Legal commentators have written countless articles and entire CLE courses are dedicated to discussing what an attorney may or may not say in negotiations. Ethics in negotiations is tricky. On one hand, a lawyer must show honesty and good faith, and not accept a result that is unconscionably unfair to the adverse party. On the other hand,the attorney is obligated to obtain a result that is in the client’s best interest and must do everything, short of fraud or deceit, to do so. The absence of a clear line between puffing and misrepresentation has resulted in a considerable body of ethics decisions and commentary.
Many lawyers refer to Model Rule 4.1 which states: “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 when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.” As the commentary to the Rule makes clear, a misrepresentation occurs when a lawyer incorporates or affirms a statement by another person that the lawyer knows to be false. A misrepresentation also includes misleading statements and omissions that are the equivalent of affirmative false statements.
Generally, Rule 4.1 defers to the parties and the circumstances of the transaction to determine what is factual, what is ethical, and what is legal. Here is where the line of negotiation ethics gets blurry. Not all untruths are equal. Posturing or “puffing” during negotiations is not a breach of the Rules. Specifically, statements regarding a party’s negotiating goals or its willingness to compromise are not seen as actionable misrepresentations of fact but as negotiation tactics.
While there is a certain degree of deception inherent in some negotiations which arguably helps to promote resolution of conflicts, it is critical to keep in mind the parties involved. The ABA Ethics Committee notes that it is never acceptable to lie to a judge. If a judge were to ask about the limits of settlement authority given to a lawyer by a client, the lawyer might decline to answer but may not answer falsely. By contrast, the Committee concluded that “posturing and puffery” are acceptable between the opposing lawyers or with a neutral mediator. A lawyer may downplay the client’s desire to settle or overstate the strength and understate the weaknesses of the client’s case. Nonetheless, an attorney may not misstate facts, such as knowingly misstating applicable insurance policy limits. Thus in non-judicial settlement negotiations and mediations, a degree of posturing and puffery is permitted but the knowing or intentional misrepresentation of material facts is not.