California Mediation and Arbitration

Mediation and Arbitration Confidentiality: Acquaint Yourself With The EU-U.S. Privacy Shield If You Are Involved With Data Transfers From The EU To The US

The European Commission Has Deemed The Privacy Shield Framework Adequate To Enable Data Transfers To US Under EU Law.

     On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield.  I am blogging about this because it relates to transfer of data from the EU to the U.S., and this impacts legal matters affecting the privacy rights of EU citizens, including mediations, arbitrations, and litigation in which a data transfer from the EU to the U.S. is required.  Also, the Privacy Shield provides for binding arbitration as one of several dispute resolution mechanisms for resolving privacy issues.

     The International Trade Administration of the US Department of Commerce has  created a website with information about the EU-U.S. Privacy Shield Program, intended to protect data flows from the EU to the US, and thus to protect the privacy of EU persons.  The protections offered by the Privacy Shield Program are more stringent than protections offered by an earlier Safe Harbor program.  Click here for a link to FAQs about the Privacy Shield program.

     United States companies that join the Privacy Shield Framework can benefit from an “adequacy determination”, meaning a determination that they have joined and committed to a framework deemed adequate by the European Commission to comply with EU data protection requirements when transferring personal data (e.g., names, addresses, telephone numbers) from the EU to the US.

     No doubt the push to satisfy EU concerns about the privacy of EU citizens was motivated, at least in part, by Edward Snowden’s revelations concerning the NSA surveillance of intelligence available in Internet communications.  Snowden’s choice to disclose secret information about US surveillance triggered a debate on privacy and surveillance.

     The EU-U.S. Privacy Shield provides a number of dispute resolution routes, in case a citizen of the EU believes his or her privacy rights have been violated.  These routes include contacting the company directly, going to an independent dispute resolution provider, submitting to EU Data Protection Authorities (DPAs), and binding arbitration.  In the case of national security issues, an ombudsman independent from US intelligence services is to be available. 

     Arbitration “is available to an individual to determine . . . whether a Privacy Shield organization has violated its obligations under the Principles as to that individual, and whether any such violation remains fully or partially unremedied.”  In short, the purpose of arbitration is to provide an equitable, rather than a monetary remedy, for an individual whose privacy rights have been violated.  “Once invoked, the individual forgoes the option to seek relief for the same claimed violation in another forum, except that if non-monetary equitable relief does not fully remedy the claimed violation, the individual’s invocation of arbitration will not preclude a claim for damages that is otherwise available in the courts.”  See Arbitral Model, Annex II, pp. 12 to 16 of 128. 

     Because the binding arbitration dispute resolution mechanism exists to protect privacy, it would make little sense if the Privacy Shield did not protect the confidentiality of the arbitration proceeding itself.  In fact, “Materials submitted to arbitrators will be treated confidentially and will only be used in connection with the arbitration.”  Furthermore, individual-specific discovery “will be treated confidentially by the parties and will only be used in connection with the arbitration.”

Mediation, Confidentiality, Family Law: Lacking Mediation Privilege, Unmediated Spousal Settlement Is Set Aside Because Presumption Of Undue Influence Applied

Here’s A Good Example Of Why It Is Harder To Set Aside A Mediated Spousal Settlement Than An Unmediated, Negotiated Settlement.

     In Marriage of Cooke, B257791 (2/7 10/17/16) (Segal, J.) (unpublished), the wife moved for entry of a stipulation for judgment that she and her husband signed.  The opinion rather vividly describes the the scene in which the distraught, unfocused, weepy, and unrepresented husband met with his wife and signed the stipulation for judgment.  A month later, the husband changed his mind, and responded to the petition for marital dissolution, requesting other arrangements.

     The trial court vacated the stipulation, based on undue influence, and the wife appealed.

     The Court of Appeal explains that a presumption of undue influence applied to the stipulation for judgment, because the stipulation unfairly advantaged the wife, and the fiduciary relationship between husband and wife means that the advantage “presumes such transactions to have been induced by undue influence.”

     However, the presumption of undue influence does not apply to mediated settlements.  Therefore, the wife argued that the negotiated settlement should be treated like a mediated settlement.  The Court disagreed, pointing out:  “Divorce mediators generally work to balance the negotiating power between the parties.” 

      Whether or not that is empirically true, the parties can also take advantage of the mediation privilege to exclude evidence when there is a genuine mediation.

      Here, there was no mediation, just an unmediated, negotiated settlement.  Unable to rely on the mediation privilege, the wife fell back on the settlement negotiation privilege in Evid. Code sections 1152 and 1154, to argue that she would be unfairly prevented by the Evidence Code from introducing evidence to rebut the presumption of undue influence.  However, the protection of settlement negotiations only prevents the introduction of evidence to prove a defendant’s liability, or to preclude evidence of an injured party’s offer to discount a claim to prove the claim’s invalidity.  Those protections would not have prevented the wife from introducing evidence that the parties did not reach a binding contract.

     Affirmed.

     COMMENT:  If the parties had hired a mediator, the stipulation would almost certainly have been enforced.  The presumption of undue influence would not have applied, and the wife could have taken advantage of the mediation privilege.

Choice Of Law/Confidentiality: Ninth Circuit Holds Federal Law Of Privilege Applies To Mediation When Federal Law Law Issues Are Involved At The Time Of The Mediation But Not Afterwards

 

Panel Majority Ties Mediation Privilege To Parties’ Expectations At The Time Of The Mediation, Not To Later Time When Federal Claims Were Dismissed.

     Timing can be everything.

     Where there are federal question claims and pendent state law claims present, the federal law of privilege applies.  Agster v. Maricopa County, 422 F.3d 836, 839 (9th Cir. 2005).  See also Fed. R. Evid. 501.  So does the law of federal or state privilege apply when a mediation occurs while federal and state law issues are pending, the federal claims are then dismissed, and only after the federal claims are dismissed, does a party seeks to introduce evidence from the mediation to prove that a settlement occurred?  That’s the issue presented by In Re:  TFT-LCD (Flat Panel) Antitrust Litig., No. 14-15916 (9th Cir. 9/1/16).

     Sony and HannStar agreed to a settlement proposed by the mediator in an email exchange.  HannStar refused to comply.  Under California law, evidence of the agreement would be inadmissible, unless the parties had memorialized that the agreement was binding and admissible in evidence, and apparently they did not.  At the time of the settlement, mixed questions of federal and state law were pending and under Agster, that meant that the federal law of privileges, rather than California mediation confidentiality rules would apply.  By the time that Sony wanted to introduce evidence of the settlement, however, the federal claims had been dismissed, leaving only California claims.  Because only California claims remained, the district court denied Sony’s motion for summary judgment, holding California Evidence Code’s mediation privilege bars introduction of settlement demands.

     Reversed and remanded.  Why?  Expectations may be the key.  “At the time of mediation, both parties would have expected to litigate both federal and state law issues.”  So federal law of privileges applied.

    Chief District Judge Lynn dissented, on the grounds that “only state law claims remained at the time Sony sought to admit evidence of the email exchange.”

    But doesn’t it make sense to protect the parties’ expectations regarding confidentiality at the time of the mediation?

Mediation, Confidentiality: Allegations Of Malpractice In Connection With A Mediation Session Fail For Lack Of An Adequate Record

The Three Immutable Rules Of Appellate Practice.

     “When practicing appellate law, there are at least three immutable rules:  first, take great care to prepare a complete record; second, if it is not in the record, it did not happen; and third, when in doubt, refer back to rules one and two.”  Protect Our Water v. County of Merced, 110 Cal.App.4th 362, 364 (2003).

      The Third District instructed on these rules of appellate practice in Spanos v. Dreyer, Babich, Buccola & Callaham, LLP, C077235 (3rd Dist. 6/27/16) (Duarte, Robie, Renner) (unpublished), in which the plaintiff/appellant alleged malpractice in connection with a mediation session settling an underlying tort case and a related workers’ compensation claim.  The outcome of the case would have turned on the application of the mediation privilege (Evid. Code, section 1119) – if there had been an adequate record. 

      Alas, the appellant failed to provide the operative complaint, and failed to augment the record.  On an appeal from an order sustaining a demurrer, the Court must review the operative complaint to determine whether a cause of action is stated.  Also, counsel for appellant failed to appear at oral argument.

      Goodbye, appeal.

Mediation Confidentiality: How Ironclad?

The Daily Journal Has Provided A Link To Louie Castoria’s Article Entitled “Mediation confidentiality:  a wall against malpractice claims or a sieve?”

     Louie Castoria, a partner at Kaufman Dolowich & Voluck LLP, and a mediator, has authored an article suggesting we may take a bit too much for granted about mediation confidentiality, and advocating that California not erode mediation confidentiality in malpractice cases following mediation settlement.  The article is well worth reading.

     Thus, California attorneys and their clients typically hear the mediator’s injunction, at the beginning of a mediation, “everything in mediation is confidential.”  However, the California Law Revision Commission (CLRC) is reviewing whether to create a malpractice exception for mediation confidentiality.  Furthermore, the protections of mediation confidentiality depend on whether federal or state rules apply, and if the answer is that state rules apply, then one must consider which state’s rules apply.

     Mr. Castoria is concerned that the CLRC’s ongoing review of mediation statutes is a search for a solution to a problem that  appears too infrequently to justify erosion of mediation confidentiality.  “Is the incidence of coerced settlements so great,” he asks, “that we should essentially scrap mediation confidentiality?”

Mediation Confidentiality: Second District, Division Four, Affirms That There Is No “Attorney Malpractice” Exception To Mediation Confidentiality

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.

     Judgment AFFIRMED.

More On Mediation Confidentiality

California Law Revision Commission Revisits Mediation Confidentiality At Its October 8, 2015 Meeting.

     I have previously posted about efforts to permit the introduction of evidence currently protected by mediation confidentiality.  See my posts of August 30, 2015, and September 11, 2015.

     The California Law Revision Commission met on October 8, 2015, to address the issue again.  As of the date of this post, I have not been able to find minutes or a video recording of the meeting.  However, I am informed that the CLRC has decided to proceed with drafting legislation to remove current confidentiality protections when misconduct is alleged as to a lawyer acting in the role of advocate (as opposed to a lawyer acting as a mediator).  An earlier decision to draft legislation allowing in mediation communications when attorney mediator misconduct is alleged has apparently been reversed.  The ongoing proceedings of the CLRC on mediation confidentiality may be followed at:  http://www.clrc.ca.gov/K402.html

Another Look at Mediation Confidentiality:  Does It Serve Its Intended Purpose?

     Eric van Ginkel, mediator, arbitrator, and adjunct professor for the Strauss Institute for Dispute Resolution, has published an article in Vol. 32, No. 8, September 2014, Alternatives to the High Cost of Litigation, a monthly publication of the International Institute for Conflict Prevention and Resolution.  The article provides a framework for analyzing the purpose of mediation confidentiality by considering the varieties of mediation confidentiality, the interests of the mediator, the parties, and non-parties in preserving confidentiality, and the need for confidentiality before and after a settlement is reached.  Prof. van Ginkel is a fan of the Uniform Mediation Act, which he describes as “approaching Nirvana” compared to the California mediation statute.  A summary of his article is available on-line at pages 4 to 7 of a recent memo prepared by the CLRC. 

     COMMENT:  Much of the debate concerning whether to legislate exceptions to mediation confidentiality circles around whether a bright-line confidentiality rule that may be harsh in an individual case by excluding evidence of malpractice or duress nevertheless offers widespread and beneficial effects by facilitating candor, trust, and low transaction costs. 

     When things good sideways in mediation, we are tempted to look only backwards at the confidentiality rules, and ask ourselves how a different confidentiality rule could right the wrong.  When we ask ourselves about the beneficial effects of mediation confidentiality, we generally have a different perspective:  we are looking at the benefits of candor, trust, and low transaction costs before the problem occurs in the individual case.  “The practical challenge is to learn to see [ex ante] argument every time it’s available:  to learn to think the ex ante way when a case is full of cues tempting everyone to only look backwards.”  See Ward Farnsworth, The Legal Analyst:  A Toolkit for Thinking About the Law (University of Chicago Press 2007), p. 6.  Interestingly, Prof. van Ginkel notes:  “To date, no study has been undertaken that would give us the empirical data that connects success in mediation proceedings with the availablity of a form of confidentiality protection.”  We have insights into the value of mediation confidentiality, and a dearth of empirical evidence. 

Mediation Confidentiality Statutes: An Experienced Mediator Comments On The California Law Revision Commission’s Proposal To Create An Exception To Mediation Confidentiality

Mediator Jill Switzer Comments On The Recent Proposal Before The California Law Revision Commission To Loosen Mediation Confidentiality Statutes.

      On August 30, 2015, I posted that on August 7, 2015, the California Law Revision Commission directed staff “to begin the process of preparing a draft of a tentative recommendation that would propose an exception to the mediation confidentiality statutes (Evid. Code sections 1115-1128) to address ‘attorney malpractice and other misconduct.’”

     Jill Switzer, an experienced mediator who has been a member of the State Bar for nearly 40 years, has communicated her thoughts to the California Law Revision Commission about the recent proposal.  She has graciously given me permission to publish her probing comments on my blog.  Her comments reflect her personal views, and are not the views of any organization, committee, or business with which she may be affiliated.  I welcome any comments that my readers have about this topic.  Here are Jill Switzer’s comments:

1.         The general concept is to propose an exception to the mediation confidentiality statutes that would address “attorney malpractice and other misconduct.”  What other misconduct does this contemplate?  What would that be?  Since the attorney mediator is not acting as a lawyer for purposes of conducting the mediation, .e.g not giving legal advice, there’s no attorney-client relationship, what would the Commission see as misconduct by the attorney mediator? 
 
2.         The exception should apply “…regardless of whether the alleged misconduct occurred during a mediation.”  So, does this mean that it would apply to the convening stage, any/all pre and or post mediation communications, telephone calls, etc.?  How would that even arise, especially since the clients are not involved in the convening, the pre/post mediation communications that the lawyers and mediators may have? 
 
3.         I carry mediator malpractice insurance (in an abundance of caution), which, right now, is very reasonable because mediators don’t get sued.  That will certainly change.  Rates will go up and if mediators are indeed brought into litigation as defendants or cross-defendants, the rates may well skyrocket.  So, I will have to raise my rates to cover the increased insurance costs.  Great, try explaining that to parties and counsel who think my rates are too high as they are.
 
4.         What if I have insurance and the defendant lawyer doesn’t?    On the deep pocket theory, plaintiff’s counsel will either sue me at the outset, or the defendant will cross-complain against me for indemnity.  I thus become the “deep pocket.”  Will I need to ask the counsel participating in the mediation whether he/she carries insurance?  Should I ask for a certificate of insurance to satisfy that inquiry?  Since malpractice insurance is on a “claims made” basis, what if the attorney has insurance at the time of the mediation, but does not have it at the time the claim is made?  What if my carrier decides to settle based on nuisance value, etc., costs of defense, etc?  I have a deductible I have to pay, regardless of whether I’m in for a penny or in for a pound in the litigation.
 
            Putting the mediator in the mix is going to prompt some mediators, such as me, to start looking for something else to do.  I’m not going to go bare, but I’m also not going to be the “fall gal” for an attorney’s alleged malpractice.  I refuse to be a guarantor.
 
5.         Even if I know nothing, I wasn’t in any caucuses where counsel and client were discussing the pros and cons of resolution, which is where the claimed malpractice occurred, I’m going to get dragged in.  I am going to have to prove a negative.  No plaintiff’s counsel is necessarily going to take my word that I wasn’t present without my being deposed.  Unless and until the plaintiff’s counsel then decides that there’s “no there there,” and defense counsel sees that there is no basis for a cross-complaint against me, I’m stuck.
 
6.         Whose job will it be to advise the clients that there’s no mediation confidentiality?  Shouldn’t that be the attorneys’ job?  If they don’t advise in advance of the mediation, does it then become my job to advise the clients in the mediation that there’s no confidentiality?  Do I demand proof from the attorneys that they have so advised?  How many cases would settle without mediation confidentiality?
 
7.         After the mediation, unless I’m continuing my efforts to resolve the matter, I shred all notes, briefs, and/or any correspondence post-mediation.  If there’s now the possibility of being sued, how long do I have to keep those?  Do I have to keep them at least one year post legal malpractice possibility? When does that statute start running?   If I don’t, am I liable for spoliation?  How do I determine whether I think the resolution (or non-resolution as the case may be) may lead to a malpractice claim and thus require document retention? 
 
8.         This proposal is only going to increase litigation and its attendant costs, which is what mediation is supposed to alleviate.  Mediation is a voluntary process, so the parties can leave at any time, and I’ve had that happen.  Mediation is supposed to be a way to resolve disputes in an efficient, cost-effective manner.  Why is there the assumption that the client got hosed by its lawyer in mediation and was forced to settle?  There are going to be many cases of  "settlor’s remorse,” clients who think that they can leverage a better deal by suing for malpractice. 
 
9.         If we lose mediation confidentiality, then there’s no point to mediating.  Just have everything handled as an early settlement conference, MSC, or ENE by a judicial officer and ditch mediation altogether.  Given the sorry financial state of the courts these days, I’m sure that they’ll be delighted to have even more work than they already have. 
 
This proposal takes the sledgehammer to the gnat approach. If the clients don’t want to be bound by confidentiality and thus retain the option of a potential legal malpractice claim, then they shouldn’t mediate, but please don't eviscerate what works for a great many to satisfy just a few. 

Mediation Confidentiality: California Law Revision Commission Considers Relationship Between Mediation, Confidentiality, Attorney Malpractice, And Other Misconduct

Proposed New Exception To Mediation Confidentiality Statutes Would Utilize In Camera Screening Process.

     On August 7, 2015, the California Law Revision Commission directed staff “to begin the process of preparing a draft of a tentative recommendation that would propose an exception to the mediation confidentiality statutes (Evid. Code sections 1115-1128) to address ‘attorney malpractice and other misconduct.’”  For minutes of the meeting, follow the link.  The excerpt of the minutes concerning this topic is found at pages 4 to 6.

     COMMENT:  I blogged on April 8, 2012, about legislative efforts to “fix” the mediation confidentiality statutes to allow the introduction of evidence from a mediation in cases involving attorney malpractice or breach of fiduciary duty.

References, Confidentiality: Law Firm May Be Disqualified If It Substitutes Into Case In Which One Of Its Attorneys Participated As A Court Appointed Settlement Officer

The Disqualification Outcome Hinges On Whether The Attorney-Settlement Officer Received Confidential Information

     Bird’s-eye view of the Great Wall of China.  Jean E. Norwood, photographer.  1979.  Library of Congress.

     Attorney Banuelos participated as a settlement officer on a “CRASH” panel mediating an employee-employer dispute in Los Angeles Superior Court.  “CRASH” stands for “Civil Referee Assisted Settlement Hearing,” and the CRASH panel consisted of two attorneys and one judge.  A little less than six months after the mandatory settlement conference, Banuelos’ law firm substituted in to represent the employer in the dispute, and the employee moved to disqualify Banuelos’ law firm.

     The trial court denied the disqualification motion, holding that even if Banuelos received confidential information – an issue the court did not decide – adequate screening measures could be established to ensure Banuelos did not discuss the case with anyone at the firm.  The employee filed a writ.  Castaneda v. Superior Court (Perrin Bernard Supowitz, Inc., Real Party in Interest), No. B259950 (2/8 June 24, 2015) (Rubin, Flier Grimes) (published).

      The employee’s petition was granted, with directions.  The trial court must now consider whether Banuelos participated in ex parte communications with the employee’s representatives.  If ex parte communications occurred, then it will be presumed that confidential information was exchanged, and the law firm will be vicariously disqualified.  No ethical wall will prevent vicarious disqualification if the attorney received confidential information.

     COMMENT:  I have participated as a “mediator” in a settlement conference program in LASC.  The status of attorneys who participated in the program was not clearly defined.  Participants were informed that the formal mediation privilege did not apply, because these were settlement conferences ordered under rule 3.1380.  However, as the Court of Appeal points out in Castaneda, its concern is not with the laws of mediation confidentiality, but rather with “the law of attorney disqualification based on confidential communications, wherever they may occur.”