On August 19, 2010, the Second Appellate District of the California Court of Appeal issued an opinion in which it upheld mediation confidentiality. In Radford v. Shehorn (Case No. 2d Civil No. B216323) ( Radford v Shehorn), the court held that it was error to admit the declaration of a mediator into evidence on a motion to enforce the settlement but that the error was harmless. Consequently, the appellate court affirmed the trial court’s ruling to enforce the settlement.

Suzanne C. Radford and Melina Shehorn are sisters and also beneficiaries of a trust created by their parents in which Shehorn was the sole trustee. After their parents died, Shehorn as sole trustee, distributed the assets of the trust. Radford filed a petition in probate court  challenging the distribution. The court ordered the parties to mediation.

During the mediation, the parties settled. They entered into a two-page settlement agreement. The first page was a printed form provided by the mediator, which included a release and also stated that the agreement “. . .is binding on the parties pursuant to [Code of Civil Procedure] §664.6. . . and is admissible in court as set forth in Evidence Code §1123. . . .”  This page 1 was signed by Shehorn and her attorney but not by Radford and her attorney. It was marked “Page 1 of 2.” (Id. at 2).

The second page, marked “Page 2 of 2”, was entirely handwritten, containing the substantive terms of the settlement. It was signed by both parties and their attorneys.

Thereafter, Radford took the position that she was not bound by the agreement. Shehorn filed a motion to enforce the settlement submitting separate declarations both from her attorney and the mediator, each stating that the agreement consisted of two pages, not just the second page as Radford claimed. In opposition to the motion, Radford contended that she never signed page one and was of the impression that there would be no settlement until a final typewritten agreement was signed by the parties. She further stated in her declaration that she did not receive page one until about a week after the mediation when her attorney sent it to her.

At the hearing on the motion to enforce the settlement, Radford objected to the mediator’s declaration. The trial court overruled the objection, determined that the settlement agreement did, indeed, consist of two pages and held it to be enforceable. In doing so, it relied on the declarations of the mediator, Shehorn and her attorney.

The appellate court affirmed, although it determined that the trial court should not have admitted the mediator’s declaration into evidence. Because the trial court, relying solely on the other two declarations (i.e., Shehorn’s and her attorney’s), would have still reached the same result, the appellate court found the error to be harmless.

In reaching this ruling, the appellate court cited California Evidence Code §703.5 which provides in part, that no mediator “. . .shall be competent to testify, in any subsequent civil proceeding, as to any statement, conduct, decision or ruling, occurring at or in conjunction with the prior proceeding. . . .” The court also relied on Evidence Code §1121 providing that a mediator cannot submit to a court a report, assessment, evaluation, recommendation or finding. . . unless the parties agree otherwise. Further, the court cited Evidence Code §1123 which provides that a settlement agreement reached at a mediation may be admitted into evidence if the parties agree that it is admissible or subject to disclosure; or binding or enforceable or words to that effect. (Id. at 4-5).

Finally, relying on prior decisions of the California Supreme Court, “ “. . .broadly [applying] the mediation confidentiality statutes and . . .severely [curtailing] courts’ ability to formulate exceptions” ” (Id. at 5), the appellate court determined:

“The mediation confidentiality statutes prohibit a mediator from testifying to anything about the agreement, including the number of pages it contains. The trial court erred in admitting Hadden’s [mediator’s] declaration into evidence, but the error is harmless.” (Id. at 5).

As those in California may be aware, the Second Appellate District has routinely been finding exceptions to mediation confidentiality and just as routinely, has been reversed by the California Supreme Court. Indeed, two of its decisions (in which it decided that mediation confidentiality did not preclude evidence to be admitted of what occurred during a mediation in a subsequent legal malpractice suit)  are pending review by the California Supreme Court. In sum, its batting average is well below the Mendoza line.

So. . . perhaps this time, the Second Appellate District Court got it right – probably because there was a clear statute in point: Evidence Code §703.5 prohibiting (in clear and precise language) a mediator from testifying in any subsequent civil proceeding about anything that occurred during the mediation.

The question I have – is why did the mediator even agree to submit a declaration in the first place? As a mediator and a retired judge – didn’t he know that he was not competent to testify under Evidence Code §703.5?

. . .Just something to think about!

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      Many cases filed in court involve an attorneys’ fee provision (pursuant to either contract or state statute) by which the prevailing party is entitled to be awarded her reasonable attorneys’ fees and costs to be paid by the losing party.
 

      This concept seems to be pretty straightforward. But, a recent California Supreme Court case, Goodman v. Lozano (2010) 47 Cal 4th 1327, 223 P2d 77, ( Goodman v Lozano )revealed that a plaintiff can still win at trial but yet pay attorneys’ fees to the defendant. How, you ask? Here are the facts.

       In 2000, the plaintiffs, Randall L. Goodman and Linda Guinther contracted with Jesus and Natalia Lozano to purchase a new home. The home had just been built by AMPM Construction Company (formed by Alberto and Patricia Mobrici in 1996). The Mobricis were equal partners with the Lozanos on numerous construction projects, including the home purchased by plaintiffs.
 

      In 2001, plaintiffs sued the Lozanos, Albert Mobrici, AMPM Construction, the architect and the real estate broker alleging numerous construction defects in their new home. Only the Lozanos were sued on a contract theory since they were the ones who signed the residential purchase agreement with plaintiffs. That agreement also contained a provision authorizing an award of attorneys’ fees to the prevailing party.
 

     In 2004, plaintiffs settled with Albert Mobrici and AMPM Construction for $200,000. They also settled with the other defendants, except for the Lozanos, for an additional $30,000. The settling defendants filed a motion with the court to have these settlement deemed to have been made in “good faith.” The court granted the motion, thereby preventing the remaining defendants – the Lozanos – from seeking any contribution against these settling defendants later on and also causing the amount of this settlement to act as a set-off against any judgment that plaintiffs might win at trial.
 

      Thereafter, the Lozanos served an offer to compromise (i.e. California Code of Civil Procedure §998) the matter for $35,000 which plaintiffs rejected.
 

      The case was eventually tried by a judge only – no jury. The trial judge was not made aware of the prior settlement of $230,000. After hearing all of the evidence, the judge found in favor of plaintiffs for a total damage amount of slightly less than $146,000. Of this amount, $64,000 went to plaintiff’s breach of the residential purchase agreement claim.
 

      The judge then learned of the prior settlement and determined that it should be offset against the present judgment: $146,000 less $230,000 = [$84,000], or in effect, $0.00. So, the trial judge entered a judgment determining that plaintiffs would receive nothing as a result of the trial.
 

      Then, applying the appropriate California statutes and the contract provision providing that the “prevailing party” shall be awarded attorneys’ fees, the court awarded the defendants Lozano – $132,000 in attorneys’ fees and $12,000 in costs.

       Plaintiffs appealed. Both the appellate court and the California Supreme Court affirmed. The Supreme Court did so after reading the plain language of the California statutes in question and reviewing their respective legislative histories. As such, it was clear that settlement offsets do affect the ultimate recovery and thus whether a party shall be deemed a “prevailing party” for purposes of an attorney fee award:

      “The defendants’ clear and undisputed trial goal was to get a decision awarding less damages than the sum of the prior settlements. They fully achieved this objective. It is also noteworthy that the settlements were consummated well before the trial, in ample time for the plaintiffs to reassess their strategy. . . . “(47 Cal 4th at 1339).

       I have mediated many cases in which plaintiff contemplates settling with one defendant and proceeding to trial against the remaining defendants, on the assumption that she will still be awarded her attorneys’ fees as the “prevailing party.” This case makes it clear that such an assumption is no longer accurate.
 

      When settling with less than all of the defendants, the long term consequences must be thoroughly analyzed. The “easy” money today (which plaintiff no doubt wants to use to finance the ongoing litigation) may well not be worth the ultimate net loss of having to pay attorneys’ fees to the remaining defendant.
 

      Or, to paraphrase a common saying – a bird in the hand may well not be worth the two in the bush!

       . . .Just something to think about.

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      Several weeks ago, I, again, helped my colleague who teaches mediation by supervising two of her students while they conducted an actual mediation in small claims court.

      Typically, when parties are scheduled for trial in small claims court, they go into the courtroom and sit down. The court clerk begins the session by providing instructions and introductory information. At that point, the clerk introduces the student mediators who then say a few words about mediation, indicating that they are available then and there to mediate any case in which the parties are amenable, for free. Some parties take them up on the offer, while others prefer to take their chances at trial.

      Initially, only the parties in one  matter decided to take the student mediators up on their offer. So, the two mediators began to co-mediate. Suddenly, there was a knock on the conference room door; the Defendant in another case had gotten the plaintiff to agree to mediate; however, the plaintiff’s mother wanted to mediate immediately and not wait for the student mediators to finish the pending matter. So – I requested one of the student mediators to join me so that the student mediator could  begin mediating this second dispute in the hallway as there was no private space available!

      This mediation turned out be wild and crazy. Plaintiff- whom I will call John- is a 22 year old college student who was accompanied by his mother to court. She- whom I will call Joan- was clearly controlling everything- including her son. Initially- she was willing to  mediate, … as long as defendant- whom I will call Steve – met her complete demand as alleged in the complaint and concluded the mediation before her son’s case was called for trial (she did not want to lose her place on the trial calendar. )

      The defendant – Steve – held a much different perspective. He had been to mediation before, and it had worked. He was hoping it would work again; that he could come to some resolution short of paying John everything his mother demanded.

      The facts were strange.  It seems that Steve (defendant) and plaintiff’s mom (Joan) were long time friends. In order to help John improve his credit rating, Steve agreed to list John as a co-holder on one of Steve’s credit card accounts.  At the time, Steve was in the real estate business which was booming, and his credit was stellar.

      Over the next few months, Steve incurred charges on this credit card of over $20,000. Then, the bottom fell out of both the economy and the real estate market.  Steve did not pay on the credit card account, and so the credit card company looked to Plaintiff- John for payments. He hired an attorney (incurring fees of about $3500) to negotiate a settlement of about $4,000 with the credit card company.

      When Steve refused to take John’s calls, John (no doubt at the urging of mom) sued in small claims court for the $4,000 negotiated settlement, $3500 in attorneys’ fees and the small claims’ court costs.

      So- here we are—mediating. The student mediator tried to explain what mediation was all about, but Joan kept interrupting, stating that the only settlement that was acceptable was for Steve to pay everything that was owed and to agree to it  before the court called her son’s case for trial.

      At that point, the student mediator attempted to talk to Steve alone, to get his perspective on the matter. Again, mom- Joan – objected – stating that she should be entitled to hear everything that Steve said. Again, the student mediator tried to explain mediation confidentiality and the value of meeting separately with the parties. While not really understanding  (or wanting to), Joan relented and gave Steve and the student  mediator some privacy.

      From Steve’s viewpoint, since John was a co-signer on the credit card, he was responsible for the debt, even if it was Steve who incurred it. The student mediator talked with Steve  about whether he, Steve, should ultimately be responsible for the debt since he is the one who actually incurred it. Slowly, Steve began to see the light, and so offered a little money. (In truth, Steve claimed that he was broke! But mom did not care.) The student mediator did an admirable job of talking with Steve and having him begin to acknowledge that he should be the one responsible since he is the one who incurred the charges.

      So…  Steve offered some money. Surprisingly, mom was willing to accept less than the full sum demanded in the complaint but insisted that it be a lump sum.  Steve was unwilling (or more likely, allegedly unable, to pay a lump sum.. and again, mom did not care.)  

      After a few more rounds of back and forth, an impasse was reached but we also ran out of time as the court was about to call the matter for trial. The student mediator, considering the conditions under which the mediation was being held (in the hallway of a courthouse), did a great job.
 

      Given our interest in this case, we stayed for the trial. After the son made his presentation, Steve spoke, urging that since John was on the credit card, he is responsible for the debt, even if  he – Steve – was the one who incurred it. The Court asked Steve the same question that the student mediator did: since Steve incurred the debt, shouldn’t he be the one, ultimately, responsible for payment? Steve said ‘yes” but only partially so.

      The Court took the matter under submission. A few days later it issued its judgment, finding for plaintiff in the full sum requested, $7500, plus court costs.

      Steve will probably appeal the judgment but, since appellate courts have a tendency to affirm, rather, than reverse, trial court judgments, chances are that Steve will not fare any better on appeal.

      The morale: it is always better to settle. At a certain point, mom was willing to accept  less than the  full sum sought in the complaint, but Steve refused. Now, he will have a judgment against him in that full amount, and will always be looking over his shoulder to see if his bank account is being levied upon or one of his other assets is being seized to satisfy the judgment. True to Murphy’s  law, a seizure will occur when Steve can least afford it, or expect it; that is, at the worst possible time. At least with a settlement, one can control the outlay of the funds and protect the remaining assets. With a judgment, a defendant totally lacks control; surprise is the key element.

      It is one thing to sit in a classroom and study mediation, and to conduct mock mediations… It is quite another to conduct a real one involving a case actually filed in court and see the outcome at trial when the parties do not reach their own resolution….  Very quickly, everyone learns… that actions do have consequences…

      ….. Just  something to think about.

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       The California Supreme Court issued an interesting opinion in January 2010 on attorneys’ fees. Although it has far reaching implications, it did not get much publicity.

       In Chavez v. City of Los Angeles (2010) 47 Cal 4th 970, (Chavez v. L.A. ) Plaintiff Robert Chavez, a police officer with the Los Angeles Police Department (“LAPD”), sued the City of Los Angeles and his supervisors; (1) first, in Los Angeles County Superior Court for defamation, intentional infliction of emotional distress, invasion of privacy and civil rights violations, (2) then, in federal court for unlawful employment discrimination under California’s Fair Employment and Housing Act (“FEHA”) (Government Code §12900 et seq.), and (3) then again, in Los Angeles County Superior Court alleging employment discrimination, harassment and retaliation in violation of California’s FEHA, trespass and loss of consortium. Plaintiff requested the federal court to take jurisdiction of the state court actions which it did.

       When the dust settled from all of this litigation, the federal court dismissed the lawsuit. The next month, plaintiff filed yet a third action in  Los Angeles County Superior Court alleging various claims in violation of California’s FEHA. He filed it as an “unlimited civil” case meaning that the amount in dispute was $25,000 or more. Eventually, the  matter was heard by a jury during a five day trial. The jury awarded plaintiff $1,500 in economic damages and $10,000 in non-economic damages for a total of $11,500.
 

      As the prevailing party, plaintiff filed a motion for costs in the amount of $13,144.26 and a motion for attorneys’ fees in the amount of $436,602.75 (pursuant to the FEHA statute [Government Code §12965(b)] awarding attorneys’ fees to the prevailing party) encompassing the over 1800 hours of time spent by counsel on all of the different litigation from the very inception.

       The trial court denied the motion for attorneys’ fees as an item of costs under Code of Civil Procedure §1033.5(a)(10), noting that under Code of Civil Procedure §1033(a), it has discretion to do so in those instances where plaintiff filed her action within the unlimited civil jurisdiction (cases valued at $25,000 or more) but “. . .recovers a judgment that could have been rendered in a limited civil case” (cases valued at less than $25,000). (CCP §1033(a)).
   

      The appellate court reversed, agreeing with plaintiff’s counsel that due to the complexity of the case, the case could not have been filed as a limited civil case in light of the very limited discovery allowed in such cases. Because the rules of court greatly limit the number of depositions that can be taken and the other types of discovery that can be conducted in limited civil cases, the appellate court determined it was not practical to file such a complex action in the lower court.

       The Supreme Court disagreed with the appellate court, and sided with the trial court. It noted that the purpose of section 1033(a) “. . .is to encourage plaintiffs to bring their actions as limited civil actions whenever it is reasonably practicable to do so.” (Id. at 988):

      “. . .what it requires is a realistic appraisal of the amount of damages at issue and whether the action might fairly have been litigated using the streamlined procedures of limited civil actions.” (Id.)

      The court further noted that complexity of the case does not change its holding:

      “Although extensive discovery may be conducted in many or even most FEHA actions, this does not mean that elaborate discovery proceedings are invariably necessary to effectively litigate a FEHA claim. Moreover, although in limited civil cases, the discovery permitted as of right is restricted (see, Code of Civil Procedure §94), the trial court may authorize additional discovery. . . or the parties may stipulate to additional discovery . . . .” (Id. at 988-989).

       Consequently, the Supreme Court held that in a FEHA case, a trial court does have discretion to deny costs – i.e., attorneys’ fees – to a plaintiff who recovers damages that fall within the jurisdiction of a limited civil case.
 

      The obvious implication is that an award of attorneys’ fees – whether allowed by contract or statute – is no longer a mandate. The plaintiff’s attorney is at risk of being denied her fees if she wins the case but the award is one that falls within the jurisdiction of the lower court. In sum, if she files the matter in the wrong court, she may end up receiving far less if any, in fees, than she originally assumed.
 

      This issue resonates with me in light of  my mediation practice as I conduct a lot of ‘lemon law” mediations in which plaintiff’s counsel seeks her fees pursuant to one or more applicable state statutes. Often, counsel has filed the action in the unlimited civil jurisdiction of the court (i.e. over $25,000) but settles the matter for less than $25,000 or within the jurisdiction of the limited civil courts. Should counsel now be denied her fees? Should defense counsel seek to severely limit the fees urging that the action was filed in the wrong court? Suppose, the principal case (which was filed in the unlimited civil jurisdiction of the court) settles for less than $25,000, and the parties agree to settle the issue by filing a motion for fees in the unlimited civil jurisdiction of the court. What should the judge do – go along or use her discretion to deny fees because the matter settled for less than $25,000?

      No doubt, there are a myriad of  hypotheticals to which the court’s holding could apply. . .  and none of us has the crystal ball to foresee how they should be or will be resolved. But, the court’s ruling does provide much to ruminate on!  

       . . .Just a lot to think about!

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On February 4, 2010, the California Court of Appeal, Second Appellate District, issued its opinion in Lukather v. General Motors, LLC, Case No. B209979. (Lukather v. GM ) Because this is a “lemon law” case, it caught my interest. (I conduct a lot of “lemon law” mediations.)
Plaintiff’s story unfolds as follows:

On April 25, 2005, Paul Lukather leased a Cadillac. Within a month, the Cadillac began exhibiting intermittent but recurring problems in the electronic stability control system. Lukather first brought the car in for repair on June 1, 2005 when the vehicle had been driven only 854 miles. Between June 5, 2005 and January 30, 2007, he brought the car in for repair of this same concern on more than four occasions.

Then, in February 2007, the brakes came on by themselves making the Cadillac difficult to drive. So, Lukather took the car to the dealer, requested that General Motors (“GM”) repurchase it and left it. He refused to pick it up, although he continued to make the lease and insurance payments on it. Although GM paid for a rental vehicle for two months, it refused to do so after April 4, 2002.  Lukather  paid $21,290.46 in car rental fees.

For the next two months, GM went back and forth with Lukather, trying to determine  whether Lukather would accept a replacement vehicle or was insisting on a repurchase. Lukather wanted his lease money back. According to GM, it was unclear what resolution Lukather was seeking. In April 2007, a GM representative told Lukather that it would take GM several months to decide whether to repurchase the Cadillac.

Frustrated, if not angry, Lukather hired an attorney. Suit was filed under the Song-Beverly Consumer Warranty Act (“ACT”), Civil Code §1790 et seq.

In March 2008, the matter went to trial before the Honorable Dewey Lawes Falcone, Ventura County Superior Court Judge (Case No. VC 048559). The trial court tentatively ruled that GM had violated the Act. In May 2008, it issued its statement of decision determining that GM did not act promptly in offering to repurchase the Cadillac and that such actions were “willful.” Consequently, in addition to awarding actual damages of $61,389.13, the trial court imposed a civil penalty in the same amount – $61,389.13 – in addition to prejudgment interest and attorneys’ fees and costs and expenses.

GM appealed contending that: (1) the evidence was insufficient to support  the findings that GM violated the Act, and did so willfully; (2) the Court erred in rejecting GM’s mitigation of damages defense; and (3) the Court abused its discretion in awarding prejudgment interest and attorneys’ fees and costs.

The appellate court affirmed. It determined that approximately six weeks (March 8 to April 12, 2007) was more than enough time for GM to decide to repurchase the Cadillac. The appellate court noted that there was “. . .[n]o evidence [to] support(s) GM’s assertion that . . . restitution was a labor intensive process that required months to accomplish.” (Id. at 9).

Citing Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal. App. 4th 174,( kwan-vs-mbz) the appellate court affirmed the trial court’s determination that GM had acted “willfully” in that it made decisions “ “. . .without the use of reasonable available information germane to that decision. . ..” ” and thus were not “reasonable, good faith decision(s)” (Lukather,supra, at 12).

The appellate court rejected GM’s mitigation of damages defense. GM argued that Lukather’s refusal to respond to GM was the cause of his approximate $21,000 car rental expense. The appellate court, noting that there is no authority in the Act for this defense, found that GM, in essence, was attempting to offset this expense. Noting that the Act does not provide for this type of offset, the appellate court rejected this defense.

Further, the court rejected the contention that the trial court abused its discretion in awarding prejudgment interest. GM urged that Lukather prevented GM from performing and so should not be awarded interest. The appellate court disagreed.

Finally, it found no basis to reverse the award of attorneys’ fees and costs.

This case is significant because it upheld the awards of a civil penalty, and prejudgment interest. No doubt, it will cause much discussion within the “lemon law” community.

. . .Just something to think about.

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