Professional Column

May we lie in settlement negotiations?

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  • | 12:00 p.m. August 18, 2003
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Is lying always wrong? Of course not. Consider these examples:

Wife: Does this dress make me look fat?

Husband: Not at all, dear.

Murderer: Now that I have killed your husband, where are you hiding the children?

Wife: They are not here.

May we lie in settlement negotiations? Most people think so. Settlement negotiations are not under oath. Ethically, each lawyer must try to negotiate an advantageous settlement for his client. To do so, he or she has to downplay the weaknesses of the case and keep the client’s secrets.

In addition, settlement ethics are rarely policed. Most discussions take place in secret. Settlement letters bear legends like for settlement purposes only. The settlement agreement may be confidential.

Further, finality of settlement is a central principle of our justice system. Even bad bargains are final. We cannot afford to reopen and re-evaluate every statement made in the process of resolution. The system would choke if we could not put the case behind us and go on to the next one. Therefore, courts are reluctant to undo a settlement when the petitioner is complaining that it did not understand the significance of facts it could (or should) have discovered during litigation.

May we lie in settlement negotiations? The answer resides in balancing the ethical principles of truth, zealous advocacy and client confidences. This article describes these three principles and how they are reconciled.

Duty Not To Make False Statements

The first rule of settlement ethics is that false statements of fact are not permitted. In the course of representing a client, a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by rule 4-1.6.

Rule 4-4.1 of the Florida Rules of Professional Responsibility (the “Rules”). See also Rule 3-4.3 (lawyer shall not engage in any act that is contrary to honesty and justice); Rule 4-3.3 (lawyer shall not knowingly making false statements of material fact or law to a tribunal); Rule 4-8.4(c) (lawyer shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation); and Rule 4-8.4(d) (lawyer shall not engage in conduct prejudicial to the administration of justice). In some areas, false statements have criminal implications. E.g., Section 817.234(1)(a)(1)-(2), Fla. Stat. (false, incomplete or misleading statements to insurance companies).

The Rules apply to settlement negotiations before and after filing suit. Even settlement overtures may be unethical: “Counsel should not falsely hold out the possibility of settlement as a means for adjourning discovery or delaying trial.” See Guidelines for Professional Conduct of the Trial Lawyers Section of the Florida Bar.

The “confidential” nature of mediation does not negate ethics rules. In fact, the Florida Rules for Mediators at 10.310(c) provide that a mediator shall not intentionally or knowingly misrepresent any material fact or circumstance in the course of conducting a mediation.î Moreover, a final judgment entered on a settlement agreement can be set aside when based on fraud. See Rule 1.540, Fla.R.Civ.P.

Duty to Preserve Confidences

A lawyer shall not reveal information relating to a representation except with the client’s consent. Rule 4-1.6(a).

The duty of confidentiality may conflict with the duty of fairness to the opponent. A lawyer may reveal client information as necessary to comply with his ethical responsibilities. Rule 4-1.6(c).

A lawyer needs client authority to reveal facts and take positions during settlement discussions. The opponent should understand that the lawyer is not telling him everything. “A lawyer is required to be truthful when dealing with others on a client’s behalf, but generally has no affirmative duty to inform an opposing party of relevant facts.” Rule 4-4.1, Comment. Therefore, a lawyer may generally omit information such as:

The client desperately needs to settle because of illness, financial obligations, etc.

The client will soon run out of money to pay for the litigation.

The opponent has not served discovery but, if he had done so, he would have discovered the identity of a damaging witness or document.

The client is a raving lunatic and will never make a good witness.

Case law supports the concept of fair omissions. When the parties bargain at arms-length and there is no evidence of any agreement to make full disclosure, there is generally no duty to disclose all facts that may be relevant. Corwin v. Cristal Mizner’s Preserve Limited Partnership, 812 So. 2d 534 (Fla. 4th DCA 2002). When a party who later challenged a settlement had been afforded an opportunity to engage extensively in the discovery process, the Florida Supreme Court rejected the challenge, holding that “parties challenging final judgments [based on settlements] should not be permitted to claim lack of knowledge, because through due diligence, they could have unearthed all relevant facts.” Macar v. Macar, 803 So. 2d 707, 713 (Fla. 2001).

Duty to Advocate

A lawyer is a zealous advocate. “The advocate has a duty to use legal procedure for the fullest benefit of the client’s cause, but also a duty not to abuse legal procedure.”Rule 4-3.1, Comment.

Advocacy and the principle of client confidences go hand-in-hand. An attorney must strongly advocate the facts and law in his favor and usually omits reference to weaknesses not known to the opponent.

An attorney may state opinions about the outcome and how the law should be applied to the facts. The rule prohibiting misrepresentation generally applies only to facts. “Whether a particular statement should be regarded as one of fact can depend on the circumstances.” Comment on Rule 4-4.1. Puffing and bluffing is expected. Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are in this category, and so is the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud. Rule 4-4.1, Comment.

Thus, comments such as these should not be taken at face value:

My client is willing to take this all the way no matter how much it costs.

This is my client’s bottom line, and it’s only good until Friday at 5 p.m.

My client won’t pay more than a nominal settlement.

My client’s employees will make excellent witnesses.

I am confident that the court will not let punitive damages go to the jury.

The following factors may be relevant in determining whether

a statement is unreliable hyperbole or a reflection of the speaker’s state of mind and not a misstatement of fact or law: “the circumstances in which the statement is made, including the past relationship of the negotiating

persons, their apparent sophistication, the plausibility of the

statement on its face, the phrasing

of the statement, related

communication between the

persons involved, the known negotiating practices of the

community in which both are negotiating, and similar circumstances.” Restat. 3d of the Law Governing Lawyers, Section 98.

Thus, a sophisticated practitioner in a specialized area of law is not permitted to advise a rookie lawyer that damages of a specific nature are not recoverable when the speaker knows that is a false and undebatable statement of the law. Likewise, “normal” hyperbole and omission may become unethical when dealing with a pro se party.

Confidentiality, Advocacy and Truth Reconciled

Affirmative misrepresentations are prohibited. However, the Rules allow wide latitude for statements made in settlement negotiations. The client expects confidentiality in the representation and may require fair omissions. Advocacy in settlement is expected, including statements about the strength and value of the case. Predictions about how a court or jury will resolve an issue are virtually unbridled.

As a practical matter, lawyers practicing in a community learn who exaggerates the most and will back down the farthest. Some will form relationships or reputations that minimize or even eliminate bluffing. Moreover, a lawyer caught making borderline statements and engaging in devious omissions will get a reputation that will harm future client interests.

May we lie in settlement negotiations? Beyond the rule against material misrepresentations, the limits on the anything goes atmosphere of settlement negotiations depend on the circumstances and the relationship of the parties. In other words, “it depends.”

If you would like to write

an article about an ethical

or professionalism experience

that others in the Bar may

learn from, please contact

Caroline Emery, chair of the

Professionalism Column, at

[email protected].