As many of my readers are aware, I mediate “lemon law” cases or matters brought under California’s Song-Beverly Consumer Warranty Act (Civ. Code §1790 et seq.). (“Song-Beverly Act”).

On June 8, 2009, Division Three of the Fourth Appellate District (i.e. Orange County) for the Court of Appeal of the State of California decided two appeals involving August B. Doppes and his 2001 Bentley Arnage.
The first appeal, Doppes v. Bentley Motors, Inc., Case No. G038734, focused more on the discovery abuses by Bentley’s counsel than the breach of warranty issues. But, it is interesting because the appellate court, in essence, imposed a civil penalty and granted the fraud claim as sanctions for discovery abuse. Further, the appellate court reaffirmed the lodestar approach in awarding attorneys’ fees.

The second appeal, Doppes v. Bentley Motors, Inc., Case No. G039922, involved the award of prejudgment interest on the repurchase of the Bentley under the Song-Beverly Act. But, more on this later.

In the first appeal (Case No. G038734), the issue before the appellate court was whether the “trial court [had] abused its discretion by failing to impose terminating sanctions against defendant for misuses of the discovery process.” (Id. at 2). The appellate court answered “yes,” finding that Bentley had engaged in “repeated and egregious violations of the discovery laws that not only impaired plaintiff’s rights but threatened the integrity of the judicial process.” (Id. at 2).

It seems that in April 2002, plaintiff August B. Doppes purchased a 2001 Bentley Arnage that had an “obnoxious odor” in the interior, causing the automobile to be out of service for 171 days. When Doppes demanded that Bentley replace or repurchase the vehicle in accordance with the Song-Beverly Act, Bentley refused. During the course of the litigation, Bentley withheld documents pertaining to its extensive knowledge about this odor concern, the other customer complaints, the fact that the odor emanated from corrosion protection wax, was prevalent in all of its model year 2001 four door cars, and related issues. (Id. at 4). Although, internal documents revealed that as early as June 2001, Bentley was aware of this concern, during discovery, it failed to provide such crucial but potentially damaging documents and continued to stonewall to the time of trial. However, the discovery referee, out of moderation, recommended issue sanctions rather than terminating sanctions. But, during trial, it became apparent that Bentley had engaged in further stonewalling and “hide the ball” tactics by not producing crucial e-mails and customer complaint files. Yet, the trial court still hesitated to issue terminating sanctions and allowed the jury to decide thecase.

Thereafter, the jury found that Bentley had violated the Song-Beverly Act and had concealed a material fact but found that neither the violation nor the concealment had been intentional. The jury also found that Bentley breached its express and implied warranties. The jury awarded Doppes the sum of $214,300 as reimbursement for a new vehicle  plus $100,000 for breach of the express and implied warranties. The court entered judgment for Doppes for $214,300 concurrent with the return of the vehicle to Bentley but to avoid double recovery, did not enter a judgment for the additional $100,000. The court also awarded prejudgment interest at seven percent per annum. (More on this later.)

After detailing the discovery abuses, the appellate court affirmed the judgment under the Song-Beverly Act and breach of express and implied warranty claims. But, as sanctions for the discovery abuse, it reversed the finding by the jury that Bentley did not commit fraud and did not intentionally violate the Song-Beverly Act. It remanded with directions, (1) to strike Bentley’s answer and to enter Bentley’s default on the fraud cause of action and to hold a default judgment prove-up hearing, and (2) to also enter a finding that Bentley intentionally violated the Song-Beverly Act such that civil penalties (typically two times the amount of actual damages) (California Civil Code §1794(c)) and other relief may be imposed against it at a subsequent hearing.

In the last part of its opinion, the appellate court discussed the award of attorneys’ fees noting that under the Song-Beverly Act, a prevailing buyer is entitled to recover attorney fees “reasonably incurred” and based on “actual time expended”. California Civil Code §1794(d). The court noted that, in essence, this statute is compatible with the lodestar adjustment method of calculating fees which requires “the trial court first to determine a touchstone or lodestar figure based on actual time spent and reasonable hourly compensation for each attorney.” (Id. at 37). Using this formula, the court determined that, in the main, the trial court did not abuse its discretion in awarding fees.

In the companion appeal, Doppes v. Bentley Motors, Case No. G039922, the appellate court affirmed the award of prejudgment interest at the rate of 7% per annum from the date of purchase in April 2002 to the date of entry of judgment in March 2007. Bentley appealed arguing that the Song-Beverly Act does not provide for the award of prejudgment interest, citing Duale v. Mercedes-Benz USA, LLC (2007) 148 Cal. App. 4th 718 (Duale) in support.

The appellate court distinguished Duale because there, the amount of damages owed to plaintiffs was not calculable prior to trial. The appellate court reasoned that the Duale appellate court “. . . did not hold prejudgment interest may never be recovered in a Song-Beverly Consumer Warranty Act case, but only that prejudgment interest was unrecoverable under section 3287 [Civil Code §3287] in this particular case because, under the facts, the amount of damages could not be resolved except by verdict.” (Id. at 7).

In contrast, in this case, the amount was known – $214,300 – prior to verdict. Noting that there is nothing in the Song-Beverly Act that bars recovery of prejudgment interest, the appellate court determined that under Civil Code §3287,  plaintiff was entitled to prejudgment interest.
With these two opinions, the appellate court provides much food for thought, including the use of the Song-Beverly Act’s civil penalty provisions as a “terminating” sanction for discovery abuses and the allowance of prejudgment interest from the date of purchase on a vehicle that is repurchased under this Act. Without doubt, these points will be much discussed within the “lemon law” community.

. . . Just something to think about.

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       An important aspect of any dispute, be it one filed in court or simply a neighborly spat, is the expectations of the parties. Are they unrealistic or do the parties know exactly what is what and what they can expect as part of a resolution?

       When the expectations of the parties are not realistic because no one has discussed the realties with them, any attempt at alternative dispute resolution will end in disaster.

       This, again, happened in one of my mediations recently. It involved a case filed in court. Plaintiff hired an attorney to prosecute her claim against defendant. The plaintiff’s attorney duly filed and served the complaint. After the defendant was served, it turned the complaint over to its counsel who analyzed it and concluded that the otherwise applicable state statutes did not apply. Plaintiff did not have a cognizable claim. Defense counsel wrote plaintiff’s counsel to share her analysis but did not receive a response. So, several weeks later, defense counsel, again, wrote plaintiff’s counsel, sharing her analysis. Again, no response.

       The matter meandered along. Finally, the court ordered that the parties attend mediation. So, the parties scheduled a mediation with me. Defense counsel sent me a brief setting out the same analysis that she had given plaintiff’s counsel on several occasions over the past few months: plaintiff had no claim cognizable under state law.

       I started the mediation with a joint session. Plaintiff explained the substantive issues. Then defense counsel presented her analysis. As she spoke, I could see from plaintiff’s face that this was all new to her; she had not been told that her case was subject to dismissal because the otherwise applicable statutes were not applicable. After some discussion on this point, the parties broke into separate sessions.

       When I met separately with plaintiff, I could see she was clearly perturbed. She had come to the mediation with a particular mindset in terms of what she would accept to settle her case, only to find out for the first time at the mediation, that she had no case, and that any settlement would involve minimal amounts, nowhere near the amount she had in mind when she walked into the mediation.

       The mediation went downhill from there. Plaintiff needed to process the new information and until she accomplished this, she was unable to accept the “new” situation and make a demand. Eventually, she got so angry at the situation, that she stormed out of the mediation, slamming the door behind her.

       Several months ago, I read a book entitled The Science of Settlement by Barry Goldman, MA, JD (ALI ABA 2007) in which he discusses all of the psychological factors involved in negotiations. He devotes an entire chapter to “Preparation”, discussing the myriad of mind games we each play with ourselves in negotiating with others. His opening paragraphs are on point:

      “Negotiating a deal is like painting a room.. It’s all about the prep. The part where you put the paint on the walls is easy. It’s the scraping and sanding and taping that takes the time and effort.”

      “Negotiating without preparation – trusting your instincts or “going with the flow” – is a dreadful mistake. . . .”

      “Obviously, you need to know your file. . . . “The best way to sound like you know what you are talking about is to know what you’re talking about.” . . . .”  (P. 9)

       On several occasions in the past, I have written about the importance of preparing for mediation. In each blog, I have stressed that the parties need to be fully informed about all of the issues and the consequences of any decisions made at mediation, including acceptance or rejection of offers and demands. I have noted that each party needs to know the exact parameters of the dispute, and thus the potential existence or non-existence of liability and thus the possibility for damages. I have suggested that prior to a mediation, a party needs to learn what mediation is all about, what to expect, to review the issues and to analyze them. I have implored that prior to the mediation, investigate the facts and law and assess the strengths and weaknesses of not only your position but that of the other party. Step into the shoes of the other party and view the dispute from her vantage point. How does your side of the dispute look from the other person’s side of the table?

       All too often, I have witnessed parties attend mediation, believing that settlement is possible without any real knowledge of the facts and the law. Their expectations are unrealistic. As Mr. Goldman notes above, it is a “dreadful mistake” to approach mediation by simply “winging it.” Parties need to mentally process issues, i.e., to prepare. Our minds must work through the issues to reach a conclusion. We cannot just walk into a mediation, be given a reality check by the mediator or the other party and mentally process such disparate information  so quickly that we are capable of accepting a totally different reality in a nanosecond. Our psyches will not allow us to suddenly accept a settlement proposal that we thought to be anathema an hour earlier. We are not computers: we are humans and so require time to absorb and accept new ideas. Without preparation, unrealistic expectations will exist and will be the recipe for failure to reach resolution at a mediation. The effort will be futile and a valuable opportunity will be wasted.

       So once again, I urge – - do not take mediation lightly. Come prepared and you will have a great chance at settling. Come unprepared and you will be doomed to failure.
 

      . . . Just something to think about. . . .

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       Last week, I was in New York attending the 11th Annual Conference of the American Bar Association’s Section of Dispute Resolution. One of the highlights was the award of the ABA’s D’Alemberte-Raven Award to Magistrate Judge Wayne Brazil of the Northern District of California. This is a most prestigious award.

       In his acceptance speech, Judge Brazil admonished his audience of ADR neutrals that we must be cognizant and respectiful of  the dichotomy between rights versus resolution. Every litigant is entitled to the full panoply of rights accorded to her by our judicial and legal system. These rights should neither be trampled upon nor destroyed at the expense of seeking a resolution through alternative dispute resolution. Thus, while settlement of any dispute is always a goal of any neutral, it should  NOT be the SOLE goal and so overriding that it trumps the party’s right to a trial by a jury of her peers, or by the court or of any of the other rights afforded through our system of justice. Reaching a settlement at any cost cannot be the neutral’s motto. While the courthouse may be “multi-door”  (to quote Professor Frank Sanders), we cannot forget that one of those doors leads to the trial courtroom.

       I walked away from this address and the conference wondering where exactly is the line between rights and resolution. At what point does a neutral cross the line in advocating settlement over trial? At what point is pushing a settlement no longer appropriate or is too much or so over the line that it impliedly constitutes the denial of all the rights accorded to a party by the U.S. Constitution?

       I am a long way from finding the answer but I think I came a bit closer through a mediation I had the other day.

       It was a “lemon law” case. The plaintiff complained of a defect in her automobile but the defect allegedly first occurred after the warranty expired, meaning that theoretically, (or unless some exception applied) the vehicle did not qualify as a “lemon” under either federal or California law. To make matters worse, the defendant was (and is) a U.S. automaker and thus in a world of “hurt.” Because of its financial situation, even on a “good” case, it was unable to offer much in the way of settlement because it did not have it to offer.

       So. . . here we were, a plaintiff with potentially no case and a defendant unable to even offer nuisance value due to its own financial crisis.

       When defendant offered what little pittance it had, plaintiff was insulted and took great umbrage. I, as the mediator, tried to explain the realities of the situation – that plaintiff probably did not have a claim under the “lemon law” and that defendant’s economic condition and ability to settle may very well erode into nothingness in the coming weeks. Quite possibly, defendant’s economic situation will only worsen with the passage of time.

       In response, plaintiff said she did not care: it was “the principle”, and she wanted to go before the court and be heard. She wanted the court to say that what the manufacturer and dealerships had done to her was neither just nor fair.
 

      Is this where that “magical” line exists – between rights and resolution? Should plaintiff be entitled to go to court and have the court determine for her and adjudicate the “justness” or “fairness” of the situation even though the cost of the litigation will far exceed any damages plaintiff may ever collect either against the manufacturer or the dealerships? I do not know.

       We went round and around for another hour about the practicalities of the situation (i.e., cost-benefit analysis) versus plaintiff’s right to go to court. In the end, plaintiff would not agree to settle: she wanted to be heard in court.
 

      Did I, as a mediator, do my job or not do my job? Is my goal to have the parties obtain resolution at any cost? Or simply to open their eyes to the consequences of any decision they may make?  Am I there simply to “facilitate” the discussion, making sure all of the issues, interests and needs are out on the table, or am I there to assist them to reach settlement? At what costs? Rights? Or resolution?

       I do not know. When I do, I will do a sequel to this blog. But, I do know that this mediation led me to a deeper understanding of what Judge Brazil meant in describing the tension between rights and resolution.

       . . . Just something to think about.

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       Last week, my blog discussed the Nash equilibrium which states that “. . .in every situation of competition or conflict in which the parties are unwilling or unable to communicate”  “. . . both sides have selected a strategy. . . [which] neither side can then independently change. . .  without ending up in a less desirable position.” Fisher, Len, Rock, Paper, Scissors: Game Theory in Everyday Life (Basic Books 2008) at p. 18. (Emphasis original.)

       This week, I conducted two mediations in which I witnessed the consequences of this game theory. More importantly, both mediations showed me the importance of communicating with the other side prior to the mediation so that the mediation process is more effective.

       The first was a business dispute. Plaintiff was suing to collect a referral fee based on what it believed had been a referral of close to 3,000 clients to the defendant. The alleged agreement provided for a $10 referral fee for each client to be paid on a monthly basis for so long as the defendant retained the client. In calculating its damages, plaintiff assumed that for the last 3 plus years, defendant had retained these clients. It, thus, calculated its damages to be more than a million dollars.

       Evidently, the parties had not conducted discovery, and the defendant had not shared any sort of accounting records with the plaintiff prior to the mediation. During the mediation, I asked the defendant how many clients were still using defendant, only to learn that over the last three years, defendant lost more than 75% of these clients. Thus, the actual alleged damages were, in reality, far less than $100,000 ( much less the more than the over one million dollars sought by Plaintiff.)  With defendant’s permission, I shared this information with plaintiff but to no avail. Plaintiff was in disbelief and refused to discuss settlement in the amounts being offered by defendant. At this point, the “equilibrium”  was obtained: neither plaintiff nor defendant  could keep going their separate ways without escaping further loss. They must now cooperate with each by sharing accounting records to determine the best solution possible under the circumstances.

       The second mediation met the same fate: it did not settle because, like the first, it reached the “equilibrium” during the mediation. This matter was a “lemon law” case or one brought under California’s Song-Beverly Consumer Warranty Act (California Civil Code §1790 et seq) and the Federal Maguson-Moss Warranty Act (15 U.S.C. §2301 et seq).  Defendant was of the view that plaintiff’s vehicle did not qualify under California law, and the federal statute had only limited applicability to the situation. However, counsel chose not to share this view with plaintiff’s counsel until the mediation. Needless to say, when defense counsel explained her client’s position for the first time at the mediation, plaintiff’s counsel (and plaintiff) became quite upset. While both parties did continue to negotiate in hopes of resolving the matter, it was clear that  this issue was the sticking point because if defense counsel was correct, plaintiff did not have much of a case, but if plaintiff was correct, plaintiff believed the vehicle to be a strong candidate for repurchase.

       Again, the “equilibrium” was obtained. Neither side could continue with its independent strategy without being worse off.  Each must now cooperate with the other to find a solution that provides the best solution possible to their respective clients under the circumstances.

       In both instances, I believe that if the critical information had been shared prior to the mediation, the Nash equilibrium could have been successfully handled during and as part of the mediation process.

       In short, given the Nash equilibrium, it is difficult to switch from a competitive to a cooperative strategy during a mediation with any degree of success. Like everything in life, strategy “shifts” need to percolate for a bit to become effective. If a tectonic shift in strategy is in the winds, it should be implemented  prior to the mediation so that the Nash equilibrium does not thwart reaching a resolution during the mediation

       . . . Just something to think about.

      Many of you have recived information regarding the “Argus” offer. For a limited time, it is still being offered. To read more,  click here:   http://www.pgpmediation.com/argus/   

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      Over the last few years, I have attended a lot of mediation seminars. Often, the trainers talk about the various tools available in the mediator’s toolbox,  and, how we, as mediators, should delve into our toolboxes and pull out a new and different tool that helps the parties reach resolution.

      Well. . . I found a new tool the other day: a dog. I had a mediation in which plaintiff’s counsel volunteers for Canine Support Teams, Inc. (www.caninesupportteams.org), an organization that trains dogs for the disabled (other than the blind.) As part of the training, the dog goes everywhere with counsel. . . including my mediation.

      I was not forewarned that a dog would be attending my mediation. He certainly was not listed as a participant in any of the briefs I received from the parties. So. . . naturally my office staff was surprised when counsel entered with the dog. (Luckily, the building’s security was knowledgeable about state and federal laws allowing disability dogs-in-training in public buildings and so did not object to the dog attending mediation.) All that my office staff said to me was plaintiff’s counsel has a dog. So. . . I had to go check it out (being the dog lover I am!) and found the most loveable golden retriever imaginable.

      We started the mediation with a joint session. But, first there were the introductions. It turns out that both defense counsel and the defendant’s representative are dog lovers, too. So, after introducing themselves to plaintiff and counsel and shaking hands, they spent several minutes introducing themselves to the dog, i.e. getting down on the floor, and playing with and petting the dog. Naturally, our collective curiosities were peeked about what this dog training was all about, and counsel was kind enough to explain the volunteer organization, how the program works and how the dog will go on to advanced training by prisoners at the California Institution for Women in Corona, California and other facilities (aka the “Prison Pup Program”) and then to a disabled person whose life will be immeasurably changed for the better.   

      Eventually, we got back to the dispute at hand. I explained about mediation and how we would proceed. Each party presented her view or perspective of the matter, and we discussed the facts a little bit.

      We broke up in separate sessions and the dog accompanied his master to a separate conference room and we proceeded with separate sessions thereafter. . . except at one point, I met with counsel alone (and the dog) in my office.

      I noticed something different about this mediation: the dynamic had changed. With the dog present, everyone seemed much calmer, more relaxed and not nearly as businesslike or brisque. The dog had a calming effect and dissipated the tension that is often present in a mediation. Voices did not get raised and if anyone’s “hot buttons” were pushed, they neither showed it nor reacted. With the dog in the room, life was copacetic . . . .

      Unfortunately, the matter did not settle but because of the calming effect of the dog, I don’t think the parties walked out frustrated, angry or upset as they might have otherwise. The dog’s presence brought out the humanity in all of us. We all “lightened up.”

      I have read articles and seen news stories on television about the therapeutic and beneficial effects of dogs but never really experienced it until this mediation. Even though I own a dog, I have never had this “ah-hah” moment, primarily because I have never been able to bring my dog into a business or non-typical dog setting.

      By this experience, I am persuaded that a dog could be a very valuable tool in my mediation toolbox. Now, I just have to figure out some way to get my own dog past the security guard in my building. . . . (All suggestions are welcome!)

      . . .  Just something to think about!