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The Trouble with Foxgate and Rojas: When Should Public Policy Interests Require that Mediation Confidentiality in California be Subject to Certain Common Sense Exceptions?

by Max Factor III
June 2003 Max Factor III
The mediation community is a-buzz.

Should mediation confidentiality be allowed to cause harm to innocent third parties who were neither invited to be, nor present at, mediation?

Evidence Code §1119 provides, "(c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation, or in a mediation consultation, shall remain confidential."

In March, 2001, the Los Angeles Superior Court, Judge Anthony Mohr presiding, ruled in Rojas v. Coffin, et al., that the trial court would not order production of or admission into evidence of important documents, photographs and an expert opinion as to the presence of toxic mold and other safety defects in a construction defect lawsuit filed in August 1999, by nearly 200 tenants (including many young children who may have health problems) of the Burlington Apartment complex in Los Angeles against their Landlords. Judge Mohr relied heavily upon the confidentiality provisions of Evidence Code §1119.

Judge Mohr excluded this evidence from the tenants' lawsuit because the evidence was first introduced two years earlier, in 1998, as part of a "mediation" in the Underlying Case by the Landlords against the Original Developers and Contractors. The Underlying Case settled after a mediation with a "confidentiality" agreement that provided the consent of the Landlord was absolutely necessary for a release of the defect reports, repair reports and photographs of the allegedly hazardous defects and toxic mold conditions, unless a party obtained a Court Order.

The parties to the earlier case of Landlord against the Original Developer each realized it was in their economic interest to keep this evidence out of the hands of the tenants who may have been injured by the safety problems created by the presence of toxic mold when they were living at the Burlington Apartment complex. The "mediation" settlement agreement achieved that purpose when Judge Mohr would not allow the tenants access to the evidence the Landlord had made "confidential" by first introducing it into a mediation.

Naturally, Judge Mohr's decision was appealed, and one year later, Justice Lilley, on behalf of a divided panel of the California Court of Appeals, 2nd District, reversed the trial court's exclusion of this important evidence based upon the Appellate Court's belief that the photographs, documents and expert opinion were created before the mediation and were, at the time of creation, and at the time of their subsequent use at the mediation in the earlier case, precisely the type of evidence that was intended to be admissible in a trial of the litigated action in the event the case did not settle.

The California Supreme Court has granted review of the California Court of Appeals, 2nd District, decision in Rojas v. Superior Court (2002) 102 Cal.App.4th 1062: an Appellate Court decision that may push open the door to new "implied-in-law" exceptions to the broad mediation confidentiality provisions of Evidence Code §1119.

Later this year, it is expected that the California Supreme Court will reconcile its earlier decision affirming "mediation confidentiality" in Foxgate Homeowners Assn v. Bramalea California, Inc. (2001) 26 Cal 4th 1, 15, by writing a comprehensive opinion on the Rojas decision.

In Foxgate, supra at 15, the California Supreme Court seemed to close the door on "implied exceptions" to mediation confidentiality when it held:

"To carry out the purpose of encouraging mediation by ensuring confidentiality, the statutory scheme, which includes sections 703.5, 1119 and 1121, unqualifiedly bars disclosure of communications made during mediation absent an express statutory exception."

Yet, in Foxgate, the Supreme Court appeared to approve, by distinguishing on the facts, two (2) then existing "implied-at-law" exceptions to the statutory scheme:

1. Rinaker v. Superior Court (3rd Dist. 1998) 62 Cal.App. 4th 155 (Court must weigh in camera whether the interest of a minor in a juvenile delinquency proceeding to impeach his accuser such that the accuser's statements during mediation will be admissible to defend the minor in the "non-criminal" juvenile delinquency proceeding outweighs sufficiently to admit into evidence confidential mediation communications protected by Evidence Code §1119.)

2. Olam v. Congress Mortgage Co. (N.D. Cal 1999) 68 F. Supp. 2d1110 (Court must determine in camera whether a mediator's testimony might well make a singular and substantial contribution to protecting or advancing competing interests of great magnitude such as whether the physical and mental condition of one of the parties was such that he was not "competent" during the mediation.)

The Supreme Court is expected to take one of three very different courses of conduct:

1. Affirm Rojas on its narrow factual grounds by broadly interpreting Evidence Code §1120 ("Evidence otherwise admissible or subject to discovery outside of a mediation or a mediation consultation shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation or a mediation consultation"…);

2. Affirm Rojas on the broad grounds that the system of justice has a significant interest in preventing real harm to innocent third parties who are not present at the time a secrecy agreement is reached, cf. Evidence Code §956.5, CRC 243.1(c) (Court records presumed to be open); but see Business & Professional Code §6068(e) (absent a subpoena from a third party, an attorney may not disclose a client's confidential intention to injure or even kill a third party!) and CRC 1620.7(j) (a mediator may withdraw, but may not disclose the confidential communication that may harm innocent third parties);

3. Overrule Rojas and slam shut the door on further "equitable" or "implied-in-law" exceptions to Evidence Code §1119;

This article considers the possible implications of the Rojas and Foxgate decisions on the scope of Mediation Confidentiality in litigated cases.

Endangering Third Parties to Reduce the Costs to the Litigants of a Mediated Settlement.

Typically, there are opportunities in "employment law" cases to use out-of-the-box strategies that "create value".

Usually, the "ethical" examples given include misleading other potential employers by allowing a terminated employee to appear to remain employed (although the employee has no job) while aiding the employee with her job search through the use of a company paid head hunter; or allowing an executive to keep a valuable corporate country club membership and appear to remain as a high level consultant while job hunting (even though the executive does not consult and has no responsibilities).

These strategies are not truly honest because third parties are misled. Yet, these are generally accepted as helpful strategies accomplished, in part, through "mediation confidentiality". Unfortunately, "value can also be created" by obtaining information in a mediation from a litigating employee party that will help the employer and quite possibly hurt other employees still working at the company. Some former management or confidential staff members may seek, in effect, to "blackmail" management into paying for the litigating employee's silence by threatening to disclose publicly inappropriate management conduct to which the employee has been a witness (i.e., alleged financial improprieties, "secret" management-employee sexual liaisons, confidential trade information).

May management gain a disgruntled litigant's silence or even a favorable declaration against a fellow employee litigant in exchange for a higher settlement in the mediation of the disgruntled employee?

Is it ethical to deprive a litigant in one civil case of a valuable witness through a secret arrangement protected by mediation confidentiality?

Are these strategies valid "confidential mediation communications"? And, if so, should a mediator withdraw if he or she cannot dissuade the participants, CRC 1620.7(i)(3), while maintaining the "secrets"? CRC 1620.7(j).

I have personally observed that each of the above strategies work. The issue is the extent to which it is desirable that California laws on confidential mediation communications encourage parties to mediation to enter into agreements that "create value" and reduce the costs of the actual settlement by injuring sometimes innocent third parties with unwritten agreements or by profiting through effectively blackmailing management members with something to hide.

Mediator Malpractice.

On the following facts, will a mediator be able to successfully exclude all testimony of mediation participants, including refusing to testify himself, to defeat a "mediator malpractice" action, for taking a bribe?

During a mediation, a mediator learns from the plaintiff that she will accept $750,000 in settlement of a wrongful termination lawsuit of an executive officer, but would like to receive more. The plaintiff authorizes the mediator to commence negotiations with a demand of $1,125,000 and stay "very firm."

Hours later, the defendant has raised his offer up to $250,000. Plaintiff has reduced her demand in small steps to $1,100,000.

At this point, the defendant states in private caucus to the mediator: "There will be a substantial bonus for you if you return to this room with an offer below $950,000."

The mediator advises that both a "contingency fee" bonus and "a secret fee" agreement are "unethical". See CRC 1620.9 (prohibits "contingency fees"); CRC 1620.5 (implicitly rejecting a "secret fee" as a violation of mediator's duty of continuing impartiality). See, also, the ABA Model Standards of Conduct for Mediators, Article VIII: "every contingency fee based on results is prohibited, even when the contingent fee arrangement is fully disclosed to all parties."

The mediator leaves the defendant and returns to the plaintiff and her counsel, stating: "I believe there is a real chance that if you allow me to make to the defendant a demand of $855,000 - 'take it or leave it' - that I can sell it! Trust me!"

The mediator truthfully discloses: "In fact, the defendants are feeling so frustrated I was offered a bonus fee if I could settle this case today. I refused it, of course."

When the mediator returns to the defendant's private caucus, there is $10,000 in cash, on the table. The mediator quietly smiles, pockets the money and says: "Let's go in and write it up at $855,000; but let's chat for five minutes so plaintiff and her counsel think you are really reluctant and unhappy."

The deal is signed. Everyone is quite happy! The plaintiff is $105,000.00 richer than had she received the $750,000 for which she was willing to settle.

The defendant will pay a total of $95,000 less than the $950,000 he was willing to pay.

The mediator is $10,000.00 richer than he expected because he took the "contingent fee" bonus (which could be characterized as a "bribe").

Is there any express statutory provision under California law that could compel truthful testimony from the mediator or the defendant participants in a mediator malpractice action by the plaintiff for damages equal to the $10,000.00 bribe or for rescission based on fraudulent inducement?

Is it the intention of California's statutory provisions on mediation confidentiality to protect the mediator from potential lawsuits for "mediator malpractice?" See CRC 1620(3).

Attorney Malpractice Protection.

Is it possible that California laws on confidential mediation communications protect an attorney who commits, during mediation, "legal malpractice?"

For example, what if an attorney, during the mediation, reviews "evidence" of "declarations of potential witnesses", and, based on his review, becomes convinced that the claim of his client - a buyer of real property - for fraudulent misrepresentation by a seller of real property is certainly a misunderstanding of the words communicated to the buyer by the seller's agent?

In reliance on the "declarations" proffered during the mediation, the buyer's attorney convinces his client to settle for a small sum of money.

Assume that had the attorney diligently investigated the "declarations" by interviewing the witnesses, he would discover the "declarations" were pure fabrications by the seller, made exclusively for the mediation.

Is the failure of the buyer's attorney to recommend to his buyer/client that the validity and veracity of these "declarations" should be checked out prior to finalizing a mediation settlement "attorney malpractice?"

Probably so. Nevertheless, how would the buyer/client be able to prove such a case if the "declarations" were mere fabrications that were prepared for the mediation, and only produced to the buyer during the mediation to induce the mediation settlement?

Conclusion

  • Can Mediation Confidentiality be used to prevent third-parties who are not present at the mediation from learning of vital information that affects their business interests or personal safety and health?
  • Can Mediation Confidentiality be used to prevent testimony of legal malpractice by an attorney who wrongfully advises a client during the course of a mediation?
  • Can Mediation Confidentiality be used to protect an incompetent mediator, or a mediator with an undisclosed interest that caused the mediator to misinform, intentionally, one of the parties in order to facilitate a more favorable settlement for the other party with whom the mediator had an undisclosed financial relationship?

Based on a strict reading of the statutory exceptions to mediation confidentiality, in most cases, the answer appears to be, "Yes!"

The answer to each of the three questions will only change to "No" if the California Supreme Court carves out additional "implied-in-law" exceptions to the mediation confidentiality provisions set forth in Evidence Code §1115-1128 and CRC 1630-1650.

As mediators, we need to think long and hard about how much harm should be allowed to occur in order to approve "mediation confidentiality" as it currently stands under California law.

The current legislative policies in California afford the "benefits" of broadly construed area of confidentiality for writings and communications used as part of mediation. Sometimes when one tells the truth, there are serious adverse consequences because the truth is a statement of fact that the truth teller has done something wrong and caused grave harm to another.

The primary purpose of the policy of mediation confidentiality is to encourage candor during negotiations and discussions at a mediation so that a private settlement agreed upon between the participants at the mediation may be facilitated, without the danger that an apology or an admission of wrongdoing will later be used outside of the mediation context to cause the truth teller to be exposed to additional liability for his "coming clean" and telling the truth.

Unfortunately, the policy of mediation confidentiality also has some perverse incentives and undesirable social consequences. As discussed in this article, participants may use the cloak of confidentiality of a mediation to improperly attempt to extort additional monies from another party, based on their agreement to "keep silent" about certain matters.

Moreover, an attorney in mediation may give dreadful or even wholly incompetent advice to settle to his client, and such advice is almost certainly protected from disclosure in a subsequent court action of attorney malpractice. Mediators are similarly protected from professional malpractice lawsuits with regard to communications during mediation that may well be improperly coercive or unethical.

These perverse results, and others, are not desirable in the administration of Justice. It is not likely we will have legislative reform in this area at any time, soon.

Therefore, as discussions in the area of mediation confidentiality continue, it would be the better practice of mediators to make additional disclosures, as warranted, to allow participants to protect themselves from professional malpractice. For example, a client who is uncertain about unexpected pressures from his attorney or his mediator, may simply ask for an adjournment of the mediation in order to obtain a more reflective perspective on the settlement being urged upon the pressured or uncertain client.

Additionally, when mediators sense that innocent third parties may be hurt by a secret agreement or that one party is seeking to blackmail another about some prior behaviors known to the litigating parties, but few others, the mediator may signal her disapproval in many ways, including withdrawing.

On the other hand, for mediators to remain silent, while the perverse incentives of California's legislative policy of creating and keeping mediation secrets continues, is to eventually undermine the integrity of the mediation process, itself.

Biography


Max Factor III is a full-time neutral, specializing in Real Estate, Business Contracts, Consumer Torts, Employment and Partnership Dissolutions. He is a Fellow of the International Academy of Mediators, and past President of the Southern California Mediation Association.

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Website: www.FactorMediation.com.

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