California Mediation and Arbitration

Mediation/Confidentiality: Do The Special Confidentiality Requirements For Mediation Apply To Mandatory Settlement Conferences?

Special Confidentiality Provisions In The Evidence Code For Mediations Expressly Do Not Apply To MSCs

     California practitioners are aware that the court, on its own motion, or at the request of any party, may set a Mandatory Settlement Conference requiring the personal attendance of trial counsel, parties, and persons with full authority to settle.  Rule 3.1380, California Rules of Court.  MSCs are not voluntary settlement conferences.  But does the formal “mediation privilege” under Evidence Code section 1119 apply?  No.

      Rule 3.1380 states that a court must not “[a]point a person to conduct a mediation under this rule.”

     The Advisory Committee Note for California Rule of Court 3.1380 explains that the mediation privilege expressly does not apply:

[Rule 3.1380] Subdivision (d) This provision is not intended to discourage settlement conferences or mediations. However, problems have arisen in several cases, such as Jeld-Wen v. Superior Court of San Diego County (2007) 146 Cal.App.4th 536, when distinctions between different ADR processes have been blurred. To prevent confusion about the confidentiality of the proceedings, it is important to clearly distinguish between settlement conferences held under this rule and mediations. The special confidentiality requirements for mediations established by Evidence Code sections 1115-1128 expressly do not apply to settlement conferences under this rule. This provision is not intended to prohibit a court from appointing a person who has previously served as a mediator in a case to conduct a settlement conference in that case following the conclusion of the mediation.

     Comment:  Even though the formal mediation privilege does not apply, it may be better for all concerned to act as if it did apply (while remembering that it does not apply!).

Mediation/Confidentiality/In the News: Judge in Stockton Bankruptcy Limits Release of Mediation Information to Public

When Mediation Involves The Public’s Interest, How Confidential Is The Mediation Under Federal Law?

     On July 6, 2012, Steven Church reported in Bloomerg, “[t]he judge overseeing Stockton, California’s bankruptcy limited the amount of information the city and its creditors can make public about a months-long mediation process that failed.”  Mediation is required under California law before a city can file for bankruptcy.  Mr. Church reports that Bankruptcy Judge Christopher Klein ruled that the City’s offer can eventually be made public, but that counter-offers remain confidential.  Interestingly, the City asked for release of the information, while bondholders asked for the release of some of the information.

     The issue is noteworthy to us, because the confidentiality of mediation-related matters is somewhat unsettled under federal law, though the privilege is strong under California law (Cal. Evid. Code 1119).  Thus, we have posted about Facebook, Inc. v. Pacific Northwest Software, Inc, 640 F.3d 1034 (9th Cir. 2011), in which the Court of Appeals Court expressed doubt that the federal district court Local Rules applying to ADR could create a “privilege” for confidential communications in a mediation, because privileges are created by the Federal Rules of Evidence, which rules cannot be overruled by Local Rules.  See also Phyllis G. Pollock, Mediation Confidentiality:  A Federal Court Oxymoron, The Resolver 8, available at http://www.pgpmediation.com/blog/wp-content/uploads/2009/08/mediation-confidentiality-a-federal-court-oxymoron31.pdf  (urging adoption by the states of the Uniform Mediation Act to create consistency and provide “a framework for the federal courts,” and urging codification of a federal mediation privilege); Joseph Lipps, The Path Toward A Federal Mediation Privilege:  Approaches Toward Creating Consistency for a Mediation Privilege in Federal Courts (google the title to find the article).

Arbitration/Res Judicata/Mediation/Confidentiality/Settlement: Fourth District, Division 3 Offers Interesting Analysis Of Settlement Provision’s Effect On Res Judicata And Mediation Privilege

 

Settlement Provision Conferred Limited Authority On Arbitrator to Amend Settlement Agreement to Make It Enforceable

     A cleverly drafted settlement provision, which had implications for the res judicata effect of an arbitration award, and for the confidentiality of mediation, is the reason this next case earns a blawg post. The underlying dispute was a messy partnership buyout and accounting, complicated by the defendant’s misstatement of his authority to bind a group of real estate businesses to the settlement. (One who signs as an agent can take on liability if authority is lacking).  Litigation led to mediation, followed by arbitration, followed by a bifurcated bench/jury trial, followed by cross appeals. Kurtin v. Elieff, Case No. G043999 (4^th Dist. Div. 3 June 27, 2012) (Rylaarsdam, Acting P.J., author) (published). The Court of Appeal affirmed most of the trial court’s judgment, with some interesting analysis of a settlement provision resulting from the mediation. (Famed mediator Tony Piazza was involved).

Arbitration/Res Judicata

     The settlement resulting from mediation included a clever provision addressing a bedeviling problem – how to efficiently handle settlement enforcement problems resulting from ambiguity:

“The sole act of the arbitrator shall be to issue an amendment to this Settlement Agreement implying such additional terms, curing any ambiguity or otherwise curing any defect in the Settlement Agreement that would make this Settlement Agreement unenforceable.” (italics in the opinion).

     Defendant Elieff contended that an arbitration decision that followed the mediation/settlement precluded the subsequent civil court judgment by way of res judicata or collateral estoppel. However, the Court of Appeal rejected that argument, because of how severely the settlement agreement limited the power of the arbitrator. All the arbitrator could do was clear up ambiguity or defects in the settlement agreement to make it enforceable. It followed that the res judicata effect of the arbitrator’s decision was limited.

Mediation/Confidentiality

     Defendant Elieff also argued that Kurtin’s invocation of the mediation privilege, which made it impossible to bring in extrinsic evidence from the mediation to interpret the settlement, denied Elieff a fair trial. Once again, however, the settlement agreement provided the answer:

“The mechanism set up by the settlement agreement was one where the parties first would resolve any ambiguities in the contract before going to court. Thus, in asserting the mediation privilege, Kurtin was only following the settlement agreement’s own logic, not sandbagging Elieff.”

    Tip:  The settlement provision here is one to keep in mind if you are concerned that enforcement of the settlement agreed to in mediation may be difficult because of some unforeseen ambiguity or defect.

Mediation/Confidentiality/Family Law: Conduct of Parties During Settlement Negotiations Can Support Sanction in Family Law Context

 

Whether the Mediation Confidentiality Was Violated Is Not Crystal Clear From the Opinion

     We are always pleased when a case has something to say about mediation – there are far fewer written opinions about mediation than about arbitration. 

     Aaronson petitioned to nullify her marriage with Oslica, on the ground of purported fraud relating to Oslica’s immigration status at the time of marriage.  The case did not go well for Aaronson, who was ordered to pay $15,000 of Oslica’s attorney’s fees and costs.  The trial court also sanctioned Oslica’s attorney. In re Marriage of Aaronson and Oslica, Case No. A128516 (1st Dist. Div. 2 May 22, 2012) (Haerle, Acting P.J., author) (unpublished).  Aaronson appealed, contending the fee order needed to be reversed because she was unemployed and because the trial court considered other improper factors.

     The Court of Appeal affirmed the order, finding that being unemployed was not a blanket protection from getting hit with attorney’s fees under Family Code section 271.  However – and this is why we have a post – among the allegedly “improper factors” that Aaronson challenged was the admissibility of settlement discussions showing that she had rejected settlement offers.  Family Code section 271 authorizes an award of attorney’s fees as a sanction for frustrating the policy of the law to promote settlement of litigation.   Aaronson argued that if settlement discussions are protected in the context of mediation (Evid. Code section 1119), then in her case, settlement discussions between counsel must be protected.

     The blanket protection of mediation communications (Evid. Code section 1119), however, is different from the protection of settlement discussions (Evid. Code section 1152).  As the Court of Appeal pointed out, not all settlement discussions are inadmissible – only settlement discussions to prove “liability” for a claimed loss or damage.  Here, the evidence was admitted after the judgment was entered, to consider whether there had been unreasonable conduct during settlement negotiations – the basis for the award of fees under section 271.

     The somewhat murky part of the opinion is whether or not the settlement discussions occurred during mediation.   True, just because the settlement discussions occurred between counsel does not mean that they occurred during mediation.  Unfortunately, the court’s explanation that “[h]ere . . . after the judgment was entered, the trial court considered evidence pertaining to unreasonable conduct during settlement negotiations in accordance with section 271,” does not clarify whether the settlement conversations occurred during or in connection with mediation.  Also, the court’s comment, “[w]e firmly reject the implication that Aaronson was sanctioned solely because her attorney rejected a settlement offer,” suggests even if Aaronson was sanctioned partly because her attorney rejected a settlement offer, and even if that rejection occurred during mediation, the evidence of rejection, even if wrongly considered, was harmless and irrelevant to the outcome.  If there was error, it must have been harmless, because “the appellate record is chalk-full of samples of both improper and wasteful litigation tactics.” 

     While the court has discussed mediation here, we’re not exactly sure what part is dictum and what part is holding.  The opinion makes perfect sense if the Court of Appeal is simply telling us that the settlement discussions between counsel were not part of a mediation, and therefore were admissible for a permissible purpose that did not involve establishing liability.

    

Mediation: Does Mediation Confidentiality in California Require a Legislative Fix?

California Assembly Bill 2025 Would Allow Introduction of Mediation Communications Between Attorneys and Their Clients in Actions For Malpractice or Breach of Fiduciary Duty

     California Assembly Member Don Wagner introduced Assembly Bill 2025 to amend California Evidence Code section 1120 to allow:

“The admissibility in an action for legal malpractice, an action for breach of fiduciary duty, or both, or in a State Bar disciplinary action, of communications directly between the client and his or her attorney during mediation if professional negligence or misconduct forms the basis of the client's allegations against the attorney.”

     The proposed amendment of the Evidence Code is a response to the California Supreme Court’s decision, Cassel v. Superior Court, 51 Cal.4th 113 (2011).  In Cassel, the Supreme Court held (1) an attorney's mediation-related discussions with his client were confidential and neither discoverable nor admissible for purposes of proving a legal malpractice claim, and (2) applying the mediation confidentiality statutes to legal malpractice actions does not implicate fundamental due process concerns that might merit a constitutional exception.

     In Cassel, the client sought to pierce through the confidentiality protections in mediation, claiming that he was coerced by the mediator and his own attorney into accepting a settlement, though he was tired, hungry, and ill.  The client further claimed that his attorneys threatened to abandon him at an imminently pending trial, misrepresented settlement terms, falsely assured him they would negotiate a settlement agreement, and falsely promised to discount his attorney’s fees, even pursuing him to the bathroom to “hammer” him to settle. 

     Justice Baxter, author of the opinion, insisted that “we understand the policy concerns advanced”, but that based on the “plain language” of the statute, confidentiality needed to be protected.  Ostensibly relying on the “plain language” of the Evidence Code, the opinion nevertheless discusses in some detail the policy advanced by confidentiality:  promoting a candid and informal exchange that can be “achieved only if the participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.”  Unlike the attorney-client privilege, the mediation confidentiality statutes do not create a privilege in favor of any one particular person.  Instead, confidentiality cloaks the entire mediation for the benefit of all participants.  The confidentiality statutes “serve the public policy of encouraging the resolution of disputes by means short of litigation.”

     Nor does a violation of due process arise just because a client can’t introduce evidence of malpractice in a civil action.  Interestingly, the one case creating a judicial exception to mediation confidentiality is Rinaker v. Superior Court, 62 Cal.App.4th 155 (1998) – a criminal case.  In Rinaker, a minor needed access to information elicited in mediation to impeach a witness.  The minor’s constitutional right to impeach a witness took precedence over mediation confidentiality.  Thus, Rinaker involved weighty due process considerations.

     “I concur in the result,” wrote Justice Chin in Cassel, “but reluctantly.”  Justice Chin observed that the majority noted, “the Legislature remains free to reconsider this question.”  Justice Chin invited the Legislature “may well wish to do so.”

     More recently, mediation confidentiality has been upheld in Provost v. Regents of the University of California, 201 Cal.App.4th 1289 (2011).  Plaintiff Provost claimed, among other things, that the mediator told him that Provost’s employer would have criminal charges filed against him if he did not sign a stipulated judgment immediately.     The Court of Appeal, however, held that mediation confidentiality precluded Provost from presenting evidence of alleged coercion and duress in mediation to oppose a motion brought to enforce a settlement stipulation.

     No solution here can be altogether edifying, because the problem involves important goals that can sometimes conflict – promoting frank exchanges in mediation among all participants, encouraging mediation as an alternative to a court trial, and holding attorneys responsible for malpractice or breach of fiduciary duty occurring in mediation.  One thing is certain after Cassel:  the State Supreme Court is not prepared to express a “view about whether the statutory language . . . ideally balances the competing concerns or represents the soundest public policy.”  Any significant adjustments will need to be done by the Legislature or not at all.

Mediation/Confidentiality: Preserving Confidentiality of Follow-Up After The Mediation Session

 

Extend 10-Day Period In Evidence Code section 1125(a)(5)

     It is common for a mediator to “follow-up” after a mediation session has been completed, to see if more remains to be done, or if a settlement is being implemented successfully. Are the communications confidential? Yes, not a problem – if the parties agreed to extend the 10-day period set out in Evidence Code section 1125(a)(5).

     Evidence Code section 1125 provides that, for purposes of mediation confidentiality, mediation ends when any one of five conditions is satisfied. Those five conditions include (i) execution of a written settlement agreement that completely settles the dispute, (ii) an oral agreement that completely resolves the dispute, and which is read into the court’s record consistent with Evidence Code section 1118; (iii) the mediator provides a writing to the parties stating that the mediation is terminated; or words to that effect, consistent with Evidence Code Section 1121; (iv) a party provides the mediator and the other mediation participants with a writing stating that the mediation is terminated, or words to that effect, consistent with Section Evidence Code 1121; (v) or for 10 calendar days, there is no communication between the mediator and any of the parties to the mediation relating to the dispute. The mediator and the parties may extend or shorten this time by agreement.

     One of our Southern California arbitral forums includes the following language in confidentiality agreements:

“In order to allow the mediator to confidentially follow-uip after the mediation session, the parties and the mediator agree to extend the 10-day period set out in Evidence Code section 1125(a)(5) until the date any party terminates the mediation effort, a verdict is returned or a decision is rendered.”

     Problem solved:  the mediator and the parties have extended the time by agreement.

Confidentiality: Supreme Court Holds That Confidentiality in Mediation Means That Client Cannot Use Its Attorney’s Statements As Evidence

 

 

Concurring Opinion By Justice Chin Expresses Discomfort With Result

     In Cassel v. Superior Court, 51 Cal.4^th 113, 119 Cal. Rptr. 3d 437 (2011), the California Supreme Court addressed whether the mediation confidentiality protection applies to attorney-client communications when the client sues the attorney for malpractice. (Ordinarily, the attorney-client privilege flies out the window when the client sues for malpractice).

     The trial court sided with the attorney, based on the plain language of the statute. Evidence Code section 1119(a) provides, "[n]o evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation ... is admissible or subject to discovery ...." The petitioner/client sought mandate.

     Siding with the client, the Court of Appeal believed, “mediation confidentiality statutes are intended to prevent the damaging use against a mediation disputant of tactics employed, positions taken, or confidences exchanged in the mediation, not to protect attorneys from the malpractice claims of their own clients.” Cassel, supra, 51 Cal. 4^th at 118. Falling back on the “plain language of the statute”, the Supreme Court agreed that confidentiality protected against the admissibility of evidence in the malpractice dispute. The Court’s opinion was authored by Justice Baxter.

     Justice Chin concurred in the result, “but reluctantly,” inviting the Legislature to consider the effect of the statutory provision, as drafted, in shielding an attorney from malpractice.

Confidentiality:  P.E. Hadlick, Secretary of the National Oil Marketers Association, whispers a bit of information into Senator's Guy M. Gillette’s ear.  March 31, 1938.  Library of Congress.

Confidentiality: California Supreme Court Holds That Mediator Cannot File Report Disclosing Communications In Order To Show Sanctionable Conduct

 

Exceptions To Confidentiality of Communications Are Very Limited, and Showing Sancitonable Conduct Is Not One of the Exceptions

     In Foxgate Homeowners’ Association, Inc. v. Bramalea California, Inc., 26 Cal.4^th 1, 108 Cal.Rptr.2d 642 (2001), the Supreme Court faced,”the intersection between court-ordered mediation, the confidentiality of which is mandated by law (Evid.Code, §§ 703.5, 1115-1128), [footnote omitted] and the power of a court to control proceedings before it and other persons "in any manner connected with a judicial proceeding before it" (Code Civ. Proc, § 128, subd. (a)(5)), by imposing sanctions on a party or the party's attorney for statements or conduct during mediation.” Cutting to the chase, the court concluded that mandated confidentiality in mediation trumped the ability of the court to impose sanctions.

     The mediator, in a report to the Court, had slammed defense counsel for purportedly sandbagging the mediation. The problem was that the mediator’s report disclosed confidential information. The Court of Appeal had fashioned a narrow exception to absolute confidentiality, allowing the mediator to include statements that supported sanctions. But the mediator’s report had gone beyond that, enabling the Court of Appeal to reverse the trial court order imposing sanctions.

     The Supreme Court concurred in the result, but disagreed with the Court of Appeal’s reasoning: “Neither a mediator nor a party may reveal communications made during mediation. The judicially created exception fashioned by the Court of Appeal is inconsistent with the language and the legislative intent underlying sections 1119 and 1121. We also conclude that, while a party may do so, a mediator may not report to the court about the conduct of participants in a mediation session.” 26 Cal.4^th at 644-645.

Enforcement of Settlement Agreement Reached Through Mediation/Confidentiality: Settlement Agreement Containing Material Terms May Be Enforced

 

. . . And Confidentiality Requirement in the Agreement Also Applies, Even if Local Rules Governing Settlement Communications Do Not Apply in Federal Court

     Sometimes the tone of a Court’s opinion gives a good clue as to the outcome. Such was the case in Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034 (2011), in which Justice Alex Kozinski observed of the Facebook dispute between Mark Zuckerberg and his nemeses, the Winkelvosses, that the litigation “gave bread to many lawyers,” suggesting a certain judicial weariness with the epic dispute.

     The Winkelvosses challenged enforcement of a short (1 and 1/3^rd pages) agreement reached through mediation, resulting in Facebook’s attorneys drafting an additional 130 pages of documents to implement the mediation agreement. Agreeing with Facebook that the agreement should be enforced, the Court of Appeals distinguished between material terms that are “necessary” and material terms that are “important.” Here, the necessary terms were included, because the contract was sufficiently specific to determine if it was breached, and to allow for a remedy of specific performance or damages: “This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives.” Incidentally, Justice Kozinski added, “[t]he district court got it exactly right when it found the Settlement Agreement enforceable but refused to add the stack of documents drafted by Facebook's deal lawyers.”

     The Court of Appeals expressed doubt that the federal district court Local Rules applying to ADR could create a “privilege” for confidential communications in a mediation, because privileges are created by the Federal Rules of Evidence, which rules cannot be overruled by Local Rules. Not to worry: the settlement agreement, by its terms, made the communications in the mediation confidential, and thus they could not be introduced to undermine the settlement agreement.

     If the remark about lawyers getting much “bread” at the beginning of the opinion suggested weariness with the litigation, so too did the ending of the opinion: “At some point, litigation must come to an end. That point has now been reached.”

Mediation/Confidentiality: Confidentiality of Communications in Mediation Does Not Mandate Disqualification of Attorney Who Learns Confidential Information in Mediation from Litigating Later Cases Against the Same Party

 

Dire Implications for Mediation Would Follow from Disqualification

     Plaintiff’s attorney became involved in two related lawsuits against the same defendant, a builder of an apartment building severely damaged by the Northridge earthquake and subsequently demolished. In the first lawsuit the attorney represented the builder’s lender and attended mediation. In the second lawsuit, the same attorney represented the tenants of the apartment building against the builder. The trial judge disqualified the attorney from the second representation, reasoning that otherwise the confidentiality of mediation communications would be destroyed. After losing a motion for reconsideration, the attorney appealed. Barajas v. Oren Realty and Development Company, 57 Cal.App.4th 209 (1997).

     California Code of Civil Procedure section 1152.5 provides that evidence of anything said in a mediation is generally not discoverable or admissible, that documents prepared for mediation are generally not discoverable or admissible, and that “all communications, negotiations, settlement discussions” in a mediation “shall remain confidential.” In Barajas, an opinion authored by Justice Zebrowski, the court held that an attorney who mediates one case is generally not disqualified from litigating later cases against the same party. The Court of Appeal was troubled by the implications of the trial court’s ruling, believing that vulnerability to disqualification would make it more difficult for parties (especially plaintiffs) to get representation in products liability, employment, insurance coverage, civil rights, lender liability, and construction cases. The court also believed that disqualification could become problem in cases where mediation was unsuccessful and an attorney involved in mediation went on to try the case after being exposed to confidential information in the mediation.

The imperfect solution is that in mediation a party must make its own decisions about disclosures in mediation.