By: William A. Muñoz, Esq.
Tel: 916-730-1580
Email
Mr. Muñoz, Esq.
You have a case that seems ripe for mediation. After some discussion with your client, your client agrees to mediate the case. Do you as the lawyer have any ethical obligations to your client before agreeing to mediate the case? As of January 1, 2019, California attorneys have statutory obligations to disclose certain information to their clients regarding mediation pursuant to California Evidence Code section 1129 before agreeing to mediate a case. The question is whether these disclosures implicate any ethical obligations for the attorney? This article will look at California’s mediation disclosure requirement under Evidence Code Section 1129 through the lens of the Rules of Professional Conduct to conclude that there may be ethical obligations that attorneys should consider above and beyond the disclosure itself, and how to avoid the consequences of noncompliance.
Prior to the enactment of Evidence Code section 1129, the California Supreme Court and intermediate appellate courts had uniformly upheld the inadmissibility of statements or conduct occurring during mediation pursuant to California’s mediation statutes, Evidence Code section 1113, et seq..1 These cases have largely arisen in the context of claims against attorneys for malpractice and other misconduct occurring during a mediation.2
For example, in Wimsatt v. Superior Court,3 plaintiff sued his attorneys for malpractice and breach of fiduciary duty after settling an underlying personal injury action contending that the attorneys impermissibly reduced his settlement demand between the first and second mediation. The attorneys moved for a protective order after plaintiff sought the mediation briefs and e-mails between his attorneys during discovery arguing that those communications were protected by the mediation confidentiality. The trial court denied the motion.
Recognizing the potential inequities and conflicting public policy of adhering to the Supreme Court’s strict construction of mediation confidentiality that would result in a client potentially relinquishing all claims for malpractice against his attorney arising out of mediation-related conduct, the Second District reversed calling upon the Legislature to enact legislation to “reconsider California’s broad and expansive mediation confidentiality statutes and to craft ones that would permit countervailing public policies be considered.”4
In August 2005, Plaintiff Cassel met privately with his attorney to prepare for mediation and trial in a trademark dispute. Prior to the mediation, Cassel and his attorneys discussed not accepting less than $2 million. After a 14-hour mediation, where Cassel claimed that he did not feel well and had to leave to rest for a period of time, his attorneys called him back to the mediation where he ultimately settled for $1.25 million.
Cassel then sued his attorneys for malpractice, alleging that they “forced” him to accept $1.25 million, rather than the higher amount they had previously agreed upon. Cassel contended that, during the mediation, his attorneys threatened to abandon him on the eve of trial if he did not agree to settle the case under the misrepresentations that they would reduce their fees. The trial court granted the attorneys motion in limine to exclude evidence of conduct and conversations between them and Cassel that occurred while preparing for, and during, the mediation.
The Court of Appeal granted Cassel’s writ petition, holding that mediation confidentiality did not apply to mediation-related communications between Cassel and his attorney made outside the presence of the mediator and opposing party. The Court reasoned that because Cassel’s attorney was not a “disputant,” as defined by the mediation statutes, he operated together with Cassel as a “single party.” Thus, the private conversations between attorney and client were not communications between disputants or between a disputant and the mediator that the mediation confidentiality was intended to protect.5
The California Supreme Court reversed, relying upon the plain language of the mediation statutes finding that the Second District’s ruling created an impermissible judicial exception to the clear language of the mediation statutes. The Court rejected the notion, as argued by Cassel, that the mediation confidentiality, like the attorney-client privilege, is waived as between the attorney and client in a subsequent malpractice action.6
The Court distinguished the policy behind the waiver of the attorney-client privilege, pursuant to California Evidence Code section 958,7 in the event of a malpractice action with the confidentiality afforded by the mediation statutes. The latter, the Court stated, “do not create a ‘privilege’ in favor of any particular person…Instead, they serve the public policy of encouraging the resolution of disputes by means short of litigation…and are designed to provide maximum protection for the privacy of communications in the mediation context.”8
In response to Cassel, the California Legislature enacted Evidence Code section 1129 after a five-year study by the California Law Revision Commission (“CLRC”). The CLRC was tasked to analyze “the relationship under current law between mediation confidentiality and attorney malpractice and other misconduct, and the purposes for, and impact of, those laws on public protection, professional ethics, attorney discipline, client rights, the willingness of parties to participate in voluntary and mandatory mediation and the effectiveness of mediation, as well as any other issues that the commission deems relevant.”9 The CLRC’s final recommendation in December 2017 was to create an exception to mediation confidentiality, much like the exception set forth in Evidence Code section 958, where the “evidence is relevant to prove or disprove an allegation that a lawyer breached a professional obligation when representing a client in the context of a mediation or a mediation consultation.”10 However, the CLRC’s recommendation was resoundingly rejected and lead to Senate Bill 954 that was intended to “take a more measured approach to addressing the issues presented by Cassel” to strike a balance between the public policy behind the mediation confidentiality statutes and holding attorneys accountable for their mediation-related conduct.11
Senate Bill 954 was enacted in 2019 and codified at Evidence Code section 1129. Section 1129 requires certain disclosures to a client regarding mediation that must be made prior to agreeing to mediation or as soon thereafter as reasonably possible. These disclosures include:
These disclosures must be made on a single, stand-alone document in 12-point font and signed by both the lawyer and client.12 The consequences for failure to comply cannot form the basis to set aside or void any agreement reached at mediation, or form the basis of a civil claim, but noncompliance can lead to attorney discipline.
Senate Bill 954 was clearly a compromise between holding attorneys accountable for mediation-related misconduct and mediation confidentiality with the end result being that the attorney can be disciplined for noncompliance with Section 1129’s disclosure requirements. The Legislature did not, however, create an exception to mediation confidentiality to pursue civil claims for noncompliance. The question arises, however, whether this disclosure requirement gives rise to an ethical obligation to obtain the client’s informed written consent before executing the Section 1129 disclosure and attending mediation?
Opposition to Senate Bill 954 contended that the disclosures amounted to a prospective waiver of liability prohibited by California Rules of Professional Conduct, rule 1.8.8(a).13 Rule 1.8.8 prohibits a lawyer from: (1) contracting with a client to prospectively limiting the lawyer’s liability for professional malpractice and (2) settling a claim or potential claim for professional malpractice unless the client is represented by independent counsel or has been advised in writing to seek the advice of counsel and given the opportunity to do so.
The Legislature properly rejected the opposition’s suggestion that the contemplated disclosures amounted to a prospective waiver of all malpractice liability. The statute does not sweep so broadly. However, the text is somewhat misleading because it states, “NOTE: This disclosure and signed acknowledgment does not limit your attorney’s potential liability to you for professional malpractice, or prevent you from (1) reporting any professional misconduct by your attorney to the State Bar of California or (2) cooperating with any disciplinary investigation or criminal prosecution of your attorney.” (Cal. Evid. Code § 1129(d) [Emphasis added.]) The statute did not overrule Cassel’s holding that a malpractice claim based upon mediation-related conduct is barred by the mediation confidentiality statutes. Thus, it appears the drafters meant to say that the disclosure does not limit the attorney’s liability to the client for non-mediation related conduct.
However, the opposition may have been on to something at least insofar as additional ethical obligations that the disclosures could impose upon attorneys predicated upon the language of Rule 1.8.8, subdivision (b)(2), which, in turn, is taken from Rule 1.8.1 regarding transactions with clients.
To get there, one must start with Rule 1.7, subdivision (b), which provides, “A lawyer shall not, without informed written consent from each affected client and compliance with paragraph (d), represent a client if there is a significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client, a former client or a third person, or by the lawyer’s own interests. (Emphasis added.)
Rule 1.0.1 provides, “Informed consent” means a person’s agreement to a proposed course of conduct after the lawyer has communicated and explained (i) the relevant circumstances and (ii) the material risks, including any actual and reasonably foreseeable adverse consequences of the proposed course of conduct.”
With Rules 1.0.1 and 1.7(b) in mind, arguably, the Section 1129 disclosures create a potential conflict of interest between the lawyer and client. By agreeing to mediate a case, the client cannot sue the lawyer for malpractice for any mediation-related conduct, regardless of how egregious the conduct may be. Thus, the attorney clearly has an interest in having the client sign and acknowledge the disclosures because no attorney wants to face potential civil liability for mediation conduct. The mediation confidentiality protects, or better yet, shields the attorney from mediation-related liability, which is an interest adverse to the client, potentially triggering Rules 1.0.1 and 1.7(b) because the attorney’s interest in a liability-free mediation and effective representation of the client could be at odds.
Thus, the Section 1129 disclosure itself may give rise to a potential conflict of interest. That being said, the Section 1129 disclosures do set forth the “relevant circumstances” and “material risks” of proceeding to mediation as required by Rules 1.0.1 and 1.7. What is arguably missing is the statement that the client understands and waives the potential conflict that could arise should he or she agree to mediate the case because the client cannot sue the lawyer for mediation-related malpractice, or other wrongful conduct, to support a civil claim. Additionally, in light of the potential conflict and proposed waiver, the client should be advised to seek the advice of independent counsel.
Nonetheless, the disclosure only creates a theoretical potential conflict for a few reasons. First, the case may never be mediated. Second, even if mediated, there is no reason to believe that the lawyer will conduct him or herself in a manner that would rise to the level of malpractice. Third, along the same lines, the case law giving leading up to the enactment of Section 1129 reflect the extreme cases of conduct that could occur and the data would indicate the number of claims that could arise from mediation-related conduct (assuming a claim could be made) would be very low.14 Finally, because the attorney is only required to disclose “reasonably foreseeable adverse consequences” (i.e., potential conflict), not theoretical adverse consequences, Rule 1.7 is not implicated.
The easy solution to this potential issue is to simply add a sentence or paragraph in the disclosure that contains language stating that the client understands the disclosures, that a potential conflict could arise if the case is mediated (and identifying the potential conflict) and waives any such potential conflict after having the opportunity to seek the advice of independent counsel. The attorney provides the required statutory disclosure (avoiding any disciplinary action) and also complies with his/her ethical obligation to obtain a conflict waiver due to the potential conflict.
Of course, even if such a civil claim could be alleged, causation will most likely be an issue, particularly if no mediation is undertaken. Furthermore, the problem that the plaintiff malpractice attorney will face comes right back to where we started in the first instance. The failure to include this proposed additional language would arguably not give rise to a claim against the attorney because the disclosure itself would be a statement “prepared for the purpose of” mediation and thus inadmissible in any subsequent civil claim against the attorney.15
The Legislature enacted Evidence Code section 1129 to address the issues and concerns raised in Cassel. However, by requiring the statutory disclosures, it may have created an unintended potential ethical issue exposing lawyers who do not also seek a waiver of the potential conflict to a potential claim even if the disclosures are made. This issue can easily be remedied with the inclusion of waiver language in the disclosure.
Mediation serves an invaluable resource for civil litigants and their counsel to openly discuss their case without the threat of those communications being used against them in the instant case or a future case. As a matter of course, attorneys should from the outset, provide the section 1129 disclosures, along with the additional language suggested herein, to not only avoid disciplinary action for noncompliance, but also the potential ethical issue that may be used in an attempt to assert a civil action against the attorney.
1 See, e.g., Simmons v. Ghaderi (2008) 44 Cal.4th 570, 580; Rojas v. v. Superior Court (2004) 33 Cal.4th 407,422; Foxgate Homeowners’ Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1, 13-14 (2001); Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 163.
2 Wimsatt, supra, 152 Cal.App.4th at 159. One could argue that mediation is a significant development that requires the attorney to communicate with the client pursuant to Rule of Professional Conduct, rule 1.4(a)(3). However, there is no obligation under Rule 1.4 that these significant developments be provided to the client in writing. Rather, they need only be communicated. It is certainly a better practice to do so in writing, but it is not required.
3 (2007) 152 Cal.App.4th 137.
4 Id. at 164.
5 Cassel v. Superior Court (2009)179 Cal.App.4th 152, 158-162.
6 Id. at 133.
7 California Evidence Code section 958 states: “There is no privilege under this article as to a communication relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship.”
8 Cassel, supra, 51 Cal.4th at 132. (Citations omitted.)
9 Sen. Com. On Judiciary, Analysis of Sen. Bill No. 954 (2017-2018 Reg. Sess.) as amended May 8, 2018.
10 Ibid.
11 Ibid.
12 Evid. Code § 1129(c), (d).
13 The California Rules of Professional Conduct were amended and renumbered effective November 1, 2018. While the CLRC study was pending, current rule 1.8.8 was rule 3-400.
14 See Relationship Between Mediation Confidentiality and Attorney Malpractice and Other Misconduct, 45 Cal. L. Revision Comm’n Reports 19, 196 (2017), quoting James Coben & Peter Thompson, Mediation Litigation Trends: 1999- 2007, 1 World Arbitration & Mediation Review 395, 405-406 (2007).
15 Evidence Code section 1119, subdivision (b) provides: “(b) No writing, as defined in [Evidence Code] 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.”
William A. Muñoz, Esq, is a Civil Trial Attorney, Legal Ethics Expert, and Third-Party Neutral with over 20 years of experience defending attorneys, and other professionals such as architects and engineers, real estate agents/brokers, real estate appraisers, and insurance brokers, as well as defending personal injury, toxic torts, products liability, defamation, wrongful termination / harassment, wage and hour and discrimination claims.
Mr. Muñoz also serves as a Dispute Resolution Conference judge for El Dorado County Superior Court, a judge pro tem for Sacramento County Superior Court’s Settlement Conference Department, and more recently, a mediator for the Third District Court of Appeals Mediation Program. His approach is further informed by the renowned Straus Institute for Dispute Resolution at Pepperdine University Caruso School of Law mediation training program and the National Conflict Resolution Center mediation training program.
©Copyright - All Rights Reserved
DO NOT REPRODUCE WITHOUT WRITTEN PERMISSION BY AUTHOR.
4/11/2024· Ethics / Ethical Duties
Business Transactions with Clients - A Trap for The Unwary Practitioner
The Lawyer’s Lawyer is turning its attention to a situation that most of you have probably not considered in your practice, but have unknowingly participated in – business transactions with a client. The significance of this is that not recognizing when you are involved in a business transaction with a client,
5/22/2020· Ethics / Ethical Duties
Financial Advisors: What Is A Fiduciary And Why Does It Matter?
By: Marguerita Cheng
When selecting a financial advisor, people are often confronted with a seemingly simple yet undeniably important question: What is a fiduciary and why does it matter?
