As mediation has become more fully absorbed into the court-controlled litigation process, it has inevitably become more regulated and courts continue to clarify the law. The California Supreme Court recently reinforced its strong support of mediation confidentiality in the case of Simmons v. Ghaderi, 44 Cal. 4th 570 (2008). Despite the fairly compelling evidence on the facts of the case of both waiver and estoppel against the party seeking to invoke confidentiality, the Court held once again that no court-imposed exceptions to confidentiality would be imposed on the statutory structure, as it had in Rojas v. Superior Court, 33 Cal. 4th 407 (2004) and Foxgate Homeowners Ass’n, Inc. v. Bramalea California, Inc., 26 Cal. 4th 1 (2001).
More recently, the Court of Appeal for the Second District has issued a troubling decision on mediation confidentiality in Estate of Thottam, 168 Cal. App. 4th 1331 (2008). In that case, the mediator’s confidentiality agreement included language that made all communications confidential “except as may be necessary to enforce any agreements resulting from the” mediation. At the mediation in 2004, the parties prepared a summary chart that might have been an agreement on the allocation of disputed assets in an estate and trust. The court of appeals reversed the trial court to find that the parties’ premediation confidentiality agreement permitted the admission of the document under Evidence Code §1123(c)(written agreement of the parties), even though the document did not meet the requirements of Section 1123(a) or (b)(written agreement states that it is admissible, subject to disclosure, enforceable or binding, or words to that effect). In effect, the court made the factual finding that the chart showing a division of property but no other terms was an ‘agreement” resulting from the mediation. The case was remanded to the trial court for further proceedings to see if the memorandum was enforceable as a contract.
The Thottam decision is different from many of the prior court of appeals decisions which the Supreme Court reversed because the court applies a statutory exception to confidentiality rather than inferring or creating an exception from other sources. Nonetheless, it potentially creates a chink in the armor of confidentiality and raises a number of troubling issues, in particular about what should happen on remand. The purpose of requiring that agreements meet subsections (a) or (b) is precisely to avoid any ambiguity about whether the parties have reached an agreement intended to be binding. One of the implicit tensions in Section 1123 and mediation confidentiality generally is that written agreements may be admissible but presumably all negotiations leading up to them would not be, so the key evidence to assist interpretation of the agreement would not be admissible. By requiring the parties to make their intent unambiguous, the statute assures clarity and puts the parties on notice to include all necessary and material terms in their written agreement, thereby reducing the scope of possible future litigation.
The Thottam court of appeals does not discuss whether the trial court should permit testimony about oral statements at the mediation to help in the interpretation of the intent and meaning of the document. Arguably, this is what the confidentiality agreement in question says, as interpreted by the court’s decision. The court’s only discussion on the subject concerns whether exclusion of the memorandum was prejudicial error. The court concluded it was because “absence of the chart or any evidence about its preparation eviscerated appellant’s case.” Should the trial court permit open-ended testimony about the “preparation” of the chart, arguably no part of the mediation will be confidential, all because of what may have been a throw-away line in the premediation confidentiality agreement. It would not be surprising if this gives rise to further litigation in the court of appeals.
In Thottam, the decision suggests that there were no attorneys involved in the mediation itself. I have been informed by an attorney reviewing the record that the mediator and the appellant were attorneys, and the mediator was the appellant’s father-in-law; the respondents (who lost the appeal) did not have attorneys at the mediation. It is not clear what the unrepresented parties were told about the significance of either the confidentiality agreement or the chart. In this context, I believe the burden should be on the mediator to assure the parties understand the significance of their actions, in particular to what degree the written memorandum might be enforceable.
In another recent case, Fair v. Bakhtiari, 40 Cal. 4th 189 (2006), the Supreme Court reviewed a written, signed memorandum that did not explicitly state that it was enforceable or binding, but did include a clause stating: “Any and all disputes subject to JAMS arbitration rules.” The agreement, prepared by the attorneys at a mediation in 2002, did not state explicitly one way or the other whether the parties intended this memorandum to be binding. When the parties were unable to agree on the language of a final settlement agreement, one side contended there was no binding agreement, and ultimately the Supreme Court agreed, holding that the quoted clause did not sufficiently indicate the parties’ intent that the memorandum be binding and enforceable as required under Section 1123(a) or (b). The result was a remand to the court of appeals, which in an unpublished decision in 2007 reversed its prior judgment and upheld the original trial court decision refusing to compel arbitration about the signed memorandum. In other words, five years after the mediation, after a motion in the trial court, two visits to the court of appeals and one to the Supreme Court, the parties were back in court on the original dispute.
Many attorneys and commentators repeat the common wisdom that the mediator and lawyers should do what they can to get something in writing signed by the parties at the mediation to avoid the risk that the parties will pull out of the agreement. While this is good advice in general, there is a worse result than no agreement: years of avoidable litigation. In Fair, five years of litigation were generated because the memorandum did not state explicitly whether the parties intended a final, binding agreement or not. In Thottam, the parties have endured four years so far, but I fear there will be more litigation over whether the document is an enforceable agreement and what evidence may be admissible to prove it.
One lesson to be drawn is the importance of the mediator as well as the attorneys in helping the parties to avoid these ambiguities. In Thottam, a confidentiality agreement presumably created by the mediator rather than the parties generated the problem. In both Thottam and Fair, litigation ensued because a memorandum was ambiguous about whether the parties intended it to be a binding agreement. In Fair, the attorneys could have avoided costly litigation simply by being explicit about whether they intended a binding agreement or not. Attorneys should be careful not only in how they prepare settlement documents but in reviewing documents prepared by the mediator.