Protecting Your Clients from Lies at Mediation

• Publication year: 2014
• Author: By Stephen H. Marcus

Protecting Your Clients From Lies at Mediation

By Stephen H. Marcus

Stephen H. Marcus is the head of the business law department of Gittler & Bradford, and has specialized in business litigation for the past 42 years. He is also a mediator of business disputes in association with EB Resolutions of Encino, California, and a member of the U.S. District Court and Bankruptcy Court Mediation Panels.

Earlier this year, the California State Bar published for public comment its proposed Formal Interim Opinion No. 12-0007,¹ which discusses the ethical boundaries between permissible "puffing" or exaggeration and lying during the course of a mediation. The Interim Opinion states the obvious—that an attorney's "puffing" or exaggerating a client's claims is within the ethically permissible boundary, while outright lying at a mediation was on the other side of that boundary. The focus of the discussion in the Interim Opinion is the somewhat fuzzy line between permissible puffing and impermissible lying. However, what the Opinion does not discuss is the very practical issue of how to deal with representations made by an adversary (or his² attorney) in the course of a mediation, whether made directly or through the mediator.

Interim Opinion 12-0007 gives several examples of what constitutes puffing or exaggeration, and what constitutes unethical misstatements. For example, an attorney representing a defendant crosses the ethical line if he claims that the defendant has only $500,000 in insurance coverage, when the attorney knows his client has $1,000,000 in coverage. However, expressions of opinions or predictions about how a judge or jury would assess the case, and statements about possible future events ("bankruptcy is an option for my client"), are on the permissible side of the ethical line.

The real issue facing an attorney in a mediation, which the Interim Opinion does not address, is how to properly advise a client when presented with a representation that may be untruthful, regardless of which side of the fuzzy ethical line it may lay. If an attorney does cross the ethical line and tells an outright lie during the course of a mediation, and you advise your client to agree to a settlement in reliance on that representation, what would be the remedy or consequences? As discussed in this Article, unless the representation is reduced to writing as a representation and warranty in the written settlement agreement itself, there will likely be no remedy for your client, and no consequences either to the lying attorney (or his client) or to you. You, as the attorney for your client in a mediation, must be aware of this when presented with a statement of fact that is unverified or based on "secret" evidence, or has not been vetted through discovery.

It is black letter law that a contract (including a settlement agreement) induced by fraud can be rescinded—even when the contract has an integration provision.³ However, to rescind the contract, you must present admissible evidence that a misrepresentation was made. In the hypothetical addressed above, evidence of the oral misrepresentation will never see the light of day, because any statement made in the course of a mediation is confidential and not subject to discovery under the "Mediation Privilege" embodied in Chapter 9 (sections 1115 et seq.) of the Evidence Code. Evidence Code § 1119 makes anything said in the course of a mediation (with very few exceptions) inadmissible in any subsequent proceeding. In Simmons...