For Attorneys
    For the Public
    About Us
    Counsel For Justice
    Law Students
    My Account

LACBA on Facebook.
LACBA on Twitter.
LACBA on LinkedIn.

  Los Angeles Lawyer
The Magazine of the Los Angeles County Bar Association

November 2007     Vol. 30, No. 8


MCLE Article: Calling the Bluff

The art of bluffing is an important part of effective lawyering, but practitioners need to heed legal and ethical restrictions

Robert A. Steinberg

Robert A. Steinberg is a lawyer and full-time mediator exclusively with ADR Services, Inc.


By reading this article and answering the accompanying test questions, you can earn one MCLE ethics credit. To apply for credit, please follow the instructions on the test.


Bluffing is at the heart of any competitive activity involving limited information, such as a negotiation.1 Advocates during a negotiation often seek to mislead their adversaries. They want their opponents to reach conclusions that may be contrary to the truth. The purpose of the bluff is to undermine an adversary's confidence in his or her case.2 Relying on a misunderstanding, an adversary may concede ground and unnecessarily increase or reduce its offer. Negotiators, like poker players, count the results they achieved through a well-played bluff as among their greatest victories.

Attorneys must consider the applicable laws and ethical rules when they seek to employ the tactic of bluffing in their negotiations. California law treats litigation and nonlitigation negotiations differently. Persons involved in litigation are broadly protected by statute from tort liability--even for fraud and perjury3--but no similar immunity applies in a nonlitigation context.

Civil Code Section 47(b)(2), the litigation privilege, protects parties in litigation from subsequent tort liability for any statements made during litigation except those that give rise to a claim of malicious prosecution. According to the court in Flatley v. Mauro:

"The principal purpose of [Civil Code Section 47(b)] is to afford litigants and witnesses...the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions." Additionally, the privilege promotes effective judicial proceedings by encouraging "open channels of communication and the presentation of evidence" without the external threat of liability...and "by encouraging attorneys to zealously protect their clients' interests....Finally, in immunizing participants from liability for torts arising from communications made during judicial proceedings, the law places upon litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding the unending roundelay of litigation, an evil far worse than an occasional unfair result."4

Using the authority of the litigation privilege, courts have denied parties the right to bring a derivative tort action when:

• A witness committed perjury or perjury was suborned.5
• An attorney misrepresented his client's insurance policy limits to reduce the settlement amount.6
• Parties forged a will and submitted it for probate.7
• An attorney with a conflict of interest allegedly defamed one client to enhance the settlement prospects of another client.8
• A bank wrongfully reported suspicious activity to the police.9

These cases underscore the absolute nature of the privilege, which bars all tort recovery for statements made during the litigation except for claims of malicious prosecution.10 The privilege even applies to "statements made prior to the filing of a lawsuit, whether in preparation for anticipated litigation or to investigate the feasibility of filing a lawsuit."11

The Section 47(b) privilege applies only to "communicative acts" and not to "noncommunicative conduct." In Kimmel v. Goland,12 the court upheld an action for the illegal recording of confidential telephone conversations during a lawsuit:

Implicit in the Ribas [v. Clark] decision was the distinction between injury allegedly arising from communicative acts, i.e., the attorney's testimony, and injury resulting from noncommunicative conduct, i.e., the invasion of privacy resulting from the attorney's eavesdropping. This distinction has traditionally served as a threshold issue in determining the applicability of section 47[b](2).13

Only one case has imposed liability for statements made during litigation. Shafer v. Berger Kahn, Shafton, Moss, Figler, Simon & Gladstone14 arose from a claim against a construction contractor for fraud and negligence. The contractor's carrier reserved its rights because of the allegations of intentional and willful conduct. When the contractor sought independent counsel, the carrier withdrew its reservation so the contractor would not need its own counsel. The arbitration panel in the underlying case found the insured contractor liable for fraud, but the carrier refused to fully indemnify. The carrier instead contended, through its coverage counsel, that the finding of fraud precluded full indemnity for the claimants under the policy. When the claimants discovered they were entitled to full indemnity by reason of the withdrawal of the carrier's reservation, they sued the carrier and the law firm that misrepresented the carrier's position to them.

The Shafer court concluded that "the litigation privilege does not shield [the defendant attorney] from liability for fraud because his alleged misrepresentations were made to a party standing in the shoes of an insured, and the application of the litigation privilege in this case would be inconsistent with the purpose of [Insurance Code] section 11580."15 That statute states that when a claimant obtains a judgment against an insured for, among other things, property damage, then the claimant may sue the insurer directly on the policy to recover on the judgment.16

In finding this exception to the litigation privilege, the Shafer court stands alone. The court first reasoned that lawyers may be liable for fraud to third parties.17 But each of the California cases it discussed involved business negotiations, not settlement negotiations, and thus were unprotected by the litigation privilege. To repair this deficiency, the court relied on the Restatement (Third) of the Law Governing Lawyers, an Iowa Supreme Court case, and a case from the U.S. Court of Appeals for the Second Circuit that applied New York law.18

The court then concluded that Insurance Code Section 11580 supersedes the litigation privilege:

Counsel retained by an insurer has an obligation to be truthful in describing insurance coverage to a third party beneficiary. The litigation privilege is not a license to deceive an injured party who steps into the shoes of the insured....Section 11580 grants an injured party the right to file suit in order to recover under the insurance policy. Coverage counsel may not commit fraud in an attempt to defeat that right. And to the extent there is a conflict between an injured party's rights under section 11580 and coverage counsel's reliance on the litigation privilege (Civ. Code, §47, subd. (b)), the rights of the injured party prevail as they arise under the more specific of the two statutes.19

Thus, the Shafer holding, even if adopted by other courts, probably has no application outside the specific context of Insurance Code Section 11580 or a similar statute.20

Mediated settlement negotiations enjoy additional protection. According to the mediation confidentiality provisions of the California Evidence Code, "No evidence of anything said...in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery...."21

Courts have upheld mediation confidentiality as inviolate. For example, in Foxgate Homeowners' Association v. Bramalea California, Inc., the court held "that there are no exceptions to the confidentiality of mediation communications or to the statutory limits on the content of mediator's reports. Neither a mediator nor a party may reveal communications made during mediation."22

Notwithstanding this broad language, the court in Simmons v. Ghaderi23 found an exception. It did so for testimony about an oral settlement agreement purportedly reached at mediation on which the defendant tried to renege. Because the defendant and her attorney litigated the efficacy of the purported agreement for 15 months--and they described in declaration testimony and stipulations what happened at the mediation--the court carved out what it felt was a narrow but appropriate exception: "We simply hold that once a party voluntarily declares certain facts to be true, stipulates that she does not dispute them and extensively litigates the legal effect of such facts, she is estopped to later claim that the court must disregard those facts based upon a belated assertion of mediation confidentiality."24

This case was granted review in December 2006. That same month, the California Supreme Court reaffirmed its "disapprov[al]" of "judicially crafted exception[s]" to the mediation confidentiality statutes, with specific mention of its decisions in Foxgate and Rojas.25 The supreme court has yet to resolve whether conduct establishing estoppel can create an exception to the statutes.

When a lawyer's activities fall outside the litigation arena and the protection of the litigation privilege, California law permits tort recovery for wrongful advocate conduct. As the court of appeal noted in Cicone v. URS Corporation:

In California it is well established that an attorney may not, with impunity, either conspire with a client to defraud or injure a third person or engage in intentional tortious conduct toward a third person....

Thus, the case law is clear that a duty is owed by an attorney not to defraud another, even if that other is an attorney negotiating at arm's length.26

As for jurisdictions other than California, the Shafer court observed that "cases from twenty-eight states hold[] that ‘[a]n attorney can be liable to a nonclient, even an adversary in litigation, for fraud or deceit.'"27 That is also the rule of the Restatement (Third) of the Law Governing Lawyers: "[I]n general, a lawyer who makes a fraudulent misrepresentation is subject to liability to the injured person when the other elements of the tort are established...."28 This rule "applies equally to statements made to a sophisticated person, such as to a lawyer representing another client, as well as to an unsophisticated person."29 Moreover, according to the Restatement, "Misrepresentation is not part of proper legal assistance; vigorous argument often is. Thus, lawyers are civilly liable to clients and nonclients for fraudulent misrepresentation, but are not liable for such conduct as using legally innocuous hyperbole or proper argument in negotiations...."30

Of course, what distinguishes "fraudulent misrepresentation" from "legally innocuous hyperbole" is not always clear. The American Bar Association, in its Formal Opinion 06-439 adopted in 2006, attempts to answer this question. Nevertheless, advocates in California should shield themselves whenever possible under the litigation privilege by documenting some connection between their negotiations and pending or anticipated litigation.

Ethical Parameters

The California Rules of Professional Conduct generally do not address the ethics of negotiation behavior in either a litigation or nonlitigation setting.31 However, this year the State Bar promulgated its California Attorney Guidelines of Civility and Professionalism,32 which address the topic directly. According to Rule 18(c) of the guidelines:

An attorney should avoid negotiating tactics that are abusive; that are not made in good faith; that threaten inappropriate legal action; that are not true; that set arbitrary deadlines; that are intended solely to gain an unfair advantage or take unfair advantage of a superior bargaining position; or that do not accurately reflect the client's wishes or previous oral agreements.33

The California Attorney Guidelines are voluntary and aspirational. They fail to define what an "abusive" or "not...in good faith" or "untrue" negotiating tactic is--all the more surprising given the purposes of negotiating tactics. In the poker game that is negotiation, advocates have two kinds of chips: substantive chips, based on the merits of their position, and procedural chips. Negotiation tactics are procedural chips; they involve one side extracting from the other side a price or a concession regardless of the merits of the case.

As one example, an advocate may schedule a negotiation in the late afternoon, knowing the parties are unlikely to reach a conclusion before the end of the day. Is this practice the setting of an "arbitrary deadline?"

Negotiating tactics that "are not true" raise different questions. Must the advocate know a statement is false? What if the falsehood applies only to immaterial matters? And what constitutes an "unfair advantage?" The guidelines, by not answering these questions, are unhelpful.

ABA ethics opinions and the ABA Model Rules of Professional Conduct offer some direction on the subject of ethics in negotiations. California lawyers may look to both for direction and analysis when state law and ethics rules lack guidance. The ABA materials cannot be cited as controlling authority, but they are illuminating.

ABA Formal Opinion 06-43934 in particular addresses what may or may not be said in negotiations. The opinion addresses the "Lawyer's Obligation of Truthfulness When Representing a Client in Negotiation: Application to Caucused Mediation." It reviews cases from many jurisdictions as well as the ABA Model Rules of Professional Conduct35 and prior ABA formal opinions to conclude that "a lawyer representing a client may not make a false statement of material fact to a third person" in any negotiation, including what the opinion refers to as a caucused mediation.36

ABA Formal Opinion 06-439 interprets ABA Model Rule 4.1(a). According to Model Rule 4.1, Truthfulness in Statements to Others:

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.

The opinion states that Model Rule 4.1(a) "does not cover false statements made unknowingly, that concern immaterial matters, or that relate to neither fact nor law."37 Also, the opinion expressly notes that it does not apply to mere posturing or exaggeration: "Statements regarding a party's negotiating goals or its willingness to compromise, as well as statements that can fairly be characterized as negotiation ‘puffing,' ordinarily are not considered ‘false statements of material fact' within the meaning of the Model Rules."38

The opinion identifies specific statements that do not constitute a false statement of material fact:

• Understating one's willingness to make concessions regarding the elements of a settlement or its dollar amount, or to gain leverage over the other side
• Exaggerating one's strengths and minimizing weaknesses.
• Making estimates of price or value.
• Declaring one's intentions regarding an acceptable settlement.
• Not disclosing the existence of a principal (except when nondisclosure would constitute fraud).39
• Nondisclosure by a lawyer of the existence of an insurance policy--unless the disclosure is required by law.40
• Failure of a lawyer to correct the other party's misunderstanding, based on information from third parties, of the finances of the lawyer's client.41

The opinion notes that it is consonant with the Restatement (Third) of the Law Governing Lawyers, which describes the specific statements as "nonactionable hyperbole" or merely a "reflection of the state of mind of the speaker."42 The opinion also concludes that these statements "are generally not considered material facts subject to Rule 4.1,"43 provided that these statements do not violate other Model Rules "if made in bad faith and without any intention to seek a compromise [citing Model Rules 3.2 and 4.4(a)]."44

The opinion cites prior ABA formal opinions to conclude that:

• A party's actual bottom line and an agent's actual settlement authority are material facts.45
• A lawyer has no obligation to inform the other side that the statute of limitations has run but cannot affirmatively misrepresent the facts regarding the claim.46
• In a pending personal injury claim, a lawyer cannot misrepresent the fact of the plaintiff's death ("a material fact"), but must disclose it "promptly" to the court and the opposing party.47

The opinion cites some non-California cases that sanctioned lawyers, or overturned settlements, or afforded grounds for an action against the lawyers.48 Courts took these actions when the lawyers made a false statement of material fact or an implicit misrepresentation by failing to be truthful. The situations in which these actions took place were varied:

• A lawyer affirmatively misrepresented insurance policy limits.49
• Defense counsel failed to disclose material adverse facts about the plaintiff's medical condition.50
• The defendant law firm in a malpractice action was permitted an equitable indemnity claim against opposing counsel in the underlying case in which misrepresentations were made during negotiations.51
• A buyer's fraudulent misrepresentation claim was sustained against seller's counsel for misrepresenting facts during a real estate negotiation.52
• A lawyer settled a personal injury case without disclosing to the other side that the client had died.53

The opinion explicitly applies to negotiations conducted in mediation. In observing the peculiarities of mediated negotiations, the opinion observes that sometimes counsel may need to exercise a greater degree of truthfulness than the opinion itself requires to help the mediator achieve settlement: "[I]n extreme cases, a failure to be forthcoming, even though not in violation of Rule 4.1(a), could constitute a violation of the lawyer's duty to provide competent representation under Model Rule 1.1."54

While the opinion provides reasonable guidance in the situations it enumerates, it concludes with a caveat that leaves room for lawyers to avoid its strictures:

[W]hether in direct negotiations or a caucused mediation, care must be taken by the lawyer to ensure that communications regarding the client's position, which otherwise would not be considered statements "of fact," are not conveyed in language that converts them, even inadvertently, into false factual representations. For example, even though a client's Board of Directors has authorized a higher settlement figure, a lawyer may state in the negotiation that the client does not wish to settle for more than $50. However, it would not be permissible for the lawyer to state that the Board had formally disapproved any settlement for more than $50, when authority in fact had been granted to settle for a higher sum.55

The converse also may be true: A factual statement may be converted into a mere statement of position by careful phrasing. Thus, with this language, ABA Formal Opinion 06-439 provides advocates with the room they need to achieve their negotiating goals without violating the ethical rules propounded by the opinion.

Negotiating Tactics

Many competitive negotiating tactics involve bluffing. Competitive tactics are designed to undermine an adversary's confidence through intimidation, distraction, and diversion. Most settlement negotiations begin with competitive tactics as each side seeks to bludgeon the other into making concessions. Deliberately misleading the other side through bluffing is an integral part of the process.

ABA Formal Opinion 06-439 instructs attorneys to phrase their bluff to avoid making a "false statement of material fact." Using that direction as a foundation for conducting a negotiation, attorneys can consider using a variety of tactics employing bluffing:

Alternatives to settlement. An attorney may inform his or her adversaries that the attorney's client has better choices than settlement. The side that cares more about settling starts with a weaker negotiation position. The attorney who is nonchalant about settling may bait the other side into concessions to keep the attorney at the bargaining table.

The attorney with the better BATNA (Best Alternative to a Negotiated Agreement) will have more chips with which to negotiate. But bluffing may be used if the situation is unclear, or one side has an objectively weaker position.

The March 2006 Blackberry settlement provides an example.56 In that case, NTP, Inc., a patent holding company, claimed Research in Motion, Ltd., the makers of the Blackberry handheld e-mail device, infringed several of its patents. RIM reduced NTP's settlement demands by two related "alternative to settlement" tactics. First, while the case was pending in U.S. District Court, RIM sought to have the Patent and Trademark Office invalidate NTP's patents. Invalidation would have defeated NTP's lawsuit--an alternative to settlement. Second, as another alternative, RIM claimed to have designed a "work around" that would not have required the use of the allegedly infringing patents.

Each of these alternatives reduced the settlement value of NTP's case. But there was a bluffing element to them, since it was unclear whether RIM's pursuit of either would be successful. Neither raised an ethical question, however, because both parties knew of the uncertainties.

Hypothetically, if RIM was certain its work around was technologically unfeasible, yet persisted in negotiations by relying on the work around as a viable alternative, RIM would have crossed the line established by ABA Formal Opinion 06-439. RIM would have had no real alternative despite its claims to the contrary--a knowing misstatement of a material fact.

ABA Formal Opinion 06-439 itself anticipates this situation. It states that a party acts ethically when it continues to negotiate for a license of technology even though it has already designed a new product without the allegedly infringing patents.57

Anything but that. An attorney may find his or her adversary's offer acceptable, but the attorney wants more and responds that the offer is insufficient. The attorney hopes his or her adversary will increase (or decrease) the offer or otherwise grant further concessions before the attorney wrests an agreement from the adversary. An attorney who employs the "anything but that" tactic can gain concessions each time he or she refuses the adversary's offer.

Ethically, this tactic presents little problem. The attorney employing the tactic is not making any factual statements at all, so there is no issue of truthfulness or falsity. This tactic thus falls within the opinion's caveats about "posturing," willingness to compromise, and statements about one's negotiating position.

Done deal. A party may take some action and present it to the other side as a "done deal." An example is when a plaintiff in a multiparty litigation opens the negotiation by unexpectedly stating that a codefendant has already settled on confidential terms to which the other defendant is not entitled.

If this statement is true, there is no problem. But what if a settlement has not been finalized, or the plaintiff misstates the scope of the settlement (such as, "It's in the seven figures, but I can't tell you how much because of confidentiality")? The first statement may not be considered material, since defense counsel should not have relied on it without first checking with the allegedly settling codefendant.58 The second statement may be unethical if false and intentionally stated to mislead defense counsel into settling for an amount suggested by the statement.59

Irrational behavior. Sometimes an attorney decides to act irrationally not only to distract and unnerve but also to undermine his or her adversary's confidence. Attorneys generally prefer rational approaches to negotiation. Irrational behavior can unsettle even an experienced negotiator.

History provides an example. In 1960, when Nikita Khrushchev was the head of the Soviet Union, he appeared at the United Nations General Assembly and repeatedly caused disruptions by shouting from his seat. He even took off his shoe and began banging it on the table. When the Cuban missile crisis developed the next year, Khrushchev's seemingly irrational behavior magnified President John F. Kennedy's sense of risk when he ordered the naval blockade of Cuba.

Bullying or tantrum-throwing may fall within the California Attorney Guidelines suggestion to avoid "abusive" negotiation tactics. Engaging in these actions is certainly neither "civil" nor "professional." However, there appear to be no legal or ethical proscriptions against this behavior.

Limited authority. An attorney may claim to lack authority to settle at a specified amount and ask his or her adversary to reduce the offer to the attorney's authorized limits. Parties typically use this tactic after a tentative settlement has been reached. An attorney may call his or her principal to "confirm" the deal only to "discover" that the attorney cannot settle at the agreed amount. The attorney then requests his or her adversary to reduce the settlement amount to one that corresponds to the limits authorized by the principal.

Claiming an authority that is in fact nonexistent may fall within the ABA Formal Opinion 06-439's proscription if doing so would constitute fraud.60 It would also violate California law if the statement occurs in a business negotiation.61 But agreeing to a settlement subject to a principal's approval is ethical, since an attorney who does this is not making false representations about his or her authority.

In practice, parties often move higher (or lower) in their offers than they anticipated at the commencement of the negotiations. As long as attorneys do not claim a false limit to their authority, they should encounter no ethical problem.

Limited time. Parties sometimes seek to artificially constrain the time limits of the negotiation. Their aim is to make the opposing side move at a quicker pace than they are comfortable with--and this in turn may induce negotiating mistakes. Thus, a party may schedule the negotiation late in the day when everyone wants to go home.

Attorneys do not need a reason to limit the duration of a negotiation ("my daughter's birthday," "I have a hearing," "I have to catch a plane"). But what if an attorney does state a reason, especially one that is false? It seems unlikely that this type of statement would be deemed material for purposes of ABA Formal Opinion 06-439, even if it is a knowingly false statement of fact. Thus, in most instances, use of the "limited time" tactic would not be deemed unethical by the opinion.

However, the California Attorney Guidelines specifically identify this tactic as unacceptable.62 Each advocate must make his or her own choice whether to comply.

Poor me. Some negotiators act like they have no background or training in negotiation and ask the other side for help. They seek sympathy and hope their adversary will be more reasonable than he or she intended. This tactic can be especially effective when the adversary is younger and apparently less experienced than the negotiator seeking assistance. The bluff here is the misrepresentation regarding the negotiator's actual level of experience. However, even if this bluff constitutes a misstatement of fact (assuming one's experience is a fact), it does not appear to be material and is the type of tactic one expects to find in negotiation.

Advocates often ask mediators to recommend their next offer. Sometimes they use this tactic to lessen pressure on themselves and to learn about the other side's position. The mediator can never be sure whether the advocate is bluffing about his or her need for the mediator's opinion. But the "poor me" tactic most likely does not cross the ethical line.

Straw man. This tactic involves an attorney demanding agreement on Issue 1, which the attorney's adversary cares about the most. The attorney then creates a deadlock but "reluctantly" concedes Issue 1 to gain agreement on Issue 2--the one the attorney cares about most--and maybe Issues 3 and 4 as well.

The "straw man" tactic can be effective, as the following example, loosely based on an actual mediation, demonstrates. The plaintiffs in a shareholder derivative suit claimed that the defendant, the corporate chairman and majority shareholder, siphoned $3 million from the corporation by creating shell subsidiaries that paid director fees to the defendant. The plaintiffs concluded that they most wanted the defendant to relinquish his shares and resign all his positions. They wanted this result more than they wanted money damages, which the corporation could easily obtain.

But the plaintiffs started their negotiation by asking for a large amount of money--and reasonably so given the real threat of punitive damages. Only when the parties deadlocked over money did the plaintiffs raise a buyout option. The defendant, faced with paying money or relinquishing his shares, left the corporation.

This tactic raises no legal or ethical issues. The California Attorney Guidelines might consider this tactic "abusive" or one that takes "unfair advantage" of a "superior bargaining position." Again, given the voluntary nature of the guidelines, these determinations are ones that each advocate must make.63

Use of power. Parties may not only threaten to use their power but also sometimes actually use it. Many risk management strategies suggest that a show of toughness produces a higher settlement rate but at lower amounts. Parties should proceed with caution, because a threat is more dangerous than its execution. The threat creates doubt and, hence, concessions--but once implemented, the attorney wielding the threat has limited the choices of his or her adversary, making it easier for the adversary to respond.

For example, in an unfair competition case, the defendant may threaten to change product features that the plaintiff claims the defendant stole from the plaintiff. The defendant would then have a lawful product selling for less than the plaintiff's. In this situation, the plaintiff usually will settle rather than risk the threat's execution and receive nothing. This tactic may possibly run afoul of the California Attorney Guidelines but raises no other legal or ethical issues.

California law protects negotiation advocates from tort liability for all types of fraudulent, misleading, and even perjurious statements made while negotiating a settlement in pending or anticipated litigation. Outside the litigation context, however, California law does not protect negotiation advocates from liability for their statements. Most other states will impose liability on advocates for their fraudulent statements without distinguishing between statements made in a litigation or nonlitigation setting.

The ABA Model Rules, as analyzed in formal opinions, conclude that negotiation advocates have the duty not to make "false statements of material fact." Puffing, posturing, and misleading the other side on such matters as a party's settlement intentions or estimates of value do not fall within this proscription.

As an ethical guide, the ABA formulation is a good one for negotiators to follow. But for California attorneys whose behavior falls outside the ABA rule, there likely will be little consequence.



1 In poker, a player deprived of knowledge of his or her opponent's hand relies on behavior for information and is thus susceptible to a well-played bluff. By contrast, in chess, both players have full knowledge of the board and the placement of the pieces. Chess players calculate the future consequences of their moves, but they cannot bluff.
2 Donald Gifford, A Context-Based Theory of Strategy Selection in Legal Negotiation, 46 Ohio St. L. Rev. 48 (1985), reprinted in C. Wiggins & L. R. Lowry, Negotiation and Settlement Advocacy: A Book of Readings 49 (1997).
3 There may be one possible exception involving Insurance Code §11580. See text, infra.
4 Flatley v. Mauro, 39 Cal. 4th 299, 321-22 (2006) (quoting Silberg v. Anderson, 50 Cal. 3d 205, 213-14 (1990) (other citations omitted)).
5 Doctors' Co. Ins. Servs. v. Superior Court, 225 Cal. App. 3d 1284 (1990) (perjury); Carden v. Getzoff, 190 Cal. App. 3d 907, 915 (1987) (subornation of perjury). But see Hagberg v. California Fed. Bank, 32 Cal. 4th 350, 361 (2004) ("Section 47(b), of course, does not bar a criminal prosecution that is based on a statement or communication, when the speaker's utterance encompasses the elements of a criminal offense. (See, e.g., Penal Code §§118 [perjury], 148.5 [false report of criminal offense].)").
6 Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17, 22-26 (2002). But see Shafer v. Berger Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54 (2003) (The litigation privilege was held inapplicable or else superseded by Insurance Code §11580 when an attorney misrepresented willful acts coverage to claimants.) See text, infra.
7 Steiner v. Eikerling, 181 Cal. App. 3d 639, 642-43 (1986).
8 O'Neil v. Cunningham, 118 Cal. App. 3d 466, 472-77 (1981).
9 Hagberg, 32 Cal. 4th 350. The case focused on Civil Code §47(b) generally, not the litigation privilege of §47(b)(2) specifically.
10 Id. at 360.
11 Id. at 361. The court further explained:
We have noted the application of the privilege to communications with "some relation to a proceeding that is...under serious consideration;" to "potential court actions;" and to "preliminary conversations and interviews related to contemplated action," and we also have determined that the privilege applies to communications made prior to the filing of a complaint, by a person "meeting and discussing" with potential parties the "merits of the proposed...lawsuit."
Id. (citing Rubin v. Green, 4 Cal. 4th 1187, 1194 (1993)).
12 Kimmel v. Goland, 51 Cal. 3d 202 (1990).
13 Id. at 211 (citing Ribas v. Clark, 38 Cal. 3d 355, 364 (1985)).
14 Shafer v. Berger Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54 (2003).
15 Id. at 78.
16 Ins. Code §11580(b)(2).
17 Shafer, 107 Cal. App. 4th at 69-72.
18 Id. at 72-74.
19 Id. at 81.
20 The Shafer court emphasized the contractual rights of the claimants as third-party beneficiaries of the policy under Insurance Code §11580(b)(2). Since the litigation privilege protects only against subsequent tort recovery, contractual recovery remains available. That would explain why the defendant insurance carrier had potential liability. But this analysis does not explain why the law firm would have potential liability for fraud, which the court held it did, even as the carrier's agent.
21 Evid. Code §1119(a).
22 Foxgate Homeowners' Ass'n v. Bramalea Cal., Inc., 26 Cal. 4th 1, 4 (2001) (mediator prohibited from telling court about party's conduct during mediation). See also Fair v. Bakhtieri, 40 Cal. 4th 189, 194 (2006); and Rojas v. Superior Court, 33 Cal. 4th 407, 416-17, 424 (2004) (documentary evidence from earlier mediation not discoverable in later case).
23 Simmons v. Ghaderi, 143 Cal. App. 4th 410 (2006), review granted Dec. 20, 2006.
24 Id. at 422.
25 Fair, 40 Cal. 4th 189, 194 (fully executed "term sheet" ruled inadmissible under Evidence Code §1119(b) because statement that any disputes would be subject to arbitration did not make the term sheet enforceable under Evidence Code §1123(b)).
26 Cicone v. URS Corp., 183 Cal. App. 3d 194, 201-02 (1986) (attorney whose client fraudulently denied oral modification of indemnity provision in business acquisition agreement held subject to liability); see also Goodman v. Kennedy, 18 Cal. 3d 335, 346 (1976); and Pavicich v. Sanducci, 85 Cal. App. 4th 382 (2000) (attorney with a conflict of interest who favored one set of clients over another was subject to suit for intentionally misleading his injured clients).
27 Shafer v. Berger Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54, 75 (2003) (citing 1 Mallen & Smith, Legal Malpractice §6.7 n.1, at 564 (5th ed. 2000)). See also notes 49-53, infra.
28 Restatement (Third) of the Law Governing Lawyers §98, cmt. g, at 61.
29 Id. at cmt. b, at 59.
30 Id. at §56, cmt. f, at 418.
31 Cal. Rules of Prof'l Conduct R. 5-100(A): "A member shall not threaten to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute." Such statements may well constitute extortion as well. See, e.g., Flatley v. Mauro, 39 Cal. 4th 299 (2006). In addition, Rule 5-200 states, "In presenting a matter to a tribunal, a member...(B) Shall not seek to mislead the judge, judicial officer or jury by an artifice or false statement of fact or law...." This rule, akin to Model Rule 3.3 of the American Bar Association's Model Rules of Professional Conduct, seems to encompass misleading statements to judges who act as settlement officers in voluntary and mandatory settlement conferences. See, e.g., ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 93-370 (1993) (Judicial Participation in Pretrial Settlement Negotiations).
32 California Attorney Guidelines of Civility and Professionalism, at 3 (adopted by the State Bar Board of Governors on July 20, 2007) ("These voluntary guidelines foster a level of civility and professionalism that exceed the minimum requirements of the mandated Rules of Professional Conduct....").
33 Id. at 13.
34 ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 06-439 (2006).
35 ABA Annotated Model Rules of Prof'l Conduct (5th ed. 2003).
36 See note 34, supra.
37 Id. at 4.
38 Id. at 1.
39 Id. (citing Pennsylvania Bar Ass'n Comm. on Legal Ethics and Prof'l Responsibility, Informal Op. 97-44 (Apr. 23, 1997)).
40 Id. (citing New York County Lawyers' Ass'n Comm. on Prof'l Ethics, Op. 731 (Sept. 1, 2003)).
41 Id.
42 Id. at n.3.
43 Id. at 6.
44 Id. at n.18.
45 ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 93-370 (A lawyer may not lie or misrepresent these facts to the judge under Model Rules 3.3, 4.1, and 8.4(c).). Formal Op. 06-439 concludes it would be improper for a judge to "insist" on these disclosures, and a lawyer should simply decline to answer.
46 ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 94-387.
47 ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 95-397.
48 See note 34, supra, at 5-6.
49 In re McGrath, 468 N.Y.S. 2d 349, 351 (N.Y. App. Div. 1983).
50 Spaulding v. Zimmerman, 116 N.W. 2d 704, 709-11 (Minn. 1962).
51 Hansen v. Anderson, Wilmarth & Van Der Maaten, 630 N.W. 2d 818, 825-27 (2001).
52 Jeska v. Mulhall, 693 P. 2d 1335, 1338-39 (1985).
53 In re Warner, 851 So. 2d 1029, 1031 (La. 2003); Kentucky Bar Ass'n v. Geisler, 938 S.W. 2d 578, 579-80 (1997); Toledo Bar Ass'n v. Fell, 364 N.E. 2d 872, 874 (1977).
54 See note 34, supra, at 8.
55 Id.
56 See http://www.bobsteinberg.com/publications/articles/Blackberry.html.
57 See note 34, supra, at 1.
58 Cf. Home Ins. Co. v. Zurich Ins. Co., 96 Cal. App. 4th 17 (2002) (Counsel should have conducted discovery regarding the policy limits and not relied on opposing counsel's false representation.); but see Shafer v. Berger Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54 (2003) (counsel who misrepresented scope of insurance coverage to opposing side held liable; Zurich distinguished because claimants in Shafer entitled to be treated as insureds under California Insurance Code §11580).
59 Materiality issues are raised if the plaintiff states that the settlement was in the "low" seven figures, when in fact the settlement was in the high six figures—and defense counsel agrees to settle in the high six figures.
60 See note 39, supra.
61 Cicone v. URS Corp., 183 Cal. App. 3d 194, 201-02 (1986); Goodman v. Kennedy, 18 Cal. 3d 335, 346 (1976); Pavicich v. Sanducci, 85 Cal. App. 4th 382 (2000).
62 See note 32, supra, at 13.
63 Id. at 3.
By reading this article and answering the accompanying
test questions, you can earn one MCLE ethics credit.

Copyright 2007, Los Angeles Lawyer magazine. All Rights Reserved.

Los Angeles Lawyer
General Information
Online MCLE
Plus: Earn MCLE Credit