Attorney Negotiation Tactics – “Puffing” vs. Misrepresentation

California attorneys, and attorneys everywhere, must be aware of and avoid the dangerous pitfalls of overzealous representation. The California State Bar Standing Committee on Professional Responsibility and Conduct has issued a proposed formal opinion regarding the following question: “When an attorney is engaged in negotiations on behalf of a client, what conduct constitutes permissible “puffing” and what conduct constitutes improper false statements of material fact?” The Committee interprets Rule 3- 700(B)(2) of the Rules of Professional Conduct of the State Bar of California and Business and Professions Code sections 6068(b), (c), and (d), 6106 and 6128.

The opinion digest suggests a conclusion that seems rather unremarkable:

Statements made by counsel during the course of negotiations are, generally, subject to those rules prohibiting an attorney from engaging in deceit or collusion. (See Business and Professions Code sections 6068(d) and 6128(a)). Thus, it is improper for an attorney to make false statements of material fact during the course of a negotiation. However, statements about a party’s negotiating goals or willingness to compromise may include allowable “puffery” provided those statements do not contain false statements of material fact.

When an attorney is actually in a negotiation, there may be a fine line between acceptable puffery and improper misrepresentation. The opinion considers the following examples:

  1. Attorney’s statement that he has a credible eyewitness who will discredit the opposing party’s version of events, when in fact he knows of no such eyewitness.
  2. Attorney’s statement that his client was earning $75,000 a year for a wage loss claim, including prospective losses, when in fact the client was earning $50,000 a year.
  3. Attorney tells the settlement officer that plaintiff will never settle for less than $375,000, and that the demand is $1,000,000, when the plaintiff has in fact told the attorney that his bottom line settlement number is $175,000.
  4. Defense attorney responds to the settlement demand by saying that defendant’s insurance policy limit is $50,000, when in fact the policy limit is $500,000.
  5. Defense attorney also responds to the demand by saying that defendant is prepared to litigate the matter and might file for bankruptcy if he does not get a defense verdict. In fact, defendant and his attorney have not even discussed filing for bankruptcy.
  6. The case does not settle at the mediation, but a follow-up mediation is planned, pending exchange of information regarding the wage loss claim. In the meantime, plaintiff has accepted a new job at $75,000 a year. Plaintiff tells his attorney to conceal the new job at the mediation, and the attorney schedules the mediation for the day before plaintiff starts his job, so he “technically” is not working at the time of the mediation.

The Standing Committee’s opinion easily concludes that the conduct described in examples 1, 2 and 4 are impermissible misrepresentations of fact that are intended to mislead the opposing party and attorney. The representations were not the expression of opinion or state of mind. They were verifiable facts, and the attorneys’ statements were intended to induce reliance on those facts by their opponents in reaching a settlement. This conduct is ground for disbarment or suspension under Business and Professions Code sections 6128(a) and 6106.

In contrast, the Standing Committee concludes that the representations in examples 3 and 5 are “statements regarding a party’s negotiating goals or willingness to compromise, as well as statements that constitute mere ‘puffery.'” In example 3, the attorney has not made any false statement of fact in discussing plaintiff’s “bottom line.” In example 5, the statement of defendant’s intent to file for bankruptcy depends on what the attorney knows. If he believes in good faith that bankruptcy is a permissible option, then the statement is a fair negotiating tactic. If he knows that bankruptcy is not an option, then the statement is a false statement of material fact.

Finally, as to example 6, the Standing Committee concludes that the client’s instruction to the attorney not to disclose the new job would amount to suppression of a material fact, which is the equivalent of a material misrepresentation. The existence of the new job was material because the wage loss claim was the subject of the follow-up mediation. Moreover, while the attorney has a duty to maintain the confidentiality of the client’s instruction not to disclose the new job, the attorney must also advise his client that he cannot participate in a misrepresentation or suppression of evidence.

It is true that the opinion is not yet final, pending receipt of public comment. Nevertheless, the opinion suggests a bright-line rule that should be fairly easy to follow: If it is a representation of fact, and it is not true, don’t say it. If it is a statement regarding willingness to compromise or negotiating goals, go ahead and give it a shot.

The proposed opinion is open for public comment until May 19, 2014 and can be accessed by clicking on the following link: