Archives: December 2006
Mon Dec 18, 2006
Mediation: Settlement & Confidentiality
The California Supreme Court has repeatedly endorsed mediation as an alternative to litigation and commended the confidentiality of the process as desirable in resolving disputes. Mediation frequently concludes with settlement of a dispute and the parties confirm their agreement in a written document. In Fair v. Bakhtiari, 2006 WL 3630768 the Justices reviewed a settlement agreement signed by the parties that included several terms, including a term reciting that “[a]ny and all disputes [are] subject to JAMS (Judicial Arbitration and Mediation Services) arbitration rules.” A dispute between the parties subsequently arose and one party refused to arbitrate, alleging the agreement inadmissible in evidence and unenforceable.
Evid. Code 1119 provides confidentiality of writings prepared during mediation. The statute prohibits admissibility of documents in evidence or discovery if prepared in the course of mediation, and disallows disclosure of written communications among parties during a mediation. Two exceptions to this rule permit parties to provide in their agreement that “the written settlement agreement is admissible or subject to disclosure, or words to that effect;” Evid. Code 1123( a); or, the “settlement agreement provides that it is enforceable or words to that effect;” Evid. Code 1123 (b) [emphasis added].
The parties in Fair subsequently disagreed to the settlement terms and the plaintiff moved to enforce the agreement, citing the language mandating arbitration with JAMS rules. The Supreme Court agreed the phrase “words to that effect” arguably came within the meaning of Evid. Code 1123 but the Justices preferred the “bright line ” of using specific language acknowledging the agreement was admissible and enforceable. Unambiguous and clear expressions of admissibility and enforcement, said the Court, would reduce disagreements in interpretation and eliminate the need for extrinsic evidence to explain the intent of the parties.
The Court of Appeals, which had rendered a different interpretation, inferred the cryptic phrase in the agreement as shorthand (“words to that effect") for an agreement to arbitrate. Lawyers who write settlement agreements frequently use code words that each party understands and the language in the Fair agreement reasonably warrants an agreement to arbitrate future disputes. Despite that inference, the Supreme Court ruling eliminates disagreements and arguments between the parties by requiring specificity.
The Count concluded with this admonition: “Arbitration clauses, forum selection clauses, choice of law provisions, terms contemplating remedies for breach and similar commonly employed enforcement provisions typically negotiated in settlement discussions do not qualify as an agreement for [enforcement] under Evid. Code 1123 (b).”
As the dissent confirms, the majority rule prevents an arbitration clause in a settlement agreement from complying with the “enforcement” and "admissibility" clauses of Evid. Code 1123. Rephrased, parties who agree to resolve future disputes interpreting the settlement agreement, or enforcing it, cannot rely on a term providing for arbitration as admissible and enforceable.
Wed Dec 13, 2006
Mediation Confidentiality
Confidentiality of communications among participants is the hallmark of mediation. The Legislature has confirmed this protection in Ev. Code 1119 (c): “all communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.” The Court of Appeals interpreted this statute in Dino v. Pelayo, 2006 WL 3438215, a case involving litigation between multiple parties disputing a real estate commission.
Plaintiff Dino sued defendant Pelayo who subsequently filed a cross complaint against Dino and a third party. The third party filed a cross complaint against Pelayo and answered his cross complaint. The third party retained the same counsel representing plaintiff. Counsel requested Dino and the third party to sign a waiver of conflict of interest prior to a mediation and each agreed. After mediation commenced, the attorney representing defendant filed a motion to disqualify counsel for plaintiff and the third party, alleging conflict of interest.
As this case illustrates, mediation is not litigation and an analysis of motions to disqualify differs in each forum. Generally, disqualification of counsel depends on evidence of either an attorney-client or fiduciary relationship predicated on the potential for disclosure of confidential information. The court dismissed this issue on grounds neither of these relationships existed between the defendant and counsel for plaintiff and the third party.
The defendant contended the right to disqualify was based on the duty of confidentiality owed to him by Ev. Code 1119 (c), and the joint representation of both parties jeopardized exchanging information in separate caucuses. The Dino court held that one party cannot disqualify an attorney jointly representing multiple parties participating in mediation if a waiver of disqualification has been executed. Citing Barajas v. Oren Development Co., 57 Cal.App.4th 209 (1997), the court in Dino noted that allowing disqualification in these circumstances would defeat the purpose of mediation. For example, an attorney who represented one party in litigation could not represent an additional party in the same or related case. Neither the Ev. Code nor public policy prevents an attorney from representing multiple parties in mediation who have waived conflict of interest.
The Dino court was careful to note the prospect of danger when one attorney represents multiple parties in a mediation. In the fact pattern described above, the underlying dispute revolved solely around the three parties in a real estate transaction.
A mediator must be aware of a potential conflict in cases involving joint representation and receive assurance that all potentially conflicted parties understand and agree to waive the conflict. Dino is a seminal case for a mediator confronted with these issues.