Q: Dear Ethics Lawyer, I am sending this to you from my hotel after day one of a two-day mediation. I am representing a business (Seller) that sold an industrial facility to another business (Buyer). In the subsequent lawsuit, Buyer alleges that after the sale they discovered ground water contamination from trichloroethylene (TCE) when doing testing related to expansion of the purchased facility. Clean-up costs are estimated at $6 million. During the sale, Seller’s President had signed representations and warranties that disclaimed any knowledge of VOC contamination of the type that would include TCE. Seller had used the facility for purposes that would not ordinarily result in the use or spill of TCE, so Buyer had not done ground water testing prior to the sale. However, after the suit arose, Seller’s President admitted to me that when Seller had purchased the facility from a different entity ten years prior, he had been made aware of a “small” TCE spill by a previous owner, that he had never thought would come to light when signing the contract with Buyer. This is why we had pressed for an early mediation, to settle the case before the fact of Seller’s knowledge of the condition came to light in discovery. Seller reluctantly authorized settlement up to the full amount of $6 million in order to avoid this being turned into a fraud case with even larger potential damages, and reputational harm to Seller and its President, but indicated that I should only use the full amount of the authority as a last resort if it couldn’t be settled at a lower number.

In any event, toward the end of a long day one of the mediation, after several back and forth sessions, the mediator asked whether we were at all concerned that discovery would reveal any knowledge by the Seller of the contamination. Before I could jump in to obfuscate the answer, Seller’s President blurted out that he was not at all concerned about that. The mediator then said that he believed he could get the matter resolved for $3 million, a number we had offered, if we would assure the other side that this was our “best and final” offer and the full extent of the authority I had. Sensing a win for the client here, I confirmed that this was all the higher that we could go. Those were conveyed to the Buyer, and we agreed to return on day two simply to write up the terms of the settlement. But now, I am having concerns, both about the President’s statement, which I didn’t participate in but which I know to be untrue, and whether I overstepped in saying that $3 million was all that we would pay. On the other hand, these were settlement negotiations, and nobody really believes what others say in presenting their position. That’s why settlement negotiations are generally not admissible later, right? Have I don’t anything wrong here?