Ethics Month Scenario 3

The House that Bad Faith Built

Kami Busch was representing the general counsel, Jack Keaton, of one of her firm’s managing partner's clients, BusinessRUs, in a personal dispute involving the construction of the Keaton’s house. After initial settlement negotiations, the parties agreed to mediate. The afternoon before the mediation, Jack announced that he wanted to drop his previous settlement offer of paying the contractor $25,000 of the $100,000 unpaid bill. Instead, during mediation, he was prepared to file a counterclaim for defective workmanship of $30,000 because the hardwood floors should have been replaced not just repaired.  Jack thought this would scare the contractor into settling, and wanted to make sure it came as a surprise. Kami did as Jack desired. It ended up infuriating opposing counsel, whose idea it was to participate in mediation (and split the mediator's fee). Opposing counsel claimed that they had intended to negotiate in good faith because of Kami’s representation and the good reputation that preceded her.

—Based upon the program "Professionalism and Clients: Zealous Representation, Reasonably Diligent or Overly Meek?" by the I'Anson Hoffman American Inn of Court in Norfolk/Williamsburg, VA

Send us your comments or your own ethical dilemmas by email or Tweet them to @innsofcourt using the hashtag #AICethicsmonth.


The Ethics Gurus—Francis G. X. Pileggi, Esq. of Wilmington, DE and John P. Ratnaswamy, Esq. of Chicago, IL

The client’s authority is at or near its apex when the question is whether or on what terms to settle a dispute. See, e.g., ABA MRPC 1.2(a). The question here seems to be the twist of the client requesting that the offer be made as a surprise at the mediation. This is similar to Scenario 1 in terms of raising issues of the client’s and the lawyer’s role as to tactics, except that there we have the special consideration of this being about settlement.  It is unclear whether or how Kami counseled the client on whether this tactic was problematic either in terms of any moral consideration or purely as a tactic. If a lawyer knows or reasonably foresees that a tactic is likely to backfire, and the consequences may harm the client in a material way, then the lawyer probably ought to consult with the client about the pluses and minuses. See, e.g., ABA MRPC 1.4(a)(2). Negotiation tactics that are fair but sharp, and those that are in bad faith, cannot always be easily distinguished. This example is close to the latter.  If a previous settlement offer on which the initiation of mediation is based, gets withdrawn at the mediation, and a drastically different position at mediation is asserted, it likely makes the mediation unproductive and a waste of time. It would be appropriate to counsel the client that he should use the mediation process in a manner that does not waste everyone’s time.

Mary Beth L. Sweeney, Esq., Massachusetts Family and Probate American Inn of Court, Boston, MA

Once Kami made a settlement offer of $25,000 it is not appropriate in a mediation to completely change the terms. She should have so advised Jack and made it clear she was not willing to backtrack and if he really wanted to meaningfully participate in mediation he had to operate in good faith. If Jack still insisted on this path Kami should have notified the other side that Jack’s position had changed to such an extent that mediation would be a waste of the parties’ time and money.

Judge William H. Burgess III, Barney Masterson American Inn of Court, Clearwater, FL

Ms. Busch has violated a cardinal rule of good-faith negotiations:  No unpleasant surprises or stunts.  Opposing counsel likely will never again trust her completely (or at all).  I would advise Ms. Busch to apologize to opposing counsel and ask for another shot at mediation, possibly with an attorney other than Ms. Busch sitting in for the client.  I would advise her to never do this again and always be above-board when dealing with opposing counsel, regardless of what the client wants.

Donald E. Campbell, J.D., Ph.D., Associate Professor of Law, Mississippi College School of Law, Jackson, MS

To the extent that the hardwood floor claim is not meritorious, it is a violation of Rule 3.1 which provides:  “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous….” Also, to the extent that lawyer is presenting a claim that is frivolous because the client wants to – the lawyer violates Rule 2.1, which provides that a lawyer “shall exercise independent professional judgment and render candid advice.”

Judge Barbara M.G. Lynn, Patrick E. Higginbotham and Honorable Barbara M.G. Lynn American Inns of Court, and Michael P. Lynn, Esq., Patrick E. Higginbotham American Inn of Court, Dallas, TX

There is an ethical issue here only if Jack does not have a good faith counterclaim (i.e., if the contract expressly provided for repair, not replacement, of the floors). If Kari disagreed with the strategic wisdom of Jack's approach, she was obligated to so advise him, and if she didn't do that, she needs mentoring on her responsibilities.

Inn member in Pittsburgh, PA

There may not be an ethical issue, but Jack the client might be sanctioned under a court's ADR rules for bad faith. He signaled that he was willing to pay money, but at the 11th hour indicated that the money needed to flow his way instead. Kami needs to act as a counselor and not as a hired gun. She should have asked her client what he thought the effect of a change in position would have on the opposing party, as it will not result in any offer to him. Is this what the client really wants?