VI. Negotiations Involving Tribunals and Lawyers' Associated Duty of Candor
Courts often mandate settlement negotiations in the form of court-ordered mediation. Some courts require parties to participate in pretrial settlement conferences facilitated by a judge other than the trial judge. In issuing pretrial and scheduling orders, courts commonly impose deadlines for the completion of mediation, thus suggesting the wisdom of settlement negotiations without overtly requiring them. Courts are often required to approve negotiated settlements and, even where they are not, judges inquire into parties' settlement efforts. With their dockets crowded, courts are vitally interested in parties' willingness to settle.
Lawyers negotiating the settlement of litigation must mind their duty of candor to the tribunal. This duty is principally enforced under Model Rule 3.3, which states in Rule 3.3(a)(1) that a lawyer shall not knowingly "make a false statement of fact or law to a tribunal."256 Before the 2002 amendments to the Model Rules, this rule provided that a lawyer was prohibited from making false statements of "material" fact or law.257 Some states have so far opted to retain the materiality requirement.258
When addressing a court on a matter before it, a lawyer's statements are essentially made under oath.259 The duty of candor imposed under Model Rule 3.3(a)(1) is rigorous. "Candor" in this context "'means to treat a subject with fairness, impartiality, and to be outspoken, frank, and veracious, and is synonymous with other terms describing morality.'"260 The prohibitions of Model Rule 3.3 are not limited to court proceedings, as the term "tribunal" establishes. For example, the rule applies to administrative and regulatory proceedings,261 and to statements to private arbitrators.262
To violate Rule 3.3(a)(1), a lawyer's false statement must be knowingly made. Here, as elsewhere, a lawyer's knowledge may be inferred from circumstances.263Actual knowledge does not include information that the lawyer could have discovered through reasonable inquiry but did not, although in some jurisdictions a lawyer may breach her duty of candor to a tribunal if she recklessly makes a false statement.264Misleading statements also breach a lawyer's duty of candor.265 A lawyer's failure to reveal information to a tribunal may in some circumstances equate to an affirmative misrepresentation.266
Finally, Rule 3.3(a)(1) overlaps with Rule 8.4(c). A lawyer who violates Rule 3.3(a) necessarily violates Rule 8.4(c) as well. A Rule 3.3(a) violation also implicates Rule 8.4(d), which prohibits conduct "prejudicial to the administration of justice."267
Assume that you are defending a client in serious personal injury litigation in a federal court. As is the custom in that judicial district, the district judge slated to try your case refers the case to a magistrate judge to conduct a settlement conference shortly before trial. The magistrate functions as a mediator. Either your client must appear at the conference, or someone from the client's insurance company with full settlement authority must attend. Your client has a $1 million liability insurance policy. The claims adjuster responsible for the case attends the settlement conference as required. Before you go to the conference, the adjuster tells you that the insurance company, like you, evaluates this case as having a potential verdict value in excess of the insured's policy limits. He will look to you to handle the negotiations, and grants you the full $1 million in authority. That said, he would certainly like to settle the case for less than policy limits if possible.
Negotiations take the entire day and, near the end of the day, the plaintiff's demand is $1.25 million and you have offered $750,000. The parties appear to have reached an impasse, which frustrates the conscientious magistrate, because the obvious middle ground is $1 million and he knows your client has a $1 million insurance policy. The magistrate surmises that the case is not settling because your adjuster is being unreasonable, so he asks to speak with you privately. "Look," he tells you, "we're close to getting this case resolved. You know as well as I do that it ought to settle for $1 million. Why won't your guy pay $1 million?" Reasonably believing that the plaintiff will cave in and settle on your terms if pressed, you respond: "Judge, with all due respect, this case just isn't worth that much. My client will pay $750,000, but no more. That's our top dollar."
Now even more frustrated and absolutely convinced that a reasonable settlement is being held up by a parsimonious insurer, the judge asks the insurance adjuster to join you. He presses the adjuster, asking, "Why won't you pay more than $750,000 to settle this case? You know this case is worth far more than that and it should also be obvious given the plaintiff's last demand that you can get it settled for $1 million. I want to know why you won't pay that. Give me one good reason." Startled and puzzled, the adjuster responds by telling the magistrate that he extended his full $1 million in authority to you before the settlement conference began, and that he and his company have always been willing to settle for $1 million.
Are you in trouble? In a word, yes. Serious trouble, actually. Beyond costing yourself and your client vital credibility with the magistrate now and in the future, you have breached your duty of candor under Rule 3.3(a)(1), you have violated Rules 4.1(a) and 8.4(c), and you have also breached Rule 8.4(d). It is impossible for you to defend your dishonesty by claiming that you were merely "posturing" or "puffing." Your expression of a $750,000 "top dollar" in this context was a statement of fact.268In states that retain the materiality aspect of Rule 3.3(a)(1), your "top dollar" representation was a statement of material fact.269 You lied.
Might you be able to defend against a Rule 3.3(a)(1) violation on the basis that your false statement was not made to a tribunal because the magistrate was not performing an adjudicatory function at the time? Perhaps, but even if you succeed it will be a hollow victory, because that conclusion will not spare you from Rule 4.1(a) and 8.4(c) violations.
When pressed by the magistrate about your unwillingness to settle for $1 million, you might have replied that the case did not merit such a settlement value and that you believed...
