Ethics/Professional Responsibility
May 24, 2016
Avoid ethical missteps in negotiation dance
Although clients expect their lawyers to get the best possible deal, there are ethical constraints designed to restrict lawyers from gaining an unfair advantage in negotiations.
David M. Majchrzak
Shareholder, Klinedinst PC
Litigation, Legal Ethics
501 W Broadway Ste 600
San Diego , CA 92101-3584
Phone: (619) 239-8131
Fax: (619) 238-8707
Email: dmajchrzak@klinedinstlaw.com
Thomas Jefferson School of Law
David practices in the areas of legal ethics and litigation of professional liability claims.
Heather L. Rosing
CEO and President, Klinedinst PC
legal malpractice (specialist), business law
501 W Broadway Ste 600
San Diego , CA 92101
Phone: (619) 239-8131
Fax: (619) 238-8707
Email: hrosing@klinedinstlaw.com
Northwestern Univ School of Law
Heather serves as the chairperson of the Legal Ethics and Law Firm Risk Management Practice Group, as well as the Lawyers and Accountants Practice Group. She is an appointed advisor to the State Bar of California's Rules Revision Commission.
In social settings, a dance is a cooperative sequence of movements. Although many lawyers may refer to negotiations as a dance, it is often much different. At least some, if not all, of the participants have opposing interests and make their moves accordingly.
Nonetheless, describing a negotiation - when it is approached in an ethical manner - as a dance is appropriate. Not unlike a tango, the parties engage in a back-and-forth, give-and-take process. And the attorneys serve their clients best when they show confidence and balance. That balance must be struck between being an advocate and avoiding inappropriate deception. Lawyers are called upon to advocate zealously for their clients' interests. Many, perhaps even most, civil lawsuits are resolved by a negotiated settlement. But although clients expect their lawyers to get the best possible deal, there are ethical constraints designed to restrict lawyers from gaining an unfair advantage in negotiations. These include that lawyers may not communicate directly with a represented party absent counsel's consent (Rules of Prof. Conduct, Rule 2-100) offer or make an agreement that an attorney restricts his practice (Rule 1-500), threaten criminal, administrative, or disciplinary charges (Rule 5-100), or fail to communicate written settlement offers (Rule 3-510). Recently, the State Bar of California Standing Committee on Professional Responsibility and Conduct issued Formal Opinion No. 2015-194 to address a less concrete concept, the ethical limitations on posturing and puffery in negotiations. The opinion is notable in that it recognizes that negotiation is a kind of dance, and that part of this dance involves a certain amount of potentially deceptive exchanges. But what is permissible depends largely on the nature of the statements made. In multiple places, the State Bar Act provides that attorneys are expected to be honest in their dealings. For example, Business and Professions Code Section 6068(d), requires that attorneys employ "those means only as are consistent with truth." Section 6106 prohibits acts of moral turpitude or dishonesty. Section 6128 prohibits any deceit or collusion with the intent to deceive the court or any party. Notably, the standard for lawyer truthfulness does not change by virtue of the consensual nature of negotiation or mediation. Nor is it modified because the parties who participate in the process somehow understand that false statements will be made. Yet opinion 2015-194 acknowledges an idiosyncrasy in the negotiation process. Lawyers may make representations that they do not intend the opposing parties to rely on. These often include what has been dubbed "puffing" or posturing. These are statements that parties to a negotiation ordinarily would not be expected to justifiably rely on. And they may be permissible based on the generally understood norms of negotiation. In other words, because certain topics are routinely exaggerated, no party or attorney is expected to rely on what another participant in the process says. Examples include statements regarding a party's negotiating goals or willingness to continue negotiations, overstatements or understatements regarding the strengths or weaknesses of each party's position in litigation, and opinions about the value of the claim being negotiated. A statement of puffery is, therefore, one that is extremely unlikely to induce reliance. But there is a line. Attorneys may not make false statements of a material fact. The difference between a statement of fact and mere puffery rests in the specificity or generality of the claim. A statement that is quantifiable, specific, or absolute will generally be one of fact that must be truthful, whereas a statement that is general or subjective will be considered puffery. Statements of fact include the existence of a favorable witness, details about the dispute, the amount of policy limits, and statements that a client is eligible to file for bankruptcy. These are each specific matters that attorneys may not intentionally misrepresent. By comparison, a party's bottom line is not expected to be given and is considered to be posturing in California. Notably, this contrasts with the American Bar Association's Formal Opinion No. 93-370, which concludes that a party's actual bottom line and the settlement authority given to a lawyer are both material facts. Finally, attorneys may not seek to mislead through omissions. As a general rule, a lawyer has no duty to disclose weaknesses in the client's case to an opposing party. ABA Formal Opinion No. 94-387. In fact, doing so may violate the duty of loyalty and/or the duty of confidentiality. But attorneys may also not engage in implicit misrepresentations by failing to make truthful statements. For example, an attorney may not settle a personal injury claim on behalf of a client who has died without disclosing that fact. Continued communication constitutes an implicit representation that the client is still alive. To an outsider, the natural question may arise, why do attorneys engage in puffery? If a lawyer does not expect the other side to rely on a statement, then what purpose does it serve? The answer is simple. It is part of the proverbial dance. The cathartic process of negotiation inevitably sees some well-choreographed chest pounding before the dance partners compromise and move in unison toward a closing curtain on their dispute. In assisting their clients through this process, lawyers must be careful to stay in step with their ethical obligations and avoid making false statements of fact or implicit misrepresentations of material fact during the negotiations. David M. Majchrzak and Heather L. Rosing practice in the area of legal ethics and litigation of professional liability claims at Klinedinst PC. They can be reached at dmajchrzak@klinedinstlaw.com and hrosing@klinedinstlaw.com.Submit your own column for publication to Diana Bosetti
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