Mediations, like everything else in life, come in all shapes, sizes and colors. No two are the same or are ever alike. Usually, though, most of them will follow a similar pattern such that the principles of mediation will be applicable.

            But, every once in awhile, there is that mediation that breaks the mold. I had one of those the other day. I think I may have violated one or more mediation rules – I did not exactly follow the book – but in doing so, I am pretty sure I helped the parties move forward towards resolution. However, I strongly recommend that no one adopts my “mediation” technique.

            By way of background, my husband is a Customs attorney; he represents importers who become involved in disputes with U.S. Customs and Border Protection (“Customs” or “CBP”) over importations. I have learned a little of Customs law practice through osmosis. 

            On to my mediation. Plaintiff – I will call him John – purchases close outs of apparel and then resells them to retailers. All of his transactions are domestic or local. At a certain point in the past, he met Jane who offered to and did, in fact, find deals for him. She “worked” with him for a year or so.

            Then, according to John, unbeknownst to John, Jane located 5 containers of apparel abroad, manufactured in China. They were a “good deal” according to the freight forwarder who turned her onto the shipment. But to complete this deal, she needed to import the goods and so hired a customs broker. According to John, Jane, without John’s knowledge, signed a Customs Power of Attorney with ABC Customs Broker (not its real name) using John’s name and tax identification number.

            Pursuant to the executed power of attorney, ABC Customs Broker filed the entry documents for the 5 containers which were then entered into the United States. But, Jane never received the containers nor did John even though he was listed as the consignee on the entry documents. Rather, the containers were delivered to others in New York City who then sold the merchandise! (This fact was determined in subsequent telephone calls by John.)

            In truth, this was a case of “identity theft” – the freight forwarder convinced Jane to use John as the “importer of record” in order to import the merchandise for the benefit of other persons who did not want their names to appear anywhere. While this is often done in connection with importations of counterfeit merchandise (that is, if it is seized, Customs naturally goes after the victim of the identify theft since he is listed as the “importer of record” or “consignee”), it is unclear what the motivation was in this case.

            The problem arose because Customs then notified the California State Board of Equalization (“BOE”) that these 5 containers had been imported. So, BOE sent John, as the importer, a notice that it was assessing a use tax on the value of the merchandise.

            When John confronted Jane, she claimed to know nothing about it and that she, too, was a victim. When she refused to pay the use tax assessment, John sued her.

            So. . . they showed up for mediation on my doorstep. After reading the briefs, I could not get a grasp of the facts as they made no sense. (The above description is based on the facts learned during the mediation.) At mediation, I asked both counsel and the parties for more details, and they were unable to provide them: they, too, were in the dark. So, I asked counsel to show me the Customs power of attorney and the Customs entry documents (i.e.  Form7501) so I could try to make sense of what had transpired. The documents shed some light but not completely. So. . . with everyone’s permission, I asked my husband to look at the Customs documents and enlighten us. He opined that an identity theft had occurred and that the freight forwarder had pulled a fast one. The goods had, indeed, been delivered elsewhere in the U.S.

            Again, with everyone’s consent, I invited him into the joint session. He discussed with both counsel and parties that they needed to obtain complete copies of all of the documents from the customs broker to figure out all of the details of the identity theft.

            He, too, was at a loss to understand why the BOE would be assessing a use tax since normally importations are exempt. As a use tax is normally charged on items for personal use brought into California from elsewhere, none of us could figure out why the  BOE would think 5 containers of apparel would be for personal use. So, he suggested that once the parties obtained all of the Customs documents, they go to the BOE asking it to cancel the tax based on it being a matter of “identity theft.” Alternatively, he suggested that John simply provide his reseller’s permit number to the BOE which should cause the assessment to be cancelled. It was opined that perhaps the BOE assessed the use tax against John since he had not provided his re-seller’s permit number at the time of the importation.

            The parties were very grateful for the advice as it provided a way to resolve the matter: to obtain a cancellation of the use tax assessment either based on John’s reseller’s permit number or identity theft.

            But, this showed me several things: (1) one needs to know all of the facts before one can figure out what are the issues; (2) in order to figure out what are the issues, one may need expert advice or help from strange places; and (3) one cannot even begin to resolve a matter until one accomplishes steps 1 and 2.

            In short, this lawsuit was unnecessary. Instead of John suing Jane, both of them  should be working together to figure out exactly what happened, arrive at the conclusion that it was an “identify theft” and tackle it in that light vis-à-vis BOE. But, not knowing all the facts, they misidentified the issue and took a fortuitous wrong turn that led them to an unorthodox mediation that will hopefully lead to resolving the tax issue!

            . . .Just something to think about.

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            On Monday, November 1, 2010, the California Supreme Court heard argument in Cassel v. Superior Court (Wasserman, Comden Casselman & Pearson, LLP – Real Parties in Interest), Case No. S178914. Therein, plaintiff Michael Cassel alleged legal malpractice against his former attorneys, Wasserman, Comden Casselman & Pearson, LLP, for allegedly forcing him to settle a case during mediation for an amount less than was acceptable. On the eve of trial, the defendant attorneys filed motions seeking to prevent certain communications from being admitted into evidence on the grounds that these communications occurred during a mediation and so were covered by mediation confidentiality. The trial court agreed, ruling that the conversations solely between attorney and client outside the presence of the mediator would be excluded by mediation confidentiality.

             The California Court of Appeal (Cassel opinion) directed the trial court to vacate its order, determining that conversations solely between an attorney and his client during mediation but outside the presence of the mediator are not covered by mediation confidentiality.

            The issue is now up to the California Supreme Court: when an attorney and client discuss things privately during a mediation but outside the presence of the mediator, are such conversations admissible in a subsequent legal malpractice suit or are they precluded under the rubric of “mediation confidentiality”?

            I raise this issue because my mediation the other day brought this issue front and center. It was a “lemon law” case; however, the defendant, for the first time, at the mediation, raised the spectre that plaintiff had been committing insurance fraud and quite possibly was now committing “lemon law” fraud. As plaintiff’s counsel  had no warning that this was an issue, she was caught by surprise. Naturally, when she talked to her clients about it, they denied it. (Realistically – who is going to admit that he/she has been filing fraudulent claims with insurance companies and/or filing fraudulent lawsuits?)

            This surprising information at mediation put the plaintiff’s attorney in a difficult position: being bound by the Rules of Professional Conduct, she cannot knowingly participate in a fraud on the courts. So, should she stop the mediation and do some independent checking and due diligence? Or, should she continue with the mediation and advise her clients to settle for the very minimal amount being offered by the defendant manufacturer (which believed this case to be fraudulent). And, if she does continue with the mediation and the matter settles for minimal value, is she opening herself up to a subsequent legal malpractice action as in Cassel because she advised her client to settle for a lot less than the case was “worth” without independently investigating the “fraud” claim and determining whether it had merit?

            As a result of the defendant attorney springing this information on the plaintiff attorney for the first time at mediation, the plaintiff attorney spent quite a lot of time discussing the issue with her client and figuring out what to do next; the defendant and her client sat around twiddling their thumbs.

            In the end, the matter settled for a minimal amount. However, the whole thing left a very bad taste in the plaintiff’s attorney mouth to the point that she requested that I suggest to defense counsel not to engage in such tactics again; if defendant has such game – changing information in the future, she should share it before the mediation so that plaintiff’s counsel can conduct her due diligence, investigate and determine the merits and thereby protect herself from a potential malpractice suit when the settlement amount is lower than expected as in Cassel.

            I wholeheartedly agree. This is clearly one of those situations in which one must view the events in the shoes of opposing counsel. If the parties want the settlement to be durable, they must make sure that it is not based on “surprises.” (Needless to say, the plaintiff could also sue to rescind this settlement based on the legal malpractice of her attorney.) “Surprises” simply do not lead to good settlements.

            Besides,. . . parties need time to “process” new information and so to spring “surprises” at mediation makes it difficult, if not impossible, to reach a resolution, or, at least one, that is not extremely distasteful to all concerned.

            . . .Just something to think about!   

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Sometimes, the goal of a mediator is not to settle the case but simply to prevent the dispute from escalating into all out war. I was reminded of this recently by getting into the middle of a dispute between two friends who have been separated for many years and now wanted to finalize it by a divorce. The only issue was the property settlement. To be noted well, I am not trained in family law, am not licensed to practice law in the jurisdiction in which my friends lived and being close to both of them, I have a huge conflict of interest (“Disclaimer”).

To maintain confidentiality,  I will call my male friend John and my female friend Jane. John and Jane had been separated for many years. Periodically, I would speak with each of them as I remained friends with them both despite their separation.  Lately though, what I was hearing from each of them was that he/she wanted to work out a property settlement so a divorce could be obtained but that the other was either  not cooperative and/or not responsive. John complained to me that while he made a proposal to Jane, she had rejected it but never made a counter-proposal. Jane, on the other hand, told me that she had told John what she wanted but that John wasn’t listening and/or was avoiding dealing with it.

This back and forth went on for about a year. It finally came to a head when Jane filed for a divorce to force the issue. Jane warned me she was going to file because she got tired of the purported non-responsiveness of John.

It was a good thing she warned me as I soon got a telephone call from John who was extremely upset about being served with the lawsuit and demanded that I choose sides.

Being the neutral that I am, I told John that I was on no one’s side but only wanted what was “fair” to both of them. I did not have a personal stake in how this ended but only wanted the outcome to be “fair” (whatever that means!)

I listened to John for quite awhile, letting him vent and get it out of his system. I discussed the notion of perception with him; i.e. how he perceives something may be different than how Jane perceives it and vice-versa.

As might be expected, John stated that he would escalate this to  all out war, defend himself to the utmost and go on the offensive. In response, I suggested that he not let his emotions take over but that he try to rise above them and view this lawsuit dispassionately.   The only issue was a property settlement and if he played “tit for tat” and blasted back with “everything he had”, the only people who would benefit would be the attorneys whose fees would greatly increase.  I told John that Jane really did not want to litigate but rather to settle quickly; she filed suit  because she perceived him as being non-responsive; she wanted to get his attention so that he would focus on this!

After awhile, John calmed down and begin to view this dispassionately.  He admitted that he, too, wanted to settle it and do so quickly.

So, I became the “accidental” mediator and called my friend Jane (with John’s permission) to advise that John was served, was upset but wanted to settle it and to do so quickly. I asked her for a proposal.  She told me she needed certain information from John before she could give me a proposal. She gave her permission for me to discuss this with John.

So, I then called John relaying Jane’s request for more information.  John provided it to me in great detail. Again, I called Jane and provided the information. I found that a large unstated issue was trust.  Purportedly, when John had given some of this same information to Jane previously, she was not sure that he was telling the truth. But, because of my relationship with each of them, they each trusted me and believed that the other would be honest with me. So, when I conveyed to Jane the same information that John had told her directly in the past, Jane felt more comfortable believing it. Jane said she would gather some information and get back to me with a counter-proposal.

Although by now, each of my friends had attorneys, it seemed that the attorneys were not always communicating with each other.  On more than one occasion, this created unnecessary conflict and potential escalation of this dispute into World War III. Over the next couple of weeks, I checked in with each of them, and one of them would tell me what they had instructed their attorney to do. More times than not, the attorney had not yet done it or communicated it to the other attorney.  So with the party’s permission, I would convey it to the other, giving the other party a “heads-up” so as to prevent the lack of communication from causing that party to become upset.

Variously, each of them would tell me that they had to check with their attorneys to which I responded with great encouragement that they do so, reminding them of my Disclaimer.

In all of my conversations, I continuously reminded each of them that the other party did not want major warfare, but wanted to settle and to do so quickly, and since the only issue was a property division, settlement should not be difficult. I kept reminding each of them that only the attorneys would make money from any escalation of this dispute. I tried my best to remind them to not let their emotions take over but to keep moving toward the goal: a quick and painless division of the property.

My discussions with them also encompassed a general framework of any potential settlement: what, in general, it might look like.

Last week, my friends, accompanied by their lawyers, met with each other and worked out a settlement using the general framework I had discussed with them. While I was not there, I would like to think that my accidental mediator role played a part in that I listened to each of them, let them vent, kept them in communication with each other so that they did not let misassumptions or lack of communications run amok in their imaginations and continued reminding each of them  that each of them wanted to settle, to do so quickly and that the only ones to benefit from a long drawn out battle would be the attorneys.

Did I get paid any money for the hours I spent on the phone helping my friends contain this dispute? Of course not! But did I obtain satisfaction from helping them? Yes! and it was “Priceless!”

. . .Just something to think about.

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        On Friday, February 5, 2010, I helped a colleague who teaches a mediation clinic in a local  school by coaching some of her students conducting a mock mediation. That is, I observed the students conduct their first  mediation  (using a fact pattern given out by the professor) and provided suggestions.

      The particular fact pattern was, in essence, a collection action. A quick reading of it showed that Plaintiff did not have a very good case and would probably lose in small claims court, were the matter actually tried.  The issue for the student mediator was how evaluative, if at all, should she be in her discussions with  Plaintiff. Should she say anything to Plaintiff to the effect that she faced an uphill battle and if so, how mildly or strongly should such a “ suggestion” be  worded.

      Each of the student mediators approached the task differently, but, they were all evaluative–telling Plaintiff she did not have much of a case and would lose. They each just conveyed  this sentiment differently.

       In driving back to my office, I reflected on this in light of a recent mediation. There, the parties reached an agreement that involved the participation of a third party who was neither a party to the lawsuit nor to the mediation. Implementing the settlement was not going smoothly as the third party was not responding in the manner envisioned by the parties. So, much communication was occurring in trying to keep the settlement on track. More and more, our discussions focused on the cultural differences of the parties and the third party. Plaintiff and the third party were Asian while the defendant was “American”, (that is, Anglo-Saxon.)  

      Suddenly, I had an epiphany or ‘ah-hah” moment. Both the students that day as well as me, must take into the account the cultural background of the participants in deciding whether to be evaluative. Why? Let me explain. In my mediation, the Plaintiff was from a country that followed Dutch law or the civil code tradition in which the judge also investigates, asks questions and prosecutes. That judge has a lot more power and control over the matter than do our American judges under our adversarial system. The system used in this Asian country is not at all  adversarial but  rather, inquisitorial.  
   

       In the later stages of my mediation and with the blessing of her counsel, I became evaluative with the plaintiff advising plaintiff that because her english was very difficult  to understand,  she might well lose the attention of the jury and thus lose her case.  I noted that using an  interpreter may also cause her to lose because again, she may well lose the jury’s attention.

       Subsequent to the mediation, plaintiff’s attorney  advised me  that after my discussion with plaintiff, plaintiff used her mobile phone and told the other party that “she had lost” her case.  At the time, the attorney did not think much of it, but suddenly, amid all of our discussions about cultural differences, he had his own epiphany or  “ah-hah” moment as well, and realizing that given plaintiff’s cultural background, (and even though I told plaintiff  that I was neither an arbitrator nor judge and was not deciding anything), she cloaked me with  authority, Thus, when I warned her that her inability to speak English could adversely impact her case, she understand that to mean that I was deciding her case and telling her that she had “lost”! 

       I have taken many training classes focusing on cultural differences.  But, the discussions have always been in the abstract. This mediation brought it home; be careful about the cultural differences.  What I say as a mediator with the intent that it be received one way may well be taken completely differently by the listener in light of her cultural background. While I wanted my “evaluation” to be taken with a grain of salt, this plaintiff, because of her culture and her country’s legal system, took it as “gospel.”

      …..  Just something to think about.

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       On November 23, 2009, the Fourth Appellate District Court of the California Court of Appeal upheld the collateral source rule. In Howell v. Hamilton Meats & Provisions, Inc., Case No. D053620, 2009 Cal. App. Lexis 1874 (Howell) the appellate court determined that plaintiff was entitled to recover the actual amount charged by her medical providers even though those medical providers took far less from her insurer in full satisfaction of their bills. By making this ruling, this San Diego appellate court diverged from its brethren in the Third Appellate District (Sacramento) in Hanif v. Housing Authority of Yolo County (1988) 200 Cal App. 3d 635, 246 Cal Rptr. 192 (Hanif) ( Hanif) and the First Appellate District (San Francisco) in Nishihama v. City and County of San Francisco (2001), 93 Cal App. 4th 298, 112 Cal Rptr. 2d 861. (“Nishihama”)(Nishihama) 

      These latter courts held that a plaintiff was entitled to a judgment in the amount of what was actually paid to and accepted by the medical providers, (rather than what was billed) in full satisfaction of the debt.

       But what is the “collateral source” rule? In Helfend v Southern California Rapid Transit District (1970) 2 Cal 3d 1, 6,( Helfend) the California Supreme Court explained:

      “[I]f an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.” (Id. at *20-21)).  

        The rationale behind this rule is that “. . . a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift” and “the tortfeasor should not garner the benefits of his victim’s providence. (Helfend, supra, 2 Cal 3d at pp. 9-10)””
(Id. at *21).

       In the present case, Rebecca Howell sustained personal injuries caused by the negligent driving of an employee of defendant Hamilton Meats & Provisions, Inc. Luckily, she had personal health insurance. She incurred medical expenses of $189,978.63 which by means of contractual arrangements between Scripps Memorial Encinitas (“Scripps”) and CORE Orthopedic Medical Center (“CORE”) and her insurer, PacifiCare, this amount was adjusted downward to $59,691.73 which Scripps and CORE accepted as payment in full satisfaction of this debt. 
 

      At trial, the jury (who cannot be told that plaintiff has medical insurance) awarded plaintiff the full sum of $189,978.63. The defendants citing Hanif, supra, and Nishihama, supra, urged that this award should be reduced to what was actually paid – $59,691.73.

       The appellate court rejected Hanif, supra, and Nishihama, supra, as not being applicable, and instead applied the collateral source rule:

      “As a result of the admitted negligent driving of Hamilton’s employee, [Howell] entered into the financial responsibility agreements with Scripps  and CORE and became contractually obligated to pay those incurred charged by means of her own cash payments, a collateral source such as her health care insurance, or a combination of the two.”
. . . 

      “We conclude that the extinguishment of a portion of Howell’s debt to Scripps and CORE in the amount of the negotiated rate differential ($130,286.90) was a benefit to Howell because she was no longer personally liable for that portion of the debt she personally incurred in obtaining medical treatment for her injuries.”

      “We also conclude that this benefit to Howell was a collateral source benefit within the meaning of the collateral source rule because it was conferred upon her as a direct result of her own thrift and foresight in procuring private health insurance through PacifiCare. . . .Under California’s collateral source rule. . . Howell, as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift; Hamilton, as the party liable for Howell’s injuries should not garner the benefits of Howell’s providence. The law allows Howell to keep this collateral source benefit for herself because. . . she was responsible for the benefit by maintaining her own insurance. . . .”  (Id. at *24-*26)).

        Seemingly, this appellate court felt constrained to adhere to the rulings of the California Supreme Court which established the collateral source rule, rather than follow two other appellate court decisions. It noted that if this rule is to change, the legislature should make that change, not the appellate court:

      “We conclude that any further abrogation of the collateral source rule. . . is best left to legislative enactment rather than piecemeal common law development. . . . “(Id. at *36).

      No doubt this case will be appealed to the California Supreme Court as it conflicts with the decision of the First and Third Appellate Courts. But, in the meantime, it presents an interesting quandary as to what exactly is the proper measure of damages in instances where insurance is involved: is it the amount billed? Or the amount actually paid?

        Needless to say, it will make for an interesting mediation!

       . . . Just something to think about.

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