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by Michael D. Young, whose recently posted Mediation Gone Wild Document Repository Web Pages you absolutely MUST SEE!

Once again, the trial courts are trying to mess up mediation confidentiality by judicially creating (legislating?) exceptions to the confidentiality statutes. When faced with a public policy that competes with California's strong public policy favoring mediation confidentiality, the trial courts too often seem to tip the balance the wrong way by inventing unwritten exceptions to the law. Luckily, in the recently-penned decision in Wimsatt v. Superior Court (Kausch) (Cal. App. No. B196903), the appellate court fixed things up...although it was clearly not happy about it.

Wimsatt involves a legal malpractice action against a prominent plaintiff's personal injury firm. In the trial court, the former client and malpractice plaintiff claimed that the law firm "breached its fiduciary duty by significantly lowering [the client's] settlement demand without his knowledge or consent." The client claimed he first learned of this fact from the confidential mediation brief that was provided to the mediator. You can see the public policy conflict already, can't you?

In the malpractice action, the client reasonably enough wants to obtain and introduce the smoking gun mediation brief, the one on which his entire case rests. However, as California practitioners should know by now, there is a slight problem with the plaintiff's wish: Evidence Code Sections 1115 et seq., and in particular Section 1119. California is serious, and rightfully so, about protecting the very cornerstone of mediation -- confidentiality. Under Section 1119, no mediation communications, including mediation briefs, are admissible in court. This has been reaffirmed time and time again by the Supreme Court (go reread Foxgate and Rojas if you don't believe me).

So what happened in the Wimsatt case? According to the opinion, in the underlying personal injury lawsuit, the client's lawyer made a comment to the personal injury defense counsel that it might be more appropriate to discuss settlement in the $1.5 million range rather than the $3.5 million range they had been discussing before. Because of this comment, claimed the client, he was forced to settle his personal injury case at mediation for an amount that was much less than the case was worth. Despite agreeing to the mediated settlement, the client brought a malpractice claim against his attorneys claiming he could have done better if only....

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(photo:  Silence is Golden by Memme)

Just when you say the mediation privilege would prevent the parties from disclosing such matters as settlement authority and the activities of party representatives, along comes an out-of-state federal opinion that makes you glad you live and practice in California.

Although the District Court in Bauerlein v. Equity Residential Properties Management Corp.Slip Copy, 2007 WL 1521606D.Ariz.,2007.May 22, 2007 refused to award the costs of an unsuccessful mediation against parties whose representatives left the mediation "early" there was nary a word spoken about confidentiality of the proceedings.

Arizona and Federal Protections for Confidential Mediation Communications  

It's not that Arizona doesn't have such a privilege.  We understand that A.R.S. § 12-2238 recognizes as privileged and confidential "[c]ommunications made, materials created for or used and acts occurring during a mediation." (emphasis added).

Nor do the federal courts lack protections for mediation communications.  Under 28 U.S.C.A. § 652(d), mediations conducted pursuant to federal court ADR programs are required to be protected by local rules, which "provide for the confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications." 

Therefore, whether protected by federal or state law, you would have expected that the parties accused of conducting themselves in "bad faith' would have objected to the introduction into evidence of one or all of the following mediation communications and activities:  

• the identity of carrier representatives attending;
• when and why those representatives left the mediation; 
• the mediator's or the parties' explanation of the reason for the representatives departures, i.e., because there was a "vast divergence of the estimates of the value of the claims"
• why one party put no money whatsoever on the table (because it was essentially judgment proof as a Taiwanese corporation without any U.S. holdings")
• the mediator's statement to at least one of the carrier representatives that the case would not settle "based on the parties' individual evaluations of the claims because they were too far apart and had too divergent estimates of the value of their claims"
• the mediator's approval of the carrier representatives leaving the mediation so long as counsel was left with authority to settle the claims.

Mediator Predictions

I don't know what shocks me more.  That these disclosures were made with no objection or that the mediator "predicted" the case would not settle before the parties "officially" reached impasse.  These predictions invariably affect the negotiations and should be made rarely if at all.  

Just as importantly, attorneys mediating their disputes should familiarize themselves with the laws applicable to the confidentiality of the proceedings -- particularly when they're in federal court where the applicable law is not as certain as it is in the state courts.  See the following commentaries on the federal Northern District of California Olam opinion (largely disapproved in California) here and here.   

It's my experience that most attorneys are completely unaware of the scope and nature of the mediation privilege under which they are operating.  If we don't want this inexpensive "alternative" procedure to become a breeding ground for litigation over party mediation tactics, then we should make sure we learn, and follow, the applicable mediation protections, privileges and guidelines less we stumble into disclosures that need not be made.   See Disputing Irony, a Systematic Look at Litigation about Mediation

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Thanks to Diana Skaggs of the Kentucky Divorce Law Journal for alerting us to the Kentucky Law Blog's post Court of Appeal Affirms Trial Court's Award of Mediation Fees for Party Failing to Attend

Here in California, and I suspect in many other states, the Court cannot sanction "bad faith" negotiations because all of the parties' communications at a mediation are confidential.

I've often had attorneys ask me, however, whether they can bring to the Court's attention the fact that a claims adjuster, for instance, did not "show" at the mediation.  Can't they seek sanctions for that "bad faith" they ask.    

This is the question the Ky Law Blog asks and answers today under Louisiana law as interpreted in a nonpublished appellate opinion, Sullivan v. Anderson.  In that case, writes attorney and blogger Michael Stevens,

the defendant's attorney . . . arranged for the date, time, location, and mediator and notifed the pro se litigant who did nothing.

[A]ffirming [the trial court] . . . a Jefferson Circuit Court . . . held that although a party was not obligated to attend the "agreed" upon mediation, he was obligated to notify the other side he would not attend so as not to waste the mediator's time. . . [The appellate court opined]

We agree with [the pro per plaintiff] Sullivan and the trial court that Sullivan was not obligated to attend the mediation since it was not ordered by the court. However, [defense counsel] did not have any reason to know that the parties had not agreed on mediation since Sullivan did not inform her that he did not agree to the arranged mediator and mediation date. [*]

 A Kentucky court “may invoke its inherent power to impose attorney's fees and related expenses on a party as a sanction for bad faith conduct, regardless of the existence of statutory authority or remedial rules.” (citations omitted).

The Parade of "Bad Faith" Mediation Horribles

Mr. Stevens justifiably marches out the following parade of horribles that this opinion could lead to, such as awards of sanctions when:   

• the insurance defense lawyer shows up at mediation without the adjuster or the insured and rel[ies] upon the adjuster's attendance by telephone[;]
• the adjuster in attendance . . . not hav[ing] settlement authority extending to the policy limits[;]
• the adjuster ha[ving] to leave early[; and,]
• the adjuster with higher authority [not being] available by phone, or . . . delays in contacting the adjuster by telephone[.]

Are Sanctions Available in California for "Bad Faith" Mediation Practices?

California's mediation privilege is codified in Evidence Code sections 1115 et seq.  As most California practitioners are well aware, our Supreme Court has strictly construed these provisions.     

Because Evidence Code section 1120 expressly exempts any "agreement to mediate a dispute" from the protections of section 1119, a California court could presumably sanction a party for failing to appear at an agreed upon (or court ordered) mediation.  

Here in California, however, an award of such sanctions presumably could not include all or part of the mediator's fee because our Supreme Court has held that a party may not be ordered to pay a private mediator in the first instance.     

Moreoever, a party''s mediation conduct, such as a defendant's failure to bring a claims adjuster or the plaintiff's attorneys failure to bring his client, would not likely subject either party to sanctions.  

Section  1119(c) prohibits a party from disclosing "[a]ll . . . negotiations . . by and between the participants in the course of a mediation or a mediation consultation."  Interpreting this section broadly and strictly as our Supreme Court requires would likely result in the denial of sanctions because the choice of individuals to represent party interests is an integral part of the "negotiation" between the parties.  **     

Finally, section 1119(a) most certainly forecloses an award of sanctions based upon offers made or not made during -- or authority possessed or not possessed at -- a mediation.  Those facts could only be learned as a result of something "said . . . for the purpose of, in the course of, or pursuant to a mediation" and therefore fall squarely within section 1119(a).    

_________________

**  We find this one of the strangest and most illogical formulations we've heard from any appellate court anytime, anywhere -- a dangerous one at that -- and contrary to the law of contracts.  Since when does an agreement exist when party A proposes X to party B, who does not respond?  Since when is an agreement formed when party B neither accepts nor rejects it?   

*** The American Heritage Dictionary (2000) defines the verb "to negotiate" to mean and include, inter alia, "[t]o arrange or settle by discussion and mutual agreement: negotiate a contract."    

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We've been following the case of Simmons v. Ghaderi since the opinion appeared in October of last year.  The case went up to the California Supreme Court for review in December '06. The issue, as defined by Dr. Ghaderi is:     

whether there can be an enforceable settlement agreement when all evidence upon which it is based is inadmissible under the mediation statutes. 

As our previous commentary on this case indicates, we believe this accurately states the matter at issue and the source of the lower court's error.   That commentary, along with a mediation analysis using the Simmons' facts as a hypothetical, can be found here, here and here.  

I'm supplying you with the reply brief only.  (and adding the recently posted CDRC Amicus Brief here)

Once upon a time (at least 20 years ago) a Superior Court Judge confided in me that if s/he were overwhelmed with work and facing a calendar call, s/he would read the reply brief only "because it contained all the arguments." 

YIKES!! 

This did considerably alter my briefing habits. 

Here the Reply covers most of the arguments in the Opening Brief and the responses to the Opposition, which I haven't seen.  If anyone wants to send it along to me, I'll post it too.

 

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Appellate opinions concerning the enforceability of mediated settlement agreements are coming fast and furious.

If you haven't prepared your form term sheets and memoranda of understanding by now,  you might end up litigating the settlement whose purpose it was to stop the litigation. 

Oh the irony!    

Today's case Irvine v. Regents of University of California (4th Dist. 2007) was decided on a narrow procedural ground, leaving at large the questions of fraud, duress and mistake alleged by the Plaintiff as a bar to enforcement of her mediated settlement agreement.

The narrow issue here was whether a party could be excused from meeting the deadlines imposed by California Rule of Court 3.1385 simply by asserting that the challegned settlement agreement was uneforceable. 

The Irvine Court, reversing the trial court's Rule 3.1385 dismissal, answered the question in the affirmative, explaining: 

The only decision before the court at a rule 3.1385 hearing is whether to dismiss the case or restore it to the civil active list. By alleging a dispute over whether the parties reached a binding settlement, plaintiff demonstrated good cause to restore the case to the civil active list. In reaching this conclusion, we have not considered whether any of plaintiff's contentions have merit.

There you have it.  Now the parties will be litigating the compromise they reached to avoid litigation.  Don't let this happen to you.  Start (but do not finish) here, where I have provided articles and case law bearing upon the enforceability of mediated settlement agreements. 

If you want your agreements to be durable take the time to read the case law, check the statutory provisions and, yes, even read the Rules, like 3.1385 here, which requires that an action be dismissed within 45 days after the Court receives notice of settlement unless good cause is shown why the case should not be dismissed.

 

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We've talked before about complaints that mediators sometimes use time- authority- and fear-pressure tactics to wrest agreement from the parties. 

If a client can prove she was coerced into settling a Title VII case, the Federal District Court for the Northern District of California has a remedy for her -- rescission.  

As reported last year by the National Arbitration Forum, the Court In Ryles v. Palace Hotel, rescinded a mediated settlement agreement as violative of federal law governing the release of Title VII claims.  The release of such claims must be “voluntary, deliberate, and informed.”

As the National Arbitration Forum article explained

In applying that standard, courts must consider the “totality of the circumstances.” The factors to be considered include the clarity of the agreement, the claimant’s education and business experience, whether the atmosphere for the execution of the agreement was coercive, and whether the plaintiff had the benefit of counsel.

All but one of those factors favored enforcement. However, one of the factors – whether the atmosphere for the execution of the agreement was coercive – weighed heavily against enforcement because of the “intense pressure” applied by Ryles’ attorney. Based on that factor, the Court held that Ryles could rescind the settlement agreement.

In reaching its holding, the Court cited Ryles’ letter to the Court as bolstering her credibility. Moreover, the Court rejected Palace Hotel’s argument that California law required coercion by the other party to the contract, noting that the release of Title VII claims is governed by federal law.

More on mediation "duress" soon.

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The Supreme Court has defined the issue before it in Simmons v. Ghaderi after its December 20, 2006, grant of review as follows:   

This case presents the following issue: In an action to determine whether a valid oral settlement agreement was formed during mediation, was one party estopped to claim confidentiality for the mediation proceedings (Evid. Code, sections 1115-1124) because she had voluntarily declared the facts to be true, stipulated that she did not dispute them, submitted evidence of them, and litigated their effect for more than a year?

See our own previous commentary on this case here, here and here.

 

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Provision in real estate purchase agreement disallowing attorney fees to a prevailing party who did not first attempt mediation did not preclude award of fees incurred to defend the action.  In any event, the evidence was sufficient to support the trial court's implied finding that defendant's offer to mediate was rebuffed by plaintiff.  Van Slyke v. Gibson  (January 18, 2007, Second District, Div. Six)  Cite as 2007 SOS 311

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The California Court of Appeal for the Fourth District held in Jeld-Wen v. Superior Court today that parties may not be ordered to attend and pay for the private mediation of complex litigation.

After a thorough review of the law applicable to the appointment (and pay) of referees for the purpose of settlement conferences and discovery disputes, the Fourth District held

While trial courts may try to cajole the parties in complex actions into stipulating to private mediation (see Super. Ct. San Diego County, Local Rules, rule 2.3.7), they cannot be forced or coerced over the threat of sanctions into attending and paying for private mediation as this is antithetical to the entire concept of mediation. In any event, we suspect that in a large majority of complex cases most parties will agree to private mediation; as such, we foresee no apocalyptic consequences from this decision.

The case is worth reading for its coverage of the differences between mandatory settlement conferences and mediation, as well as the scope of the Court's authority to require the parties to pay a retired judge or mediator for the proceedings.

 

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 The California Supreme Court held in Fair v. Bahktiari last week that parties to a mediated settlement agreement must include an express provision that they intend to be bound by any written term sheet memorializing their settlement.

If you do not, the trial court will not enforce your settlement agreement even when, as here, you've prepared a relatively detailed deal memo including an arbitration clause.

As we've recommended before, you should prepare your term sheets in advance (or better yet, bring a laptop with your form settlement agreement on it --  many of my clients do, along with a portable printer or a jump drive to plug into a local PC). 

Being prepared to draw up the settlement agreement at the mediation is not only "a stitch in time" but shows admirable optimism.  Optimism that does, believe it or not, have a real and substantial effect on the settlement proceedings.   

For tips on ways to insure that your mediated settlement agreements are enforceable (or to resist the enforcement of an "agreement" that you don't concede was actually reached) see Deborah Rothman's and my Daily Journal article on the topic here.

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(left:  Bansky! as shot by Goatgirl:  it says:   . . . for silence is a fragile thing . . . )

Silence (confidentiality) in mediation is what makes mediation possible; what permits the parties to take time out from the battlefield where everything we say and every move we make can and will be used against us.   

Private, confidential mediation time is a time when the parties can come together as people rather than as combatants.  And this is true no matter how many zeros follow the first number by which they identify the "value" of their dispute (it could be land or women or rubies; furs or hunting grounds; fishing rights or that most evanescent of properties  -- the product of the creative human spirit -- music, poetry, film, video, web cam.) 

Mediation time is a time when the law allows people to recognize that they share a mutual problem, one that yokes them together.  It is a time when they can give up carrying the conflict's burden alone and recognize that by drilling a hole in the other guy's side of the boat, they will sink their own.

On the other hand, silence and secrets are death to the spirit.  The terrible tragedy of the evangelical minister who was finally unable to keep his sexual preference silent is a good example for World AIDS Day.  The magnitude of the tragedy following his public "outing" makes the word "preference" seem weak and far too, well, preferential, as if one were ordering a meal in a restaurant or choosing a new suit of clothes.  We are, I hear, only as sick as our secrets.

But the digression seems to have become the entire post.  I nevertheless stick with my original plan to pass along, from the ADR Forum, the holding of the below-referenced appellate opinion on the mediation privilege in the context of an arbitration For the World AIDS Day page, click here.  For the (red) campaign and a video message from Bono, click here

from the National Arbitration Forum 

Confidentiality Protections Apply to Hybrid Procedure Consisting of Arbitration and Mediation
Society of Lloyd's v. Moore, No. 1:06-CV-286, 2006 WL 3167735 (S.D. Ohio Nov. 1, 2006)
11/1/2006

A federal district court in Ohio ruled that the confidentiality protections of the Uniform Mediation Act applied to an email sent during the mediation phase of a hybrid dispute resolution procedure that first started with arbitration.

In Society of Lloyd's v. Moore, No. 1:06-CV-286, 2006 WL 3167735 (S.D. Ohio Nov. 1, 2006), Lloyd's sued Moore for alleged fraud. After the Court granted partial summary judgment, the parties agreed to submit the remaining matters to arbitration and mediation...Full Story  

Subscribe to the Free ADR Law & Policy Update here.

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I'm providing this legal update without myself reading the opinion, for which I've provided a link.  I must admit that the summary sent to me is perplexing.  I will read this case when I have the time and will update this post at that time.  If anyone wants to beat me to it and explain the holding in a comment, please do feel free to do so.  That said, here's the summary:  

California Code of Civil Procedure Sec. 410.42 renders null and void any provision in a construction contract "which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state" where the construction project is located in California.

In the recent case of Templeton Development Corporation v. Superior Court (Dick Emard Electric, Inc.) (2006 SOS 5560) the Third District Court of Appeal held that section 410.42 nullifies a contractual provision requiring that parties to a construction dispute mediate outside California as a prerequisite to arbitration or litigation over their dispute.

Where defendant contractor refused to mediate in California, plaintiff subcontractor was not precluded from suing subject to stay so that action could be mediated or arbitrated in this state.

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