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The California State Bar Standing Committee on Professional Responsibility and Conduct has issued a proposed opinion attempting to draw the line between unethical misrepresentations during negotiations, and permissible “puffing.” Using this distinction, false statements about, as examples, the existence of favorable witnesses, or about the amount of a party’s earnings, or about policy limits, would all fall on the unethical side of the line, and would subject an attorney making them to potential discipline. On the other hand, false statements about a party’s “bottom line” of settlement authority, or about a party’s willingness to litigate or its plans to file bankruptcy, would be considered mere “puffing,” basically the kinds of lies that parties expect the other side to tell during negotiations, and that they should not rely on.

Harvard PON

The distinction at least seems understandable. Material misrepresentations of fact, that are intended to induce reliance, and that parties would reasonably rely upon, are impermissible. But a certain amount of bluffing about the parties’ tactics and strategies is still considered fair play.

The proposed opinion could cause potential dilemmas for mediators, if they are asked to participate in impermissible sorts of misrepresentation. An ethical mediator should not commit fraud, and should take some action if the mediator becomes aware that one party is making impermissible misrepresentations. That could include refusing to convey misrepresentations to the other side, or even withdrawal in some cases. Strict confidentiality protections might, however, allow mediators and attorneys to avoid discipline for violating these proposed ethical guidelines when settlement negotiations take place during mediation.

Comments are open until May 19, 2014.

(Thanks to Rande Sotomayor for bringing this issue to my attention.)