Mediation Practice Twenty Years Later: A Cautionary Story and Proposed Reforms
In 1996 the California Law Revision Commission (“LRC”) developed and proposed amendments to then-existing law, which eventually became the current mediation confidentiality statute, Evidence Code section 1119.1 Since then, mediation confidentiality has been an ironclad doctrine in California, surviving multiple high-profile challenges, including at the Supreme Court level.2 Currently there is interest in a proposal to create an attorney-client exception to the doctrine of mediation confidentiality. Lynette Berg Robe recently explained in this publication how the LRC is studying the issue.3
As the LRC’s thorough process should finally be near completion, this article refrains from commenting on the already well-debated topic of a potential attorney-client exception. Rather, this article examines some other aspects of mediation that are due for review, especially in consideration of the evolution and increased popularity of mediation and Alternative Dispute Resolution (“ADR”) in general.4
Akin to existing judicial disclosure and disqualification statutes, the reforms encouraged herein would be designed “to ensure public confidence … and to protect the right of litigants to a fair and impartial [process].”5 As more and more litigation has flowed away from the courthouses and into ADR the past twenty years, public policy should also extend those protections to parties in mediations.
I. Catherine’s Story.
This tells the story of a client, “Catherine,”6 who believes she saw the mediation process permit her purported “mediator” to strip her of tens, if not hundreds, of millions of dollars.7 It is told from Catherine’s perception. Her former husband and her “mediator” have disputed many of her allegations. This does not pretend to re-litigate or adjudicate the cases against them—forests have already been sacrificed.
Similarly, this refrains from analyzing Catherine’s potential claims against her prior attorney—she did not find him blameworthy and maybe he was not. The point is not to conduct a comprehensive post-mortem analysis of Catherine’s prior experience, but to add a new perspective to the discussion and encourage reforms.
A. The “Mediated” Divorce and Later Discovery of Apparent Wrongdoing.
Catherine is the former spouse of John, who created a well-known asset—call it a “widget factory”—during the parties’ marriage. The parties shared a business manager, who was with an accountancy and financial services firm (together, the “Firm”).
When Catherine’s and John’s separation appeared imminent, the Firm reached out to Catherine, offering to help informally resolve the then-apparently-imminent divorce. What it did not reveal to her in inducing her into the process is that the Firm was aiming for John’s lucrative post-divorce financial services business, which could follow if he received the widget factory in the division of assets. It did not reveal that the Firm felt that the divorce had to be rushed to completion in order for the Firm to begin making its pitch to John. Catherine asserts these facts based on some internal Firm emails she was initially able to obtain before her further discovery efforts were terminated by mediation confidentiality.
Had Catherine been informed of the facts as she now understands them, she would not have agreed to enter into negotiations with the Firm acting as “mediator.” She would not have agreed that the negotiations would be deemed “confidential.” As with many litigants, though, Catherine had no clue about the “mediation” chapter of the Evidence Code.8 She had no clue how it could substantially affect and even harm her.
In the divorce negotiations, the parties addressed the value of the community’s interest in the widget factory. The Firm (and John) noted the uncertain status of future income. The community’s interest in the widget factory was valued in “mediation” at $8 million, in keeping with John’s representations. Catherine, who felt constant pressure from the Firm to make a deal, signed off in 2003 and was awarded half of this amount (i.e., $4 million) in the overall division of assets.
Catherine later learned that John gave members of the Firm $50,000 wristwatches in appreciation for their settlement work.
Only two weeks after Catherine signed the Marital Settlement Agreement (“MSA”), she was shocked to read a press report that John was in negotiations to sell the widget factory for $1.6 billion. Catherine immediately contacted her original attorney regarding her divorce settlement.
John hastily signed the MSA the day after Catherine raised the issue, and then filed a motion for enforcement of the MSA as the parties’ judgment. Catherine argued that her consent was procured by fraud, and that John failed to disclose the true value of the community assets. The family law trial court ruled against her. In 2006 the ruling was upheld on appeal, largely based on her lack of admissible evidence.
B. Catherine’s Subsequent Suit: Mediation Confidentiality Shields the Firm.
Following the above proceedings that upheld and enforced the MSA, Catherine filed a new lawsuit against the Firm as her remaining source of remedy. Her general theories were that the Firm fraudulently induced her into “mediation,” committed professional negligence, and breached its fiduciary duties.
Catherine argued in part that there was no “mediation” and thus no mediation confidentiality. She lost that point based on the broad definition of “mediation” provided in Evidence Code section 1115, subdivision (a).9
She also argued that the Firm was not “neutral” and therefore not subject to the protection of mediation confidentiality. The term neutral person, as used in subdivisions (a) and (b) of section 1115, is not defined in the mediation statutes nor has it been explicitly defined in any appellate authority.
The trial court researched the legislative history of Evidence Code section 1115, subdivision (b) and ruled that the only “neutrality” required for one to become a mediator is merely one’s objective status as a non-party.10 The trial court found that, even though the Firm did not act “neutral” in the sense that it was free of bias, “neutral” merely refers to the “intended role of the person in the mediation.”
The trial court continued:
[T]here is nothing in the statutory scheme governing the mediation privilege in [the] Evidence Code … that requires a mediator to disclose conflicts of interest or, more importantly, that conditions mediation privilege on disclosure of such conflicts, or on the absence of such conflicts. (emphasis added).
Thus, though it may be true that it is good practice that only persons without prior relationships with both sides of a mediation act as a mediator [citations omitted], this is not a condition to mediation privilege…. And, although mediators in court-connected mediation programs must disclose conflicts (Cal. Rules of Court, rule 3.855), [neutrality] is not a condition to mediation privilege….(emphasis added).11
The trial court made the above analysis in relation to Catherine’s early motion to compel discovery. Its denial of that motion prevented Catherine from obtaining information and materials that Catherine believed would have helped her prove her case. The trial court’s same analysis then became a basis for its eventual granting of the Firm’s motions for summary judgment that recently terminated the case in the Firm’s favor. Catherine is currently appealing those rulings.
Under the broad definition of “neutral” and the strong and broad doctrine of mediation confidentiality, the Firm has to date been able to escape trial. Mediation confidentiality prevented Catherine from obtaining and presenting potentially relevant evidence toward holding the Firm accountable. It prevented her from even alluding to what occurred during “mediation.”12 Absent those abilities, she had no chance.
II. Reforms are Necessary to Protect against Biased Mediators and to Educate Litigants about the Ramifications of Mediation Confidentiality.
The state of current laws legalizes biased mediation, as mediators who are not neutral and can sway unsophisticated parties into entering unfavorable agreements are permitted to operate. It misleads litigants in calling mediators “neutrals” when “neutrality,” as the word is commonly understood, is apparently not required and might not be provided. The breadth and depth of mediation confidentiality might not be fully appreciated by anxious litigants who often “just want to get their case done” without first knowing the doctrine’s existence or potential ramifications. As such, the current paradigm lacks express requirements for “informed consent,” which goes to the heart of mediation policy.13
Indeed, these results seem to have been the Legislature’s intended purpose in 1996.
The legislative history of Evidence Code section 1115 reveals that the Legislature originally considered and rejected a provision incorporating disclosure, conduct, and bias requirements in the mediation statute. The bill’s author opposed the provision because, among other issues, the bias disclosure standard ignored the wide variety of mediation situations. They included “peer (student)” disputes, “community-based” mediations, and the resolution of neighborhood issues. The bill’s author did not want those loosely defined “mediators” burdened with such regulations.
The modern reality, however, is that parties in mediation expect their mediators, like judges, to be unbiased and fair. Even represented parties expect mediators, like judges, to provide opinions on the facts and the law, and the application of the latter to the former. One of the parties is often more vulnerable than the other, and they are both conducting what might be the greatest transaction of their lifetimes while under unusual and great pressures. Emotions are typically high, reasoning can be impaired and mediators therefore have great sway.
Parties in family law mediations now have the protection of the holding in In Re Marriage of Lappe, 232 Cal. App. 4th 774 (2014). The Lappe court avoided creating an exception to the mediation confidentiality doctrine in finding that disclosures made during mediation under the Family Code’s mandate fall outside Evidence Code section 1119. Id. at 787. An aggrieved party would now at least be able to point to those disclosures in follow-up litigation against the other party. Depending on the circumstances, that might or might not be helpful.
But Lappe is not a panacea. It does not apply to mediations outside of family law. It does not address mediator bias or require pre-mediation conflict disclosures or other notifications to parties. It does not allow an aggrieved party to conduct discovery into the mediation or otherwise use anything therefrom to establish liability for her damages (discussed below in relation to “fraud in the inducement” claims).
We do not advocate special treatment of family law cases. Based on principles expressed in Elkins v. Superior Court, 41 Cal. 4th 1337 (2007), we disfavor the prospect of differentiated treatment of family law litigants. See, e.g., supra note 12.
Toward reform beyond the issue of a potential exception to the attorney-client privilege under mediation confidentiality, we urge the following proposals.
A. Requirement of Mediator Neutrality.
Evidence Code section 1115, subdivision (b) ought to be revised to require true neutrality of mediators. Its current use of the term neutral person ought to mean more than “someone with a pulse who is not one of the parties.” This should be accompanied by an express assertion of public policy embracing disclosure and rejecting bias. Even parties in peer disputes, community mediations, and neighborhood issues ought to know that, when they turn to a “neutral person” to help with an important dispute, the “neutral” is truly neutral as laypersons understand the term.
Alternatively, the requirement for true neutrality ought to at least apply to all mediations held in contemplation of resolution of litigation. There is no longer a compelling rationale for denying a mediator’s true neutrality to prospective or actual litigants in order to encourage mediation of other types of disputes. Contrarily, a requirement of true neutrality for litigation-related mediations would not be expected to dampen enthusiasm for the mediation of other types of disputes.
As the mediator in Kieturakis emphasized (ironically, in arguing for mediation confidentiality), “neutrality [is] the life and breath of mediation. … [A] party must be guaranteed that the mediator is neutral ….” In re Marriage of Kieturakis, 138 Cal. App. 4th 56, 68 (2006).
“The job of third parties such as mediators, conciliators and evaluators involves impartiality and neutrality, as does that of a judge, commissioner or referee ….” Howard v. Drapkin, 222 Cal. App. 3d 843, 860 (1990).
Rossco Holdings v. Bank of America, 149 Cal. App. 4th 1353 (2007) described a standard for determining whether an arbitration was biased: “[w]hether [a] person aware of the facts might reasonably entertain a doubt that the [arbitrators] would be able to be impartial.” Id. at 1367. The same standard could apply to mediations, too.
B. Requirement of Conflict Disclosures and Mediation Notifications that Present Parties with Options.
The law should be revised to require the pre-mediation presentation to parties of mandatory written conflicts disclosures that identify all of a mediator’s existing as well as reasonably foreseeable future involvement with either party.14 It should have to be updated through the mediation’s termination.
The recent case, Hayward v. Superior Court (Osuch), 206 Cal. Rptr. 3d 102 (Aug. 3, 2016), review granted 209 Cal.Rptr.3d 30 (Nov. 9, 2016), emphasized the importance of written disclosures in the circumstances of “private judging.” As participants reasonably expect mediators, as well as private judges, to be truly neutral, the retention of private judges is analogous to that of mediators. The Hayward opinion explained:
Although disclosure may be onerous, matrimonial practitioners (and others who frequently participate in the … process) have a greater interest in assiduous disclosure than they may realize. … [T]he use by the “small and collegial” family law bar “of our friends, colleagues, and prior opposing counsel as private judges unwittingly exposes all of us, as a community and as individuals, to potential liability for violations of the various ethical canons, claims of cronyism, allegations of bias, complaints of self-dealing, and malpractice law suits. I believe that we are well intentioned, but I also believe the problems related to the inter-relationships of our bar in this way have been ‘under-discussed’ and ‘under-examined.’ ”
Id. at __ [p. 39] (quoting Hersh, Ethical Considerations in Appointing our Colleagues as Private Judge, 31 Fam. L. News 31 (Issue No. 4, 2009) (official publication of the California State Bar, Family Law Section)).
The law should be revised to require the pre-mediation presentation to parties of written notifications that inform them of the existence and scope, and actual and potential ramifications of mediation confidentiality. Among other things, it should warn that, under mediation confidentiality, any post-settlement discoveries of misrepresentations, omissions, or fraud that might have been committed in mediation would be difficult to investigate or rectify.
The written notifications should include an express option to waive confidentiality. Parties can and do settle their cases in non-confidential circumstances, and they should know that it is their right to try a non-confidential approach. They should be aware that “confidentiality” is their option instead of a tacit and apparently (to parties) unavoidable expectation of the mediation “system.” It would hurt no one to provide parties the opportunity to make an educated choice; choice would be good.
Consistent with the concerns about optics addressed in the above Hayward opinion regarding “private judging,” it cannot be ignored that mediation confidentiality currently and popularly—to attorneys and mediators—provides participating lawyers and mediators a level of insulation from scrutiny and potential recourse for mistakes and other wrongdoing not enjoyed by those practicing outside the mediation cocoon. Although the Hayward opinion discussed potential “liability,” we are concerned about how the current mediation paradigm can “unwittingly [expose] all of us, as a community and as individuals, to potential appearances of … cronyism … bias … self-dealing, and [exposure-free] malpractice ….” See id. at __ [p. 39] (emphasis added). Preventing even the appearance of these improprieties would align with the State’s policy favoring ADR.
Parties should be allowed to actively choose whether they might really want confidentiality in light of the risks that have disabled Catherine in her fight for justice. The above written disclosures, notifications, and presentation of options could be accomplished through the creation of mandatory Judicial Council forms.
III. Potential Post-Mediation Discovery and Proceedings.
Advocacy for the above reforms leaves open the question of how to investigate and enforce them. As to the latter proposed requirement for conflict disclosures and mediation notifications that present parties with options, the recommended analysis would be binary. If all the requirements are objectively met, then the settlement proceeding would be a “mediation” under Evidence Code section 1115(a). Absent all the requirements being met, the settlement proceeding should not be deemed a “mediation” or otherwise be subject to mediation confidentiality. A party seeking to set-aside an agreement under either scenario could utilize existing legal avenues.15
A party asserting an unjust settlement agreement due to mediator’s bias would have a more complicated path. Investigating and proving bias would likely involve attempting to reach into the mediation proceedings, thereby triggering mediation confidentiality. How might set-aside actions based on mediator bias be investigated and prosecuted?
One option could be to provide no special procedure. In this scenario a litigant would have a much better chance of investigating and proving her case if she might have originally appreciated and rejected confidentiality under the above proposed reforms. The litigant could proceed unfettered by confidentiality.
As Catherine found, it is nearly impossible to proceed under mediation confidentiality. But, a litigant who might have chosen confidentiality and then suspected bias would have at least given her informed consent to confidentiality under the above proposed reforms. She could still try to prove her case “around” mediation confidentiality. But the doctrine would be justly applied in this alternative scenario.
Or, special procedures could potentially be established.
For instance, the LRC, in its work concerning the potential attorney-client privilege exception to mediation confidentiality, has already considered possibilities including in camera judicial review of claims of wrongdoing during mediation. Another avenue could be for litigants to assert initial declarations, as allowed by the trial court but then rejected by the Supreme Court in Foxgate Homeowners’ Association, Inc. v. Bramalea California, Inc., 26 Cal. 4th 1, 11 (2001). The trial court in Kieturakis allowed, before being reversed, a “closed courtroom” procedure.16 Current anti-SLAPP statutes require special motions where plaintiffs must meet an evidentiary standard before being allowed to proceed.17
B. Claims Made Directly against Mediators.
Apart from actions to set-aside agreements reached in mediation, claims made directly against mediators run into the doctrine of quasi-judicial immunity.
In Howard v. Drapkin, 222 Cal. App. 3d 843, 852-853 (1990), the court held, “[u]nder the concept of ‘quasi-judicial immunity,’ California courts have extended absolute judicial immunity to persons other than judges if those persons act in a judicial or quasi-judicial capacity ….” Mediators accused of wrongdoing in mediation would be entitled to such immunity. “[T]here should be entitlement [for mediators] to the same immunity given others who function as neutrals in an attempt to resolve disputes.” Id. at 860.
Recently JAMS Inc. v. Superior Court (Kinsella), 205 Cal. Rptr. 3d 307 (July 27, 2016), addressed the situation where a party (the “plaintiff” in the published case) in an underlying “private judging” setting filed civil claims against JAMS and the judicial officer. The claims were based not on the judicial officer’s actions in the actual proceeding, but on asserted false advertising of the judicial officer’s background and qualifications, which had induced the plaintiff into the private judging setting. Although the substantive “misrepresentation” issues were beyond the scope of the anti-SLAPP proceedings that its opinion addressed, the court expressed that “all allegations of wrongdoing relate to information [the plaintiff] specifically viewed on defendant JAMS’ [Web site] before he agreed to select [the private judicial officer].” Id. at 311 (emphasis added). Judicial immunity was on its mind.
Similarly, Catherine asserted a cause of action against the Firm for fraudulent inducement before it began its substantive work. This was expected to avoid quasi-judicial immunity. But the trial court barred this, holding “any alleged harm is based upon what actually occurred at the mediation.” As such, mediation confidentiality blocked her under the prior inducement theory, too.
Under this logic, a litigant who might be tricked, coerced, or otherwise fraudulently induced into a biased mediation is automatically rendered unable to establish damages, and thus her case as a whole, because of the mediation, itself.
Why should a party asserting fraudulent inducement in the private judging context be allowed to try to prove his damages, and thus his case as a whole, whereas a similarly situated one in the mediation context is barred by mediation confidentiality? We presently advocate no particular solution but, rather, raise the point for discussion.
A respected family law judge recently emphasized,
“[T]he fact is that anyone can hold themselves out as a family law mediator regardless of skill, training and expertise. … Lawyers are bound by lawyer ethics, but former auto mechanics holding themselves out as family law mediators are not held to any specific ethics.”
Mediators are unregulated by the State Bar. Toward maintaining justice and the public’s trust, mediator ethics and transparency are critical.
ADR, including mediation, is more popular than ever and public policy should continue to support it. However, under the current laws, the potential bias of mediators as well as the ignorance of participants can unwittingly and otherwise expose all of us, as a community and as individuals, to potential appearances of “cronyism … bias … self-dealing, and [exposure-free] malpractice …” as the recent Hayward opinion discussed in the context of private judging. Catherine’s experience emphasizes how the current paradigm expressly countenances the potential bias of mediators, ignorance of parties, and major abuse. Twenty years following the implementation of the current mediation statutes, implementation of the above proposals against mediator bias and for written disclosures, notifications, and waivers would serve the interests of justice, while still maintaining public policy favoring mediation.
The burden on scrupulous mediators and mediation-oriented counsel would likely be minimal. It would be outweighed by policies against unjust results arising from biased mediators or ignorant and unprepared parties. We urge these points without offering an opinion in the debate over an exception to attorney-client privilege in mediation. We encourage their inclusion as part of the overall discussion toward enhancing public confidence in mediation and to protect the right of litigants to a fair and impartial process.18
1 Section 1119 provides,
[e]xcept as otherwise provided in this chapter: (a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled be to given. (b) No writing … that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given. (c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.
2 “There are no exceptions to the confidentiality of mediation communications or to the statutory limits on the content of mediator’s reports. Neither a mediator nor a party may reveal communications made during mediation.” In re Marriage of Woolsey, 220 Cal. App. 4th 881, 901 (2013) (quoting Foxgate Homeowners’ Ass’n, Inc. v. Bramalea Cal., Inc., 26 Cal. 4th 1, 4 (2001)).
3 The LRC is an independent state agency, which functions to recommend to the Legislature and the Executive Branch changes to the law to eliminate “defects, anachronisms, or need for clarity.” Lynette Berg Robe, Another way of Making Sausage … The California Law Revision Commission Studies and Exception to “Mediation Confidentiality”, ACFLS Fam. L. Specialist, No. 2 (Spring 2016).
4 See, e.g., Zachary G. Newman & Yoon-Jee Kim, The Increasing Popularity and Utility of Mediation, A.B.A. Section of Litig. Newsl. (Feb. 13, 2012).
5 See, e.g., Peracchi v. Superior Court, 30 Cal. 4th 1245, 1251 (2003).
6 Catherine is not her real name. This also refers to her former spouse as John (not his real name either). I represented Catherine in certain post-judgment matters that are not discussed. I also carefully followed the civil court litigation described herein.
7 As discussed below, Catherine unsuccessfully argued that her settlement proceeding was not a “mediation” since the “mediator” was not a “neutral person” pursuant to Evidence Code section 1115, subdivision (b), and for other reasons.
8 The mediation chapter begins at Evidence Code section 1115.
9 Section 1115, subdivision (a) provides, “[m]ediation means a process in which a neutral person or persons facilitate communication between the disputants to assist them in reaching a mutually acceptable agreement.”
10 Section 1115, subdivision (b) provides, “[m]ediator means a neutral person who conducts a mediation.” The section also includes assistants as “mediators.” (emphasis added.)
11 Actually, “[t]he mediation confidentiality statutes do not create a ‘privilege’ in favor of any particular person. [Citations omitted.] … The mediation confidentiality statutes govern only the narrow category of mediation-related communications, but they apply broadly within that category, and are designed to provide maximum protection for the privacy of communications in the mediation context.” Cassel v. Super. Ct. (Wasserman, et al.), 51 Cal. 4th 113, 132 (2011) (emphasis added).
12 Evidence Code section 1128 makes any reference to a mediation in any later civil proceeding “grounds for vacating or modifying the decision in that proceeding, in whole or in part, and granting a new or further hearing on all or part of the issues, if the reference materially affected the substantial rights of the party requesting relief.” In re Marriage of Kieturakis, 138 Cal. App. 4th 56, 62, n.2 (2006).
13 “Informed consent is vital to the self-determination principle at the heart of mediation. Client decisions must be informed and voluntary.” Hon. Thomas Trent Lewis, Elizabeth Potter Scully & Forrest S. Mosten, Late Nights and Cancellation Rights: Bolstering Enforceability of Mediated Settlement with a Cooling off Period, 38 Fam. L. News 1 (Issue No. 1, 2016) (official publication of the California State Bar, Family Law Section). That article suggested a “cooling off” period for parties to potentially reconsider and revoke agreements made in family law mediations. Based on principles expressed in Elkins v. Superior Court, 41 Cal. 4th 1337 (2007), we, however, disfavor the prospect of differentiated treatment of family law litigants. Further, an arbitrary “reconsideration” period of some few days, as suggested by that article, would not have helped Catherine, who learned of the prospective billion dollar deal two weeks after she signed her deal.
14 For instance, canon 6D(5)(a) of the California Code of Judicial Ethics provides that in “all proceedings” temporary judges must “disclose in writing or on the record information as required by law, or information that is reasonably relevant to the question of disqualification under canon 6D(3), including personal or professional relationships known to the temporary judge … that he or she or his or her law firm has had with a party, lawyer, or law firm in the current proceeding, even though the temporary judge … concludes that there is no actual basis for disqualification.” We advocate this for mediators, too.
15 See, e.g., Cal. FC § 2120 et seq.; Cal. Civ. Proc. Code § 473.
16 Kieturakis, 138 Cal. App. 4th at 68.
17 See Cal. Civ. Proc. Code § 425.16. Plaintiffs attempting to proceed against anti-SLAPP defenses must first establish a high burden of “probability” of prevailing, although that is not particularly advocated here.
18 See, e.g., Peracchi v. Superior Court, 30 Cal. 4th 1245, 1251 (2003) (in the context of the judicial disqualification process).