15 Chap. L. Rev. 657 (No PDF)
Chapman Law Review
DIGEST: CASSEL V. SUPERIOR COURT
Copyright (c) 2012 Chapman Law Review; Damon Pitt
Opinion by Baxter, J., with Kennard, Acting C.J., Werdegar, J., Moreno, J., Corrigan, J., and George, J. Concurring Opinion by Chin, J.
Do the mediation confidentiality statutes protect private attorney-client communications against the client’s subsequent claim that the attorneys committed legal malpractice?
Petitioner Michael Cassel (“Petitioner”) obtained a “global master license” (“GML”) for the Von Dutch label, and then founded Von Dutch Originals, L.L.C. (“VDO”) to sell clothing under that label. The law firm of Wasserman, Comden, Casselman & Pearson, L.L.P. (“WCCP”) represented Petitioner in a dispute over ownership of VDO, where Petitioner lost in arbitration resolving ownership, but the rights to the GML were undetermined. Following arbitration, VDO sued for trademark infringement and sought a preliminary injunction when Petitioner continued doing business under the Von Dutch label. Petitioner insisted that he had (1) acted on WCCP’s advice that the GML still entitled him to market clothing under the Von Dutch label, and (2) relied on assurances by WCCP that the injunction only applied in the United States when he contracted to sell Von Dutch clothing in Asia. WCCP had not informed Petitioner that in addition to the trademark suit, VDO sought an injunction against his use of the label; the injunction was granted when WCCP failed to oppose it. Petitioner subsequently agreed in mediation to assign his GML rights to VDO for $1.25 million to resolve the suit.
After the mediation proceedings, Petitioner sued his attorneys at WCCP, and certain of its members including Steve Wasserman and David Casselman for malpractice, breach of fiduciary duty, fraud, and breach of contract, alleging that “by bad advice, deception, and coercion, the attorneys, who had a conflict of interest, induced him to settle for a lower amount than he had told them he would accept, and for less than the case was worth.” One of the allegations was that Steve Wasserman, one of petitioner’s attorneys, persuaded petitioner to provide Von Dutch hats to an online company run by Wasserman’s son, who was later discovered to also be selling counterfeit merchandise. VDO had deposed Wasserman about the counterfeit sales and so Wasserman had “assumed the conflicting roles of counsel and witness in the same case.” The complaint further alleged that the defendants (1) had previously agreed to settle for no less than $2 million, (2) coerced and harassed Petitioner to accept the $1.25 million offer, (3) threatened to abandon him at trial, (4) misrepresented significant terms of the settlement, (5) falsely assured him they could negotiate a side deal to “recoup deficits” in the settlement, and (6) falsely said they would waive a portion of their legal fees if he accepted the lower offer.
Prior to trial, Defendants moved to exclude all evidence of “private attorney-client discussions” concerning mediation strategies and any efforts made by WCCP to persuade Petitioner to settle. The trial court granted the motion, but the court of appeal vacated the trial court’s order. The California Supreme Court granted review.
With specified statutory exceptions, neither “evidence of anything said,” nor any “writing,” is discoverable or admissible “in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which . . . testimony can be compelled to be given,” if the statement was made, or the writing was prepared, “for the purpose of, in the course of, or pursuant to a mediation . . . . All communications, negotiations, or settlement discussions by and between participants in the course of a mediation . . . shall remain confidential.”
The court specified that the confidentiality provisions were “clear and absolute,” must be “strictly applied,” and did not permit “judicially crafted exceptions or limitations, even where competing public policies may be affected.”
The parties based their claims on appeal upon competing public policy arguments. The first prong of Petitioner’s argument contended that the rule does not extend confidentiality protection to private attorney-client communications when a client claims that his counsel in the mediation process committed legal malpractice. Petitioner based this challenge on the public policy concern that such protection would allow attorneys to shield themselves from malpractice liability even when they act deceptively or incompetently. Defendants countered that the plain language of the statutes rendered their “mediation-related discussions with [P]etitioner” inadmissible, and that this interpretation was supported by the competing public policy interest of candid and efficient mediation processes. The court of appeal sided with Petitioner, holding that the mediation confidentiality statutes were intended to prevent the use of damaging information from being used against a disputant in a mediation proceeding.
In rejecting the court of appeal’s decision that the mediation confidentiality statues did not extend to communications between participants and his or her own attorneys outside the presence of other participants, the court agreed with the defendants that the plain language of the statute provides that unless expressly waived, confidentiality of a particular communication does extend to all participants in a mediation and is not merely confined to communications that occur between disputants. The court noted that “[w]here competing policy concerns are present, it is for the Legislature to resolve them” and not the courts. Where there was no justification to ignore the “plain statutory language” because a literal interpretation neither implicated a due process violation nor clearly violated the Legislature’s “presumed intent,” it was beyond the purview of the court to expand the interpretation.
Petitioner’s second prong, which was endorsed by the court of appeal, challenged that the word “participants” in the statute was intended to mean “parties” or “disputants” and so confidentiality only extended to mediation-related exchanges between disputing parties. The court rejected Petitioner’s challenge in two ways. First, it noted that “section 1119, subdivisions (a) and (b) do not restrict confidentiality to communications between mediation ‘participants,”’ but rather they “provide more broadly that ‘[n]o evidence of anything said . . . and [n]o writing’ is discoverable or admissible in a legal proceeding” if it was for the purpose of a mediation. Second, the court rejected the notion that “disputants” in mediation are the only “participants” despite the fact that “participants” are not defined in the statutory text. While not defined, the court reasoned, circumstances throughout the statutory scheme made it clear that “the term ‘participants’ includes more than the mediation parties or disputants,” particularly language providing that “[a]ll communications, negotiations, or settlement discussions by and between participants in the course of a mediation . . . shall remain confidential.”
The court held that the language and purpose of the mediation confidentiality statutes did not support recognizing an exception for lawsuits between attorney and client. Applying the statutes to legal malpractice actions does not raise due process concerns sufficient to warrant an exception on constitutional grounds.
Justice Chin “reluctantly” concurred in the result, noting the concern that attorneys may shield themselves from wrongdoing during mediation and may not be held accountable for “any incompetent or fraudulent actions during that mediation unless the actions are so extreme as to engender a criminal prosecution against the attorney.” While “greatly sympathiz[ing]” with the court of appeal’s attempt to interpret the statute as “not mandating confidentiality in this situation,” Justice Chin ultimately agreed with the majority that the language was not open to such interpretation, and it was the Legislature’s role to address this concern if needed.
The Cassel decision forces clients who participate in mediation to surrender any subsequent claims of legal malpractice against their attorneys. This strict result both removes the client’s power to revoke confidentiality without his attorney’s consent and fails to address whether the statute will continue to encourage the candid and efficient resolution of disputes that the Legislature intended.
Notwithstanding its holding, the majority hinted that the Legislature should carve out a statutory exception for malpractice claims arising from mediation by alluding to its disapproval of the rule; the concurring opinion expressed clear discontent. While Cassel may be detrimental to clients involved in mediation, the Legislature will likely soon address the court’s suggestion that attorney-client communications may be used in a malpractice claim by carving out a statutory exception to the mediation confidentiality rules.