Archive for the ‘Mediation’ Category

Mediation Message No. 142

THE STATUS OF MEDIATION CONFIDENTIALITY

Since Cassel v. Superior Court (2011) 51 Cal.4th 113 held that all communications by attorneys to their clients at all phases of mediation are confidential, even if the communications constitute legal malpractice, little has happened to change Cassel‘s holding.

In immediate response to Cassel, AB 2025 was introduced in 2012 at the California Legislature. In short, it provided that mediation confidentiality was not a shield to an attorney in a legal malpractice action or State Bar disciplinary proceeding. The Legislature then referred the matter to the California Law Revision Commission (CLRC) for study, review and recommendations.

After twenty-four public meetings and at least one earlier proposal, the CLRC proposed, in part, in January 2018 that attorney statements at mediation, both written and oral, can be used in a claim for damages due to legal malpractice, a State Bar disciplinary proceeding or an attorney-client fee dispute; the exception did not apply in resolving a claim relating to enforcement of a mediated settlement agreement, such as a claim for rescission or suit for specific performance; the exception did not apply to misconduct by a mediator; only that portion of the communication necessary for application of the exception was admissible and mediation participants would receive reasonable advance notice to take steps to prevent improper disclosure of mediation communications.

No bill concerning exceptions to mediation confidentiality was introduced in the California Legislature by the February 16, 2018 filing deadline, or since AB 2025 in 2012. This non-action may reflect the strong opposition to changing the status of such confidentiality. Nonetheless, it should be noted that the CLRC has continuing authority over the issue of mediation confidentiality and, unless that authority is withdrawn by the Legislature, the Commission may continue to make proposals concerning the subject.

On January 30, 2018, State Senator Robert Wieckowski, an attorney and Democrat from Fremont California, introduced Senate Bill 954 to add Evidence Code Section 1129 which would require attorneys representing clients participating in a mediation or a mediation consultation to inform those clients of the confidentiality restrictions in Evidence Code section 1119 and to obtain their informed written consent to the restrictions. Stay tuned.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, March 2018

Mediation Message No. 141

CREATING AN ENFORCEABLE SECTION 664.6 REMEDY

Merely stipulating in a settlement agreement that the trial court “may enter judgment pursuant to the terms of the settlement” (Code of Civil Procedure section 664.6) is not enough to confer jurisdiction on the court over the settlement unless the parties also make a subsequent request conferring jurisdiction while the case is still pending (i.e. before the matter has been dismissed) and that the request is either in a writing or made orally before the court. (Wackeen v. Malis (2002) 97 Cal.App.4th 429, 440 [Wackeen]; Sayta v. Chu (2017) 17 Cal.App.5th 960, 966 [Sayta].) The request must be made before the case is dismissed because “section 664.6 is limited to settlements reached in pending litigation.” (Viejo Bancorp, Inc. v. Wood (1989) 217 Cal.App.3d 200, 206; Sayta, supra, at p. 965; emphasis in the original.)

A court loses jurisdiction over the matter if the parties do not follow the above steps and the case is voluntarily dismissed with prejudice. (Basinger v. Rogers & Wells (1990) 220 Cal.App.3d 16, 21.) If jurisdiction is lost, one remedy is to ask the court to vacate the dismissal under C.C.P. section 473, subd. (b) because of “mistake, inadvertence, surprise or excusable neglect.” (Id.)

Also, whenever a settlement includes conditions to be performed over time (such as periodic payments or repairs), settling parties should adopt the second sentence of section 664.6 which provides, “If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” This language allows the court to maintain jurisdiction even after an action has been dismissed. (Hagan Engineering v. Mills (2003) 115 Cal.App.4th 1004, 1010-1011; Wackeen, supra, at p. 439.) Because of such a stipulation, the trial court had continuing jurisdiction over the disclosure of confidential records held by the Franciscan Friars in a sex abuse matter. (In re The Clergy Cases I (2010) 188 Cal. App.4th 1224, 1237.)

If section 664.6 is not available (for example, the parties never agreed to its application or one of the parties did not personally approve the settlement), the settlement can still be enforced by summary judgment, a suit for breach of contract, a suit in equity (Robertson v. Chen (1996) 44 Cal.App.4th 1290, 1293) or by raising settlement as an affirmative defense. (Gauss v. GAF Corp. (2003) 103 Cal.App.4th 1110, 1122.) Neither Robertson nor Gauss mentions that the alternatives to section 664.6 are more costly since a section 664.6 stipulation may include a condition that the prevailing party in a motion to enforce a settlement shall be entitled to its attorney’s fees and costs.

MDM’s helpful hint: The elements of an enforceable section 664.6 request are: (1) Provide in the settlement agreement that “The trial court may enter judgment pursuant to both the terms of the settlement and Code of Civil Procedure section 664.6; (1A) Alternatively, if the settlement includes conditions to be performed by a party over time, provide in the settlement agreement that “If requested by the parties, the court may retain jurisdiction over the parties, pursuant to Code of Civil Procedure section 664.6, to enforce the settlement until performance in full of the terms of the settlement.” (2) Before the underlying case is dismissed, the parties request the court to maintain jurisdiction over them to enforce the settlement by (a) stating, in the Judicial Council Request for Dismissal form filed with the court, that “Pursuant to section 664.6, the court shall retain jurisdiction over the parties to enforce the settlement (and until performance in full of the terms of the settlement),” or (b) making the same request in a formal motion filed with the court or (c) appearing in person before the court and making the same request orally.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, February 2018

Mediation Message No. 140

THE NEW TAX CODE AND SEXUAL HARASSMENT OR SEXUAL ABUSE SETTLEMENTS

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Obscured by the politics of that legislation was an amendment (subd. (q)) to 26 U.S.C. § 162 (trade or business expenses) of the Tax Code which states, “No deduction shall be allowed under this chapter for – (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment.”
This new law is both clear and unclear. It is unambiguous that the amendment is directed at disallowing deductions for settlements related to sexual harassment or sexual abuse matters that have nondisclosure agreements and that attorney’s fees related to those settlements are also not deductible. The statute does not affect settlement for state or federal claims related to other typical employment causes of action.

Unclear are the following:

  • What is the meaning of “related,” which is not defined, in “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement,” where the original claim typically includes not only sexual harassment and abuse allegations but other employment matters, as well (e.g. sex discrimination, retaliation and wage and hour violations), and the settlement includes the dismissal of all of the claims? Depending on the applicable facts, it is arguable that the sexual claims are both connected or not connected to the other causes of action, whereas it is more obvious that a meal, rest break or wage claim is separate and apart from any harassment and abuse claims.
  • To avoid subd. q’s consequences, may the settlement specifically pay the entire amount for non-covered claims (such as sex discrimination and retaliation) and nothing for harassment and abuse claims? And, to be effective, what should that language consist of?
  • Does the prohibition against deducting attorney’s fees, if there’s a confidentiality clause, apply only to defendants or to both plaintiffs and defendants? Logically, it appears to apply only to defendants because the attorney’s fees language is arguably part and parcel of the prohibition against deducting the settlement where there’s a confidentiality clause. Nevertheless, in the absence of clarifying language, plaintiffs’ counsel may not be allowed to deduct their fees as business expenses, if such fees are being deducted.
  • Costs are not mentioned in the new legislation. Can they still be deducted even if attorney’s fees cannot?

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, January 2018

Mediation Message No. 139

EIGHTH ANNUAL YEAR-END REVIEW

This year’s eleven Mediation Messages and one Arbitration Insight include observations about mediation processes, the appealing of arbitration awards, employment law, evidence and civil procedure. Refer to my website (www.marcusmediation.com) for the Mediation Messages and Arbitration Insight identified below if the following summaries do not suffice.

Mediation

“Basic Introductory Remarks at Mediation” (March; Mediation Message no. 131): If a plaintiff, defendant or representative of either is unfamiliar with the mediation process, I begin their separate caucus by talking about confidentiality, my neutrality and the uncertainty and expense of litigation. These introductory comments are intended to put the parties at ease and serve as a bridge to the subsequent and more critical legal and factual discussions about their cases.

“Negotiation Phases or Processes at Mediation” (April; Mediation Message no. 132): This Message examined the types of negotiation tools (distributive or marketplace bargaining, brackets, what is your authority?, wouldya-couldya, split the baby, take it or leave it, best and final, baseball, mediator’s proposal, court trial or arbitration and hi-lo) in the order they occur at mediations.

“Don’t Give Up. Don’t Ever Give UpJimmy Valvano” (July; Mediation Message no. 135): Former North Carolina State coach Jimmy Valvano’s uplifting message, “Don’t give up. Don’t ever give up,” which he made about his failing health, is both a wonderful life lesson and an appropriate mantra for mediation when nothing seems to be working.

“You Can’t Always Get What You Want” (August; Mediation Message no. 136): This memorable song title, known by all rock ‘n’ roll fans, is also the perfect reminder at mediation for unrealistic or disappointed litigants when either the facts, the law or an intransigent opponent seem to frustrate their expectations. When that occurs, appropriately observing, “You can’t always get what you want, but if you try sometimes well you might find you get what you need” most always brings the timely realization that, despite existing obstacles, reasonable results are still achievable.

“Mediation Music: The Mediation Concert Hall” (September; Mediation Message No. 137): Popular song titles prove there’s a correlation between the messages in music and all phases of the mediation process.

The Room Where It Happens (November; Mediation Message no. 138): The answer to “What’s the mediator talking about in the other room?” is not very much different from what I talk about in both rooms, with the significant difference being that I emphasize the weaknesses rather than the strengths of the party in whose room I’m in.

Arbitration

“Appealing an Arbitration Award” (October; Arbitration Insight no. 26): The question whether an arbitration award is final or appealable is answered by Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334 and Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665. Moncharsh holds, “It is the general rule that, with narrow (statutory) exceptions (such as arbitrators exceeding their powers), an arbitrator’s decision cannot be reviewed for errors of fact or law.” (At p. 11.) Thus, “[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.” (Id. at pp. 10-11.) Cable Connection provides that parties may expressly agree to obtain judicial review of an arbitration award. (At p. 1340.) Pearson Dental Supplies holds that an error of law by an arbitrator in a FEHA case can be reviewed by the trial court, where the employee was subject to a mandatory arbitration agreement. (At pp. 669-670.)

Employment

“Contacts with Current and Former Employees, Officers, Directors and Managing Agents” (May – Mediation Message no. 133): This lengthy Message discusses the law (including Rules of Professional Conduct) which either limits or allows contacts with current and former employees and members of a company’s control group.

Evidence

“The Attorney-Client Privilege Is Now Diminished” (January – Mediation Message no. 129): The simple question in Los Angeles County Board of Supervisors v. Superior Court (2016) 2 Cal.5th 282 (L.A. County) was whether invoices by an outside law firm to a governmental agency are covered by the attorney-client privilege and, therefore, exempt from disclosure under the California Public Records Act (PRA). L.A. County’s supposedly narrow holding that the privilege may not extend to such invoices in inactive matters has, however, much broader implications. As Justice Werdegar warned in her dissenting opinion, “The majority’s suggestion the protective power of the attorney-client privilege under section 954 may not continue to encompass all portions of a document that previously qualified as a ‘confidential communication’ under section 952 is mischievous in the extreme. Following today’s decision, attorneys in this state must counsel their clients that confidential communications between lawyer and client, previously protected by the attorney-client privilege, may be forced into the open by interested parties once the subject litigation has concluded. If a limiting principle applies to this new rule, it is not perceptible to me.” (Id. at p. 305.)

Civil Procedure

“Expert Witness Declarations and Motions for Summary Judgment” (February – Mediation Message no. 130): Perry v. Bakewell Hawthorne, LLC (2017) 2 Cal.5th 536 holds that the exclusionary rule for expert witness declarations that do not meet disclosure requirements applies to summary judgment as well as the trial phase. The case is also a valuable reminder about the importance of admissible evidence at MSJs and the remedies available when an expert disclosure is late or needs to be amended or augmented.

“Trial Courts Are Gatekeepers as to Default Applications” (June – Mediation Message no. 134): Grappo v. McMills (2017) 11 Cal.App.5th 996 sends a strong statement to both attorneys and, in particular, the trial courts that applications for default judgments must be closely scrutinized and that only appropriate claims should be approved.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, December 2017

Mediation Message No. 138

“THE ROOM WHERE IT HAPPENS”

The title of this Mediation Message comes from a song from the musical “Hamilton,” where Aaron Burr complains that no one knows what happened when Hamilton, Jefferson and Madison got together in a room and agreed to Hamilton’s plan to have the national government take over and pay the states’ debts, while Jefferson and Madison obtained the national capital (the District of Columbia) for the South. Burr then sings, “No one else was in the room where it happened, (refrain); No one else was in the room where it happened (refrain). No one really knows how the game is played, the art of the trade, how the sausage gets made. We just assume that it happens, but no one else is in the room where it happens.”

Burr’s concerns do not apply to what happens in mediation separate caucuses since, ultimately, all of the parties must agree to the settlement terms but, nonetheless, “Hamilton’s” catchy tune is a convenient segue into the subject of this Mediation Message, which is “What are the mediators talking about in the other room when they are not with us?” That’s a valid question because, under the cloak of confidentiality, mediators are not allowed to discuss what took place in the other rooms.

I’ll allay your concerns and explain, very generally, what I do when I go into the separate caucuses. In the beginning, I talk about the confidentiality of the proceedings, that I don’t represent anyone in the matter and that trial and arbitration, if the mediation is unsuccessful, are fraught with uncertainty. In the opening session, I also address the skepticism of inexperienced participants about the mediation process.

On subsequent visits, I’ll discuss issues that I noted from reading the parties’ mediation briefs which require further explanation or evidentiary support. And, depending on the extent of the existing discovery, I may serve as a conduit for the exchange of facts between the two rooms. If the parties know each other’s cases well, I’ll eliminate the informal discovery process and begin to analyze, from my point of view, the legal and factual strengths and weaknesses of the respective cases, emphasizing the weaknesses in the room I’m in, including the strengths of the opposing parties’ arguments. This discussion may include points that the opposing parties have mentioned in their confidential mediation briefs that I’ve received permission to bring up in the other room.

After the informal discovery and analysis phases, I’ll encourage the parties to begin negotiating the terms, which usually begins with financial demands and offers. If the matter settles, the need for separate caucuses has essentially ended, except when discussing contested terms in the proposed settlement and release.

So, the answer to “What’s the mediator talking about in the other room?” is not very much different than what I talk about in both rooms, with the significant difference being that I emphasize the weaknesses rather than the strengths of the party in whose room I’m in.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, November 2017

Mediation Message No. 137

MEDIATION MUSIC: THE MEDIATION CONCERT HALL

There is a correlation between popular song titles and what happens at mediations. Consider the following:

“Welcome to my world,” Dean Martin 1958. Mediators ask the parties and their counsel to come to mediation and to trust the process.

“I’m a believer,” the Monkees 1966. That comment is music to a mediator’s ears.

“Take this job and shove it,” Johnny Paycheck 1977; “Workin’ for a livin’,” Huey Lewis and the News 1982; “Back on the chain gang,” The Pretenders 1982. The theme songs of employees who are suing for job-related causes of action.

“Get a job,” The Silhouettes 1957. A former employer’s advice to a former employee’s lawsuit.

“Money for nothing,” Dire Straits 1985. How employers feel about settling baseless employment claims.

“That’s what friends are for,” Dionne Warwick 1985. Parties occasionally provide statements or declarations by friends in support of their facts.

“We belong together,” Mariah Carey 2005. The mantra of claimants in a class action or PAGA matter.

“I heard it through the grapevine,” Marvin Gaye 1983. Unfortunately, the grapevine (i.e., hearsay) is not very helpful in litigation.

“Fly me to the moon,” Frank Sinatra 1964. The unrealistic expectation of an unreasonable demand or offer.

“One is the loneliest number,” Three Dog Night 1969. $1,000; $10,000 or even $100,000, depending on the circumstances, can be a discouraging number for negotiating purposes.

“Yakety yak,” The Coasters 1961. Sometimes there’s too much talking, and not enough progress, during the separate caucuses.

“Listen to what the man says,” Paul McCartney 1976. Mediators hope attorneys tell their clients to listen to what mediators tell them about the facts, law and possible outcomes.

“Tired of waiting,” The Kinks 1965. It’s 2:00 p.m., the parties have been at it since 9:00 a.m., and a monetary demand has not yet been made.

“Light my fire,” The Doors 1967. One party is looking for an offer or demand that shows progress.

“Stayin’ alive,” Bee Gees 1977. The negotiation phase just got revitalized by a positive demand or offer.

“I gotta feeling,” The Black Eyed Peas 2007. One of the parties or attorneys has just read something positive into an opponent’s latest move.

“No reply,” The Beatles 1964. A party refuses to respond to the last offer or demand because it considers it to be unreasonable.

“Keep a knockn’,” Little Richard 1958. The perfect response when a party has stopped negotiating.

“I’m walkin’,” Fats Domino 1957. The threat to leave, rarely real, by a party when it says that mediation is not working.

“Please stay,” The Drifters 1957. The response when a party threatens to walk.

“All shook up,” Elvis Presley 1969; “Tossin’ and turnin’,” Bobby Lewis 1961. Something negative or positive happened during the mediation which shook up one of the parties.

“Let’s spend the night together,” The Rolling Stones 1967; “Dance the night away,” Van Halen 1979; “Night moves,” Bob Seeger 1981. The mediation may take longer than planned.

“You can’t always get what you want,” The Rolling Stones 1969. “But if you try sometimes well you might find you get what you need”; i.e. despite existing obstacles, reasonable results are still achievable.

“(I can’t get no) Satisfaction,” Rolling Stones 1965. The Stones had not yet become philosophers.

“That’s life,” Frank Sinatra 1966; “It’s all in the game,” Tommy Edwards 1958; “I’m a loser,” the Beatles 1964; “While my guitar gently weeps,” The Beatles 1968; “I will survive,” Gloria Gaynor 1978. A fatalistic approach when a party’s goals or expectations have not been achieved.

“Luck be a lady,” from Guys and Dolls 1950; “Could this be magic?,” The Dubs 1956. When things are not going well, relying on luck or magic to turn things around.

“It’s over,” Roy Orbison 1962; “End of the road,” Boyz II Men 1991. Despite everyone’s best efforts, the matter is not going to settle that day.

“Call me,” NAV 2017. The mediator is going to follow up the unsuccessful mediation with phone calls to the attorneys.

“The great compromise,” John Prine 1972. A settlement has been achieved.

“Take the money and run,” Steve Miller Band 1976. From a plaintiff’s perspective, it’s a great deal.

“Hallelujah” chorus from Handel’s “Messiah;” “Happy days are here again,” Ager and Yellin 1929. The feeling of euphoria when a resolution or settlement is achieved.
This recording session is now over. See you next month.

Hon. Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright October 2017

Mediation Message No. 136

“YOU CAN’T ALWAYS GET WHAT YOU WANT”

“You can’t always get what you want
You can’t always get what you want
You can’t always get what you want
But if you try sometimes well you might find
You get what you need”

(From “You can’t always get what you want,” lyrics by Keith Richards and Mick Jagger, 1969.)

This memorable refrain, known by all rock ‘n’ roll fans, is also the perfect reminder at mediation for unrealistic or disappointed litigants when either the facts, the law or an intransigent opponent seem to frustrate their expectations. When that occurs, appropriately observing that “You can’t always get what you want, but if you try sometimes well you might find you get what you need” most always brings a smile of recognition and the timely realization that, despite existing obstacles, reasonable results are still achievable.

Hon. Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, August 2017

Mediation Message No. 135

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 135
“DON’T GIVE UP. DON’T EVER GIVE UP.” – JIMMY VALVANO

Intensive preparation is a sine qua non for a successful mediation. (See Mediation Messages 42 and 111 for preparation elements.) After that, it’s important that all participants, including the mediator, maintain a positive attitude throughout the mediation’s ups and downs, which will surely occur.

Mediation can produce a combination of emotions – some positive and some not so – because the process, as the discussions progress, can be both uplifting and frustrating. Regardless, it’s essential, even when a successful resolution seems far off, that the attorneys remain hopeful because negativity can lead to letdown and then failure.

Former North Carolina State Coach Jimmy Valvano’s uplifting message, “Don’t give up. Don’t ever give up,” which he made about his failing health, is both a wonderful life lesson and an appropriate mantra for mediation when nothing seems to be working. Thus, all is not lost if a party at a mediation is inflexible or has even packed up and is walking out. (I’ve hustled down to the parking area and brought a party back to the mediation and ultimate resolution.) By remaining reasonable, creative and engaged, no matter what has already occurred, good things are more likely to happen.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, July 2017

Mediation Message No. 134

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 134
TRIAL COURTS ARE GATEKEEPERS AS TO DEFAULT APPLICATIONS

Grappo v. McMills (2017) 11 Cal.App.5th 996 sends a strong statement to both attorneys and, in particular, the trial courts that applications for default judgments must be closely scrutinized and that only appropriate claims should be approved. In Grappo, appellant Donald Grappo, representing himself, filed a complaint alleging ten causes of action, seven of which were in one paragraph, the other three ranging from two paragraphs to five. The complaint named five defendants, two entities and three individuals, none of which or whom was described or identified. Grappo did not identify himself either, or describe any claimed connection or relationship with any of the defendants. He served the complaint on Kenneth McKean, who was named in the caption but not identified in the complaint—and who, from all indications, had no relationship with Grappo. Six months later, Grappo filed a request for default against McKean and his law firm (McKean & McMills), seeking a default judgment for $9,982,308.83, with a claimed itemization of damages not found in the complaint. The clerk entered the default, but the court refused to enter judgment, entering instead an order listing specific reasons for the refusal. McKean then died, of which Grappo was aware. Two weeks later, he filed another request for default and judgment which was not mailed to anyone. This request sought a judgment for $12,012,818.88, once again with numbers found nowhere in the complaint. In the declaration portion in the default request, Grappo referred to “$60,000,” an amount in the prayer for the claimed value of personal property referred to in the eighth cause of action “belonging to some of the heirs of the Michael A. Grappo 2003 Trust.” The court entered judgment for Grappo and against McKean and McKean & McMills for $60,000, plus costs of $750.

Defendants filed a motion to vacate and set aside the default judgment. Grappo appealed from a resulting order vacating the judgment as to McKean. The appellate court affirmed the order and published its opinion “to remind trial courts that however burdened they be, they must vigilantly attend to their duty in connection with the default process, to act as gatekeeper, ensuring that only the appropriate claims get through.’” (Id. at p. 1000; internal quotations omitted.) “The court’s role in the process of entering a default judgment is a serious, substantive, and often complicated one, and it must be treated as such.” (Id. at pp. 1013-1014, citing Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 272-273.)

Grappo explained that had the trial court properly acted as a gatekeeper, the default judgment would not have been entered because, inter alia, the complaint did not identify the people or relationship of any of the people or entities named in the caption; the complaint did not comply with the pleading requirements in rule 2.112 of the California Rules of Court; Grappo was not the proper plaintiff because any alleged wrongs, if they had occurred, were against the Michael A. Grappo 2003 Trust and not Grappo; Grappo’s complaint did not state a claim for any loss of property; the claims of negligence and gross negligence were not supported by any allegations and the $60,000 awarded to Grappo was not supported by the complaint. (Id. at pp. 1013-1015.)

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, June 2017

Mediation Message No. 133

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 133
CONTACTS WITH CURRENT AND FORMER EMPLOYEES, OFFICERS, DIRECTORS AND MANAGING AGENTS

Because contacts with current and former employees and members of a company’s control group are always an important (and often misunderstood) issue in all types of litigation, I am summarizing the status of that law. (This is, by far, the longest Mediation Message I’ve ever written but once I started, I couldn’t stop.)

Before present Rule of Professional Conduct 2-100, there was Rule 7-103 which stated “A member of the State Bar shall not communicate directly or indirectly with a party whom he knows to be represented by counsel upon a subject of controversy, without the express consent of such counsel. This rule shall not apply to communications with a public officer, board, committee or body.” Rule 7-103 prohibited all contacts with current employees. (Mills Land & Water Co. v. Golden West Refining Co. (1986) 186 Cal.App.3d 116; Bobele v. Superior Court (1988) 199 Cal.App.3d 708, 713-714.)

Existing Rule 2-100 provides: “(A) While representing a client, a member shall not communicate directly or indirectly about the subject of the representation with a party the member knows to be represented by another lawyer in the matter, unless the member has the consent of the other lawyer. [¶] (B) For purposes of this rule, a ‘party’ includes: [¶] (1) An officer, director, or managing agent of a corporation or association, and a partner or managing agent of a partnership; or [¶] (2) An association member or an employee of an association, corporation, or partnership, if the subject of the communication is any act or omission of such person in connection with the matter which may be binding upon or imputed to the organization for purposes of civil or criminal liability or whose statement may constitute an admission on the part of the organization.”

“Control group” and “managing agent” defined (see 2-100(B)(1)): A control group consists of “ ‘ “officers and agents … responsible for directing [the company’s] actions in response to legal advice.” ’ ” (Bobele v. Superior Court, supra, at p. 712.) A managing agent is “An employee that “exercise[s] substantial discretionary authority over significant aspects of a corporation’s business.” (White v. Ultramar (1999) 21 Cal.4th 563, 577 [definition for punitive damages purposes]; Snider v. Superior Court (2003) 113 Cal.App.4th 1187, 1208-1209 [White’s definition applies to Rule 2-100(B)(1) and is consistent with the control group definition in Bobele].)

Rule 2-100(B)(2)’s “binding” statement language: “(P)aragraph (B)(2) focuses on the subject matter of the communication and arguably applies to employees outside of an organization’s control group if the subject matter of the conversation is the employee’s act or failure to act in connection with the matter at issue, and that act or failure to act could bind the organization, be imputed to it, or if the employee’s statement could constitute an admission against the organization.” (Snider v. Superior Court, supra, at pp. 1202-1203; italics in original.) The “may constitute an admission on the part of the organization” category “only applies to ‘high-ranking executives and spokespersons’ with the authority to speak on behalf of the organization.” (Id. at p. 1209; the same standard applies to authorized admissions as an exception to the hearsay rule in Evidence Code sec. 1222. (O’Mary v. Mitsubishi Electronics America, Inc. (1997) 59 Cal.App.4th 563, 572; accord, Snider v. Superior Court, supra, at p. 1203.)

Rule 2-100 regarding contacts with current members: “[R]ule 2-100 permits opposing counsel to initiate ex parte contacts with … present employees (other than officers, directors or managing agents) who are not separately represented, so long as the communication does not involve the employee’s act or failure to act in connection with the matter which may bind the corporation, be imputed to it, or constitute an admission of the corporation for purposes of establishing liability.” (Triple A Machine Shop, Inc. v. State of California (1989) 213 Cal.App.3d 131,140, 143.) La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court (2004) 121 Cal.App.4th 773, 788-789 holds that rule 2-100 allows attorneys to contact directors for a represented corporation where the director’s separate counsel had consented to the contact although the corporation’s counsel had not. (Id. at pp. 776-777, 784.) La Jolla Cove Motel, however, does not allow contacts “in most situations” with “a director of a corporation” “by opposing counsel without the permission of corporate counsel. It is only in the situation where the director has retained separate counsel that rule 2-100 allows ex parte contact upon consent of that counsel.” (Id. at p. 789.)

Former employees, including managerial, under rule 2-100, can be contacted: “Plaintiffs may inquire about relevant facts but not about any privileged communications concerning those facts.” (Bobele v. Superior Court, supra, at pp. 714-715 [rule 7-103 analysis]; see also Nalian Truck Lines, Inc. v. Nakano Warehouse & Transportation Corp. (1992) 6 Cal.App.4th 1256, 1259 (Rule 2-100 permits communications with a former member of the corporation’s “control group”) and Continental Insurance Co. v. Superior Court (1995) 32 Cal.App.4th 94, 118-119 (Nalian’s reasoning applicable to both rule 2-100(B)(1) and (2).) Mills Land & Water Co. v. Golden West Refining Co., supra, at p. 128 discouraged contacts with former company directors because they could possess potentially privileged information about the pending litigation but has been distinguished by La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court, supra, at pp. 788-789 because Mills Land relied upon former rule 7-103, which imposed a blanket prohibition against contacts with any constituents of a business or corporation.

Policy allowing former employees to be interviewed: Former employees are sometimes the best available source of information regarding unprivileged events (State Farm & Casualty Co. v. Superior Court (1997) 54 Cal.App.4th 625, 638) and they may be reluctant to speak if they could only do so in the presence of the entity’s attorney. (G-1 Holdings, Inc. v. Baron & Budd (S.D. N.Y. 2001) 199 FRD 529, 533.)

Rule 2-100 should be interpreted narrowly: “(R)ule 2-100 must be interpreted narrowly because a rule whose violation could result in disqualification and possible disciplinary action should be narrowly construed when it impinges upon a lawyer’s duty of zealous representation.” (Continental Ins. Co. v. Superior Court (1995) 32 Cal.App.4th 94, 119.)

Consequences for violation of rule 2-100: “(T)he corporate attorney-client privilege extends not only to communications between corporate counsel and members of the control group, but also to communications with middle and low level corporate employees.” (Upjohn Co. v. United States (1981) 449 U.S. 383, 390.) “Rule 2-100 does not define the scope of the attorney-client privilege; rather, it bars ex parte communications with opposing parties regardless of whether the information sought, obtained or conveyed is privileged from disclosure.” (Triple A Machine Shop, Inc. v. State of California, supra, at pp. 140-141.) Violation of the privilege by an improper ex parte communication may lead to disqualification, exclusion of the evidence or other appropriate measures to achieve justice and ameliorate the effect of improper conduct. (Snider v. Superior Court, supra, at p. 1212.) The improper ex parte communication requires an intention to violate rule 2-100 “or any other standard of ethical conduct.” (Jorgensen v. Taco Bell Corp. (1996) 50 Cal.App.4th 1398, 1404; Snider v. Superior Court, supra, at p. 1215 [actual knowledge required before an attorney violates rule 2-100].) A failure to conduct discovery or communicate with opposing counsel where counsel has reason to believe that an employee of a represented organization might be covered by rule 2-100 may constitute circumstantial evidence of actual knowledge that the employee came within rule 2-100. (Id. at pp. 1215-1216.)

Obligations of counsel regarding contacts with a current member of an entity: “(T)o avoid potential violations of the attorney-client privilege, an attorney contacting an employee of a represented organization should question the employee at the beginning of the conversation, before discussing substantive matters, about the employee’s status at that organization, whether the employee is represented by counsel, and whether the employee has spoken to the organization’s counsel concerning the matter at issue. If a question arises concerning whether the employee would be covered by rule 2-100 or is in possession of privileged information, the communication should be terminated.” (Id. at p. 1213.)

Warning letters about possibly improper contacts with current members of an entity: “Once a dispute arises that could lead to litigation, it is also incumbent upon an organization and its counsel to take proactive measures to protect against disclosure of privileged information by informing employees and/or opposing counsel their position concerning communications between employees and opposing counsel.” (Ibid.) Warning letters may be sent before the filing of a lawsuit. (Jorgensen v. Taco Bell Corp., supra, at p. 1403.) The organization may also instruct its employees to contact them before speaking to opposing counsel. (Snider v. Superior Court, supra, at p. 1212.) The entity, however, may not “bring former employees back into the fold for purposes of a lawsuit merely because there is a risk that the former employee might disclose unfavorable facts.” (Bobele v. Superior Court, supra, at p. 713.)

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, May 2017

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