Arbitration/Stay: Inability to Pay Costs of Arbitration Not Good Enough Reason to Lift Stay of Lawsuit
Vestigial Powers of Court Following Stay Leave It Without Power to Lift Stay Under the Circumstances
MKJA sued 123 Fit Franchising alleging that it had been fraudulently induced to enter into franchise agreements. The defendant commenced arbitration in Colorado pursuant to an arbitration, and sought a stay in California of the lawsuit pursuant to Cal. Code Civ. Proc. section 1281.4. Apparently the arbitration in Colorado never really got underway, plaintiff concluding that it was too expensive to arbitrate in Colorado. Plaintiff asked the trial court in California to lift the stay because the arbitration was unconscionable. The trial court believed that Plaintiff should be able to pursue its claim in some forum, and had exhausted efforts to do so in Colorado. It lifted the stay. MKJA, Inc. v. 123 Fit Franchising, LLC, 191 Cal.App.4th 643 (2011).
Defendant appealed the lifting of the stay.
Held: “[A] party’s inability to afford to pay the costs of arbitration is not a ground on which a trial court may lift a stay of litigation that was imposed pursuant to section 1281.4. Accordingly, we reverse the trial court’s order lifting the stay.”
Query whether a helpful arbitration provision could be drafted that would address the circumstance in which a party is financially unable to pay the arbitrator’s fees.
Vestigial: Human appendix. Wikipedia.
Confidentiality: Supreme Court Holds That Confidentiality in Mediation Means That Client Cannot Use Its Attorney’s Statements As Evidence
Concurring Opinion By Justice Chin Expresses Discomfort With Result
In Cassel v. Superior Court, 51 Cal.4th 113, 119 Cal. Rptr. 3d 437 (2011), the California Supreme Court addressed whether the mediation confidentiality protection applies to attorney-client communications when the client sues the attorney for malpractice. (Ordinarily, the attorney-client privilege flies out the window when the client sues for malpractice).
The trial court sided with the attorney, based on the plain language of the statute. Evidence Code section 1119(a) provides, “[n]o evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation … is admissible or subject to discovery ….” The petitioner/client sought mandate.
Siding with the client, the Court of Appeal believed, “mediation confidentiality statutes are intended to prevent the damaging use against a mediation disputant of tactics employed, positions taken, or confidences exchanged in the mediation, not to protect attorneys from the malpractice claims of their own clients.” Cassel, supra, 51 Cal. 4th at 118. Falling back on the “plain language of the statute”, the Supreme Court agreed that confidentiality protected against the admissibility of evidence in the malpractice dispute. The Court’s opinion was authored by Justice Baxter.
Justice Chin concurred in the result, “but reluctantly,” inviting the Legislature to consider the effect of the statutory provision, as drafted, in shielding an attorney from malpractice.
Confidentiality: P.E. Hadlick, Secretary of the National Oil Marketers Association, whispers a bit of information into Senator’s Guy M. Gillette’s ear. March 31, 1938. Library of Congress.
Confidentiality: California Supreme Court Holds That Mediator Cannot File Report Disclosing Communications In Order To Show Sanctionable Conduct
Exceptions To Confidentiality of Communications Are Very Limited, and Showing Sancitonable Conduct Is Not One of the Exceptions
In Foxgate Homeowners’ Association, Inc. v. Bramalea California, Inc., 26 Cal.4th 1, 108 Cal.Rptr.2d 642 (2001), the Supreme Court faced,”the intersection between court-ordered mediation, the confidentiality of which is mandated by law (Evid.Code, §§ 703.5, 1115-1128), [footnote omitted] and the power of a court to control proceedings before it and other persons “in any manner connected with a judicial proceeding before it” (Code Civ. Proc, § 128, subd. (a)(5)), by imposing sanctions on a party or the party’s attorney for statements or conduct during mediation.” Cutting to the chase, the court concluded that mandated confidentiality in mediation trumped the ability of the court to impose sanctions.
The mediator, in a report to the Court, had slammed defense counsel for purportedly sandbagging the mediation. The problem was that the mediator’s report disclosed confidential information. The Court of Appeal had fashioned a narrow exception to absolute confidentiality, allowing the mediator to include statements that supported sanctions. But the mediator’s report had gone beyond that, enabling the Court of Appeal to reverse the trial court order imposing sanctions.
The Supreme Court concurred in the result, but disagreed with the Court of Appeal’s reasoning: “Neither a mediator nor a party may reveal communications made during mediation. The judicially created exception fashioned by the Court of Appeal is inconsistent with the language and the legislative intent underlying sections 1119 and 1121. We also conclude that, while a party may do so, a mediator may not report to the court about the conduct of participants in a mediation session.” 26 Cal.4th at 644-645.
Enforcement of Settlement Agreement Reached Through Mediation/Confidentiality: Settlement Agreement Containing Material Terms May Be Enforced
. . . And Confidentiality Requirement in the Agreement Also Applies, Even if Local Rules Governing Settlement Communications Do Not Apply in Federal Court
Sometimes the tone of a Court’s opinion gives a good clue as to the outcome. Such was the case in Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034 (2011), in which Justice Alex Kozinski observed of the Facebook dispute between Mark Zuckerberg and his nemeses, the Winkelvosses, that the litigation “gave bread to many lawyers,” suggesting a certain judicial weariness with the epic dispute.
The Winkelvosses challenged enforcement of a short (1 and 1/3rd pages) agreement reached through mediation, resulting in Facebook’s attorneys drafting an additional 130 pages of documents to implement the mediation agreement. Agreeing with Facebook that the agreement should be enforced, the Court of Appeals distinguished between material terms that are “necessary” and material terms that are “important.” Here, the necessary terms were included, because the contract was sufficiently specific to determine if it was breached, and to allow for a remedy of specific performance or damages: “This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives.” Incidentally, Justice Kozinski added, “[t]he district court got it exactly right when it found the Settlement Agreement enforceable but refused to add the stack of documents drafted by Facebook’s deal lawyers.”
The Court of Appeals expressed doubt that the federal district court Local Rules applying to ADR could create a “privilege” for confidential communications in a mediation, because privileges are created by the Federal Rules of Evidence, which rules cannot be overruled by Local Rules. Not to worry: the settlement agreement, by its terms, made the communications in the mediation confidential, and thus they could not be introduced to undermine the settlement agreement.
If the remark about lawyers getting much “bread” at the beginning of the opinion suggested weariness with the litigation, so too did the ending of the opinion: “At some point, litigation must come to an end. That point has now been reached.”
Mediation/Costs/Attendance: Trial Courts Do Not Have Authority to Order Parties In a Complex Civil Action to Attend and Pay for Private Mediation
Court of Appeal Reminds That “The Essence of Mediation Is Its Voluntariness”
Jeld-Wen was a minor player in a complex construction dispute. It was ordered by the trial court to attend a mediation and pay its share of costs. Jeld-Wen refused to attend, and was duly ordered to attend and sanctioned. Jeld-Wen sought a writ of mandate directing the trial court to set aside its ruling, and the Court of Appeal duly issued an order to show cause. Jeld-Wen, Inc. v. Superior Court, 146 Cal.App.4th 536, 53 Cal.Rptr.3d 115 (2007).
Held: “[A] case management conference order requiring that parties in complex cases attend and pay for mediation is not authorized by the statutory scheme . . . and is contrary to the voluntary nature of mediation.” (Distinguishing Lu v. Superior Court, 55 Cal.App.4th 1264 (1997): “a referee appointed under section 639 may conduct a mandatory settlement conference in a complex case . . . “).
Construction of Mediation-Arbitration Clause/Venue/Severability: Third District Rules that California Subcontractor Refusing to Mediate in Nevada Did Not Violate Terms of Agreement Purporting to Require Mediation or Arbitration in Nevada
Case Involves Application of CCP Section 410.42 to Mediation/Arbitration Provision in Construction Contract
Before becoming Chief Justice of the California Supreme Court, Justice Cantil-Sakauye authored the opinion in Templeton Development Corporation v. Superior Court [Dick Emard Electric, Inc. Real Party in Interest], 144 Cal.App.4th 1073, 51 Cal.Rptr.3d 19 (2006). Emard, an electrical contractor, sued petitioner Templeton, a general building contractor, for breach of contract and other claims. Templeton, relying on a contractual provision calling for mediation and arbitration in Nevada, unsuccessfully moved to dismiss Emard’s complaint on the ground of inconvenient forum. The trial court ruled that CCP section 410.42 rendered the out-of-state mediation provision unenforceable. Templeton sought a writ of mandate setting aside the trial court’s order denying their motion to dismiss for inconvenient forum, or alternatively remanding to determine whether the Federal Arbitration Act (FAA) preempted the California statute.
Section 410.42 provides in pertinent part that, a “contract between the contractor and a subcontractor with principal offices in this state, for the construction of a public or private work of improvement in this state, shall be void and unenforceable: (a) A provision which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state.”
First, the Court of Appeal concluded that section 410.42 applied to the dispute, because the mediation provision requiring Nevada mediation purports to require a dispute between the parties to be “otherwise determined outside this state.” Therefore, the subcontract was void under section 410.42 to the extent that any mediation was to be held in Nevada.
Second, however, section 410.42 did not entirely void the mediation provision, because the doctrine of severance could be applied to allow for mediation, but in California — and apparently Emard offered to mediate in California, but Templeton failed to respond to that request.
Third, Emard was not compelled to arbitrate in Nevada, because mediation was a condition precedent to arbitration, not to litigation. Under the contract, the only consequence of refusing to mediate was that it could ultimately affect an award of attorney’s fees (and it was not clear that Emard refused to mediate, only that it refused to mediate in Nevada).
The Court of Appeal did not reach the issue of FAA preemption.