by Robert K. Sall
The California Supreme Court’s recent decision in Cassel v. Superior Court, 51 Cal.4th 113 (January 13, 2011) raises significant ethical considerations which, though not discussed in the opinion, may have important implications for a lawyer’s disclosure obligations concerning mediation. Does the lawyer’s duty of full and fair disclosure go so far as to require a lawyer to inform the client that the lawyer may be exempt from liability for claims arising from the lawyer’s acts or communications in connection with mediation?
Client Michael Cassel attended mediation where he settled the claims in his business litigation matter. He then filed a lawsuit against his lawyer for malpractice, breach of fiduciary duty, fraud, and breach of contract. He alleged that by bad advice, deception, and coercion, the attorneys, who had a conflict of interest, induced him to settle for a lower amount than he had told them he would accept, and for less than his case was worth.
In Cassel, the Supreme Court concluded that California’s mediation confidentiality statute (Evidence Code §1119) precludes the use, even in a malpractice action, of any evidence of mediation-related communications between attorney and client. The Court declined to make a judicial exception to the strict language of the statute, holding that: “. . . such attorney-client communications, like any other communications, were confidential, and therefore were neither discoverable nor admissible—even for purposes of proving a claim of legal malpractice—insofar as they were ‘for the purpose of, in the course of, or pursuant to, a mediation. . . .’” Cassel, supra, at 138, citing to Evidence Code §1119, subd.(a).
The conclusion reached in Cassel means that the statements made by the lawyer to the client that are in any way related to mediation are likely going to be inadmissible to prove the client’s malpractice claims against the lawyer, effectively giving lawyers a free pass for allegations of misconduct that can only be proven by evidence of their communications related to mediation. As stated in the concurring opinion of Justice Chin: “This holding will effectively shield an attorney’s actions during mediation, including advising the client, from a malpractice action even if those actions are incompetent or even deceptive. Attorneys participating in mediation will not be held accountable for any incompetent or fraudulent actions during that mediation unless the actions are so extreme as to engender a criminal prosecution against the attorney. (Citations omitted.) This is a high price to pay to preserve total confidentiality in the mediation process.” Cassel, supra, concurring op., at 138.
The Cassel court embraced prior state and federal decisions that severely restricted the ability of a client to pursue malpractice claims that were based in whole or in part upon events related to mediation. In one such decision, Wimsatt v. Superior Court, 152 Cal.App.4th 137 (2007), the court held that mediation briefs and correspondence written and sent in connection with the mediation were protected from disclosure by the mediation confidentiality statutes. Id. at 163. This included communications between the attorney and the client, and therefore, the client could not base a malpractice claim upon evidence of what the attorney had said in such communications. The Wimsatt court acknowledged, as quoted with approval by the Supreme Court in Cassel that: “[t]he stringent result we reach here means that when clients, such as [the malpractice plaintiff in that case], participate in mediation they are, in effect, relinquishing all claims for new and independent torts arising from mediation, including legal malpractice causes of action against their own counsel.” Cassel, supra, at 133.
The Supreme Court also embraced a United States District Court case, Benesch v. Green, 2009 WL 4885215 (N.D.Cal. 2009), which observed that even if a private attorney-client conversation did not occur “in the course of” a mediation, this circumstance is not enough to exempt the communication from confidentiality, because the statutory “protections also encompass communications made ‘for the purpose of’ or ‘pursuant to’ mediation. . . .” Id. After reviewing the language of the mediation confidentiality statute, the District Court in Benesch had declared, “Communications between counsel and client that are materially related to the mediation, even if they are not made to another party or the mediator, are ‘for the purpose of’ or ‘pursuant to’ mediation.” Id. at 2009 WL 4885215, *7. Thus, communications between the lawyer and the client that are related to mediation, even if made outside the mediation, would be inadmissible in a malpractice action. After reviewing the Benesch decision, the Cassel court said: “We agree with this analysis.” Thus it is now established in California that mediation confidentiality, as the statute is presently drafted, precludes any claim against a lawyer if the claim is dependent upon admission of evidence of statements or communications made at or related to the mediation, even if outside the mediation itself.
Take just a moment to consider the sweeping implications. In most litigation matters the subject of mediation is at the forefront of the settlement process. Judges and lawyers routinely assume that nearly every significant case will go to mediation. Yet, until the Legislature acts to rewrite the statute or create a Legislative exception, lawyers are now literally exempt from liability for misconduct at or related to mediation if the evidence in support of such action is dependent upon communications relating to the mediation. There is likely to be much litigation over what kinds of communications are related to mediation, but the concerns for lawyers could be far more ominous. The professional responsibility question lurking for lawyers is what must lawyers tell their clients in discussing the pros and cons of mediation? The standard of care may be breached when a lawyer fails to inform a client of his or her rights or reasonably available alternatives. Considine Co. v. Shadle, Hunt & Hagar, 187 Cal.App.3d 760, 765 (1986). Does this extend to failing to explain to the client that, when considering the alternative dispute resolution process of mediation, mediation confidentiality may shield the lawyer from a potential claim of legal malpractice?
The implications of the Cassel ruling may raise concerns over the duty of candor and obligations of full and fair disclosure. A California lawyer must communicate with the client regarding all developments that are significant to the representation. See Rule 3-500 of the Rules of Professional Conduct (“RPC”). Can anyone realistically suggest that mediation would not be a significant development in the context of a litigation representation? Should the discussion of mediation include the potential limitations upon the ability to use evidence that derives from the mediation in any subsequent proceedings? What if the client is agreeing to participate in mediation only because the case has been harmed by the lawyer’s error—such as the failure to designate an expert, or the failure to oppose a motion? What impact will there be that the prospective mediation may result in a settlement that is less than what the client might otherwise have derived, but for the prior act of negligence?
A lawyer has with his or her client a fiduciary relationship of the very highest character and good faith. It has long been the law in California that, “The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity—uberrima fides.” Cox v. Delmas, 99 Cal. 104, 123 (1893). This duty carries with it the obligation of “most abundant good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight.” David Welch Co. v. Erskine & Tulley, 203 Cal.App.3d 884, 890, fn.2 (1988). “Complete candor and honesty” . . . is “a minimum prerequisite to satisfying this fiduciary duty.” Mayo v. State Bar of California, 23 Cal.3d 72, 75 (1978).
Because fiduciary duty embraces an obligation of the lawyer to render a full and fair disclosure, “attorneys have a fiduciary obligation to disclose material facts to their clients, an obligation that includes disclosure of acts of malpractice.” Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 189–90 (1971) See also, Beal Bank v. Arter & Hadden, LLP, 42 Cal.4th 503 (2007), reaching the same conclusion some 26 years after Neel. If a lawyer’s ethical disclosure obligations are so broad that the lawyer is required to disclose acts of malpractice to the client, does the same principal require the lawyer to disclose that mediation confidentiality could shield the lawyer from liability for discussions or recommendations made in connection with the mediation?
In Neel, the Supreme Court framed the lawyer’s nondisclosure of material facts in terms of fraud: “Where there is a duty to disclose, the disclosure must be full and complete, and any material concealment or misrepresentation will amount to fraud. . . .” Neel, supra at 188–89. Where there is an obligation to disclose, the court said, “the nondisclosure itself is a ‘fraud.’” As a result of these fiduciary obligations, Neel concluded in 1971 that the then uncodified statute of limitations for legal malpractice ought to be tolled until discovery by the client, as “it prevents the fiduciary from obtaining immunity for an initial breach of duty by a subsequent breach of the obligation of disclosure.” Id. at 189.
What are the ethical implications if a lawyer fails to disclose that mediation confidentiality yields what is in effect a free pass from liability for acts of malpractice when the evidence of wrongdoing is found in the communications related to mediation? We can assume that potential claims of malpractice are material to a client’s decision-making process. The Supreme Court saw fit to implement RPC Rule 3–410, which became effective in 2010, making it mandatory for a lawyer to disclose to the client in writing if the lawyer does not maintain malpractice insurance, and to inform the client of the lapse of such coverage. Consider also that RPC Rule 3–400 prohibits a lawyer from contracting prospectively to limit his or her liability for acts of legal malpractice. If it is material to require a lawyer to disclose the absence of malpractice coverage, and the lawyer is prohibited from limiting his or her own liability for malpractice, is it material for a client, when being counseled regarding mediation to know that the lawyer will, in the words of Justice Chin, be “effectively shielded” from liability?
Lawyers often encourage their clients to participate in mediation. Because mediation is a significant development in the course of litigation, lawyers would be prudent to make certain that their clients fully understand the potential consequences of mediation confidentiality before agreeing to participate. Whether or not this requires a formal disclosure to the client of the impact on lawyer liability remains to be decided, but caution dictates that more disclosure is better than less.
Robert K. Sall practices with The Sall Law Firm, APC, in Laguna Beach. He is a member of the Orange County Bar Association’s Professionalism and Ethics Committee, and lectures frequently on lawyer conduct, legal ethics, and malpractice.