Settlement Negotiation Ethics Under California's New Rules of Professional Conduct: Part One

JurisdictionCalifornia,United States
AuthorPhillip Neiman, Esq.
CitationVol. 2018 No. 4
Publication year2018
Settlement Negotiation Ethics under California's New Rules of Professional Conduct: Part One

Phillip Neiman, Esq.

Phillip Neiman is a mediator and arbitrator with JAMS. He devotes much of his practice to commercial cases, employment, real property, trust/estate, consumer and insurance matters, and disputes involving privacy torts and significant personal injuries. Mr. Neiman was previously CEO and General Counsel of a FINRA-registered broker-dealer.

Introduction: The High Probability of Settlement Negotiations

At some point after a civil dispute enters the legal system, opposing counsel are likely to engage in some form of discussions to resolve the case. For many attorneys, it is standard operating procedure to initiate settlement talks through direct negotiations.1 Others routinely pursue early mediation if the underlying facts of a case meet certain criteria.2

California has a strong public policy favoring the settlement of civil disputes.3 Each county's superior court creates its own dispute resolution processes, which are administered at the local level. Attorneys are encouraged to participate voluntarily.4 Local custom and practice determine the nature and extent of that encouragement, which in turn affects the perception of voluntariness.5 Judges have authority to require parties to attend mediation, subject to a low amount in controversy cap.6 Separately, courts use meet and confer requirements to promote settlement talks.7

If attorneys do not self-initiate settlement discussions and do not stipulate to participate in a court's local ADR process (or if they do and a case does not resolve), lawyers and their clients will likely find themselves negotiating by judicial fiat. California Rules of Court, rule 3.1380, authorizes a court to set one or more mandatory settlement conferences on its own motion.8

Courts promote settlement for several reasons. One is to further the public policy set forth in Civil Procedure Code section 1775 and Business and Professions Code section 465. Another is to address the ongoing problem of heavy dockets.9 And a third is to improve efficiency metrics on which the judiciary is evaluated (which has made settlement an important case management tool).10 Settlements cost the courts very little and provide significant benefits, and they will continue to encourage lawyers to seek unadjudicated resolutions.

Across the span of their careers, civil litigators in most practice areas will spend more time engaged in settlement talks than they will in trial.11 Attorneys with established practices can attest to this. Newer members of the Bar should likewise expect that negotiations (whether self-initiated, court-facilitated, or court-ordered) will consume a meaningful portion of their time.12 For this reason, it is important to have a solid grasp of one's professional duties when resolving cases.

Negotiation Ethics: An Elusive Concept

Despite the outsized role that settlement discussions play in the litigation process, there is no consensus on what constitutes "ethical negotiating" and the concept remains elusive.

No U.S. jurisdiction has adopted a set of rules governing attorney conduct during settlement talks. In 2002, the ABA Litigation Section published a substantial document entitled "Ethical Guidelines for Settlement Negotiations,"13 which was intended "as a guide for lawyers who seek advice on ethical issues arising in settlement negotiations." The ABA's Board of Governors and House of Delegates never approved the publication, which (quite unfortunately) now exists mainly in the world of footnotes to law review articles.14

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California's new rules of professional conduct, which went into effect on November 1, 2018 (hereafter, "CRPC-2018"),15 are organized into eight chapters, none of which is entitled "Settlement Duties" or "Negotiation Rules" or the equivalent. In the absence of a comprehensive set of guidelines, lawyers must consult a variety of sources to fully understand their professional obligations while resolving cases through a non-adjudicative process.

Part One of this article discusses the myriad rules and regulations applicable to settlement negotiations in California. Part Two, which will be published in the next issue, explores the distinction between rule-compliance, on the one hand, and ethical conduct, on the other, and concludes with a discussion of best practices when engaged in the settlement process.

California's Professional Conduct Web

Lawyers admitted and practicing in California are regulated and monitored by and through a web of rules, codes, standards, decisions, opinions, procedures, and processes.

Formally, both the judiciary and the legislature oversee attorneys and attorney conduct. The State Bar16 formulates the Rules of Professional Conduct ("CRPC"), which bind all attorneys after approval by the supreme court.17 The Legislature regulates lawyers primarily through the State Bar Act.18 Together, the CRPC and the State Bar Act constitute the core regulations for attorneys.

California case law and state and local rules of court are also binding. For purposes of settlement negotiations, lawyers should be familiar with various state, local, and ABA ethics opinions, which, while nonbinding, provide important guidance. The ethics opinions, as well as cases from other jurisdictions, are occasionally cited in California appellate decisions on professional conduct. Additional rules and regulations that the State Bar finds relevant to attorney governance can be found on its website under "Attorneys, Conduct & Discipline."19 The State Bar's Standards for Attorney Sanctions for Professional Misconduct20 are also important to consider. Together, these materials constitute the regulatory landscape.

Out With the Old, In With the New

The California Supreme Court approved California's new rules of professional conduct on May 10, 2018, following a lengthy overhaul process that spanned almost two decades.21 The last full-scale review ofthe rules took place in 1989.22 CRPC-2018 follows the structure and organization of the ABA Model Rules of Professional Conduct (hereafter, "ABA Model Rules").23 California previously had the distinction of being the only state not to base its rules on the ABA's platform.24

A lawyer's duties in the context of settlement talks combines existing authorities with the new rules of professional conduct. The opening section of CRPC-2018 states: "The prohibition of certain conduct in these rules is not exclusive. Lawyers are also bound by applicable law including the State Bar Act (Bus. & Prof. Code §6000 et seq.) and opinions of California courts" and further notes, "opinions of ethics committees in California, although not binding, should [also] be consulted for guidance on proper professional conduct. Ethics opinions and rules and standards promulgated by other jurisdictions and bar associations may also be considered."25

With the adoption of CRPC-2018, California attorneys have some entirely new obligations, some modified obligations, and some obligations that are more or less identical to their previous duties. Rule 4.1 of CRPC-2018, "Truthfulness in Statements to Others," falls into this last category.26 Although prior versions of California's rules of conduct had no predecessor to Rule 4.1, several authorities, taken together, constituted the functional equivalent of this rule. They include a State Bar ethics opinion,27 three State Bar Act provisions,28 a number of supreme court and appellate decisions,29 and several sections of the State Bar Rules of Procedure.30

A System of Rules, Not Principles

Many attorneys refer to the rules of professional conduct as "the ethics rules." This is a function of lineage: The ABA Model Rules trace their roots to the ABA's 1908 Canons of Ethics by way of the ABA Model Code of Responsibility.31 "The Canons" were part of the law school curriculum for decades, and attorneys who graduated in the 1940's and 1950's would be familiar with them. Referring to the professional conduct rules as ethics rules confuses two unrelated concepts and, ironically, may invite questionable behavior, which is discussed in Part Two of this article.

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California lawyers work under a rules-based system. The rules create a basis for disciplining those who do not follow them and they exist for that purpose alone. The supreme court made its intentions clear in this regard when it created the second new commission to rewrite the CRPC.32 In its letter to the State Bar in 2014, the court's instructions were to "avoid incorporating the purely aspirational or ethical considerations that are present in the [ABA] Model Rules and Comments."33

The Bar complied, producing CRPC-2018, the opening sentence of which reads:

'The following rules are intended to regulate professional conduct of lawyers through discipline. "34

There's no grey, here. The new rules are meant to keep lawyers in check upon threat of punishment. The word "ethical" appears just four times in the entire document.

Misconduct and Discipline

Regulators concluded some time ago that lawyers could not police themselves through the equivalent of an honor code and that something beyond "axiomatic norms" and fluffy ideals were needed to bring the membership into line.35 The Bar Deunification Movement36 and others critical of lawyers argued that moral standards were meaningless and that only rules and discipline could save the public from a profession run amok.37

The legal profession has not run amok.38 That said, there is a widely held view that when lawyers do cross the line, clients can suffer mightily given the nature of the attorney-client relationship. CRPC-2018 reflects that view. California attorneys are now faced with a new set of rules that are clearly centered on client protection, adding to the regulatory web. An attorney who fails to comply faces discipline for misconduct and is subject to the range of sanctions set forth in the State Bar Rules of Procedure.39

The disciplinary...

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