August 2019 Ethically Speaking - Ethical Issues Associated With California’s New Mediation Disclosure and Acknowledgment Requirements

by Michael D. Stewart

With the passage of California Senate Bill 954, effective January 1, 2019, California attorneys are required in all cases except for class and representative actions to provide written disclosures to their client explaining California’s mediation confidentiality restrictions. This new law requires attorneys to obtain their client’s acknowledgment on a one-page disclosure form before the client agrees to mediation. The requirements are set forth in the new California Evidence Code section 1129(c) (all further statutory references are to the Evidence Code). As simple as these requirements appear at first blush, there are a surprising number of issues that section 1129 raises, including those that could possibly lead to State Bar discipline or other exposure. The following addresses those issues, along with questions ranging from the genesis of the rule to the logistics of compliance, and includes client hand-holding tips.

What Exactly Is Mediation Confidentiality?

Mediation confidentiality applies to statements made and writings prepared in connection with a mediation. Cal. EvId. Code §§ 703.5, 1115-1129. Such evidence is generally inadmissible in any “arbitration, administrative adjudication, civil action, or other noncriminal proceeding.” Cal. EvId. Code § 1119(a). The ban, of course, does not apply to a binding settlement agreement reached at, or in connection with, the mediation, provided the requirements of section 1123 are met. Unlike most other states’ mediation confidentiality laws, California’s do not have an admissibility exception for attorney malpractice. As explained in the suggested form disclosure language, “[t]his means that all communications between you and your attorney made in preparation for a mediation, or during a mediation, are confidential and cannot be disclosed or used . . . even if you later decide to sue your attorney for malpractice because of something that happens during the mediation.” Cal. EvId. Code § 1129(d).

Why Did the Legislature Enact the Disclosure and Consent Requirement?

In Cassel v. Superior Court, 51 Cal. 4th 113 (2011), the California Supreme Court explained that the mediation privilege “is to encourage the use of mediation by promoting a candid and informal exchange regarding events in the past. This frank exchange is achieved only if the participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.” Id. at 123. However, in a concurring opinion, Justice Chin voiced his concern that “[a]ttorneys participating in mediation will not be held accountable for any incompetent or fraudulent actions during that mediation,” and noted, “[t]his is a high price to pay to preserve total confidentiality in the mediation process.” Id. at 138. Justice Chin “doubt[ed] greatly that one of the [l]egislature’s purposes in mandating confidentiality was to permit attorneys to commit malpractice without accountability,” and suggested “the [l]egislature might also want to consider this point.” Id. at 139-40.

After commissioning a study by the California Law Revision Committee, the legislature enacted SB 954. While the new law continues to preclude the admissibility of evidence to show malpractice, it seeks to ensure the client is aware of such evidence preclusion before agreeing to participate in mediation.

Does This Requirement Apply in Federal Court Actions?

Because this particular requirement did not take effect until January 1, 2019, no case has yet addressed its application in federal court cases. However, Ninth Circuit case law suggests that California’s existing mediation confidentiality statutes only apply to federal cases that involve solely state claims, and that federal privilege law applies where there are federal or mixed claims. See In re TFT-LCD (Flat Panel) Antitrust Litig., 835 F.3d 1155, 1158-59 (9th Cir. 2016). However, the TFC-LCD case and other federal cases addressing this issue involve efforts to enforce a settlement reached at a mediation; they are not malpractice cases. If a client were to sue a California attorney for malpractice relating to a mediation conducted in a federal court case, the attorney would obviously want to assert the state mediation confidentiality protections found in sections 1122, et seq. To bolster such a defense, the attorney would be well-served to have had his or her client execute the form acknowledgment required under section 1129, regardless of whether the underlying federal court case involved state, federal or mixed claims. Therefore, until there is more guidance, you should implement this mediation disclosure and acknowledgment process for federal cases pending in California.

When Should I Send the Client the Form?

Section 1129(a) requires the attorney to send the form to the client “as soon as reasonably possible before the client agrees to participate in the mediation or mediation consultation.” A literal interpretation of such requirement might prove unwieldy. A common-sense reading would suggest you and your client can still discuss whether to mediate, mediator selection, cost, timing, and other factors that might impact the client’s decision “before the client agrees to participate in the mediation.” Regardless, be sure to obtain your client’s executed form before communicating with the mediator, including communications “for the purpose of initiating, considering . . . or retaining the mediator” (Cal. EvId. Code § 1115(c)) or paying mediation fees—in case the client balks at signing the form and the mediation does not occur. You may also want to ask opposing counsel if his or her client is inclined to execute the form before parting with any fees.

Should I Include the Form With the Engagement Agreement to the Client?

Section 1129(c)(2) requires that the acknowledgment “not [be] attached to any other document provided to the client.” You could, therefore, send the form along with a separate engagement letter. Some attorneys opine that doing so could possibly put you at a competitive disadvantage if the client is considering other attorneys who, at the outset of the relationship, merely send the engagement letter. Others have suggested including a provision in the engagement letter requiring the client to sign the mediation disclosure form if and when a mediation is to occur. One avenue might be to send the mediation form upon receiving your client’s executed engagement letter, although it is unclear whether sending the form far in advance of any actual agreement by the client to arrange for or participate in a mediation would satisfy the purpose or timing requirements of section 1129.

How Do I Explain This Seemingly Self-Serving Form to My Client?

The mandatory language in the form acknowledgment may cause your client concern. It refers repeatedly to potential malpractice relating to mediation and, as noted above, explains that the client cannot use as evidence anything said during mediation “if you later decide to sue your attorney for malpractice because of something that happens during the mediation.” You may wish to notify your client that these new disclosure and consent processes are creatures of statute, and not something you or your firm implemented to avoid liability. You can also inform your client that California’s mediation confidentiality statutes have been in operation for over twenty years, and that this new requirement is merely to ensure that the client is aware of those laws. Finally, you can let your client know that signing the form does not thereafter require the client to mediate; it merely explains the confidentiality rules that cover mediation.

What Can I Say About My Client’s Mediation Intentions if the Court Inquires?

The state court Case Management Conference Statement and certain federal court ADR rules associated with FRCP Rule 26(f) require attorneys to inform the court whether the client is amenable to mediation or other forms of ADR (see, e.g., CMC Statement, “10.c. Indicate the ADR process or processes that the party or parties are willing to participate in, have agreed to participate in, or have already participated in” including “Mediation.”) Although you can respond to the court’s inquiries by agreeing to explore the possibility of mediation, you will need the client’s executed acknowledgment before indicating in a court filing or stating in open court that the client has agreed to mediate.

Can I Be Disciplined if I Fail to Send My Client the Form?

Section 1122 suggests non-compliance can expose the attorney to a State Bar “disciplinary proceeding to determine whether the attorney has complied with section 1129.” Another possible effect of non-compliance could be that a client might argue the mediation confidentiality restrictions, which would otherwise insulate an attorney from malpractice, should not apply if the client was not provided with the requisite form (such a result would seem unlikely, however). The client might also argue that the failure to provide the disclosure violates the attorney’s ethical duty to communicate and/or other fiduciary duties to the client. The statute does not define non-compliance, but failing to make the disclosures will almost certainly constitute non-compliance. If you send the form acknowledgment, and the client refuses to execute it (discussed below), that should not be construed as non-compliance.

What if the Mediator Has His or Her Own Confidentiality Form?

Some mediators require the parties and lawyers to sign their own confidentiality agreement. However, you will still need your client to sign the form acknowledgment in the format, and with the language, required by section 1129(c).

Is a Settlement Reached at Mediation Enforceable if the Client (or the Adversary) Failed to Sign the Form?

Section 1129 does not void mediated settlements where one or more of the parties fails to execute the acknowledgment.

What if the Client Refuses to Sign and Return the Form?

It is possible some clients may refuse to execute the form acknowledgment. Some attorneys have wondered if they should then not participate in mediation. That could lead to a lost settlement opportunity and, depending on the outcome of the case, the client might claim the attorney is to blame for the result because he or she did not participate in (or cancelled) the mediation. It would seem better to document the client’s non-compliance—via email or otherwise—and participate in the mediation. Another possible effect of the client’s refusal to execute the form could be that a client might argue the mediation confidentiality restrictions should not apply, because of a tacit waiver evidenced by the client’s refusal coupled with the attorney’s continued participation. Such an argument would likely fall on deaf ears, because the mediation privilege exists independent of the form acknowledgment.

Who From the Client Should Sign the Form?

Section 1129 does not address who should execute the form acknowledgment if the client is an entity. In fact, it presumes the client is an individual (e.g., “signed by that client stating that he or she has read and understands the confidentiality restrictions”). One might argue the signatory should be the client representative attending the mediation. However, that person, although perhaps well versed in the case, may not be a member of management, and the reason for the rule is to advise the client that it cannot use any confidential mediation communications as evidence to prove the attorney committed malpractice. For that reason, attorneys should default to the standard analysis regarding entity authority and seek consent from an authorized manager (preferably the general counsel, if the client has such a position).

Can “Frequent Flyer” Clients Sign One Form for Multiple Future Mediations?

If your client is routinely involved in mediations (e.g., defense of a bank or insurer in consumer litigation), you or your client might wonder if one executed form can apply to future mediations. As you might expect, section 1129 does not address that issue, instead contemplating a single mediation (e.g., “in a mediation or a mediation consultation”). The answer therefore is unclear, and it might depend on the client’s sophistication. It is difficult to envision a reaction from the State Bar if your client’s general counsel agreed that, in executing the form acknowledgment, he or she further agreed that it governed future mediations involving the client.

Michael D. Stewart is a partner and Deputy General Counsel of Sheppard, Mullin, Richter & Hampton LLP, in Costa Mesa. He is also a member of the OCBA’s Professionalism & Ethics Committee. The views expressed herein are his own. He can be reached at mstewart@sheppardmullin.com.