Introduction

This article examines mediation confidentiality in light of the recent decision in Foxgate Homeowners' Association v. Bramalea California, Inc., currently awaiting review by the California Supreme Court. Although Foxgate has most immediate relevance to construction defect cases, the decision has broader implications and, if upheld, would adversely affect the mediation of cases in all fields of civil litigation.

On its face, the Court of Appeal's decision in Foxgate is simple: it creates an exception to mediation confidentiality whenever a party fails to participate in good faith in a court-ordered mediation process. While the importance of "meaningful, good faith participation" to any process of negotiated settlement is beyond dispute, the rule announced by the court is contrary to the statutes that were enacted to preserve mediation confidentiality.

Under the particular facts of the Foxgate case, the court also implicitly holds that one person can simultaneously fulfill the roles of both special master and mediator in the same case. Accordingly, a second issue of major importance is presented: what is the effect of dual capacity appointments on mediation confidentiality?

Consistent with current practice, the case management order (CMO) in Foxgate appointed the special master to act not only as "discovery referee" but also "as mediator for settlement conferences." The authors argue that under any meaningful understanding of the mediation process, these two roles are incompatible and cannot be fulfilled by the same individual in one case. The quasi-judicial duties and powers of a special master so irreconcilably conflict with the ethical responsibilities of the mediator to maintain confidentiality and to remain impartial that one person cannot fulfill the duties of both. These conflicting responsibilities, inherent in dual capacity appointments, provided the conceptual matrix from which the confidentiality problem presented in Foxgate arose.

Significantly, this problem does not imply that case management by a special master is incompatible with mediation. Rather, it means that the CMO process as currently practiced must be restructured. To that end this article proposes an approach that would allow the two processes, CMO and mediation, to coexist, albeit in a different relation to one another.

Foxgate in Perspective

Before going further, it is worth noting that Foxgate is important for a number of reasons. First, it confirms the integration of mediation and other forms of ADR into the court system. In particular, the reliance on mediation to resolve complex civil litigation has become an accepted part of judicial case management. Consequently, we are witnessing trial and appellate scrutiny of the finer points of mediation and broader ADR practices and procedures. Foxgate represents one such instance.

Second, Foxgate is one of the first legal opinions to struggle with the challenge of coordinating two competing processes: a judicial process embodied in the CMO on the one hand, and a collaborative process embodied in mediation on the other. Clarifying the rules by which the two processes are to be effectively coordinated will be one of the tasks faced by the California Supreme Court in Foxgate.

Third, Foxgate in one sense fuels the ongoing debate over what constitutes "mediation." Within the dispute resolution field this debate is framed largely in terms of arguments over what constitutes the better style of mediation, e.g. directive/evaluative versus pure/facilitative. Outside the field, however, and particularly within the state legislature and the judiciary, the debate has been marked by confusion over what distinguishes mediation, regardless of style, from judicial processes such as CMO processes and mandatory settlement conferences.

In Foxgate, this confusion is apparent in the language contained in the CMO, which no doubt contributed to the analytic difficulties encountered by the Court of Appeal. To cite just one example of such language, the CMO directed the special master to "act as mediator for settlement conferences." The confusion between the two processes is evident in this language and in the Court of Appeal's failure to draw the necessary distinctions. This failure resulted in a gross misinterpretation of the mediation confidentiality statutes.

By appointing the retired judge to act as both CMO referee and mediator, the CMO saddled him with a Hobson's choice. That is, he was faced with an irreconcilable conflict because he could not fulfill his reporting obligations to the court as special master without violating his duties of confidentiality to the parties as mediator. That both the retired judge and the parties were indifferent to this conflict is all the more cause for concern. Unless corrected, this hybrid process, a combination of the CMO process with mediation by means of dual capacity appointments, threatens to undermine the integrity and effectiveness of both processes.

Foxgate: A Case Digest

As a preface to what follows under this heading, the authors must emphasize that this case has not been finally decided. The legally significant facts and the judicial interpretation of the relevant statutes may well change after the Supreme Court has ruled on the matter. In one sense, the Supreme Court in Foxgate will simply be asked to determine whether the trial court abused its discretion in ordering monetary sanctions against the two defendants and the attorney who represented both. Consequently, from that standpoint, the case is rather unremarkable in that the dispute could be viewed as merely an appeal from an order granting sanctions in a civil suit, the usual byproduct of contentious litigation. That said, the abuse of discretion issue concerns an evidentiary issue that has profound implications that transcend the defendants' concern over whether they will ultimately have to pay the homeowners association $31,000 in sanctions.

The trial court's order imposing sanctions was based on a mediator's report that not only disclosed what had happened at the mediation but also found the defendants to have acted in bad faith and recommended that sanctions be imposed.

Plaintiff, Foxgate Homeowners' Association, Inc., comprised of the owners of a 65 unit condominium complex in Southern California, sued the project developer and general contractor, two affiliated Bramalea corporations, for construction defects. This resulted in the filing of cross-actions eventually involving some 25 entities, principally subcontractors of Bramalea.

As is customary in multi-party construction defect litigation, a case management order (CMO) was issued by the trial court appointing a retired judge to serve as special master for purposes of case management and settlement. In addition, the CMO appointed the special master to be the mediator in conjunction with his quasi-judicial powers related to the CMO process.

The Court of Appeal described the role assigned to the special master as mediator. Under the CMO, the retired judge "was granted broad powers as the mediator, including the power to order pre-mediation meetings with the parties' experts, and for all matters he deemed appropriate. He was also authorized to structure the mediation as he saw fit." (italics added.)

In accord with his powers, the retired judge scheduled a five-day round of mediation sessions, directing the parties to present their experts to discuss the construction defects at issue in the litigation." To what extent the parties or their attorneys actually consented to the process described in the court of appeal opinion is unclear.

Bramalea's attorney attended the first mediation session without his construction experts. After adjourning the first mediation session, the retired judge sent a written report to the trial court. As summarized by the Court of Appeal, the retired judge reported that Bramlea's attorney "had tried to 'derail' the mediation process by appearing without their experts, hoping instead to reopen discovery in order to bring a summary judgment motion." Furthermore, the Court of Appeal continued, "They did this without notice to the parties or the mediator. This tactic, in contradiction of the CMO and the mediator's directive, caused the scheduled mediation sessions to collapse. As a result, Foxgate, which had readied and produced nine experts for the session, incurred substantial expert witness fees."

Relying on the mediator's report, the trial court found that Bramalea's failure to appear at the mediation with its experts constituted misconduct and granted Foxgate's motion for sanctions. The court of appeal held that the evidence before the court, including the report submitted by the mediator, was sufficient to warrant sanctions. Nevertheless, the actual order was reversed and remanded with directions that the trial court issue a new order reciting in detail the conduct or circumstances justifying the order, as required by Code of Civil Procedure sec. 128.5, subd. (c.).

Having disposed of the principal issue presented, the Court of Appeal devoted the remainder of its opinion to an explanation of why the mediator's report was admissible evidence despite the statutory scheme for preserving mediation confidentiality. This part of the Court's opinion begins by quoting verbatim Evidence Code sections 1119 and 1121, the twin cornerstones of mediation confidentiality in California. The Court also cites two related statutes intended to strengthen mediation confidentiality.

Generally speaking, section 1119 provides that no evidence of "anything said or any admission made" in the course of a mediation "is admissible or subject to discovery" in "any arbitration, administrative adjudication, civil action, or other non-criminal proceeding . . . ." Instead, "all communications, negotiations, or settlement discussions" . . . shall remain confidential." This evidentiary exclusion is reinforced by Evidence Code sec. 1121.

Section 1121 precludes a mediator from submitting to "a court or other adjudicative body" any report "concerning a mediation conducted by the mediator," absent the consent of all parties. Moreover, section 1121 further provides that a court "may not consider" any such report. Finally, any writings or communications covered by these sections remain privileged after the mediation ends (Evid. Code sec. 1126), and any reference to a mediation during trial is grounds for a new trial (Evid. Code sec. 1128). The Court concedes that statutory mediation confidentiality is framed in "unambiguous provisions."

The Court also recognizes the public policy considerations underlying this statutory framework:

The public policy underlying section 1119 is "'… to promote mediation as a preferable alternative to judicial proceedings by providing confidentiality.' -Citation.] (Rinaker, supra, 62 Cal.App.4th at pp. 165-166.) "'Confidentiality is absolutely essential to mediation. This is not simply to allow parties to keep their dispute out of the public limelight. It is essential for the parties to feel confident that anything they reveal privately to the mediator or in open mediation sessions cannot be used against them should the mediation fail. Otherwise, parties would be reluctant to make the kinds of concessions and admissions that pave the way to settlement."[citation omitted.]

Consequently, the Court of Appeal recognizes that the statutory rule of mediation confidentiality is founded on unambiguous statutes. The Court also acknowledges that confidentiality is "absolutely essential" to the effectiveness of mediation.

Nevertheless, the Court holds that these broad, unambiguous statutes are subject to an unstated limitation: "While confidentiality is essential to make mediation work, so too is the meaningful, good faith participation of the parties and their lawyers. Without that, there would be few if any confidential statements to protect." Accordingly, the Court announces the novel proposition that confidentiality is conditioned upon "meaningful, good faith participation."

Despite the Court's ostensible regard for mediation confidentiality, its decision rests on what it considered even more important. Confidentiality, declares the Court, is not intended by the Legislature "as an immunity from sanctions, shielding parties to court-ordered mediation who disobey valid orders governing their participation in the mediation process, thereby intentionally thwarting the process to pursue other litigation tactics."

Foxgate: An Appraisal

As a matter of statutory interpretation, the Court's new exception to mediation confidentiality is untenable. The Court's opinion identifies nothing in the language or legislative history of any of the pertinent statutes that supports, much less requires, that mediation confidentiality is subject to the requirement that the parties' participation be meaningful and in good faith.

In an apparent effort to harmonize its holding with mediation confidentiality, the Court characterizes its "exception" to confidentiality as "narrow." The court admonishes mediators to report only such information as is "reasonably necessary" to enable the trial court to ascertain whether a party's participation in mediation was in good faith. Attempting to provide further guidance, the court criticized the retired judge for including "extraneous information" in his report. In that regard, the report should not have included "recommendations, drawn conclusions, or characterized the conduct and statements being reported." Instead, the report should provide only (1) "a strictly neutral account of the conduct and statements being reported and (2) "such other information as required to place those matters in context."

The court's rationale reflects an unmistakable judicial concern that trial courts have adequate means at their disposal to supervise compliance with their orders. Implicit in the Court's reasoning is the assumption that its ability to ensure compliance with orders governing court-ordered mediation depends on information received from the mediator: "If the mediator or an aggrieved party cannot tell the court about another party's sanctionable conduct, it is hard to imagine who else would do so."

The court's "meaningful, good faith participation" test for confidentiality is an invitation to disaster not only in mediations conducted under the auspices of a CMO but also in any other mediation, court-connected or otherwise. In any case in which mediation is mandatory, the potential for unwilling participation is high, increasing the likelihood that the mediation process will not yield a negotiated settlement agreement concluding all contested matters.

Instead, Foxgate's requirement for "meaningful, good faith participation" encourages frustrated litigants to embark on a new round of ancillary, post-mediation law and motion practice. Whether in the context of a motion for sanctions or a motion to compel discovery, the court would be required to adjudicate the factual issue of whether a party had participated in good faith. In every instance, the court would have to conduct an after-the-fact review of confidential information bearing on what happened in the mediation, resulting in a sort of case-by-case speculation that would universally breach confidentiality in order to protect the court's larger interest in policing its orders. Such an inquiry would be heavily fact-intensive and require the court to apply a "good faith" standard that offers no practical, workable guidelines.

As the court's reasoning demonstrates, Foxgate's "good faith participation" exception is the product of an analysis in which the court's interest in ensuring compliance with the CMO outweighs the compelling considerations for preserving mediation confidentiality. As lawyers, the authors find Foxgate's conception of confidentiality and the reporting role of the mediator contrary to law and sound judicial administration. As mediators, we find its approval of the mediator's report to be incompatible with ethical principles and standards of conduct by which a mediator is guided.

In the next section, we discuss some of the principal factors that differentiate the two processes. Finally, we propose another approach for coordinating these two distinct processes, thereby preserving the integrity of the mediation process and at the same time providing trial courts the means to ensure compliance with their orders.

The CMO Process

As described by the Court of Appeal, the hybrid CMO-mediation process is one in which the mediator (1) has "powers" that are "broad," (2) issues "orders" concerning the mediation process, and, most telling, (3) is "authorized to structure the mediation as he saw fit." Ultimately, at least as interpreted by the trial court and the Court of Appeal, under the Foxgate CMO, the special master as mediator exercised the delegated powers to order the parties to bring their expert witnesses to the mediation and to participate in "pre-mediation meetings." As an aside, trial lawyers familiar with this type of litigation will note that the order requiring the attendance of expert witnesses usually occurs before the mutual disclosure of experts under the Code of Civil Procedure.

More generally stated, the CMO process is a judicial, or adjudicative, process in which the special master's primary role is to implement the case management plan set forth in the CMO. Since the CMO typically imposes a stay on discovery, the special master is rarely concerned with the formal adjudication of discovery issues but instead supervises the mandatory exchanges of information specified in the CMO intended to prepare the case for settlement. Since the ultimate objective of the CMO process is that the parties settle the case, the CMO typically authorizes the special master to schedule and conduct mandatory settlement conferences. Toward that end, the CMO usually appoints the special master to serve as mediator. While the principal source of the special master's authority is the CMO, his powers and responsibilities are governed by statute, rules of court, and the Code of Judicial Ethics.

In the absence of a stipulated order, the CMO process is compulsory, initiated with the special master's appointment or reference (Code of Civil Procedure section 639) to perform various judicial functions in lieu of the court. While a party may object to the special master's assignment under Code of Civil Procedure section 641, once the appointment order is issued, participation is compulsory. In performance of his functions, the special master must inform the court of matters affecting case status, including compliance with court orders. Accordingly, the quasi-judicial authority conferred on the special master includes the responsibility to submit a written report to the court.

Although the CMO process and the mediation process share a common settlement objective, the two are quite different in how that objective is achieved. To the extent that the CMO process involves mandatory settlement conferences, participation in the process is limited for the most part to the lawyers. Moreover, the dynamics of the process are shaped by the conventional repertoire of tools that the adversary system has always provided for resolving disputes: precedent, evidence, argument, legal reasoning, and facts. The defining characteristic of this process, though, is the passive role assigned to the parties. In all but the exceptional case, the participation of the parties is subordinate to that of their attorneys and, for defendants, representatives of their insurance companies. Almost universally, negotiations are conducted by counsel to the exclusion of their clients.

The Mediation Process

In contrast to the CMO process, mediation is a collaborative, or negotiative, process. In this type of process, the mediator assumes the role of an impartial neutral helping all sides negotiate a consensual agreement of their choosing. Mediation is a process, then, that places the utmost value on self-determination. It proceeds on the assumption that the parties, as the stakeholders in the dispute, will communicate with one another and that the negotiation will be driven by their communication. Ultimately, the process relies on effective communication as the means by which disputes are resolved. Candid communication, and therefore confidentiality, is the defining quality of this process.

Working within this framework, the mediator undertakes a role far different from that of a special master. First and foremost, aside from court-connected mediation programs, mediation typically is not compulsory. Parties voluntarily agree among themselves whether to engage a mediator in order to advance and negotiate settlement initiatives. Second, the mediator is not imbued with quasi-judicial powers or jurisdiction: he performs no fact-finding, adjudicative or enforcement functions. Third, the mediator has a duty to maintain confidentiality, a duty that runs to all participants. This ethical duty is reinforced in California by a comprehensive statutory scheme intended to preserve strict confidentiality, which, among other things, prevents a mediator from reporting to anyone about anything that happened during the mediation process. See, e.g., Evidence Code sec. 1119 (statements made in the course of a mediation inadmissible); Evidence Code sec. 1121: (prohibiting mediator from submitting any report to a court other than a statement of agreement or non-agreement to settlement); Evidence Code sec. 703.5 (mediators incompetent to testify about what happened in a mediation).

The Dual Capacity CMO-Mediation Process

A special master appointed pursuant to a CMO has quasi-judicial functions pertaining to case management and settlement of the case. Without question, certain benefits accrue from such appointments. Courts gain economies by conserving scarce judicial resources. Although litigants must shoulder increased financial burdens (payment of the special master's fees) as a result of this cost-shifting, the impact of such additional costs is offset in most cases by reduced costs associated with a more efficient litigation process.

At first glance, it might appear that the CMO process would benefit from having the special master serve as mediator as well. After all, if settlement is the ultimate objective of the CMO process, then mediation would seem to complement the process. Unfortunately, this is not the case. While the CMO process and mediation can, in the proper circumstances, be complementary processes, the problems that occurred in Foxgate arose because of the improper manner in which the two processes were conjoined.

The most obvious problem created by combining these processes by way of a dual capacity appointment is that concerning confidentiality. The special master's adjudicatory and reporting responsibilities as CMO referee are inherently incompatible with the responsibilities of a mediator to remain neutral, not impose his judgment on the parties, and hold all communications in strictest confidence. Due to this conflict, the special master cannot discharge his adjudicative and reporting responsibilities and simultaneously fulfill his duty to maintain confidentiality. The constraints of discretion, silence and collaboration inherent in that paramount duty conflict with the duties of reporting and disclosure by which the CMO referee is bound.

Conversely, the negotiative processes employed by mediators are altogether different from the judicial forms appropriate to the CMO process. While practitioners may navigate effectively from case to case performing one or the other roles, the attempt to perform both roles at once places the neutral in an untenable conflict with one or the other processes. These incompatibilities prevent a single individual from simultaneously functioning in the dual capacities of both special master and mediator.

Elements of the Solution

As a threshold matter, we urge the California Supreme Court to reject the "good faith participation" exception to mediation confidentiality crafted by the Court of Appeal. Mediation confidentiality should not be conditioned upon an ex post facto determination by trial courts concerning whether a party's participation in mediation was in good faith. The parties must not be left in a state of uncertainty whether the mediation is confidential. Mediation will be rendered useless if confidentiality is conditioned on a post-mediation evidentiary hearing. Such a speculative absurdity would breach confidentiality as a means of protecting it, draining the life-blood of mediation in the process. Other less drastic means adequately preserve the capacity of courts to enforce their orders while leaving intact the conditions required for effective mediation.

We also urge the Supreme Court to disapprove the implicit holding in Foxgate that a special master can act as both CMO referee and mediator. As explained above, the conflicting responsibilities of these two different roles are irreconcilable, precluding one person from serving in both capacities.

In order to preserve the usefulness of references to special masters and still promote the utility of mediation, we suggest the following hybrid approach.

First, the CMO should no longer appoint the special master to act as mediator. Insofar as possible, the special master's sphere of responsibility should be limited to fulfilling the responsibilities of a CMO referee. These quasi-judicial duties include the implementation of the case management plan, adjudication of disputes arising under the plan, conducting mandatory settlement conferences, and reporting to the court regarding all such matters, including, in extreme cases, recommendations for the imposition of sanctions.

Second, the CMO should clearly set forth that the special master shall have no involvement in or responsibility for mediation of the case, including selection of a mediator, scheduling of mediation sessions, design of the mediation process, or any other matter related to mediation of the case.

Finally, the CMO should make clear that the relationship between the mediator and the special master mirrors that between mediator and judge in a conventional civil case in which there has not been a reference. That is, there should be no relationship and no contact, ex parte or otherwise, between the mediator and the special master. If the case settles in mediation, that fact alone should be reported by counsel to the special master or the court. If the case does not settle in mediation, then it can revert to the CMO process for one or more mandatory settlement conferences. The special master would report the results of those settlement conferences to the court.

Conclusion

The good faith participation exception to mediation confidentiality fashioned in Foxgate is legally untenable, practically impossible and, ultimately, destructive of mediation. Its problematic conceptual roots lie tangled in the incompatible responsibilities imposed by dual capacity appointments whereby a single individual serves as both special master and mediator. The only viable solution to the Foxgate dilemma is an absolute repudiation of any "good faith participation" exception to mediation confidentiality, an unqualified proscription of dual capacity appointments of special masters, and a reformulation of the CMO process in such a way that mediation remains a distinct, separate and independent process.