NINTH ANNUAL YEAR-END REVIEW
This year’s ten Mediation Messages and one Arbitration Insight include observations about different mediation processes; C.C.P. sec. 664.6; the arbitration of signatories and non-signatories; tax deductions viz a viz sexual allegations and the new Rules of Professional Conduct. Refer to my website (www.marcusmediation.com) for the Mediation Messages and Arbitration Insight discussed below if the following summaries do not suffice.
“A Minor Modification of Mediation Law Is Enacted” (Mediation Message nos. 142, 145 and 147 [respectfully, April, July and September 2018]) – Three Mediation Messages followed the evolution of legislation to amend the Evidence Code concerning the information attorneys must give their clients about mediation confidentiality. Eventually, Evidence Code section 1122 was amended and section 1129 was added in September 2018 which require attorneys to provide clients with a printed disclosure regarding the confidentiality restrictions in Evidence Code section 1119 as soon as possible before the client agrees to participate in a mediation and to obtain a signed written acknowledgment from the client that he or she has read and understands those restrictions.
The written disclosure shall “be printed in the preferred language of the client in at least 12-point font” “on a single page that is not attached to any other document provided to the client” and include the name of both the client and the attorney. The acceptable language of the disclosure includes informing the client where the mediation confidentiality laws can be found, the scope of mediation confidentiality and that, since all communications with the attorney in preparation of and during the mediation are confidential, they “cannot be disclosed or used (except in extremely limited circumstances), even if you later decide to sue your attorney for malpractice because of something that happens during the mediation.”
For practical reasons, the disclosure cannot be in the fee agreement since it must be on a single page that is not attached to any other document. Furthermore, the failure to disclose the required language or to obtain the client’s executed advisement form has no impact on the civil action at issue because, despite such failures, the client cannot move to set aside an agreement or settlement prepared in the course of, or pursuant to, a mediation.
“Constructing a Bracket at Mediation” (Mediation Message no. 143; May 2018) – This Mediation Message provided a simple, fool-proof method for constructing a bracket to be used in negotiations. The most important part of creating an effective bracket is to start with selecting a desired midpoint.
“Mediators’ Wish Lists” (Mediation Message no. 144; June 2018) – Mediators would like that briefs are filed timely; the parties share their briefs before the mediation; they diligently prepare for mediation; they make only reasonable demands and offers and that people with authority always attend the mediations.
“Creating an Enforceable Section 664.6 Remedy” (Mediation Message no. 141; February 2018) – 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 should ask 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.
“Arbitration and Nonsignatories” (Arbitration Insight no. 27; July 2018) – The role of nonsignatories to an arbitration agreement is a frequent issue. Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782 and Benaroya v. Willis (2018)23 Cal.App.5th 462 consider that problem, Garcia as to whether a nonsignatory can compel arbitration and Benaroya as to who can order a nonsignatory into arbitration. In Garcia, the appellate court affirmed the trial court’s order granting the motion of both the signatory and non-signatory defendants to the arbitration agreement to arbitrate Garcia’s claims because equitable estoppel and agency are exceptions to the general rule that “one must be a party to an arbitration agreement to be bound by it or invoke it.” (Id. at pp. 785-786, 788.) Benaroya involves a claim in arbitration by Bruce Willis, the actor, against Benaroya Pictures (Benaroya), for failing to pay Willis a certain sum of money, pursuant to an arbitration clause signed by Michael Benaroya (Michael B.), on behalf of Benaroya. Michael B. opposed Willis’s motion to add Michael B. as a party, arguing that he was not a party to the arbitration clause, and that the question whether a nonsignatory can be compelled to arbitrate is a question for the trial court alone. The arbitrator granted the motion and later found Michael B. to be Benaroya’s alter ego and awarded Willis and his company $5,024,778.61, for which both Benaroya and Michael B. were liable. The appellate court reversed the judgment with directions, in part, that the award be confirmed only as to Benaroya, holding that only the trial court has the authority to decide whether a nonsignatory to an arbitration agreement can be compelled to arbitrate.
“The New Tax Code and Sexual Harassment or Sexual Abuse Settlements” (Mediation Message no. 140; January 2018) – On December 22, 2017, the Tax Cuts and Jobs Act was signed into law with 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.” 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: 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? 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? Costs are not mentioned in the new legislation. Can they still be deducted even if attorney’s fees cannot?
“Lawyers Must Disclose Adverse Authority to the Tribunal” (Mediation Message no. 146; August 2018) – New Rule of Professional Conduct 3.3, which replaces former rule 5-200, provides that “A lawyer shall not fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel, or knowingly misquote to a tribunal the language of a statute, decision or other authority.” (Subd. (a)(2).) The italicized portion requires lawyers to disclose known controlling legal authority that is directly adverse to their clients’ positions, which has not been disclosed by opposing counsel, even if opposing counsel is present and the attorneys know or suspect that opposing counsel is aware of that authority. This rule, in effect, penalizes attorneys who are prepared and rewards those who have not fully researched the law. It also raises several unresolved issues: does the disclosure obligation exist if the attorney knows that the tribunal is aware of the controlling authority (from, as an example, a prior hearing or prior points and authorities); does the controlling authority include law which is persuasive (such as federal common law in a state proceeding) but not determinative or binding (in other words, its adverse effect is questionable); is a controlling appellate decision that is “on all twos” or “threes” (and, therefore, arguably distinguishable) “directly adverse” to a party’s position and does the disclosure obligation exist if the motion is unopposed? None of these questions have been answered. Subd. (d) of rule 3.3 requires a lawyer in an ex parte proceeding, where the opposing party is not present, to inform the tribunal of all known material facts, even if adverse, that will enable the tribunal to make an informed decision. This standard codifies existing California Supreme Court decisions and addresses the inherent unfairness when an opposing party, for whatever reason, fails to appear at an ex parte proceeding.
“Communicating with Clients – New Rule of Professional Conduct” (Mediation Message no. 148; October 2018) – Rule of Professional Conduct 1.4, which replaces former rule 3-500, maintains the requirement that lawyers must keep clients reasonably informed about significant developments and promptly comply with reasonable requests for both information and significant documents. The new rule adds that a lawyer shall promptly inform the client of any decision or circumstance with respect to which disclosure or the client’s informed consent is required; shall reasonably consult with the client about accomplishing the client’s objectives and shall advise the client of relevant limitations on the lawyer’s conduct. An interesting new exception to the communication obligation is that lawyers may delay transmission of the above information where it is likely to cause imminent harm to the client or others. My observations as to this rule are to provide the client, at a minimum, with all correspondence to and from opposing attorneys and parties; all moving papers and pleadings and all notices and orders from the applicable tribunal and also to memorialize all communications with clients.
“New Rule of Professional Conduct Prohibiting Discrimination, Harassment and Retaliation” (Mediation Message no. 149; November 2018) – New rule 8.4.1 is the revision of former rule 2-400 which prohibited discrimination, or the knowing permission of, on the basis of race, national origin, sex, sexual orientation, religion, age or disability “in the management or operation of a law practice.” Under 2-400, a discipline investigation or proceeding could not be initiated unless a non-discipline tribunal of competent jurisdiction had first found that unlawful discrimination had occurred and that such finding was final. Rule 8.4.1 has expanded the protected characteristics to include, inter alia, ancestry, physical and mental disability, medical condition, genetic information, marital status, gender, gender identity and military and veteran status. Harassment of and retaliation against clients are now prohibited (par. (a)); harassment of and retaliation against a law firm’s employees of all types are now prohibited (par. (b)); the “knowingly permit” definition, which essentially remains the same as in 2-400, par. (c)(2) defines “knowingly permit” as “to fail to advocate corrective action where the lawyer knows of a discriminatory policy or practice that results in the unlawful discrimination or harassment prohibited [in a law firm’s operations];” the law for determining “unlawful discrimination and harassment are applicable state and federal statutes and decisional law; “retaliate,” on the other hand, is not determined by existing state and federal law. Instead, it is defined in 8.4.1, par. (c)(4) as “tak[ing] adverse action against a person because that person has (i) opposed, or (ii) pursued, participated in, or assisted any action alleging, any conduct prohibited by” the language in 8.4.1 as to clients and employees of all kinds. Rule 8.4.1 deletes the former requirement in rule 2-400 that a competent tribunal must first find unlawful conduct before a State Bar investigation or proceeding can be initiated.
Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067