Lying During Settlement Negotiations

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Attorneys are bound by strict ethical rules that mandate truthfulness in statements to others. However, when it comes to settlement discussions, many attorneys channel their inner Pinocchio and lie, exaggerate, mislead, bluff, bend the truth, and misrepresent. In an effort to be a zealous advocate and obtain a favorable result for our clients, attorneys must negotiate without revealing the true bottom line.  But, there is a point when a little lie is actually an ethical violation. Where does the line fall between puffery and improper misrepresentations?

ABA Model Rule of Professional Conduct 4.1(a) prohibits an attorney from “mak[ing] a false statement of material fact or law to a third person.” Thus, the key in this analysis is to determine what constitutes a “material fact.”  According to the comment following the rule 4.1, “certain types of statements ordinarily are not taken as statements of material fact…under generally accepted conventions in negotiation.” This exclusion takes into account “a party’s inentions as to an acceptable settlement of a claim.” So, the model rules may carve out an exception for attorneys to bluff when engaged in settlement discussions.

California’s Standing Committee on Professional Responsibility and Conduct recently took a close look at this issue and published a proposed Formal Opinion Interim No. 12-007. The opinion provides hypothetical scenarios that could arise in settlement negotiations and differentiates between misstatements of material fact and opinions.  Although misstatements of fact are prohibited, statements about negotiating goals or willingness to compromise may be considered allowable puffery.

For example, a lawyer who misrepresents to her adversary that she has a favorable witness – a witness that doesn’t exist – in an attempt to bolster her position has likely made an improper misstatement of material fact. Likewise, misrepresenting the amount of available insurance proceeds or a change in the plaintiff’s medical condition may constitute impermissible conduct that violates ethical rules.

The takeaway is that some puffery is permitted in settlement negotiations, but there are misrepresentations of fact that cross the line and could be considered ethical violations. When advocating for a client during settlement, it may be tempting to twist facts to gain leverage and obtain a better result, but misstatements of material facts could lead to trouble.