My colleague, Alec Wisner, brought two interesting court decisions to my attention. (Thank you, Alec!). The first is an unpublished decision in California, Cosolo v. Verizon California, Inc., Court of Appeals of California, Fourth District, Case No. E409017, 2011 Cal. App. Unpub. Lexis 1908 issued March 14, 2011. ( cosolo_w_20_verizon_californ) In this case, Plaintiffs sued Verizon Communications, Inc. and its subcontractors for nuisance and negligence. In laying underground fiber optic cable, one of Verizon’s subcontractors punctured a lateral sewer line connecting the Plaintiffs’ homes to the city’s main line. As a consequence, the homes were flooded with raw sewerage.

            The litigation proceeded quite vigorously with voluminous discovery being conducted. But, after awhile, the parties settled, although leaving the issue of attorneys’ fees to be decided by motion before the court. Subsequently, the motion for attorneys’ fees was duly filed, and the trial court awarded fees.

            Verizon appealed the award. In an attempt to beef up its reply brief, it sought to augment the record on appeal by including both deposition transcripts which were never considered by the court below and mediation briefs which, in no respect, would ever be considered by the trial court. (Id. at *7 – *9).

            As one might surmise, the appellate court denied the motion to augment. Citing California Evidence Code §1119(b), the appellate court pointed out that “no writing . . . that is prepared for the purpose of . . . a mediation . . . is admissible . . . and disclosure of the writing shall not be compelled . . .”. After reviewing the mediation brief, the appellate court noted that  “. . . the brief itself reflects that it is the very type of writing prepared for mediation that is forbidden from disclosure.” The court agreed that Verizon’s disclosure of the brief “is an egregious violation of mediation confidentiality” and agreed to entertain the argument that Verizon should be monetarily sanctioned for such tactics. (Id. at *8 – *10).

            The second decision arises out of the federal court in Florida and shows just how difficult it is to undo a settlement. In Shepard v. Florida Power Corporation, U.S. District Court, MD. Florida, Tampa Division, Case No. 8:09-CV-2398 – T- 27 TGW (2011 U.S. Dist. Lexis 44242), Plaintiff sued Defendant alleging racial discrimination and retaliation under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq. as well as related state law claims. The suit was filed in November 2009. ( shepard_w_20_florida_w_20_po)

            Almost a year later, in late September 2010, the parties participated in a court-ordered mediation. After 6 to 7 hours of mediation, the parties settled, and Plaintiff signed a settlement agreement.

            Afterwards, Plaintiff’s counsel moved to withdraw on the basis that Plaintiff refused to complete the settlement documentation and refused to communicate with counsel. The court granted the motion.

            The Defendant moved to enforce the settlement. With new counsel, Plaintiff moved to set it aside on grounds of duress and lack of capacity. Plaintiff’s new counsel contended that:

       “(1) at the end of the mediation conference, Plaintiff (who has a heart condition including blockage of four arteries) began to experience chest pain, a headache, and some faintness and dizziness; (2) Plaintiff was crying and had difficulty talking, and his former counsel made a remark to him whose substance cannot be discerned from the motion (Plaintiff’s [former] counsel said to the Plaintiff or [sic] that Plaintiff needed to go to his began his behind [sic] because he had a bad heart” [DKt. 43 at 2]) and thereafter acknowledged to Plaintiff’s spouse that Plaintiff was “not okay.” Id.; (3) Plaintiff’s former counsel responded to the spouse’s expression of concern about Plaintiff’s health by indicating (outside Plaintiff’s presence) “that Plaintiff needed to sign the papers and get this behind him and will on [sic] with her [sic] to the Plaintiff,” Id.; (4) after taking some additional medication, Plaintiff continued to experience chest pains; (5) after the mediator stated that Defendant was going to leave if Plaintiff did not accept the settlement, Plaintiff signed the agreement while “crying and holding his head down and not talking.” Id. at 3, and (6) the settlement amount was “considerably less than what Plaintiff had discussed with Plaintiff’s counsel,” and was an amount that Plaintiff believes to be unfair, id.”

(Id. at *3 – *4).    

            In sum, Plaintiff urged he was coerced by his former attorney into signing an unfair settlement agreement and so should not be required to go through with it.

            The court rejected both arguments (i.e., duress and lack of capacity). With respect to “duress”, it pointed out that the alleged improper influence must come from the other contracting party; not from his own attorney. “Plaintiff’s mere dissatisfaction with the advice of his then attorney cannot support a finding that his agreement to settle and release his claims were not knowing and voluntary.” (Id. at *10).

            With respect to Plaintiff’s claim that he lacked capacity, the court pointed out that “Plaintiff does not allege facts showing that he could not understand the nature and effect of the agreement.” (Id at *12).  Further, the court noted that although Plaintiff claims he was suffering chest pains et cetera, he does not allege that either the Defendant or the mediator were aware of his medical distress and took advantage of it. Rather, in sum, what he alleges is that “it was his attorney’s pressure to settle that induced him to execute the agreement” (Id. at *13). Thus, while Plaintiff may be greatly dissatisfied with his attorney’s advice and conduct, he has not shown sufficient duress or lack of capacity to undo the settlement. (Id. at *12 – *13).

            Consequently, the court granted Defendant’s motion to enforce the agreement and denied Plaintiff’s motion to set it aside.

            Courts in California have reached similar results; most recently in Chan v. Lund (Case No. HO34196 – Sept. 29, 2010) that I discussed in my blog post “Signing on the Dotted Line.” And, of course, in Cassel v. Superior Court, California Supreme Court, Case No. 5178914 issued January 13, 2011. (Cassel opinion)

            In short, executing a settlement agreement is “for keeps”; very, very rarely will a court  undo it.

            . . . Just something to think about.!  

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            I conducted a “lemon law” mediation last week. It was a bit unusual in several ways. First, the repair history indicated that there were multiple issues with the vehicle that, despite innumerable days in the repair shop, had not been fully resolved: one or two of the many issues kept recurring.

            After reading the repair history, my first question to myself was why were these parties even coming to mediation? Why had not the vehicle been repurchased already? Having conducted several hundreds of these mediations, I guessed that the answer could be “outside influence” or “non-warrantable defect”. That is, Defendant believed that some third party – not necessarily the plaintiff -had tinkered with the vehicle to cause or create the concerns at issue. But usually, the fancy computers on these vehicles will reveal a pattern that arouses suspicion and/or such suspicions are reflected on the repair orders. But, looking at the repair orders again – usually verbatim of what the service advisors have written and what the technicians did and found – no such “suspicions” revealed themselves. So what was going on? I had to wait until the mediation to find out.

            As usual, I started with a joint session so that the parties could have a candid discussion of the repair history, the concerns at issue and insure that everyone was focusing on the same issues. But, unlike other mediations (and the second unusual thing about this mediation), the joint session never concluded: after some joint discussion, the defendant wanted to speak separately with counsel.

            For the next hour or so, that separate session occurred: Defendant was using the time to really and carefully review the matter to determine what stance to take. It seems that prior to the mediation, the defendant had concluded not to repurchase the vehicle, basing that decision on a suspicion of “outside influence”; I was told that the plaintiff was associated with others who had had their vehicles repurchased – i.e., “guilt by association”.

            When plaintiff’s counsel took great umbrage at defendant’s stance during the joint session and after actually meeting the plaintiff and evaluating her credibility, defendant went into a separate session to rethink its position.

            The mediation concluded without a resolution as defendant wanted to speak with others about how best to resolve this matter, i.e., should the vehicle be repurchased, after all?

            But, the next unusual thing about this mediation was that plaintiff’s counsel sent me an e-mail (in the form of a poem). It lyrics made me stop and pause. In essence, counsel noted that her client had been victimized and her veracity put into question by assumptions that the defendant had made automatically and without really investigating (i.e., “guilt by association”). Then, when plaintiff refused to accede to the defendant’s demand to settle for a minimal amount of funds, defendant became even more upset. Counsel continued:

“Maybe the problems lies much deeper in the hearts of our system today

the money a plaintiff takes should not just be

a function of what the plaintiff will take to go away

instead it should be tied to the wrong in question

the thing that has provoked the client to seek legal intervention

that way clients may not feel that they have won some pot of gold

but perhaps they will feel that someone cares about the story they have told.”

            Have we become too cynical? Are we all just going through a pre-scripted exercise except for the plaintiff who has become an interchangeable fungible? Have we become too detached, to the point that we have forgotten that to this plaintiff, this is not just another file to be dealt with, but it is her vehicle, her time going to and from the repair shop, her aggravation and frustration in having to make car payments every month for a vehicle that she cannot use because it is always in the shop? To her – it is very real, not just another matter to be dealt with in a long day at the office.

            Life is real: everyone  has a story and everyone needs to tell it and, more importantly, to be listened to. We cannot allow ourselves to lapse into “it’s just another dispute/mediation file” but, instead, must force ourselves to remember that we are all “human” and we are all a part of “humanity.”

            . . .Just something to think about. 

            Postscript; The matter settled a few days after the mediation with Defendant repurchasing the vehicle.

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            Almost four years ago (February 23, 2007), I posted a blog on ‘Fairness”. I had attended a training session in which the teacher asked the very simple yet complex question “How do you define “fairness”? Is it from a legal viewpoint? Equitable viewpoint? Moral viewpoint? Ethical viewpoint? Cultural viewpoint? All of the above? None of the above?

            I suddenly recalled this blog during a mediation I conducted last week in which the many definitions of fairness collided. As of now, I am not sure which definition will “win”. What I am certain of, is that if the “legal” definition wins, the outcome may be quite “unfair”.

            The story unfolds (using fictitious names): Jane Owner (“Owner”) owned some real property on which she wanted to develop and build a small commercial/residential mixed use building consisting of condos and retail shops. To do this, Owner hired Mary General Contractor (“GC”) and also obtained a one-year construction loan from California Friendly Bank (“Bank”). The loan was secured by a mortgage on the project. The project proceeded, and as is typical on construction loans, at set stages in the construction, GC was to submit applications for payment to the Bank, and the Bank was to pay GC who, in turn, would pay her subcontractors and materialmen.

            At first, all went well. But gradually, Owner fell behind in her monetary and other obligations to the Bank. Once this occurred, the Bank refused to pay the applications for payment submitted by GC. Eventually, the Bank declared the Owner to be in default on the loan, and the Bank no longer made any payments to GC who was now owed $1.3 million. To protect herself and her subcontractors and materialmen, GC timely filed her mechanic liens and bonded stop notices in accordance with California law. Upon receipt of the bonded stop notices, Bank should have set aside 150% of the amount needed to pay the mechanic liens in full, but did not do so.

            Instead, the Bank itself, failed and defaulted. But before it did so, it sold the defaulted note to Joyce New Buyer (“Buyer”) who then foreclosed on the property and became the owner of the property.

            So, the GC now finds herself owed $1.3 million (that she, in turn, owes to subcontractors and materialmen) from Owner who has since filed bankruptcy and from Bank now taken over by and under the control of the Federal Deposit Insurance Corporation (FDIC). (Not a fictitious name!)

            How does the GC attempt to resolve this? She sues Owner, Bank and Buyer. The Owner having filed bankruptcy, does not answer the lawsuit as she is now judgment proof. The FDIC answers the lawsuit on behalf of Bank since it has now taken over the Bank. The Buyer answers the lawsuit.

            They come to mediation. The FDIC contends that it must comply with federal law and pursuant to that law, it must pay first the administrative expenses, second, reimburse the depositors of the failed bank and then third, pay the unsecured general creditors of Bank such as GC. The FDIC further states that, in all probability, there will be no money left over to pay the unsecured general creditors including GC.

            Joyce New Buyer contends that since she obtained the property in foreclosure, that foreclosure sale erased whatever prior liens were on the property including the mechanic liens and bonded stop notices of GC. In short, Buyer claims that she took this property “free and clear” of GC’s mechanics liens and bonded stop notice.

            And, the GC contends that under California law, she is obligated to pay her subcontractors and materialmen out of her own pocket and even though she cannot get paid by Owner, Buyer, Bank or FDIC. 

            Is this fair? Accepting (for purposes of this blog) all of these arguments as true, if one defines “fairness” according to law – the GC loses – she is out $1.3 million, and must pay the subcontractors and materialmen with no hope of reimbursement.

            If one defines “fairness” in terms of morals, ethics and/or equity, then perhaps a different and more “fair” or equitable” result can be reached. And that is precisely what the parties are investigating; even though Buyer can “legally” avoid this obligation altogether and would probably win at trial or on a motion for summary judgment, Buyer is looking for ways “outside of the box” to do what is “right” vis-à-vis GC so that all involved will “win” a little bit and be able to walk away with  clean consciences. The mediation ended without a settlement but with the parties struggling to define “fairness” in a way that everyone can “live with.”

            Sometimes, “fairness” has nothing to do with the law but has everything to do with doing the “right” thing. “Justice” and “fairness” can be oxymorons. 

            As the case is still pending, the definition of “fairness” is as yet undetermined. We shall see.

            . . .Just something to think about!

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  Black’s Law Dictionary defines “good faith” as    

“A state of mind consisting in (1) honesty in belief or purpose, (2) faithfulness to one’s duty or obligation, (3) observance of reasonable commercial standards of fair dealing in a given trade or business, or (4) absence of intent to defraud or to seek unconscionable advantage.”

(Black’s Law Dictionary, 2d. pocket ed. 2001 at p. 307.)

  It defines “bad faith” as “dishonesty of belief or purpose.” (Id. at p. 56).

         A few weeks ago, I, unwittingly, conducted a “bad faith” mediation. One of the parties was clearly there with a dishonest purpose and an intent to seek an unconscionable advantage.

         The matter was a simple one, arising out of an everyday business transaction. Debtor did not pay the invoices and so Creditor and Debtor worked out a settlement by which Debtor agreed to make monthly payments. The parties signed a settlement agreement drafted by the Debtor’s attorney because the Creditor did not retain one. However, the agreement was heavily negotiated. (During the mediation, the Creditor claimed it was one-sided in favor of the Debtor.)

         When the Debtor failed to make the monthly payments, the parties sought mediation as required by the agreement. If the mediation did not resolve the matter, the parties were then to arbitrate using a three arbitrator panel. What I did not know at the time this mediation was scheduled was that the Creditor never intended to settle; it wanted to go to arbitration so as to run-up the attorney’s fees and then have the Debtor pay the fees as part of the arbitration award. The file was being “churned.”

         I, slowly, began to realize this during the mediation when the matter became increasingly more difficult to settle. The Debtor admitted it owed the debt, without any question. The issue became how much and the terms of payment.

         First, the Creditor claimed the principal balance to be slightly more than the Debtor thought it was. But, for the sake of compromise, the Debtor agreed to pay the higher sum. Then, the Creditor wanted the interest paid on this sum as well. Again, for the sake of compromise, the Debtor agreed. The Debtor then proposed terms with the first payment not starting for a few months. The Creditor balked.

         The Debtor requested to meet directly with the Creditor – without the attorneys. The Creditor agreed, and so they met. The Debtor explained its financial situation, how strapped it was for cash and how it did not want to make promises it could not keep. After several minutes of conversing, the Debtor and Creditor tentatively agreed on a payment plan but the Creditor had to check with counsel.

         When the Creditor returned from speaking with its counsel, it told the Debtor that it needed additional monies as “collection costs.” With some more negotiation, I convinced the Creditor to cut its demand in half and convinced the Debtor to agree to pay these additional “collection costs.”

         The Creditor then spoke with its attorney again and suddenly there were additional “future” “collection costs” that had to be paid.

         Naturally, this led to more negotiation but with convincing, I was, again, able to convince the Creditor to accept a lesser sum and to convince the Debtor to pay that additional sum.

         Then suddenly, the Creditor became dissatisfied with the payment terms, not liking that payment would take many months.

         At this point, the Debtor was extremely frustrated and was ready to leave because the Creditor had continuously been inserting new terms into the deal: the sands beneath the Debtor’s feet had been ever shifting for the last four hours.

          I managed to convince the Debtor not to walk out but rather to have a joint session to see if the parties could brainstorm their way to a resolution. After several minutes of joint discussion, the Debtor agreed to pay a slightly higher amount each month thereby reducing the number of months.

         I reviewed the details of the settlement with the parties and counsel, and it appeared that both parties were in full accord. The Debtor was willing to sign a settlement agreement then and there.

         But, then the Creditor’s attorney removed a Confession of Judgment pleading from her briefcase and slid it toward the Debtor and its counsel. The Creditor’s attorney insisted that it be signed then and there, and absolutely refused to sign a settlement agreement.

         Although the Creditor’s attorney had told the Debtor and its attorney that if the matter resolved, she wanted the Debtor to execute a Confession of Judgment, neither the Debtor nor its counsel expected one to be thrust in front of them at the mediation. To say the least, they were taken aback: I could see the look of shock if not dismay on their faces.

         So, after recovering from this “new demand”, the Debtor and its counsel began reading the document and saw that it provided for an additional several thousand dollars in attorney’s fees and costs. It also required counsel to execute an affidavit under oath attesting to certain facts and waiving certain rights.

         By this point, the mediation had been ongoing for more than four hours; never once during that time had Creditor’s counsel mentioned the additional attorney’s fees and costs set out in the Confession of Judgment much less offered to share this actual document with Debtor and its counsel so they could review and analyze it (although she had mentioned to them that she wanted one signed!) Rather, counsel showed it to them at the very end, knowing full well that they would never agree! When the Debtor and its counsel tried to negotiate over the additional monetary sums, the Creditor’s attorney demurred: the term had to remain as a disincentive to default on the payment schedule. 

         In short, Creditor’s counsel never wanted to settle. She came to mediation because the settlement agreement required it as a pre-condition to arbitration. Every time the Debtor agreed to the Creditor’s terms, Creditor’s counsel added a new term, changing the playing field, then “compromising” a little so that it seemed that Creditor’s counsel was there in “good faith.” Her true intent was shown when counsel slid the actual Confession of Judgment across the table containing additional terms (attorney’s fees and costs) with a “take it or leave it” attitude.

         Naturally, the Debtor and counsel were unwilling to sign such an ominous document with such far reaching consequences without first studying it or negotiating its terms. But no – that opportunity was not to be had. Either sign it or arbitrate.

         Not surprisingly, the parties walked out without settling. And on the following day, the Creditor’s attorney demanded that Debtor’s counsel choose three arbitrators by the end of the day.

         This was a dishonest, unprincipled, mediation. While the purpose of mediation is to explore options and to reach a resolution, the hidden agenda or goal of this mediation was simply to go through this charade in order to arbitrate and run up fees and costs: To “churn” the file.

         While I hope never to be an unwitting victim of such a mediation again, sadly, I know I will be: Such unprincipled negotiations will occur!

         . . . Just something to think about! 

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            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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