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Mediating A Complex Construction Defect Case

by Michael P. Carbone
November 2004 Michael P. Carbone
I. HISTORICAL BACKGROUND

Following the passage of the Trial Court Delay Reduction Act (“Fast Track”) in 1987, alternative dispute resolution (“ADR”) became the accepted method of dealing with multi-party construction defect (“CD”) cases in California. ADR proved to be an efficient method of moving CD cases toward trial or settlement on an expedited basis.

The courts developed a process whereby a special master is appointed to manage the case and to conduct mandatory settlement conferences. A case management order (CMO) is entered which stays normal discovery while the case proceeds under the direction of the special master. Should the case not settle, the stay would be lifted and the case could then go to trial.

In addition to the special master model, there are other ADR processes that have been used to resolve CD cases, all of which have generally gone under the rubric of “mediation.” [1] In some cases, the courts have appointed a “mediator” but also given that person additional powers, including those of a discovery referee.

In recent years a number of changes have occurred in CD litigation. The list of conditions which are now commonly claimed to be construction defects has become longer. Claims based on mold resulting from water intrusion are commonplace. Insurance coverage issues have become more complicated. And, discovery disputes are now a regular occurrence. These changes and others have prolonged the process and have adversely affected the prospects for achieving early settlement. The life of a CD case is now typically two to three years, if not longer. As a result a re-examination of the processes being used to manage and settle these cases has taken place. This paper discusses the techniques and procedures developed in the past which remain useful in CD cases, as well as new methods that respond to the current climate.

II. CURRENT STATUS OF MEDIATION

A. New Climate.

The changes that have taken place in CD lawsuits have made them even more challenging than before. Unfortunately these changes have also brought about a more acrimonious climate. As frustration levels have risen, the efficacy of the mediation process has been questioned and calls have been made for it to be reformed. Some of the more common complaints have been:

  • The courts have over-used special masters and referees, thereby driving up costs. Because these neutrals are paid by the hour, it is often felt that they have an incentive to drag the case out rather than to expedite it.
  • Special masters often fail to use a firm hand in managing the case or in resolving discovery disputes.
  • The timelines set out in Case Management Orders (“CMOs”) are regularly ignored and discovery and other orders issued by referees are often disobeyed with impunity.
  • Costs are further driven up as cases can take several years, and the number of mediation sessions can commonly amount to ten or more.
  • There is a scarcity of qualified mediators to take on an ever-increasing number of cases and those mediators who can take them often are unavailable when their presence is needed.
  • Expert witnesses, by assuming the role of overtly partisan advocates, have forfeited their stature and become part of the problem instead of part of the solution.
  • New parties and “new” carriers enter the case late in the process.
  • Plaintiffs fail to produce a final defect list and summary of repair costs in sufficient time before settlement discussions are scheduled to occur.
  • Developers attempt to withhold information regarding their scope of work, as distinguished from that of their subcontractors, until shortly before trial.
  • Insurance carriers attempt to avoid participating in mediation by sending representatives who lack knowledge of the case and/ or meaningful settlement authority or by not showing up at all.

B. Confidentiality Issues.

While confidentiality may not have been the driving force in early CD mediation, it has come to be regarded as crucial to the success of mediation in virtually all civil litigation. In 1997 the Legislature enacted a statutory scheme that was intended to provide a blanket of absolute confidentiality for mediation. Although Cal. Evid. Code section 1152 has long made offers of compromise inadmissible, the confidentiality of mediation is far broader and provides much greater protection. [2]

Under Cal. Evid. Code section 1119, all oral communications during the mediation, and all “writings” that are prepared for the purpose of mediation, are treated as confidential.

In Foxgate Homeowners Ass’n v. Bramalea Cal., Inc., 26 Cal. 4th 1, 108 Cal. Rptr. 2d 642 (2001), which was a CD case involving reports to the court by a mediator/referee that were critical of a mediation participant, the Supreme Court reinforced the strong public policy in favor of confidentiality by stating that: "The legislative intent underlying the mediation confidentiality provisions of the Evidence Code is clear. The parties and all amici curiae recognize the purpose of confidentiality is to promote ‘a candid and informal exchange regarding events in the past….This frank exchange is achieved only if the participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.’…To carry out the purpose of encouraging mediation by ensuring confidentiality, the statutory scheme, which includes [Evidence Code] sections 703.5, 1119, and 1121, unqualifiedly bars disclosure of communications made during mediation absent an express statutory exception." (26 Cal. 4th at pp. 14-15.)

The Foxgate decision was reassuring since there had been previous cases which seemed to question the scope of mediation confidentiality, despite what the statutes appear to state. [3]But Foxgate was limited to statements made during mediation. In Rojas v. Superior Court, 071204 CASC S111585, the Supreme Court addressed the scope of confidentiality afforded by section 1119 to “writings prepared for the purpose of mediation. Subdivision (b) of Section 1119 states that: “No writing, as defined in Section 250, 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.”

In Rojas, Julie Coffin (“Coffin”), owner of an apartment complex, sued the contractors and subcontractors who had built it, alleging that water leakage due to construction defects had produced toxic molds and other microbes in the buildings. The court issued a CMO that referred the case to mediation, and which provided that: “Evidence of anything said or any admission made by attorneys, parties, principals, consultants, or others in the course of any ‘mediation proceeding’ . . . and any document prepared for the purpose of, or in the course of, or pursuant to any mediation proceeding shall be deemed privileged pursuant to Evidence Code § 1119 and shall not be admissible as evidence at trial or for any purpose prior to trial.”

The litigation settled at the mediation. The settlement agreement stated in part that, “throughout this resolution of the matter, consultants provided defect reports, repair reports, and photographs for informational purpose which are protected by the Case Management Order and Evidence Code §§ 1119 and 1152, and it is hereby agreed that such materials and information contained therein shall not be published or disclosed in any way without the prior consent of plaintiff or by court order.”

Within a few months thereafter, several hundred tenants of the apartments (“Tenants”) filed an action against both Coffin and the various contractors that participated in development or construction of the complex. The Tenants alleged that defective construction had allowed water to intrude and microbes to infest the complex, causing numerous health problems. They also alleged that all defendants had conspired to conceal the defects and that Tenants had not become aware of the defects until a few months before the filing of their action.

Tenants sought to discover numerous pieces of evidence that had been created during the pendency of the prior action. After entry of the CMO, one of the buildings at the complex had been closed for abatement, including demolition and replacement of drywall and ceilings, application of antimicrobial agents, and plumbing repairs. Much of the evidence sought by Tenants was created during the abatement process or in connection with destructive testing. Tenants sought production of numerous documents, including: (1) discovery exchanged between the parties to the prior litigation; (2) physical evidence of the condition of the buildings, including photographs, videotapes, test samples and reports, and any physical evidence that was removed from the buildings and saved, such as drywall, plumbing, and framing; (3) writings describing the buildings, including written notes of observations made during inspections and witness interviews; and (4) writings evidencing experts’ opinions and conclusions, whether or not communicated to the defendants in the prior action. Coffin and one of its contractors opposed the motion, arguing in part that all of the requested documents were protected from discovery under section 1119 because they were prepared for the mediation in the prior action.

On hearing of a motion to compel production, the trial court ordered the defendants to submit the documents in question for in camera review. After such review, the court ruled that compilations of information that had been prepared for the mediation, and which included photographs of conditions at the complex, were protected from discovery under section 1119.

Thereafter Tenants served interrogatories on another defendant contractor, expressly seeking information regarding the mediation in the prior action. This defendant objected to the discovery request, based in part on section 1119. Upon hearing of a motion to compel production, the court ruled that the defendant did not have to disclose information contained in documents that the court had already held to be undiscoverable under section 1119 and reaffirmed the previous ruling that the mediation compilations were undiscoverable.

After this ruling, Tenants served another request for production of all photographs and videotapes taken or received during the prior action, “all recorded statements” of former or current tenants obtained in that action, all “results” from destructive testing during that action, and all “raw data” collected during that action from “air sampling for mold spores,” “bulk sampling of mold spores,” and “destructive testing.” When Coffin objected to the request, Tenants moved to compel production, arguing that the court had ruled only that the mediation compilations, and not the individual photographs, were protected from discovery. The motion was denied, and Tenants then sought a writ of mandate in the Court of Appeal.

In a divided decision, a majority of the Court of Appeal held that application of Section 1119(b) was governed by the same principles that govern application of the work product privilege under Code of Civil Procedure section 2018. Applying those principles, the majority classified the raw test data, photographs, and witness statements as nonderivative material that is not protected. On the other hand, the majority held, material reflecting only an attorney’s impressions, conclusions, opinions, or legal research or theories is absolutely protected. Finally, the majority held that derivative materials—amalgamations of factual information and attorney thoughts, impressions, and conclusions—are qualifiedly protected; they are discoverable only upon a showing of good cause, which involves a balancing of the need for the materials and the purposes served by mediation confidentiality.

The Supreme Court reversed the judgment of the Court of Appeal, holding that its interpretation of section 1119 (b) was contrary to both the statutory language and the Legislature’s intent.

In its opinion, the Court explains the meaning of subdivision (b) as follows:

“…,the Court of Appeal held that section 1119 never applies to photographs and witness statements. However, under section 1119, because both photographs and written witness statements qualify as “writing[s], as defined in [s]ection 250,” if they are “prepared for the purpose of, in the course of, or pursuant to, a mediation,” then they are not “admissible or subject to discovery, and [their] disclosure . . . shall not be compelled.” The Court of Appeal also held that “raw test data” are never “protected by section 1119.” Insofar as it was referring to actual physical samples collected at the apartment complex—either from the air or from destructive testing—the Court of Appeal was correct; such physical objects are not “writing[s], as defined in [s]ection 250.” (§ 1119, subd. (b).) However, insofar as it was referring to recorded analyses of those samples—for example, reports describing the existence or amount of mold spores in a sample—the Court of Appeal erred; because such analyses are “writing[s], as defined in [s]ection 250,” under section 1119, if they were “prepared for the purpose of, in the course of, or pursuant to, a mediation,” then they are not “admissible or subject to discovery, and [their] disclosure . . . shall not be compelled.” (Opinion, pp. 9-10.)

The Court also explains how sections 1119 and 1120 are to be construed together:

Section 1120 does not, as the Court of Appeal held, support a contrary conclusion. As noted above, section 1120, subdivision (a), provides that “[e]vidence otherwise admissible or subject to discovery outside of a mediation . . . shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation . . . .” Read together, sections 1119 and 1120 establish that a writing—which qualifies as “ ‘[e]vidence’ ” (§ 140)—is not protected “solely by reason of its introduction or use in a mediation” (§ 1120, subd. (a)), but is protected only if it was “prepared for the purpose of, in the course of, or pursuant to, a mediation.” (§ 1119, subd. (b).) In other words, under section 1120, a party cannot secure protection for a writing—including a photograph, a witness statement, or an analysis of a test sample—that was not “prepared for the purpose of, in the course of, or pursuant to, a mediation” (§ 1119, subd. (b)) simply by using or introducing it in a mediation or even including it as part of a writing—such as a brief or a declaration or a consultant’s report—that was “prepared for the purpose of, in the course of, or pursuant to, a mediation.” (Ibid.) Contrary to the Court of Appeal’s conclusion, this construction does not render section 1120 “surplusage” or permit parties “to use mediation as a shield to hide evidence.” Rather, consistent with the Legislature’s intent, it applies section 1120 as a “limit[]” on “the scope of [s]ection 1119” that “prevent[s] parties from using a mediation as a pretext to shield materials from disclosure.” (Cal. Law Revision Com. com., 29B pt. 3 West’s Ann. Evid. Code (2004 supp.) foll. § 1120, p. 153.)

On the other hand, the Court of Appeal’s construction renders subdivision (b) of section 1119 essentially useless. As noted above, the Court of Appeal held that section 1119 does “not protect pure evidence,” but protects only “the substance of mediation, i.e., the negotiations, communications, admissions, and discussions designed to reach a resolution of the dispute at hand.” However, this protection is afforded under subdivision (a) of section 1119, which provides: “No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation . . . is admissible or subject to discovery, and disclosure of the evidence shall not be compelled . . . .” (Italics added.) Because a “writing[]” constitutes “[e]vidence” (§ 140), any writing that discloses what the Court of Appeal characterized as “the substance of mediation”—“negotiations, communications, admissions, and discussions designed to reach a resolution of the dispute”—necessarily qualifies as “evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation,” and is undiscoverable under subdivision (a) of section 1119. Thus, under the Court of Appeal’s narrow statutory construction, subdivision (b) of section 1119 serves no purpose. (Opinion pp. 10-12.)

The Court expressly rejects the view of the majority of the Court of Appeal that mediation confidentiality is governed by work product principles: The Court of Appeal also erred in holding that, although section 1119’s protection applies to so-called derivative material “that is prepared for the purpose of, in the course of, or pursuant to, a mediation” (§ 1119, subd. (b))—such as charts, diagrams, information compilations, and expert opinions and reports—such material is nevertheless discoverable “upon a showing of good cause.” As noted above, in reaching this conclusion, the Court of Appeal borrowed principles governing discovery of work product. However, discovery of work product is expressly governed by statute; Code of Civil Procedure section 2018, subdivision (b), provides that work product—other than writings reflecting an attorney’s impressions, conclusions, opinions, or legal research or theories—is discoverable if “the court determines that denial of discovery will unfairly prejudice the party seeking discovery in preparing that party’s claim or defense or will result in an injustice.” Thus, the Legislature clearly knows how to establish a “good cause” exception to a protection or privilege if it so desires. The Legislature did not enact such an exception when it passed Evidence Code section 1119 and the other mediation confidentiality provisions. (Opinion pp. 19-20.)

The Court notes that the Legislature intended that the party who prepares a writing for purpose of mediation is entitled to control its ultimate use, including introduction at trial if the party so chooses. …section 1122, subdivision (a)(2), permits discovery of protected communications and writings that were “prepared by or on behalf of fewer than all the mediation participants” if “those participants expressly agree” to disclosure and disclosure would not reveal “anything said or done or any admission made in the course of the mediation.” As also noted above, the language of this provision was designed to give a mediation participant “control over whether” something prepared for the mediation “is used” in subsequent litigation. (Cal. Law Revision Com., Staff Draft of Final Recommendation on Mediation Confidentiality, supra, at p. 21.) Subdivision (a)(1) of section 1122 establishes another exception; it permits discovery of protected material if “[a]ll persons who conduct or otherwise participate in the mediation expressly agree . . . to disclosure.” (Opinion, p. 20.)

And lastly, in reaching its decision, the Court referred to its prior opinion in Foxgate wherein it cited the strong public policy in favor of mediation confidentiality. In so doing, the Court expressly adopted a statement made by the trial court that “the mediation privilege is an important one, and if courts start dispensing with it by using the . . . test [governing the work-product privilege], . . . you may have people less willing to mediate.” (Opinion, p. 20.)

Like Foxgate, Rojas seems reassuring to those who, like the author, believe strongly in the importance of confidentiality to the success of mediation. Nevertheless, as of this writing plans are apparently being made to introduce proposed legislation that would either overturn or modify the holding in Rojas. Counsel should therefore be alert to possible further developments in this area.

C. Complex Litigation Pilot Program.

On the positive side, the Judicial Council began a pilot program in January 2000 to establish one or more complex litigation departments in each of six major counties of California. Under the program a case that is determined by the court to be “complex” in nature will be referred to one of these departments for pre-trial and case management purposes. All multi-party CD cases are referred to these departments and indeed CD cases have been a major part of their caseloads in some counties.

The Judicial Council issued a report in June of 2003 on the results of this pilot program, in which the Council states that the program has enabled the courts to handle complex cases more efficiently. With regard to CD cases in particular, the program has allowed the complex litigation judges to devote more of their own time to the oversight of a case rather than relying entirely on a special master or referee. This change has alleviated some of the complaints made about the use of referees.

The Council has voted to continue the program in the six counties where it has been implemented and to expand it to other counties as well. Given current budgetary problems, the expansion may have to be delayed. In the meantime however, the courts in other counties might consider utilizing the procedures set forth in this paper under the authority of the California Standards for Judicial Administration of Complex Litigation (Cal. Standards Jud. Admin., section 19.) [4]

III. HOW THE MEDIATION PROCESS CAN BE IMPROVED

The challenges which now confront the parties to a complex CD case require that the mediation process be updated. The statement of procedures described below is not exhaustive, but it does incorporate the essential techniques which have worked in the past while suggesting some needed improvements.

Chief among the suggested improvements are: (1) to rely more heavily on the case management judges (particularly in counties which have complex litigation departments) rather than on referees; (2) consistent with the greater involvement of the court, as well as the true nature of mediation, to relieve the mediator of all responsibilities other than handling the mediation itself; (3) to use referees as necessary but to dispense with the use of “special masters;” and (4) to retain and use neutral / independent experts to counter the effects of consultants who take a purely forensic approach.

A. Retain A Mediator And Set Basic Ground Rules for the Mediation.

The first steps in any mediation are to select the mediator and agree on the process. These tasks should be accomplished as soon as the major parties and their counsel have been identified.

The parties, rather than the court, are responsible for choosing the mediator. [5]When retaining the mediator, the following considerations must be kept in mind:

  • The mediator’s only role is to work with the parties toward the goal of reaching a settlement of the case. The mediator is obligated to remain neutral throughout the process even though he or she may eventually be required to evaluate claims and make recommendations.
  • Although the court cannot use the reference process to appoint a mediator, the CMO will typically direct the parties to participate in mediation before a mediator chosen by the parties. The CMO should address the structure and phasing of the mediation (see Section C. below) and should set a deadline for its completion.
  • In order to safeguard confidentiality, the following steps should be taken. First, all parties should sign a written agreement to mediate in which they acknowledge that the mediation is confidential, that they will not attempt to subpoena the mediator to testify or to produce any notes or documents, and that all documents and things prepared for the purpose of the mediation will be inadmissible and not subject to discovery. As new parties enter the case they should be required to sign this same agreement.
  • The parties should agree to extend indefinitely the ten day period provided for in Cal. Evid. Code section 1125(a)(5). This section states that in the absence of an agreement by the parties to the contrary, the mediation is deemed to have ended when there has been no communication between the mediator and any of the parties for a period of ten calendar days. Because CD mediations can extend over a period of many months, the statutory period can be unrealistic. Note that the ten-day period can be extended only by agreement of the mediator and the parties and not by order of the court.
  • All “writings” (as broadly defined in Cal. Evid. Code section 250) that are prepared for the purpose of mediation should be so designated.
  • The mediation should not be referred to in any agreement or court order as a “settlement conference,” and the mediator should not be referred to by any other title. [7]

B. Avoid Use of a “Recycled” Case Management Order.

The CMO is the mechanism whereby the court controls a complex case. The subjects which should be covered in a CMO for a complex CD case are set out in Section 3.13 of the Deskbook on the Management of Complex Civil Litigation (“Deskbook”). While the mediator will not be directly involved in all of the matters covered in the CMO, the success of the mediation will depend on the effective crafting of the order.

Too often the CMO is a boilerplate document that has simply been borrowed from another file. While there is nothing wrong with re-using good work product, the CMO should always be modified as necessary to fit the particular case. [8] Thought must be given to the appropriate discovery plan, timing and sequencing of various phases of the litigation at hand, and a multitude of other issues. (See Deskbook, Sec. 3.13.)

With regard to procedure, counsel for the developer and/or general contractor should arrange to meet with plaintiff’s counsel as soon as possible after the service of summons. At this meeting they should discuss the major defect and other claims (e.g. mold) and identify the principal subcontractors who will need to be brought in. Plaintiff’s counsel should provide sufficient information about the claims so that the defense can determine what will be needed by way of investigation, testing and discovery. A deadline should also be agreed upon for the naming of any new parties.

After this meeting, counsel should confer with the judge and obtain permission to defer the preparation and entry of the CMO until the major additional parties are before the court and have had an opportunity to review the proposed order. As an alternative the court may be willing to enter one or more interim orders, with the entry of the comprehensive CMO to be deferred until all of the major players have appeared in the case. (See Deskbook, Sec. 3.13.)

The mediator should be involved in the preparation of the CMO. The mediator can insure that the CMO represents a consensus of all parties who are then before the court. In addition, the mediator may have suggestions that he or she would like to incorporate, such as the efficient scheduling of mediation sessions, the avoidance of conflicts on the mediator’s calendar, and the possible employment of one or more neutral experts.

The additional time taken to perform these tasks will obviate a number of problems, including subsequent objections to the CMO by major cross-defendants, unrealistic time-lines, and premature scheduling of mediation dates.

C. Structure The Settlement Process.

During the preparation of the CMO, the parties should agree with the mediator on a structure for the mediation. In scheduling the sessions, a realistic time-line should be set out so as to avoid the need for postponements. Time must be allowed for the defendants and their insurance carriers to review and evaluate defect lists, cost of repair estimates, reports of inspection and testing, discovery responses, and the experts’ reports.

As the mediation progresses, the mediator should be in continuous contact with the parties to assure that lines of communication remain open, that information is being exchanged and that the time-line in the CMO is being observed. The parties, and not the mediator, should report any failure of compliance to the referee or to the court. [9]

Mediation sessions must be scheduled in a logical order. A typical sequence would include the following sessions, each of which can be expected to take at least one day.

  • Plaintiff’s Presentation. Plaintiff presents, through its experts, an overview of its case to defendants, their insurers and experts, and the mediator. This session should occur as soon as all major subcontractors have appeared in the case.
  • Scope of Work Session(s). The work performed by subcontractors is defined. Peripheral parties who have limited scopes of work and/or limited monetary exposure and who should be targeted for early removal from the case are identified. This session should occur very shortly after the plaintiff’s presentation.
  • Insurance Day. This session, which also should occur very early in the process, should be attended by all claims representatives and/or coverage counsel. All policies that provide or may provide coverage are identified. Coverage and additional insured issues are identified and discussed. Joint cost-sharing and defense agreements can be worked out and protocols for early resolution of coverage disputes can be discussed as well. These sessions will be more productive than relying on answers to interrogatories and will help avoid the discovery of “new” carriers late in the process.

  • Expert Mediations. After all destructive [Correct term?] testing has been completed and reports obtained, the experts retained by all parties should meet with the mediator. The purpose of these meetings is to discuss and evaluate the nature and extent of claimed defects, proposals for remediation, and cost of repair estimates. The mediator will reduce the results of these session(s) to writing for review and comment by the parties and for ultimate use in allocating responsibilities.

Although there is some difference of opinion on the question, the author believes that these meetings will usually be more productive if counsel do not attend. The presence of counsel may tend to draw the experts into a discussion of the legal issues and contentions of the parties and thereby divert them from the real task at hand, which is to focus on finding ways to remedy the defects which are the subject of the litigation. The experts may also feel obliged to “perform” for the benefit of the attorneys who hired them. On the other hand, some counsel believe that they can provide a useful check on experts’ statements and that the absence of counsel may confer too much power on the mediator.

Settlement (“Money Day”) Mediations. As the term implies, these sessions are for the purpose of resolving the case after all of the foregoing work is done, and after all discovery and investigations are complete, including the depositions of percipient witnesses and persons most knowledgeable. Note that the depositions of expert witnesses should be deferred in the interest of saving time and expense.

As in any mediation, it is essential that all decision-makers be available to participate. Homeowners, claims professionals, insured parties, and all counsel must attend. Insurance representatives must include senior authorized claims adjusters and counsel representing the carriers and the insureds on any coverage issues. The mediator will be responsible for setting the agenda and for scheduling appearances. “Cattle call” mediations must be avoided so that participants’ time is not wasted.

D. Consider the Use of a Referee.

As noted in Part II, the complexities of construction defect litigation tend to create an atmosphere that can become contentious. Disputes inevitably seem to arise over discovery and other matters. In some counties, particularly those with complex litigation departments, the court may prefer to deal directly with these problems. In other counties, if the court is unable to deal with such disputes in a timely manner or if the case is especially adversarial in nature, efficient management of the case will require the services of a referee.

A capable referee will oversee the progress of the case, work with the parties to develop a discovery plan, try to prevent unnecessary disputes from arising, and be available to resolve problems when they do occur. The referee should be a person who is not afraid to make difficult decisions and who has a good working relationship with the judge. [10] “Even with a discovery master, case management is most effective when the trial judge is clearly understood to be closely overseeing the discovery process.” [11]

Because of the legal constraints under which a mediator must function, the court should appoint a person other than the mediator to act as a referee. In Foxgate, supra, the Supreme Court concluded that, although a party may do, so a mediator may not report to the court on the conduct of any participant in a mediation. See Cal. Evid. Code sec. 703.5. Thus a mediator may not inform the court of a party’s refusal to comply with a court order and would be ill-equipped to perform the functions of a referee.

Mediators are also subject to ethical standards which can make it difficult to be effective as a referee. The referee will at times have to play the role of a policeman. But ethical obligations require a mediator to respect the voluntariness of the process and the right of the participants to “self-determination.” A mediator may not attempt to coerce a party to make any decision or to continue to participate in a mediation. A mediator must also maintain impartiality toward all participants in the process at all times. And while a mediator may combine a mediation with another alternative dispute resolution process, the mediator may do so only with the informed consent of the parties and must give them an opportunity to select another neutral for the subsequent process. The mediator must also clearly inform the participants when the transition from one process to another is occurring. [12]

As Foxgate illustrates, the suggestion that the mediator can avoid these legal and ethical issues by wearing different hats at different times in the process merely invites trouble. Given the complexities of CD cases, parties who are continually dealing with the same neutral may not always understand when they are mediating and when they are involved in another activity. Controversies can arise as to whether statements made on a particular occasion should be treated as part of the mediation and thus confidential or whether the mediator is acting as referee and free to make reports to the court.

Apart from legal and ethical concerns, there is a pragmatic consideration which makes it inadvisable for a mediator to act as a referee. As noted, the referee will at times have to be an enforcer. But a referee who is also the mediator may be reluctant to “hammer” a party out of concern for the impact that such action will have later during settlement negotiations. The resulting conflict in roles will generally cause the neutral to be an ineffective referee.

E. Authorize the Use of One or More Neutral Experts.

One of the unfortunate developments in CD litigation has been the transformation of experts into partisan advocates. As one veteran mediator has observed, “In the formative years of CD litigation, experts were typically selected for their credentials and the respect they received from their peers. Today, the overriding criterion seems to be selection of the best advocate for the client. Today, more often than not, experts take aggressive, strident and inelastic positions that make settlement of CD cases more difficult.” [13]

To narrow the divide that is created by the taking of extreme positions, the mediator may wish to require that the parties stipulate to the selection of one or more independent consultants with expertise in the technical areas that are most significant in the case and to share payment of their fees. The power to do so should be included in the CMO. The neutral consultant(s) should be charged with evaluating each party’s statement of position and the opinions and reports of its own expert. The consultant can then submit a private analysis and report to the mediator for his or her use in preparing confidential evaluations of each party’s claims and defenses. [15]

The neutral consultant should also be able to co-mediate during the expert mediation sessions. The participation of such a person, particularly if he or she is highly regarded among peers, may tend to moderate extreme views. Consultants are available who not only have a technical background in engineering or construction but who have also been trained as mediators. Consideration should be given to the employment of such persons as co-mediators.

IV. CONCLUSION

CD litigation was one of the first areas to make extensive and successful use of mediation. The time has come, however, to re-examine the process and to re-evaluate earlier models that utilize a special master or other “all-purpose neutral.” True mediation can provide the assurance of confidentiality for statements made by parties and counsel and for evidence that has been prepared for the mediation. If properly structured it may also operate more efficiently than other models.

All participants should bear in mind that any successful mediation must be a team effort whereby everyone commits to a cooperative and well-prepared approach. More thoughtful preparation of the CMO and the use of neutral experts are two important steps that may alleviate much of the frustration that has been experienced in these cases.

ENDNOTES

1Proving once again that necessity is the mother of invention, the power to appoint a “special master” was created by the courts from whole cloth. The term was borrowed from federal practice and does not even appear in the Code of Civil Procedure (“CCP”) except for an incidental reference in § 170.2 that was recently added. The court used the reference process found in the CCP to make the appointment, and the special master is typically expected to take on several roles, including that of a discovery referee, as well as a judge pro tem or mediator. See Deskbook on the Management of Complex Civil Litigation (“Deskbook”), §3.13.

Some have questioned whether this original form of CD Mediation, which still persists today in many locales, is really mediation at all. Mediation is by definition a voluntary process in which the mediator facilities communications among disputing parties in order to help them reach an agreement. (See Cal. Evid. Code § 1115(a).) The process can involve various styles and techniques, ranging all the way from pure facilitation to neutral evaluation, and including various combinations thereof, so long as the goal remains resolution of the dispute. But a mediator does not issue rulings, orders, or decisions nor otherwise assist the court in the management of the case. Nor can a true mediator conduct a mandatory settlement conference. See Cal. Evid. Code §§ 1115 and 1117 (b)(2). And yet it has been typical of the CMO in a CD case to provide that the mediation is considered to be a mandatory settlement conference, presumably in order to force the parties to participate. CMO’s will also commonly refer to the neutral as a “special master/mediator,” “settlement master” or other such terms.

Cal. Civ. Code §§ 1375 and 1375.05, which comprise the “Calderon II” legislation dealing with mandatory ADR prior to the filing of any CD litigation involving a common interest development, adopt the special master model and use the term “dispute resolution facilitator” rather than the term “mediator” as originally proposed.

2The 1997 legislation reformed and strengthened the prior law on mediation confidentiality which had been enacted in 1985 and which was found at former Cal. Evid. Code §§ 1152.5 and 1152.6.

3 Rinaker v. Superior Court, 62 Cal. App. 4th 155 (1998); Olam v. Congress Mortg. Co., 68 F.Supp.2d 1110 (N.D.Cal.1999).

4See Lu v. Superior Court (Grand Lincoln Village Homeowner Association), 55 Cal.App.4th 1264 (1997).

5 Cal. Rule of Court 244.1(b) now prohibits courts from using the reference procedure under CCP § 638 to appoint a mediator although a court can appoint a referee to conduct a mandatory settlement conference in complex litigation . See Lu v. Superior Court (Grand Lincoln Village Homeowner Association), note 7, supra. As discussed in Part III, the proper practice is for the parties to retain a mediator, rather than for the court to designate one, and if necessary to have the court appoint another person to act as a referee.

6 See note 8, supra.

7 For the purpose of confidentiality, a mandatory settlement conference is not considered to be a mediation. See Cal. Evid. Code § 1117(b)(2).

8 One boilerplate provision that has been criticized states that all defendants are deemed to have cross-complained against each other and that such cross-complaints will be deemed denied. While this provision serves to expedite the litigation, an attorney who is representing more than one defendant would be placed in a conflict of interest.

9 See Foxgate Homeowners Ass’n v. Bramalea Cal., Inc., 26 Cal. 4th 1 (2001), discussed in Part III. D. below.

10 See CCP §§ 638 through 645.2 regarding the appointment and powers of referees.

11 See Deskbook, §2.05.

12 The foregoing ethical principles are embodied in the “Rules of Conduct for Mediators in Court-Connected Mediation Programs for Civil Cases,” which are found at California Rules of Court, Rule 1620 et seq. See in particular Rules 1620.3, 1620.5, and 1620.7 (g). And see Rule 1620.1 for a specification of the types of cases wherein these Rules apply. The Rules are based on principles adopted by a number of professional organizations and are widely believed to represent generally accepted ethical standards for mediators in California. See also the Standards of Practice for California Mediators, published by the California Dispute Resolution Council, which may be found at www.cdrc.net.

13 See James A. Roberts, “The Impact of Selecting Effective Experts and the Use of Neutral Experts,” Mealey’s Construction Defect Litigation Conference, 2001.

14 See Cal. Evidence Code §§ 730-732 regarding the power of the court to appoint experts.

15 For a more detailed explanation of this technique, see Gerald S. Clay, “Complex Disputes, Outside Experts Can Simplify and Focus Mediations,” Dispute Resolution Magazine, Vol. 10, No. 1 (Fall 2003) published by The American Bar Association Section of Dispute Resolution.

Biography


MICHAEL P. CARBONE is a senior mediator who has also served as an arbitrator and court-appointed referee. His dispute resolution practice has been built over a period of more than 25 years and covers a wide range of fields.   His exceptional combination of transactional and litigation experience enables him to handle complex litigation and other challenging cases.  

Michael resolves business and commercial cases, real estate disputes, employment claims, construction claims and defect cases, estate and trust matters, insurance issues, legal malpractice, corporate and partnership disputes, and personal injury cases.  In his capacity as a court-appointed referee he has undertaken a wide variety of responsibilities, including sales and appraisals of real property, and the adjudication of trust accounting and administration matters.  

He is a member of numerous dispute resolution panels, including the National Panel of Arbitrators of the American Arbitration Association.  He is also listed on the mediation and discovery facilitation panels of several Superior Courts. 

He is a founder and past president of The Mediation Society, and a member of many other professional organizations, including the Academy of Court-Appointed Masters, the Dispute Resolution Section of the American Bar Association, and the Association of Business Trial Lawyers.

Michael is a frequent author and speaker on alternative dispute resolution issues.  He publishes a monthly newsletter entitled "Resolving It" which provides timely advice on strategies for successful mediation and discusses current issues, such as reforming the commercial arbitration process and mediating e-discovery.



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Website: www.mpcdisputeresolution.com

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