Mediation Confidentiality Survived End Of Mediation.
Above: Whispering. Masanobu Okumura. 1743. Library of Congress.
Based on the confidentiality of communications made in the course of mediation, the Court of Appeal affirms a judgment dismissing a complaint for legal malpractice and breach of fiduciary duty. Biller v. Faber, No. B244232 (2/4 April 27, 2016) (Epstein, J.) (unpublished). In so doing, the Court follows Evid. Code, section 1119, and Cassel v. Superior Court, 51 Cal.4th 113 (2011).
Plaintiff Biller, an in-house counsel for Toyota, had earlier sued his employer, Toyota, claiming he had been hired by Toyota to commit litigation fraud. The employment dispute was submitted to a mediator. Biller received $4M from Toyota, and his attorney Faber received $950K as attorney fees.
Next, Toyota sued Biller in state court for breach of a confidentiality provision in the severance agreement the parties had negotiated in mediation, and Biller sued in federal court for violations of RICO and other claims. The two lawsuits were submitted to an arbitrator, and in the joint arbitration, Toyota tagged Biller for $2.5M. The arbitrator’s award in the two actions was confirmed, and affirmed on appeal. Alas, an unfortunate outcome for Biller, who then sued his attorney Faber for malpractice in connection with the negotiation of the severance package.
There are two interesting aspects of this case.
First, the trial judge adopted a referee’s recommendation and dismissed Biller’s malpractice action based on the attorney-client privilege asserted by Toyota, reasoning that confidential attorney-client privileged documents between Biller and his employer Toyota were necessary for him to prove his “case within a case”, i.e., to prove that Biller would have obtained a more favorable severance agreement in the absence of attorney malpractice; and, that Faber needed the same documents to prove his defense. Relying, however, on the principle that a judgment can be affirmed under any applicable theory of law, including the mediation confidentiality statutes, the Court of Appeal affirmed, based on the applicability of the mediation confidentiality.
The Court of Appeal points out that it could not rely on attorney-client confidentiality for several reasons (footnote 11), among them: (1) the alleged existence of the crime-fraud exception (which might have presented a can of worms?), (2) the attorney-client privilege doesn’t apply in an action between attorney and client for a breach arising from the attorney-client relationship, (3) for Toyota “it is too late to close that door”, and (4) Toyota’s secrets “are safe with Faber” because the attorney is bound by the same rules of confidentiality and privilege as his client The takeaway here is that there can be circumstances where there are chinks in the armor of the attorney-client privilege, and mediation confidentiality provides a stronger shield.
The second interesting aspect of this case is that the employment severance agreement was signed at a time when the mediation had ended, opening the door for Biller to argue that mediation confidentiality did not apply. However, the Court distinguishes between the end of mediation (10 calendar days during which there is no communication between the mediator and any parties to the mediation, under section 1125(a)(5)), and the end of confidentiality. Because the parties accepted a mediator’s proposal and executed a written settlement agreement, the Court thought it would be “absurd” to say that mediation confidentiality ended just because the severance agreement was signed more than 10 days after the end of communication with the mediator.