Some New Thoughts about Mediation Confidentiality
April 2006
Several of my recent columns have criticized
the "absolute confidentiality" rules of the California Evidence Code which govern
mediation in this state. In this column, I intend to move the discussion forward
by describing some thoughts and ideas regarding how we might improve on the
current rules.
by Jeff
Kichaven
Jeff Kichaven,
A Professional Corporation
These thoughts are tentative. My goal is to have this column be the first,
not the last, step. Upon more complete reflection and dialogue, a consensus
may emerge as to whether the rules should be changed a little, a lot, or not
at all.
The Problem
To recap, the essential problem, as I see it, is that "absolute confidentiality"
exempts mediation from what we generally call "the rule of law." I use the phrase
"the rule of law" to describe a regime in which contracts can be enforced and
torts redressed in more or less predictable and orderly ways, by some form of
adjudication such as trial.
The rule of law is essential to the spread of commerce. We have all read
articles about the absence of reliable judicial systems in Third World and post-Soviet
countries, and how that absence deters investment and commerce in their economies.
In short, absent the rule of law, people will be reluctant to do business or
enter contracts with you, or expose themselves to the risk of tortious misconduct
by your hand.
This is precisely the effect of the so-called absolute confidentiality rules
in mediation. It is quite possible for at least three torts to take place in
mediation—legal malpractice, mediator malpractice, and insurance bad faith.
Each could expose its victims to dire consequences, and so society has determined
that victims of these torts ought to have a forum available for redress. Yet
absolute confidentiality frustrates these tort victims' abilities to vindicate
their rights.
If one of these torts takes place in mediation, absolute confidentiality
will prevent the victims from introducing evidence of the misconduct in court.
Judges will be constrained to dismiss these claims long before trial, and we
will be left with the nightmare of "rights without remedies," which is to say,
no rights at all. I have asked numerous California State Court judges what they
would do if confronted with a motion for summary judgment seeking dismissal
of, for instance, a legal malpractice claim, if the evidence of the malpractice
consisted of statements the accused lawyer made in mediation. Every single judge
has responded the same way: Because the "absolute confidentiality" rules would
prohibit introduction of the relevant evidence, the motion would be granted
and the case dismissed. It will be as if, in mediation, clients' rights to non-negligent
lawyers and mediators, and good-faith treatment by their insurers, do not exist
at all.
The only possible consequence of this will be that, sooner or later, American
business will steer as clear of mediation's lawless territory as it does of
those economies where rights cannot be vindicated either. An occasional rumbling
from the policyholder bar could escalate if new appellate decisions lead to
perceived unfair results. And, if policyholders decide to steer clear of mediation,
its benefits will be lost to insurers as well.
The Communications Involved
So the confidentiality rules need to be rethought to allow these torts to
be redressed, if it is possible to do so without otherwise undoing mediation's
effectiveness. Perhaps it is. Here's the big problem on the horizon, though:
How do we allow a tort victim to introduce sufficient evidence to prove a claim,
while still protecting the legitimate privacy expectations of those mediation
participants who have no interest in the subsequent tort suit? To put these
questions into the proper context, the analysis involves at least two types
of mediation communications: Those between parties to the subsequent tort suit,
and those involving nonparties to the subsequent tort suit. Finally, we need
to consider the role of the special credibility of the mediator in the subsequent
tort suit, and some reasons to be skeptical about calling mediators to testify
nonetheless.
First, let's consider mediation communications between parties to the subsequent
tort suit. For example, suppose a client sues his or her lawyer for legal malpractice,
alleging that the malpractice consisted of poor advice that the lawyer gave
the client during the mediation. Clearly, there was no expectation of confidentiality
between lawyer and client for this purpose. If the lawsuit arose out of advice
given outside of the mediation, the lawyer could not invoke the attorney-client
privilege to prevent the client from testifying. See, e.g., Cal. Ev. C. Sec.
958. It's hard to see why the lawyer's alleged misconduct should get greater
protection because it took place in a mediation.
Similarly, suppose that a mediator's conduct falls below the standard of
care and causes damage. If the mediator is sued for negligence, conversations
that the mediator had with the now-tort-plaintiff ought to be admissible as
well. What the mediator and the now-tort-plaintiff said to each other was hardly
said with an expectation of confidentiality, at least as to each other. Or if
an insurer communicated in tortious ways directly with its policyholder, it
is hard to see a legitimate expectation of privacy between them preventing the
policyholder from introducing that evidence in a later bad faith case.
But what about conversations that involve not only the parties to the follow-on
lawsuit, but that also involve others? These cause complications. In the case
where the "other" has no interest in the follow-on litigation, there is no obvious
answer.
Take, for example, a garden-variety sexual harassment case. Assume that the
defendant in that case later wishes to sue either his own lawyer, the mediator,
or his insurer, based on what happened in the mediation. In any of those later
cases, the now-tort-plaintiff may wish to introduce evidence not only of what
he said to the now-defendant, but also evidence of what the sexual harassment-plaintiff
said during the prior mediation. To be sure, what that previous-plaintiff or
her lawyer said may be highly relevant to the follow-on lawsuit. Whether a lawyer's
advice was proper, whether a mediator properly contributed to the conversation,
whether an insurer reasonably refused to fund a settlement demand, may all turn,
in part, on things the previous-plaintiff and her lawyer said, in response to
which the now-defendants may all have based their actions.
But, wait a second!
The plaintiff in the previous sexual harassment suit has no interest in allowing her statements to become part of a public
record in the follow-on suit, in which she has no interest at all. There is
righteousness in her claim that she came to the mediation of her sexual harassment
claim with an expectation of confidentiality. She will say that she disclosed
embarrassing—even humiliating!—facts in order to persuade the defendants to
settle with her. She will say that she took a settlement far below the "true"
value of her case just to get matters behind her, and that disclosure of even
the amount of the settlement would embarrass her. That's why she insisted on
a confidentiality provision in the settlement agreement. If the defendants have
a malpractice suit against their lawyers or the mediator, or a bad faith suit
against their insurer, she argues that they should have to prove it with evidence
other than her confidential disclosures and agreements. There's nothing in it
for her to have any of that disclosed in later litigation to which she is not
a party.
The Issue of Bad Faith
But perhaps, as Cassandra Franklin of the Los Angeles office of Dickstein,
Shapiro, Morin & Oshinsky points out, the problem is no worse than in any other
lawsuit that requires proof of a case-within-a-case. Negligent professional
services constitute malpractice, or an insurer's conduct may constitute bad
faith, because of the real-world facts, not because real-world facts were disclosed
at a mediation. So, for example, if a scoundrel deceives you into an inappropriate
settlement, and your lawyer's sin is failure to have uncovered the deception,
perhaps the proof of the malpractice comes from a comparison of the terms of
the settlement to the true facts surrounding the dispute—and that comparison
can be made, albeit with more difficulty, without direct testimony of what was
said at the mediation. Or, in the case of the sexual-harassment plaintiff described
above, she could be subpoenaed and deposed by her former employer, now suing
its attorney for malpractice or its insurer for bad faith, to testify to the
facts of the underlying alleged harassment (if that testimony is relevant),
rather than to testify to what was or was not disclosed at the mediation.
Insurance bad faith claims are a little trickier than malpractice claims,
because the demand on the insurer and the insurer's refusal to pay seem to be
entirely within the scope of mediation confidentiality, if they took place at
the mediation. The policyholder would presumably have to adjourn the mediation
and recreate the demand and the refusal outside the mediation context. A reviewing
court might conclude that the distinction the policyholder wishes to draw elevates
form over substance to an improper degree, and reject the evidence anyway. Or
the tactic may, if improperly handled, come across as improper collusion between
the policyholder and the plaintiff who used it. But this could presumably be
clarified in a statute.
According to Ms. Franklin (who represents policyholders), though, the mediation
confidentiality provisions already do not apply to shield insurers' bad faith
in connection with mediations because of the California Supreme Court's decision
in White v. Western Title Insurance Co., 40 Cal.
3d 870 (1985). White made clear that in insurer's
duty of good faith and fair dealing does not terminate with the commencement
of litigation. Id. at 886. Accordingly, statutory privileges do not apply to
bar introduction of evidence of an insurer's bad faith. Id at 889. Although
under the California Evidence Code mediation confidentiality is not a "privilege,"
many insurers appear to treat White as if it
applies nonetheless, and insist on a "White waiver"
in connection with mediation. However, if the statute were expressly to confirm
the viability of White in the mediation context
(for example, by expressly stating that mediation confidentiality could not
be used to shield alleged bad faith behavior by insurers), then to that extent
the rule of law in mediation would be restored.
The Reliability of Mediator Communications
One final point deserves note. When I speak with other mediators about the
confidentiality rules, I often believe that their greatest concern is that they
not be compelled to testify endlessly in follow-on suits involving settling
parties with buyers' and sellers' remorse who want to rescind or avoid their
deals, or those follow-on suits in which still-angry parties turn their wrath
on their own lawyers or insurers. Importantly, this is not mere selfishness
on mediators' parts. Testimony of what mediators say, and what people say to
mediators, is not always reliable. We all know it but it must be said again,
everybody is trying to spin the mediator and, many times, we mediators spin
right back. Parties and lawyers rarely tell mediators the truth, the whole truth,
and nothing but the truth. And when mediators convey messages back and forth,
parties and lawyers expect mediators to level, sharpen, sculpt, and otherwise
put the facts in the light most favorable to the possibility of making a deal.
Many people think that mediators' testimony would be unusually reliable because
of our neutrality. But that faith must be tempered with the skepticism that
there may be a big gap between what we remember and the truth. At least in suits
other than those for mediator malpractice, there are serious questions as to
whether mediators' testimony should ever be allowed at all.
In all of these regards, the Uniform Mediation Act does a better job than
the California Evidence Code. Sections 6(a)(5) and (6) of the UMA provide that
its privilege does not apply to mediation communications that are relevant to
claims of professional misconduct or malpractice based on conduct occurring
during a mediation. The plain meaning of these sections may not cover claims
of insurance bad-faith, but that can easily be added to the statute. Section
6(c) precludes mediators from being compelled to testify in malpractice cases
involving professionals other than themselves. The California mediation community,
and legislature, should take note.
Conclusion
Both the California Evidence Code and the Uniform Mediation Act should be
viewed as works-in-progress. As we gain more experience with these confidentiality
and privilege statutes in the real world, we should revisit them from time to
time to make sure that they fulfill their stated purposes—to encourage and promote
confidence in and use of the valuable dispute resolution tool we call mediation.
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