Just six weeks before trial and an hour before mediation is to begin, Lucy Litigant meets with Alfred, her attorney, at Checkers Breakfast Grill to discuss negotiation and settlement strategies for that day’s mediation session regarding a claim of approximately $7.0 million. At that private attorney client breakfast meeting, Lucy contends that Alfred said he would be willing to make a side agreement with her that as part of any mediation settlement, Lucy would be paid from the attorneys’ fees portion the sum of at least $200,000 as a paralegal for her work on her own case.
Just six weeks before trial and an hour before mediation is to begin, Lucy Litigant meets with Alfred, her attorney, at Checkers Breakfast Grill to discuss negotiation and settlement strategies for that day’s mediation session regarding a claim of approximately $7.0 million. At that private attorney client breakfast meeting, Lucy contends that Alfred said he would be willing to make a side agreement with her that as part of any mediation settlement, Lucy would be paid from the attorneys’ fees portion the sum of at least $200,000 as a paralegal for her work on her own case.
Lucy and Alfred walked the short block to the offices where the mediation is to take place. After several hours of intense negotiations at mediation including Alfred’s direct threat, privately made, to withdraw as legal counsel unless Lucy agreed to a settlement of $6.7 million, Lucy agreed to and executed a $6.7 million settlement agreement. The settlement did not contain an express provision that Lucy’s lost wage claim of $200,000 was to be paid.
After receipt of the settlement proceeds in full and dismissal with prejudice of the lawsuit, Lucy sues her legal counsel Alfred for failure to pay her the $200,000 lost wage claim from the attorneys’ fees portion of the settlement proceeds. Lucy contends that twice in private attorney-client meetings – first, at the private breakfast discussion and second, hours later at the closing stages of the mediation just after Alfred threatened to withdraw as legal counsel, Alfred promised her a side agreement in which he would pay her lost wage claim of $200,000 as part of the attorneys’ fees portion of any settlement reached at mediation. Lucy says her private attorney-client meetings, including Alfred’s oral promise to pay the $200,000 wage claim, are not covered by mediation confidentiality and its evidentiary exclusion of mediation related communications.
Alfred chose not to pay Lucy any portion of the $1.6 million his firm received from the $6.7 million settlement proceeds stating that in any event: (a) the total attorneys’ fees received were far less than the original contingency fee agreement Lucy had with Alfred’s firm and (b) it is manifestly unfair for Lucy to present her claims while Alfred is barred from introducing the unquestionably confidential negotiations at the joint session at which the lost wage claim was discussed and Lucy expressly dropped her demand for $200,000 in lost wages.
Should a jury be permitted to hear Lucy’s claim of how Alfred broke his promise to her that he would pay Lucy her lost wage claim of $200,000 from the mediation’s ultimate allocation of $1.6 million in attorneys’ fees and costs out of a total settlement of $6.7 million?
Although the facts are somewhat modified, two recent cases answer the question of the admissibility with a resounding “Yes.” Porter v Wyner 2010 Cal.App.LEXIS 487 (decided April 8, 2010) and Cassel v Superior Court (2009) 179 Cal App 4th 152 (review granted by California Supreme Court, Case No. S178914). “Yes,” these cases carve a judicially created exception to mediation confidentiality – which permits admissibility in a subsequent lawsuit of attorney-client communications made in private during mediation to the extent the communications do not reveal what was otherwise occurring or had occurred at the mediation!
The California Supreme Court has strongly discouraged the courts from crafting new exceptions to mediation confidentiality in Foxgate v Bramlea (2001) 26 Ca. 4th 1, 14 and its progeny. (“[F]rank exchange is achieved only if participants know what is said in mediation will not be used to their detriment through later court proceedings and other adjudicatory process.” … “[T]o carry out the purpose of encouraging mediation by ensuring mediation confidentiality,[our]statutory scheme…unqualifiedly bars disclosure of specified communications and writings associated with mediation, ‘absent an express statutory exception’” Rojas v Superior Court (2004) 33 Cal. 4th 407, 415-416, citing Foxgate (emphasis added).
More recently, the California Supreme Court in Simmons v. Ghaderi (2008) 44 Cal.4th 570 at 588 held: “Allowing courts to craft judicial exceptions to the statutory rules would run counter to [the Legislature’s] intent. Both the clear language of the mediation statutes and our prior rulings support the preclusion of an implied waiver exception. The Legislature chose to promote mediation by ensuring mediation confidentiality rather than to adopt a scheme to ensure good behavior in the mediation and the litigation process.”
In fact, there are only two judicially carved exceptions to the evidentiary exclusions for mediation confidentiality that have been cited with a level of approval in California Supreme Court opinions Olam v Congress Mortgage Co. (N.D. Cal. 1999) 68 F. Supp. 2nd 1110 (mental competency); Rinaker v Superior Court (1998) 62 Cal. App. 4th 155] (right to put on a defense in a quasi-criminal case), cited with approval in Foxgate, Rojas and Simmons, supra.
When appellate courts embraced judicially carved exceptions of ‘equitable estoppel’ and of ‘implied waiver’, the California Supreme Court immediately rejected these additional exceptions to mediation confidentiality [Simmons v. Ghaderi, supra, and affirmed its earlier rejection of a ‘good cause’ exception for the discovery of mediation related documents that may have demonstrated the medical cause of the illness of several children in a toxic mold case [Rojas, supra at 412-413, 423] and its rejection of an otherwise entirely legitimate sanction of attorney misconduct during the Foxgate mediation [Foxgate, supra].
Further, the Supreme Court has noted with favor and allowed to stand cases which because of mediation confidentiality have shielded improper and even illegal conduct. [Wimsatt v Superior Court (Kausch) (2007) 152 Cal.App.4th 137 (preventing a client from accessing mediation related communications may have the harsh result that the client must forego his legal malpractice lawsuit against his own attorneys); Doe 1 v Superior Court (2005) 132 Cal. App. 4th 1160 (shielding the summaries of personnel records of priests accused of 500 cases of child molestation which were prepared for mediation); Eisendrath v Superior Court (2003) 109 Cal. App. 4th 351 (excluding from evidence prior inconsistent statements necessary to demonstrate the intended meaning of a settlement agreement)]
With reference to whether mediation confidentiality is intended by the Legislature to shield legal malpractice, Foxgate , supra at 17 fn 13, expressly notes that the Legislature recognized that the effects of broad mediation confidentiality provisions would be adverse to protect[ing] the public against incompetent and/or unscrupulous attorneys; and further it was the responsibility of the Legislature, and not the Court, to make an exception for legal misconduct. See also, Wimsatt v Superior Court (Kausch, supra, at 163 [“The stringent result here means that when clients …participate in mediation they are, in effect, relinquishing all claims for new and independent torts arising from mediation, including legal malpractice causes of action against their own counsel.”] Nevertheless, the majority opinion in Porter and in Cassel each creatively use phrases from legislative history and dicta from Foxgate and Rojas to distinguish away the seemingly unambiguous statutory language of evidentiary exclusion in Evidence Code Sections 1119(a) and 1119(c), in order to permit an aggrieved client an opportunity to have a trial on the issue of whether counsel had breached its fiduciary duty to the client, committed legal malpractice or breached its contractual obligations to a client . See Ste. Marie v. Riverside Co. Regional Park etc. (2009) 46 Cal.4th 282, 288 - when the language is unambiguous, there is no need for inquiry into legislative intent.
The essential lack of any ambiguity in the statutory language, and the relative clarity of the legislative history of Evidence Code Sections 1115 – 1128, led in one leading academic to refer to a mediation settlement agreement being a “Super Contract.” Peter Robinson, Director of the Straus Institute coined that term because a mediation settlement agreement is to be enforced without the assistance of extrinsic evidence in the context of mediation related communications even in the face of allegations of fraudulent inducement occurring at the mediation, mutual mistake of a material fact, a scrivener’s error or simply the clarification of ambiguous language that could be resolved by introducing mediation communications and evaluating their credibility, as fact finders routinely do in civil cases. Robinson, Centuries of Contract Common Law Can’t All Be Wrong (2003) J. Disp. Res. 135.
The public policy reasons for aggrieved parties to have the opportunity to have their claims heard in a court of law, in which the finder of fact is provided with as much meaningful information as is practical, is obvious: Informed People make Informed Decisions. The exclusion of relevant evidence, possibly even irrefutable, of claimed wrongful and harmful conduct by an attorney at mediation further erodes the maxim: For every wrong there is a remedy. Civil Code Section 3523.
Mediation confidentiality, however, demands this exclusion, as Evidence Code sections 1115 et seq provide for far more extensive confidentiality than the basic statutes governing admissibility of evidence of settlement communications, Evidence Code Sections 1152 and 1154.
For example, attorneys frequently label documents “This Settlement Communication is Privileged and Confidential Pursuant to California Evidence Code Sections 1152 and 1154.” Yet, it would be rare for any attorney to imagine that were the proposed settlement based on his or her own professional negligence or intentional misconduct, that evidence of such professional malpractice would be excluded in a subsequent civil malpractice proceeding.
That is because attorneys recognize that the evidentiary exclusion of settlement communications pursuant to Evidence Code Section 1152 or 1154 is limited to use of evidence of a settlement offer to prove or dispute liability for, or invalidity of, the claim being negotiated, and not as a shield against attorney malpractice. See, Edward G. Weil, “Are Settlement Talks Confidential?” Daily Journal (a good discussion of the scope of Evidence Code Section 1152). This limitation is contained in the language of the statutes.
So, what are the public policy reasons for the expansive evidentiary exclusions of our mediation statutes given that our basic settlement privilege statutes in Evidence Code Sections 1152 and 1154 do not permit negligent or intentional wrongdoing of one’s legal counsel to be concealed through an evidentiary shield?
Three reasons are most commonly proffered.
One, allowing a client to provide testimony about an alleged malpractice or breach of oral contract during a private caucus between just the attorney and the client would be inherently “inequitable and unfair” to the attorney. After all, the attorney would be precluded from introducing any exculpatory or explanatory contextual information as to what happened during the mediation when the mediator or opposing side was present because that communication would clearly be covered by the evidentiary exclusions of Evidence Code Section 1119. See also, Foxgate Homeowners Assn v Bramlea , supra, at 16, approving an exception in Olam v. Congress Mortgage Co., supra (a mediator permitted to testify that one of the parties to a mediation had a lack of mental competency in an action to enforce a settlement agreement)
For example, during mediation, had Lucy subsequently and in front of opposing counsel retracted her demand for lost wages, Lucy’s admission against interest would be precluded from evidence since the statements were made in the presence of another mediation participant. [See Benesch v Green, (N. D. CA ) U.S. LEXIS 117641 (Dec.17, 2009); Appellant’s Reply to Cassel’s Answer to Petition, January 26, 2010 Cal. Supreme Court.
Two, consistent with Cal. Bus. & Prof. Code Section 6068(m), an attorney must be brave enough to risk the ire of the client and inform fully the client of the potential risks, costs and uncertainties of ongoing litigation. Preparation for mediation often includes more candid disclosures than an attorney may have previously provided to a client earlier in the litigation when the attorney is in the information gathering stage and the client expects the attorney to be a strong advocate.
Detailed discussion about whether the client’s attitudes, status, past acts or statements will be regarded unfavorably by a likely jury pool, whether the client’s deposition testimony may seriously jeopardize a favorable outcome of the case, whether the client may be regarded as having failed to avoid or mitigate the harm caused by his or her own choices, are important components in Reality Testing in mediation: encouraging a client to evaluate realistically the worth of continuing with litigation, rather than settling.
Whenever it may occur, the “hot cauldron” of Reality Testing may cause a client to suddenly feel disrespected or misunderstood by their legal counsel or just plain scared, perhaps too scared to make a wise and durable decision. Also, mediation often occurs at a time the client is becoming increasingly aware of the economic uncertainty of litigation costs and the risk it may be difficult to justify or perhaps pay mounting legal fees.
In a myriad of ways, a client who is confronted belatedly and forcefully at mediation with the risks of litigation may come to feel during mediation that he has been dropped into a ‘hot cauldron’ from which the capacity to make reflective choices is not possible – both because there is insufficient time and space for the client to consider alternatives appropriately and because the ability to experience the feedback and benefits of a secure support network of family, friends and advisers is often not present at mediation.
After the mediation settlement has been reached, a client who feels their reasonable expectations have been deflated and denied by their legal counsel, may conclude that their own attorney’s communications were designed more to serve their own attorney’s personal concerns about winning at trial or their own attorney’s financial needs to settle and be paid with certainty.
Apparently, the Legislature did not want such a client to have an easy path of revisiting the mediation settlement’s wisdom through a subsequent legal malpractice lawsuit. It is at least somewhat reasonable to assume that while the emotional pressures of mediation are real, that clients who are mentally competent are presumably capable of stepping back and seeking additional time to think for themselves or to get further advice from family, friends and other attorneys, if they are experiencing the feeling that there is too much emotional pressure at mediation or too much new and adverse information being placed before them to process appropriately.
The certainty and finality that parties seek through mediation resulting from a frank and candid exchange of information between each of the mediation participants, including between a litigant and counsel, in the context of mentally competent clients, and given the Legislature’s express desire to encourage settlement through the ADR processes over litigated outcomes, arguably justifies precluding evidence of legal malpractice occurring at mediation by negligent or even unscrupulous attorneys during the brief stressful time periods that may occur during mediation. Foxgate supra at 17 fn13.
Three, both buyer and seller ‘remorse’ are well-known psychological phenomena. Settling a major dispute often gives rise to feelings of ‘remorse’, particularly when the settlement is unexpected and differs from the recent expectations of the litigant, who may have agreed to reasonable, but unanticipated, concessions at mediation. California courts have recognized the litigation risk of settlor’s remorse. See, Fair v Bakhtiari (2006) 40 Cal. 4th 189,198; Barnard v. Langer (2003) 109 Cal. App. 4th 1453, 1461 fn12
Since the risk of a subsequent malpractice action motivated by ‘remorse’ exists in the context of any and every settlement, this third argument to exclude attorney misconduct in a mediated settlement, while no such exclusion applies in settlement negotiation discussions pursuant to Evidence Code Sections 1152 and 1154, suggests that the Legislature recognized the ‘hot cauldron’ aspect of the mediation process and approves of it, barring special circumstances, e.g. where a crime is being committed, a statutory exception; or the litigant lacks mental competency. Presumably, mental competency includes the ability to leave a mediation to gain perspective or to insist that an attorney memorialize any oral agreement in writing so that a Lucy Litigant will be able to enforce an Alfred Attorney’s contractual commitments and inducements.
While the California Supreme Court may decide in Cassel and perhaps in Porter, whether and when the right of a client to gain relief from mediation confidentiality statutes to pursue counsel with evidence arising from private attorney client communications, the appellate opinion of Wimsatt contain an important cautionary lesson for attorneys who wish to avoid being a similar target of post-mediation malpractice litigation: “In light of the harsh and inequitable result of mediation confidentiality statutes (Evid. Code Section 1115 et. seq.), the parties and their attorneys should be warned of the unintended consequences of agreeing to mediate a dispute. Wimsatt supra at 164; see also Doe 1, supra at 132 Cal. App. 4th at 1166.
Two clear “Wimsatt Warnings” should be drafted as part of an attorney’s retainer letter with a prospective client.
First Warning: At some point in time the client may wish to enter confidential negotiations for settlement of this matter by use of the mediation process. Communications made in the course of the mediation process are entitled to special protections of confidentiality that are likely to prevent a client from being successful in setting aside a mediation agreement for fraudulent procurement, intentional misrepresentation, mutual mistake as to a material term or even a scrivener’s error. Were the same settlement agreement made outside of a mediation it would be a contract for which such defenses to rescind or to amend are likely to be permitted. If you do not agree to be bound by mediation confidentiality, you should not agree to participate in mediation as a means to effect settlement of your matter.
Second Warning: While we owe a high duty of loyalty and of professional competency to you, our client, our interests may diverge particularly when faced with difficult choices of whether to settle or to continue litigation. To the extent you choose to seek resolution using the process of mediation and you are dissatisfied with our representation of you at mediation, you may not be able to introduce evidence in any subsequent lawsuit or administrative action against our firm that we provided negligent or wrongful advice to you during the mediation process. This is because of special mediation confidentiality rules enacted by the Legislature and approved by the California Supreme Court.
*******
Max Factor III is a full-time mediator, an elected Distinguished Fellow of the International Academy of Mediators and Adjunct Professor at the Straus Institute for Dispute Resolution since 2006. He has been selected as a Top Neutral by Super Lawyers every year from 2005-2010. Contact information is available at www.www.pma-adr.com.
Alice M. Graham is principal and founder of Graham Law Corp. in Marina Del Rey. She practices in the area of real estate and business litigation. She also serves as a mediator privately and through the Los Angeles Superior Court ADR panels. She was selected as a Super Lawyer in 2009 and 2010.