Sometimes, a party may have her expert participate in a mediation by being physically present and/or preparing a report for use at the mediation. If the matter does not settle, the question then arises whether mediation confidentiality precludes the use of the expert and/or her report at trial; is she precluded from testifying? Is her report inadmissible at trial?

            These issues confronted the Court of Appeals in New Mexico in Warner v. Calvert, Docket No. 29,674 (decided February 9, 2011) (Slip Opinion). (I want  to thank my colleague Alex Wisner for bringing this case to my attention!)  It was an interlocutory appeal of the trial court’s order appointing Judith Wagner as an expert witness and determining that her valuation report – prepared for purposes of mediation – may be admitted at trial. The defendants took issue with these rulings and so appealed.

            In the underlying litigation, the plaintiffs John Warner and Nina True each claimed that they were entitled to money damages as well as stock in the defendant corporations, North American Pizza Solutions, Inc., a New Mexico corporation, and Albuquerque Pizza Solutions, LLC, a limited liability company. Warner and True alleged that they had loaned money to John Phillips to build and operate these companies, with these loans being secured by Phillips’ stock in the companies. In addition, Phillips had allegedly assigned his equity interests in these companies to Warner and True.

            The court ordered the parties to mediate. At the first mediation, the parties realized they needed additional information to evaluate settlement. As a result, the parties retained Ms. Wagner to value the companies and the stock and then prepare a report “for the purposes of mediation.” It was clear that Ms. Wagner’s report was for use at mediation.

            After Ms. Wagner prepared and submitted her valuation report, the parties reconvened the mediation. Ms. Wagner did not attend the mediation although her report was used during the mediation. The mediation did not result in a settlement, and so the case was set for trial.

            Plaintiff  John Warner then filed a motion to appoint Ms. Wagner as an expert witness at trial which the court granted. The trial court also ruled that her valuation report could be admitted at trial. The defendants appealed, contending that New Mexico’s newly enacted mediation statutes precluded both Ms. Wagner appearing as a witness and her valuation report being admitted at trial.

            The Court of Appeals – noting that Ms. Wagner was a “non-party participant” in the mediation as defined by Section 44-7B-2(F) (Statute) (even though she was not physically present) – held that although Ms. Wagner was not precluded from testifying at trial per se, the scope of her testimony may well be limited: “under New Mexico’s mediation statutes, Ms. Wagner will not be able to disclose any mediation communications unless some exception applies.” (Id.) (Exceptions)

            However, the court found that her valuation report constituted a mediation communication because it was a written statement that was “made for purposes of considering, conducting, participating in . . . a mediation.” Section 44-7B-2(B).(Statute) Thus, the court concluded that it was not admissible at trial and that no exception applied that would allow otherwise.(Confidentiality) The court thus rejected the contention of appellants that although the valuation report constituted a mediation communication, it should be admissible because the documents underlying the report were discoverable and admissible.

            While the statutes in New Mexico appear to be quite similar to, (if not almost identical to) those of the Uniform Mediation Act and thus different than those enacted in California, the result in California would most likely be the same. In Rojas v. Superior Court, (2004) 33 Cal. 4th 407, the California Supreme Court held that materials prepared for use at mediation were not discoverable as they were protected by mediation confidentiality in California Evidence Code §1119. (Expert testimony was  not an issue.)

            Thus, while experts can prove quite valuable in settling a case at a mediation, careful thought must be given about whether to use them for this purpose. Pursuant to “mediation confidentiality” statutes, should the case not settle, the expert’s subsequent use and value to the dispute may be severely limited.

            . . . Just something to think about.

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          In recent weeks, the California appellate courts have issued decisions on diverse topics. Two of these decisions, although seemingly disparate, may not be so, on closer analysis. By discussing the most recent one first, hopefully, my quandary will become apparent.

          On March 2, 2011, the Fourth Appellate District issued its opinion in Martinez vs Kia Motors America, Inc (E049780), (Martinez v Kia Appeal decision ) holding that under California’s Song-Beverly Consumer Warranty Act (Civ. Code Section 1790 et seq.), a consumer plaintiff may, indeed, seek replacement or reimbursement for an allegedly defective vehicle, even though Plaintiff no longer possesses the vehicle! 

          It seems that Plaintiff Juanita Martinez purchased a new 2002 Kia Sedona. Thereafter, she had significant problems with the vehicle while it was still under warranty. More particularly, in June 2005, the car started shaking and making strange noises and smoke started  coming out from the engine.  Plaintiff smelled a strong acidic odor which she believed to be battery acid. She pulled to the side of the road. A third party who happened to be an auto mechanic looked at the engine and advised that he   thought the alternator had overcharged the battery. So, Plaintiff called her son, requesting that he purchase a new battery and bring it to her. He did so. (Id. at 3-4.)

          Plaintiff then had the car towed to a Kia dealer who denied warranty service. She then had it towed to a second dealer; its “Master Technician” spent approximately 10 hours inspecting and working on the car and concluded that plaintiff “… incorrectly tried to jump-start the vehicle battery by reversing the polarity, thus causing the problems”. (Id. at 4.). Consequently, that dealer, too, denied warranty coverage. As plaintiff did not have the money to pay for the repairs, she left the vehicle with the second dealer, (since it would not run) so that the dealership “…could fix it. “ (Id).   

          Plaintiff also stopped making the payments on the car loan. So, the lender repossessed the vehicle and had it towed to a third dealer who discovered that the problem was, indeed, with the alternator, and who fixed it under the warranty. 

          Even though the vehicle was now in the possession of the lender, Plaintiff sued   Kia under California’s Song-Beverly Consumer Warranty Act (“Act”).  Kia took the position that since plaintiff no longer had possession of the vehicle, she lacked standing to sue and filed a summary judgment motion on this ground. The trial court granted it.

          The appellate court reversed, holding that under the Act, “a plaintiff does not need to possess or own the vehicle to avail himself or herself of the Act’s remedies.” (Id. at 4). Reviewing the statutory framework very carefully, the appellate court determined that nowhere in any of the pertinent statutes, is there any language stating or providing “…that the consumer must own or possess the vehicle at all times in order to avail himself or herself of these remedies.” (Id. at 7.)  Rather, all that the pertinent statutes require is that the buyer

‘‘“deliver [the] nonconforming goods to the manufacturer’s service and repair facility” for the purpose of allowing the manufacturer a reasonable number of attempts to cure the problem.” (citation) Once this delivery occurs and the manufacturer fails to cure the problem, the “manufacturer shall” replace the vehicle or reimburse (make restitution to) the buyer….” (Id. at 7-8.)

         The appellate court also rejected the notion that the principles of restitution and revocation found in the common law and the Uniform Commercial Code should apply:

 “ Under common law and the Uniform Commercial Code, a party seeking to rescind a contract must generally return any consideration received. Pursuant to Civil Code section 1691, subdivision (b), a rescinding party must “[r]estore… everything of value which he has received … under the contract.” Under Uniform  Commercial Code sections 2604 and 2608, where a buyer revokes acceptance of the goods, “the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account….” Defendant argues that these principles also apply to the restitution remedy under the Act. We disagree.” (Id. at 13). (emphasis original)  

         Thus, the appellate court concluded that a consumer may obtain replacement or restitution under the Act  even though the consumer no longer possess or owns the vehicle.

         So… the question arises, what exactly are the plaintiff’s damages? Is the plaintiff entitled to the full value of the vehicle? To only the amounts she paid down and/ or on her loan? To an amount somewhere in between? What happens if she is later sued for a deficiency on the loan? Or, is she entitled to a replacement vehicle? And if so, at what value? Interestingly, the statutes in the Act addressing the amount of damages, simply state that in the case of a replacement vehicle, “the manufacturer shall replace the buyer’s vehicle with a new motor vehicle substantially identical to the vehicle replaced” while in the case of restitution, “the manufacturer shall make restitution in an amount equal to the actual price paid or payable by the buyer.” (Civil Code section 1793.2(d)(2)(A) and (B). (Emphases added.)

         If one reads these statutes with the same strictness as did the appellate court, it might appear that Plaintiff is entitled to a windfall in that she should be awarded either the full purchase price or a brand new replacement vehicle “substantially identical” to the one that was repossessed.

         And, this is where the second appellate decision comes in. In Cabrera vs E. Rojas  Properties, Inc (B216445), ( Cabera v Rojas)the Second Appellate District Court decided, on February 18, 2011, that in the context of a personal injury action, Plaintiff was entitled to recover  from the defendant (who caused her injuries) only the amounts actually paid by her own medical insurer to the hospital, doctors and other medical providers rather than the amounts billed by those entities to the insurance company. Specifically, the medical providers had billed Plaintiff’s medical insurer the sum of $57,534.45, but after adjustments, were paid only $8,914.26. The appellate court held even though Plaintiff had the foresight to carry medical insurance, Plaintiff was still not entitled to obtain a windfall by being awarded the amount billed rather than the amount paid as against the defendant; Plaintiff’s damages against the defendant could only be the $8,914.26 actually paid; Plaintiff could not collect a windfall from the defendant by being awarded the billed amount of $57,534.45.  As this opinion notes, other appellate courts in California have held the opposite (ie., that the Plaintiff would be entitled to an award of $57,534.45 and thus to a “windfall”) and so the issue is pending before the California Supreme Court. (See note 2 at page 6.) 

          So, applying the notion from this most recent personal injury case that Plaintiff is not entitled to a windfall but should collect only what was actually paid and not the full amount “billed”, what ARE plaintiff’s damages under the Act? And if one does apply this rule from this personal injury case, is it contrary to the language of Civil Code section 1793.2(d)(2)(A) and (B), noted above, which seems not to envision the situation in which a consumer who no longer owns or possesses the vehicle and never fully paid for it, seeks restitution or replacement?

          It will be most interesting to see how the trial courts deal with these issues, and even more interesting to see how the parties deal with them in my next “lemon law” mediation!

          … Just something to think about!     

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            Settlement agreements can be difficult to get out of. The Sixth Appellate District of the California Court of Appeal made this point clear in its opinion in Chan v. Lund (Case No. HO34196 – Sept 29, 2010.)

            It seems that Chan and the Lunds were neighbors. Using Norma Tree Service (an unlicensed contractor), the Lunds caused some branches of Chan’s cypress trees (extending over the boundary fence and onto the Lunds’ property) to be trimmed. Chan took exception to this and so sued both the Lunds and the Norma Tree Service.

            Allegedly, the case was settled at mediation on the eve of trial. But, soon thereafter, Chan fired his attorney, and hired a new one. In response to motions to enforce settlement brought by both defendants pursuant to CCP §664.6, Chan claimed that his consent to the settlement was obtained through economic duress, undue influence and fraud perpetrated by his former attorney. He also asserted that the California Evidence Code provisions concerning the confidentiality of mediation communications and precluding mediators from testifying at subsequent proceedings, violated the due process clause of both the United States and California Constitutions.

            The trial court rejected all of Chan’s claims and granted the motions to enforce settlement. The appellate court affirmed.

            In his declaration opposing the motions to enforce settlement, Chan recited that his attorney threatened to abandon Chan if Chan did not attend the mediation and that he would not represent him at trial. Chan recited in his declaration that because of this threat, he attended the mediation at which point his attorney agreed to represent him the next day at trial. However, Chan further alleged that during mediation, when there seemed to be an impasse, his attorney again threatened to abandon Chan if Chan did not negotiate in good faith.

            The appellate court determined that Chan’s contentions did not constitute extortion, economic duress, undue influence, fraud or even an invalid business transaction between an attorney and his client contrary to Rules of Professional Conduct, Rule 3-300. (Id. at pp. 8-24). The appellate court found it did not need to reach the constitutional issues because Chan had at best made an “offer of hope” rather than an offer of proof of the substance of the testimony that the mediator would provide. (Id. at pp. 25-26, n.27). 

            The appellate court rejected Chan’s contention that he could rescind the settlement agreement based on extortion, economic duress, undue influence and/or fraud because, as the court noted, his attorney was neither a party to the settlement agreement nor conspired with the Lunds in obtaining Chan’s consent to the settlement agreement. Looking at the requirements for each of these claims, the appellate court pointed out that the operative parties are usually the threatening party and his victim. The threatener extorts, uses economic duress, undue influence or commits fraud in order to force the victim to agree to something, e.g. a settlement agreement. But here, the Lunds did no such thing and assuming that Chan’s former attorney committed any of these alleged acts, he did not make the Lunds even privy to what he was up to; rather, they acted in good faith in complete ignorance of the attorney’s alleged misdeeds and gave value or consideration to Chan in exchange for his agreement to settle. The attorney had no interest or rights in the settlement agreement and did not conspire with the Lunds to accomplish the settlement by means of any of the alleged misdeeds. (Id. at pp. 8-24).

            The appellate court also addressed the issue of whether the attorney violated Rule 3-300 (of the Rules of Professional Conduct) prohibiting an attorney from entering into a business transaction with his client unless certain very specific requirements were met. (Id. at pp. 19-22).  First, the court noted that this rule does not apply to the agreement by which an attorney is retained. Second, when the attorney offered to discount his fees to induce Chan to settle, such an offer did not constitute a “business transaction” within the meaning of this rule. Further, the attorney did not acquire any interest in Chan’s property which is one of the requirements for the rule to apply. (Id.)  In short, the court noted an offer to discount fees does not constitute a “business transaction” within the meaning of Rule 3-300. (Id.)

            Finally, the court rejected Chan’s constitutional claims because the appellate record offered neither any indication of the alleged testimony of the mediator if allowed to testify nor an actual specific order or ruling barring Chan from introducing such evidence: Chan’s claim was just too theoretical to be taken up  by the court. (Id. at pp. 24-26). 

            Consequently, Chan could not avoid the settlement but instead was obligated to accept the sum agreed upon in settlement.

            So. . .when you do settle a dispute and memorialize it in writing, think long and hard before signing. . . it may not be so easy to get out of it if you later have second thoughts.

            . . .Just something to think about! 

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            Recently, a California appellate court re-affirmed the requirement that the parties, themselves, and not their attorneys, must either sign a settlement agreement or agree to it “on the record” in open court, for it to be enforceable. An attorney doing either as the “authorized agent” of her client is simply not good enough!

            The facts in Critzer v. Enos, Court of Appeal of the State of California, Sixth Appellate District, Case No. HO33913 (August 30, 2010) are simple. David and Margaret Critzer, who owned a townhome in a Cupertino development known as Northpoint got into a dispute with their neighbor, Jerry Enos, over a window he was installing in his upstairs bathroom. They claimed, much to their dismay, that the window’s placement allowed Enos to look directly into their living room and, conversely, they could look directly into Enos’ master bedroom. The Critzers’ alleged they received no notice of this proposed installation as required by Northpoint’s CC&Rs and strongly objected to it. So, they sued not only Enos, but the present owner – Darien A. Tung and the Homeowners Association (“HOA”).

            Just prior to the start of the trial, the case settled. The terms of the settlement were recited in open court on the record and agreed to by the Critzers and Darien Tung; however, Enos and the HOA were not present.

            Several months later, when the parties were unable to reach a consensus about the language of the formal settlement agreement, the HOA brought a motion to enforce the settlement under California’s Code of Civil Procedure §664.6. ( C.C.P. 664.6)

            Although, the trial court granted the motion, the appellate court reversed concluding;

“. . . because there was neither an oral settlement all parties personally agreed upon, nor a written settlement agreement signed by all of the parties, the court lacked authority under the summary procedure of section 664.6 to enforce any settlement.” (Id. at 2).

            In support of its conclusion to reverse, the appellate court noted earlier decisions interpreting the term “parties” in CCP §664.6 “. . .literally to mean the litigants themselves.” (Id. at 12) or “ “ namely the specific person or entity by or against whom legal proceedings are brought.” ”  (Id.). Personal assent of the parties themselves is required as it:

 “ “. . .tends to ensure that the settlement is the result of their mature reflection and deliberate assent. This protects the parties against hasty and improvident settlement agreements by impressing upon them the seriousness and finality of the decision to settle, and minimizes the possibility of conflicting interpretations of the settlement [citations]. It also protects parties from impairment of their substantial rights without their knowledge and consent [citation].” ” (Id.)

            Consequently, even the spouse of a party or an attorney signing as the “authorized agent” of the party will not suffice. Only the party herself can agree to a settlement, for it to be enforceable; anything other than the party’s personal and direct participation is not acceptable to a court! (Id. at 13-16).   

            Unfortunately, I have sometimes had the situation in which one of the parties is appearing by telephone. If a settlement is reached, I ask whether the party attending by telephone is reachable by fax or email so that we can send the settlement agreement to her for signature and have her return it. Sometimes, this is possible; sometimes it is not. In those instances in which it is not possible, I have the concern raised by this latest appellate decision: that while the parties think they have settled, it is not enforceable until all of the parties personally execute a settlement agreement. All of their hard work at resolving the dispute may go for naught simply because the telephonic party is not able to sign the agreement!

            So. . . while it is understandable that a party may not be able to appear in person at mediation, it is imperative that some technological means be worked out to allow the party to personally sign a settlement agreement; otherwise, there may be no “true” settlement in the eyes of the court.

            . . . Just something to think about.

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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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