proceedings against the offending party and/or his counsel.
Both the common law and the Code of Professional Conduct frown upon lying in the context of the negotiation of a settlement of a dispute. However, not every “lie” is actionable. Some lies are OK. If the misstatement is mere “puffing” by the party or counsel, the law will look the other way.
It is not uncommon that either a party or counsel, when trying to settle a dispute, will make comments that are less than accurate. Here are some examples:
• Plaintiff’s counsel states to opposing counsel that under no circumstance will he settle the case for under $50,000, when in fact his client has said that he will take $35,000.
• A defendant insists that a settlement agreement contain a confidentiality agreement when in fact he could not care less.
• Exaggerated statements made by either party regarding how they feel about the importance of settling a matter or their chances of success should the case go to trial, when in fact their true feelings are different from that which they are expressing.
Each of these is an example of “puffing.”
On the other hand, there are misstatements that are not permissible. For example:
• When negotiating a settlement of a breach of a covenant not to compete, the former employer states that he has lost 100 clients as a result of the breach, when in fact he has not lost a single client from the time his former employee left and went to a competitor.
• Defense counsel states that there is $100,000 in insurance coverage for the pending claim, when in fact there is an excess policy of $1 million.
The starting point for these discussions is reference to comment No. 5 to Rule 2.4, that states: “Lawyers who represent clients in alternative dispute resolution processes are governed by the Rules of Professional Conduct.”
The Code of Professional Conduct addresses the issue of “truthfulness” in two specific sections of the Code: Rule 4.1 (Truthfulness in Statements to Others) and Rule 8.4(3). (Misconduct).
Rule 4.1 does not prohibit all “lying.” It draws the distinction between lying and “puffing.” In order to differentiate between the two, Rule 4.1 focuses upon the following:
• Whether the statement was “false;”
• Whether the lawyer “knew” that the statement was false when it was made;
• Whether the false statement was “material.”
If the statement was knowingly made, was false and was material to the matter, then it will be considered a violation of the code. This prohibition applies to both statements of fact and law.
Rule 4.1 additionally addresses nondisclosure of material facts. It states: “In the course of representing a client, a lawyer shall not knowingly fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.” (Confidentiality Rule).
This provision: 1) focuses upon conduct of the attorney, not the client; and 2) relates to “misrepresentation” both by affirmative statements and by omissions.
For a comprehensive and authoritative discussion of the concept of “puffing” in the negotiation setting, the American Bar Association Formal Opinion 06-439 is instructive. The focus of this opinion is on the obligation of an attorney to be truthful when making statements on behalf of clients in negotiations. According to this formal opinion, although there is a tendency to be loose with one’s comments during a negotiation in order to get an edge, the rule requires forthrightness when it comes to material facts. Here some examples from other formal opinions:
• Formal Opinion 93-370—”While … a certain amount of posturing or puffery in settlement negotiations may be acceptable convention between opposing counsel, a party’s actual bottom line or settlement authority given to an attorney is a material fact …”
• Formal Opinion 94-387—A lawyer representing a claimant in a negotiation has no obligation to inform the other party that the statute of limitations has run on the client’s claim but cannot make any affirmative misrepresentations of fact or law.
• Formal Opinion 95-397—An attorney cannot conceal the fact that his personal injury client is dead when negotiating a settlement. Death is a material fact.
This ABA formal opinion also addresses the applicability of these rules in a caucused mediation: “We emphasize that, whether in a direct negotiation or in a caucused mediation, care must be taken by the lawyer to ensure that communications regarding the client’s position, which otherwise would not be considered statements of ‘fact’ are not conveyed in language that converts them, even inadvertently, into false factual representations.”
Although there is not a great deal of case law on the subject, there is one Connecticut case that is often cited. In Statewide Grievance Committee v. Gillis, 36 Conn.L. Rptr 464, 2004 WL 423905 (Conn. Super. 2004), the court dismissed a grievance complaint that addressed the situation in which an attorney failed to be forthright during settlement discussions in not disclosing that his client had multiple accidents, any one of which could have been the proximate cause of the injuries claimed in the instant case. The court stated, “[a]lthough the [respondent] was less than totally candid about the full extent of his client’s prior accident history, our Rules do not require total candor.” The court went on to say that there was sufficient information exchanged with the medical reports and other materials to put the insurers on notice that they should inquire further. Judge Jonathan Silbert aptly captured the essence of the situations that give rise to potential violations of Rule 4.1: “Whether before or after suit is filed, attempts at settlement often involve extensive communications between claimants’ counsel and the insurer providing coverage. These settlement communications are a dance of nuance and strategy, of cajolery and intimidation. Counsel for the claimant is at once bound by the attorney’s tradition of zeal for the client’s cause, yet also by the constraints of the profession, including the prohibition against misrepresentation.”
There is no question that an attorney has an ethical duty to zealously represent the interests of his client; however, there are limits. Knowingly making false statements of a material statement of fact or law is prohibited. Statements of opinion are just that—opinions. What is a case worth? What are the chances of success? But making false statements to induce an opponent to settle a case will not be condoned. As mediations become increasingly mainstream, and negotiations rather than litigation take the forefront in dispute resolutions, attorneys have to be mindful of the limitations imposed by the Rules of Professional Conduct when negotiating. False statements can also potentially give rise to civil causes of action for misrepresentations and fraud, and criminal actions for fraud. Although mediations are cloaked in confidentiality, it is not prudent to test the limits of confidentiality by being loose with statements during negotiations in a mediation session.•