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Malpractice Alert: Is it a Settlement Conference or a Mediation?

Here in California, there’s no stronger rule of confidentiality than that applied to a mediation.  It cannot be impliedly waived (Simmons v. Ghaderi) like most privileges, including the near-sacred attorney-client privilege.  You cannot be estopped from relying upon it.  (Eisendrath).  And if you want your mediated settlement agreement enforced, you must strictly comply with the requirements of Evidence Code section 1123 (Fair v. Bahktiari).

Over at the Settle It Now Negotiation Blog, insurance policy-holder counsel Kirk Pasich questioned many recent interpretations of the mediation confidentiality statutues on the ground that they permit insurance carriers to use mediation proceedings to engage in acts of bad faith.

“Why should a carrier get a license to act in bad faith in mediation,” Pasich asked, adding,

Cases settled, and still settle, in mandatory settlement conferences without that same shield. I don’t think a process should exist that encourages, rather than discourages, a party from acting in bad faith.

Why indeed?

If you do not understand the differences between settlement conferences and mediations, you are not alone.  My informal surveys indicate that litigators believe there’s no difference whatsoever between the two and few mediators are able to distinguish them despite their training in the field. Nor have California’s Courts been of any real assistance.

Though it may make no difference to counsel or the parties whether the process by which they seek to settle litigation is a mediation or a settlement conference, the  application of California’s Rules of Evidence to mediations has significant potential economic consequences — consequences so serious that mediator and litigator malpractice actions are surely looming on the horizon.

The Parade of Mediation Horribles

What type of misbehavior can occur in a mediation?  Here are just a few examples:

  1. one party can make a misrepresentation of material fact upon which the other relies in entering into a settlement agreement;
  2. as Pasich notes, an insurance carrier can act in bad faith;
  3. one mediating party could tortiously interfere with a third-party’s contract or prospective economic advantage;
  4. the mediating parties can enter into a collusive settlement agreement, depriving the settling parties’ co-defendants from learning facts necessary to challenge the settlement in a hearing to determine whether it was made in good faith (terminating the non-settling defendants’ right to seek indemnity and contribution from the settling defendants)
  5. even if all parties have expressed complete agreement during the mediation, which they then memorialize in a term sheet, absent strict compliance with the requirements of Evidence Code section 1123, no evidence probative of that agreement will be admissible in a California court.

If the mediating parties are engaged in a settlement conference, none of this potentially bad behavior would be protected.  If they’re mediating, these proceedings can neither be the subject of discovery nor introduced as evidence.

Given the adverse economic consequences that can flow from a mediation, California’s courts have clarified the differences between the two procedures, right?

Not so much.

In Jeld-Wen, the appellate court forbade trial courts from compelling parties to mediate (and precluded them from requiring payment to the mediator) because mediation is voluntary.  Raising form over substance, the Court concluded that trial courts could accomplish the goal of compelling settlement conferences (mediations in disguise) by appointing a referee-neutral under California Code of Civil Procedure section 639.

The differences between the two proceedings in substance?  You couldn’t name them by reading the California Evidence Code.  It defines mediation as “a process in which a neutral person …  facilitate[s] communication between the disputants to assist them in reaching a mutually acceptable agreement.”  Evidence Code section 1115(a)

So the Judge who chooses waterboarding as a means to settle the case isn’t mediating.  Thanks for clearing that up.

When directly asked to distinguish between the two, our own Second District Court of Appeal  in Travelers Cas. and Sur. Co. v. Superior Court  declined.

We expressly decline to consider or clarify any differences that might exist between a mediation and voluntary settlement conference. ( Foxgate Homeowners’ Assn. v. Bramalea California, Inc. . . . .)  Therefore, our decision should not be construed as holding that all voluntary settlement conferences are mediations which are subject to the rules concerning the conduct of mediation proceedings. 

Thanks a lot.

But That’s Not All, with Thottam We Throw In a Set of Ginzu Knives

The most recent wrinkle in mediation confidentiality comes to us from the Second District Court of Appeal in Estate of Thottam.  In Thottam, the Court held that an exception to an exclusion contained in a mediation confidentiality agreement expanded the scope of the confidentiality protections and then eliminated those protections when one party attempted to enforce the resulting settlement agreement.  The Court accomplished this sleight of hand by finding an express waiver of confidentiality in the exception to the expanded confidentiality protections and/or by supplementing the parties’ non-compliant mediated settlement agreement with the terms of the Confidentiality Agreement itself.

What to Do, What to Do

When the law is uncertain and the terrain dangerous, there are generally two paths for attorneys to follow:  (1)  follow the statutory requirements to the letter;  or (2) make up your own law (recognizing the dangers posed by the Thottam opinion).

If you want your settlement discussions to be unburdened by strict mediation confidentiality provisions, you can ask the Court to appoint your “mediator” as a referee under section 639 and call the ensuing discussions a settlement conference.  Under those circumstances, your referee-assisted settlement discussions should be controlled only by Evidence Code section 1152. /**  To put both belt and suspenders on it, expressly agree that the negotiations are meant to be protected only by section 1152 and not by sections 1115 et seq.  And for heaven’s sake don’t use the word “mediation.” 

If you want the protections of mediation confidentiality, all well and good.  But you must:

  • memorialize your agreement in strict compliance with the requirements of Evidence Code section 1123(c) */
  • make the accuracy of statements upon which your client relied conditions precedent to the enforcement of the agreement or, at a minimum, include them in WHEREAS clauses; and,
  • if you feel you must enter into a confidentiality agreement, limit its provisions to a recitation of the parties’ intent to be bound by the requirements of Evidence Code section 1115 et seq. This should protect you against unanticipated interpretations of Confidentiality Agreement language that differs from the Code.

Are we clear now?  Crystal!


*/  A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied:

(a) The agreement provides that it is admissible or subject to disclosure, or words to that effect.
(b) The agreement provides that it is enforceable or binding or words to that effect.
(c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure.
(d) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute.

Note that “words to that effect” pretty much means “those precise words” according to the Supreme Court’s decison in Fair v. Bahktiari

**/  Section 1152, protecting communications during settlement negotiations is actually extremely limited, making “offer[s] to compromise and, statements made during an effort to negotiate a compromise of a disputes claim are inadmissible in evidence to prove liability.


Victoria Pynchon

Attorney-mediator Victoria Pynchon is a panelist with ADR Services, Inc. Ms. Pynchon was awarded her LL.M Degree in Dispute Resolution from the Straus Institute in May of 2006, after 25 years of complex commercial litigation practice, with sub-specialties in intellectual property, securities fraud, antitrust, insurance coverage, consumer class actions and all… MORE >

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