Strict New Mediation Rule Now Effective

Strict New Mediation Rule Now Effective

What happens in Vegas stays in Vegas (or so they say).  And what happens in mediation stays in mediation. Or does it?

In 1996 Michael Cassel obtained a “Global Master License” (“GML”) to sell Von Dutch clothing.  He founded a company (“Von Dutch Originals, L.L.C.) (“VDO”) to sell clothing under that name.  Cassel thereafter lost ownership of VDO, and VDO eventually filed suit and obtained an injunction against him restraining him from selling Von Dutch clothing.

Shortly before trial, VDO and Cassel submitted the case to mediation.  Prior to the mediation, Cassel and his attorneys agreed he would accept no less than $2 million in exchange for assigning his GML rights to VDO.

According to the reported opinion, after “hours of mediation” Cassel’s attorneys told him that VDO would not pay more than $1.25 million for the rights to the GML.  Though Cassel “felt increasingly tired, hungry and ill, his attorneys insisted he remain until the mediation was concluded and they pressed him to accept the offer, telling him that he was ‘greedy’ to insist on more.  At one point [Cassel] left to eat, rest and consult with his family, but [his attorney] called and told [Cassel] he had to come back.  Upon his return, his lawyers continued to harass and coerce him to accept a $1.25 million settlement.  They threatened to abandon him at the imminently pending trial, misrepresented certain significant terms of the proposed settlement, and falsely assured him they could and would negotiate a side deal that would recoup deficits in the VDO Settlement. . .  Finally, at midnight, after 14 hours of mediation, when he was exhausted and unable to think clearly . . . [Cassel] signed [a settlement] agreement.”  Cassel v. Superior Court (2011) 51 Cal. 4th 113, 119-120.

Cassel thereafter sued his attorneys for breach of their professional, fiduciary and contractual responsibilities towards him.  Prior to trial, Cassel’s former attorneys filed a motion in limine under the mediation confidentiality statutes to exclude all communications between Cassel and themselves relating to the mediation.  The trial court granted the motion and excluded the mediation-related communications between Cassel and his attorneys.  The Court of Appeal reversed, holding that the confidentiality provisions in the mediation statutes were intended to apply to communications between the disputants and not between a disputant and their legal counsel.  The California Supreme Court granted review and held that the mediation statutes at Evidence Code 1115-1128 granted broad confidentiality protection to mediation communications (which included communications between a disputant and their attorney).  The Supreme Court held that any limitations on mediation confidentiality needed to come from the Legislature and not the Supreme Court.  As a result, Cassel’s attorneys were able to successfully block the admission of mediation communications that occurred solely between Cassel and his attorneys.

Due in part to the Cassel decision, mediation confidentiality has been a “hot button” topic in Sacramento for several years.  After years of discussion the California Legislature was poised to adopt legislation that would make admissible a limited number of mediation communications.  But after receiving significant negative feedback from stakeholders throughout California, the Legislature opted instead to adopt a new statute requiring attorneys to disclose to their clients the potential effects that mediation confidentiality may have on claims between clients and their attorneys.

Newly adopted California Evidence Code §1129 became effective on January 1, 2019.  That section requires an attorney who represents a client at mediation[1] to do two things:

  1. Provide the client with a “printed disclosure” containing the confidentiality restrictions described in evidence code §1119 and
  2. Obtain a “printed” acknowledgment signed by the client stating that he or she has read and understands the confidentiality restrictions.

The “disclosure” must:

  • Be in the preferred language of the client
  • Consist of printed language in at least 12-point font
  • Be printed on a single page
  • Not be attached to any other document provided to the client
  • Include the names of the attorney and client, and
  • Be dated by the attorney and the client

Section 1129 specifically requires that this disclosure be provided to the client “as soon as reasonably possible before the client agrees to participate in the mediation or mediation consultation.” Evidence code §1129 (emphasis supplied).  Thus it appears that the required form of disclosure need be given not only before the client agrees to mediation, but also before the attorney consults with the client about mediation.  If a client has already agreed to participate in mediation before engaging counsel, then the disclosure must be given as soon as “reasonably possible” after counsel is retained.

Section 1129 doesn’t provide any detail as to the nature of the disclosure which the attorney must make to the client other than to require that it contain the “confidentiality restrictions” described in Evidence code §1119.  However, §1129 expressly requires that the attorney obtain from the client an “acknowledgment” that the client “understands the confidentiality restrictions.”  Section 1129 expressly provides that an attorney’s failure to comply with its provisions is not a basis for setting aside an agreement prepared in the course of the mediation.

This is undoubtedly a broad field.  Some clients understand what their attorneys tell them.  Others do not.  Most seasoned attorneys have had at least one client fail to fully comprehend what their attorney has told them.

So how can a California attorney know they have met both the “disclosure” and “understanding” requirements of §1129?

The drafters of §1129 included a “safe harbor” disclosure and client acknowledgment in subsection (d) of the new law.  At first glance it seems like a printout of §1119 coupled with a statement of “understanding” should be adequate. But the “safe harbor” disclosure embedded within §1129 goes much further than that.  The “safe harbor” disclosure states that “ . . . all communications between you and your attorney . . . are confidential and cannot be disclosed or used . . . even if you later decide to sue your attorney for malpractice . . . .”  The “safe harbor” client acknowledgment form provided by §1129 states that “Unless all participants agree otherwise . . . no . . . communication made during a mediation . . . can be used as evidence in any subsequent noncriminal legal action including an action against my attorney for malpractice or an ethical violation . . .”

The “safe harbor” acknowledgment provides that the client’s signature on the 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.”

Section 1129 doesn’t require that the “safe harbor” disclosure and acknowledgment be used.  Instead, §1129 directs that the restrictions listed at Evidence Code §1119 be disclosed to the client, and that the client understand them.  How that gets accomplished is left up to the attorney.  But the use of the “safe harbor” disclosure removes any doubt about whether or not the attorney has met his/her burden of providing sufficient disclosure to the client.

Attorneys are required to follow the law.[2]  Therefore, except for class actions, attorneys in civil proceedings are now required to fully comply with the disclosure (and acknowledgment) requirements of §1119.  Communications between attorneys and clients relating to (or at) mediation will remain subject to mediation confidentiality restrictions such that clients may not be able to introduce evidence of statements made at mediation in subsequent actions against their attorneys.  But under new §1129 attorneys are now required to follow strict disclosure procedures about mediation restrictions. Counsel may be answerable to the State Bar for failing to comply with its provisions.

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[1]Evidence code §1129 expressly exempts attorneys representing a class in a class action from complying with its provisions.

[2] An attorney is expected to possess a knowledge of legal principles commonly known by well-informed attorneys, and to discover those additional rules of law which, although not commonly known, may be readily found by standard research techniques. Smith v. Lewis (1975) 13 Cal. 3d 348, 358.  Further, a lawyer is required to act with competence, which means applying the learning and skill reasonably necessary for the performance of such services.  Rule 1.1, California Rules of Professional Conduct.