A Clash of Cultures
When attorneys negotiate for clients, a clash of cultures occurs. Lawyers are bound by overriding ethical obligations of candor and truthfulness in their dealings with others. Negotiators, on the other hand, work in arena where overstatement, "puffing," and even outright deception are often employed to achieve better outcomes.
What can an attorney do, and more importantly, what should an attorney do when the angel on one shoulder counsels candor and the devil on the other shoulder insists: "Get the best settlement at all costs"?
Governing Ethical Rules
The first place to turn is the Model Rules of Professional Conduct. Rule 8.4 sets forth a broad prohibition against conduct involving "dishonesty, deceit or misrepresentation." Rule 4.1 further specifies that an attorney may not "make a false statement of material fact or law to a third person."
Some helpful guidance can be found in ABA Formal Opinion 06-439 which focuses on a lawyer's ethical duties while negotiating in a mediation. Opinion 06-439 reaffirms that a lawyer cannot make false statements of facts material to the dispute. However, it recognizes that "puffing" or "posturing" in a negotiation is acceptable -- even if less than forthcoming -- provided no material facts are misrepresented. For example, it states that a prosecutor cannot claim that there is an eyewitness to a crime to encourage a plea, when no such witness exists. However, a prosecutor seeking to obtain cooperation from a witness is not obligated to disclose at the outset of discussions that he or she is willing to grant immunity.
Opinion 06-439 concludes that, in the context of mediation, "statements regarding a party's negotiating goals or its willingness to compromise, as well as statements that can fairly be characterized as negotiation 'puffing' are ordinarily not considered 'false statements of material fact' within the meaning of the Model Rules."
The Duty to Speak Up
The duty to not make false statements of material facts sometimes includes an affirmative duty of disclosure. Opinion No. 06-439 references an earlier opinion, Formal Opinion 95-397, which concluded that an attorney involved in settlement negotiations for a personal injury lawsuit could not conceal the fact that the client had died. Obviously, death, which terminates pain and suffering as well as future medical expenses, is a highly material fact in settlement of an injury claim.
Similarly, if an attorney has asserted a loss of consortium claim for an injured party's spouse but discovers just before mediation that the parties were not married until after the accident, there would be an affirmative obligation to correct facts. Likewise, a defense attorney cannot affirmative represent that there is $100,000 in available insurance after discovering a $1 million umbrella policy providing additional coverage for the claim.
In short, it is not enough to remain silent when silence itself would create or perpetuate a misrepresentation of facts that the other side would deem material to the negotiation.
One useful way to identify the ethical dividing line is to focus on facts versus opinions:
You cannot represent that your client is restricted to a wheelchair following an auto accident when you have seen your client walk into your office. However, you can still offer an opinion that your client's injuries are very serious and have had great impact on your client, and that the case will have great jury appeal.
You cannot claim that your business client is insolvent and can't afford a settlement when you just handled a successful IPO that eliminates the client's financial worries. However, you can still argue that a demand is exorbitant and that there is no way this case is going to resolve if that is what the other side is looking for.
A certain measure of hyperbole is an expected part of any negotiation and can occur without crossing the line into dishonesty and ethical peril. However, just because a lawyer may ethically engage in some level of "puffing" does not mean that a lawyer is obligated to push the ethical boundaries as a negotiator. Ultimately, an attorney's ability to achieve great negotiated outcomes for clients is more connected to personal reputation than a willingness to go right up to the ethical line.
Each attorney needs to find a comfort level with his or her approach to negotiation that protects clients, but also safeguards one’s personal reputation and allows restful sleep at night. As Warren Buffet once said: "It takes 20 years to build a reputation and five minutes to ruin it." No negotiation is worth that price.