The Effect of Lappe upon Mediation Confidentiality in Divorce Cases
UNDER EVIDENCE CODE Sections 1119 et seq. and cases decided by the California Supreme Court, confidentiality surrounding mediation is given great deference. Mediation confidentiality is intended to provide the assurance that what a party reveals in mediation cannot later be used against that party in litigation. This serves the public policy goal of encouraging settlement of cases without the attendant cost and uncertainty of litigation. However, a recent case, Lappe v. Superior Court,1 offered a challenge to mediation confidentiality. The Second District recently held in Lappe that declarations of disclosure exchanged by divorcing parties to assure full and fair disclosure of assets and liabilities must be produced in litigation following a mediation because the disclosure documents are not created and exchanged solely for the mediation. Rather, they are created and exchanged because the legislature demands it in all dissolution cases so divorcing spouses will have full and accurate information upon which to base fair and equitable divisions of assets. To understand how the Lappe decision has clarified that declarations of disclosure exchanged in mediation can be produced in subsequent litigation, it is necessary to review the mediation confidentiality rule as well as the statutes governing full disclosure in divorces.
Evidence Code Section 1119 creates a privilege barring discovery of writings prepared for mediation. It states, in relevant part, “No writing…that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any…civil action.”2 The California Supreme Court has interpreted the mediation privilege strictly, “except in rare circumstances.”3 The mediation privilege indicated in Section 1119 is designed to encourage parties to engage in the mediation process. The argument is that if parties cannot be confident that what happens in mediation stays in mediation, they will be deterred from mediating.
The seminal California Supreme Court case interpreting Section 1119 is Foxgate Homeowners’ Association, Inc. v. Bramalea Cali – f ornia, Inc.4 In Foxgate, the court held that a mediator was prohibited from reporting on communications or conduct by a party that the mediator believed represented evidence of refusal to cooperate, even though the result was the unavailability of sanctions for failure to participate in good faith mediation. The court’s rationale was that allowing a mediator to be a tattletale, so to speak, could discourage frank sharing of views during a mediation.5 Thus, application of the mediation privilege fostered, rather than eviscerated, the competing policy encouraging effective mediation.
Later, in Cassel v. Superior Court, 6 the high court held that the mediation privilege protected discussions between the petitioner and his attorneys prior to and during a mediation of a business dispute, and thus were not discoverable in the petitioner’s subsequent malpractice action. Cassel said, “We must apply the plain terms of the mediation confidentiality statutes to the facts of this case unless such a result would violate due process, or would lead to absurd results that clearly undermine the statutory purpose.”7 Cassel reiterated a similar statement of the Foxgate court that because the language of Sections 1119 and 1121 is “clear and unambiguous, judicial construction of the statutes is not permitted unless they cannot be applied according to their terms or doing so would lead to absurd results, thereby violating the presumed intent of the Legislature.”8 The Cassel opinion notes only one case in which mediation confidentiality was pierced. In Rinaker v. Superior Court, 9 the court held that a mediator could be required to testify in a juvenile delinquency action about inconsistent witness accounts in a previous civil harassment action based on the same conduct. This was because the juvenile’s due process right to confront witnesses outweighed the policies behind mediation confidentiality.
In another case construing the mediation privilege, Rojas v. Superior Court, the California Supreme Court explained that since statutory exceptions to the mediation privilege are described in Evi – dence Code Section 1122 and allow for disclosure of protected communications when parties agree to disclosure, no further exceptions should be implied unless clear legislative intent indicates otherwise.10 The court reached this conclusion based on the maxim of statutory construction of expressio unius est exclusio alterius, which holds that if exemptions are specified in a statute, no additional exemptions are to be inferred unless there is a clear legislative intent to the contrary.11
Family Law Disclosure Rules
In Lappe, the court addressed the conflict between the public policy favoring confidentiality unless all parties agree to disclosure and the public policy in favor of full disclosure. California has a strong and explicit public policy in favor of full disclosure in all stages of dissolution proceedings. “Ma r – riage is a matter of public concern. The public, through the state, has interest in both its formation and dissolution.”12 Spouses owe each other a fiduciary duty “of the highest good faith and fair dealing” with respect to community assets.13 This duty includes the obligation to make full and accurate disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.14 The legislature has explicitly codified the state’s interest in full disclosure and fair distribution of marital assets when spouses opt to end their marriage.15 To implement this policy of full dis closure, the Family Code mandates that parties exchange preliminary and final declara tions of disclosure: “In order to provide full and accurate disclosure of all assets and liabilities in which one or both parties may have an interest, each party to a proceeding for dissolution of the marriage or legal separation of the parties shall serve on the other party a preliminary declaration of disclosure under Section 2104 and a final declaration of disclosure under Section 2105.”16
The exceptions to the statutory mandate that divorcing spouses exchange declarations of disclosure are few and narrow. Preliminary declarations of disclosure can almost never be waived. The only statutory provision for waiver of the preliminary declarations is Family Code Section 2107(b)(3), which allows a complying party to move for an order granting a voluntary waiver of the other party’s preliminary or final declarations of disclosure upon a finding of good cause.17 Two cases prior to Lappe instruct that when parties to a divorce agree to settle their property and support issues by mediation, they may do so without strictly complying with the technical requirements of Family Code Section 2104 or 2105.18 However, ex – change of a final declaration of disclosure remains mandatory before entry of judgment of divorce can occur.19
Marital Settlement Agreement Cases Pre-Lappe
Neither of the two cases prior to Lappe squarely addressed the admissibility of documents, including declarations of disclosure, submitted in connection with a mediation. The trial court in Lappe relied substantially on one of the cases, Marriage of Kieturakis, which concerned a wife’s attempt to set aside a marital settlement agreement and undo the property division on grounds of fraud, duress, and lack of disclosure.20 After a thorough discussion of the cases concerning the mediation privilege, the court analyzed the content of documents submitted for the mediation and testimony by the mediator and appraiser, all of which the trial court had ad – mitted for review in camera, as to the wife’s claim that her husband did not disclose continuing royalty payments from his surgical invention. The court did not reach the legal question whether the mediation privilege covered the documents disclosed in media – t ion or the mediator’s testimony, finding instead that admission of the evidence was harmless error because both spouses would have waived the privilege on remand for retrial, and the evidence belied the wife’s claim that she was ignorant of the royalty income. Clearly, the court of appeal was swayed by the probative value of this evidence, and the court raised the possibility that, even in light of Foxgate and Rojas, there might still be a good cause exception to the mediation privilege.21 Curiously, the Kieturakis court did not even mention the Family Code disclosure statutes.
Kieturakis does, however, present a possible legal conundrum. If a case is not mediated, and one party claims that he or she entered into an agreement in which the other party gained an advantage, the advantaged party bears the burden of demonstrating that the agreement was not obtained through undue influence.22 Kieturakis, however, in – structs that this presumption of undue influence cannot be applied to marital settlement agreements entered into in mediation because applying the presumption to mediated settlement agreements would severely undermine the practice of mediation. The presumption would “turn the shield of mediation confidentiality into a sword by which any unequal agreement could be invalidated.”23 Thus the case created different standards for the admissibility of evidence and different standards of proof as between mediated and nonmediated marital settlement agreements, a result for which, the appellate court conceded, there exists rational criticism.24 The other case involving the mediation privilege and a marital settlement agreement was Eisendrath v. Superior Court. 25 The issue in that case was whether the husband had impliedly waived the mediation privilege when he sought to introduce evidence of conversations he had with his wife during the mediation but outside of the sessions with the mediator. The court of appeal held that there is no im plied waiver of the mediation privilege when a party places at issue the content of a confidential communication and that the mediator’s testimony was protected by the mediation privilege absent express waivers by both parties and the mediator. Nevertheless, in that case, the wife was willing to waive confidentiality. The husband, who was contesting the settlement agreement’s terms, was the one seeking to keep certain parts of the mediation discussions confidential.
Gilda and Murray Lappe were married for 16 years and had two children together. Gilda was a stay-at-home mother during the marriage, and Murray was a medical doctor and successful businessman. Without counsel, Gilda and Murray went to a mediator to divide their assets and resolve their divorce. Notwithstanding declarations by Gilda and Murray that they served each other with preliminary and final declarations of disclosure, Gilda maintained that she never got any such declarations.
During the mediation, the parties executed a marital settlement agreement under which Murray was to pay Gilda a total of $10 million in full satisfaction of her entire community interest in shares of a community business known as eScreen, Inc. However, a year later, Gilda fil ed an application to set aside the judgment on grounds of perjury, fraud, duress, and mistake. She asserted in her application that less than five months after the judgment was entered she learned that Murray was in the process of selling eScreen and all equity shares he acquired in the company through the marital settlement agreement. As a result of the sale, Murray received approximately $75 mil lion pretax for the eScreen shares. Gilda stated that Murray never disclosed that he was shopping eScreen for sale and that had she known this fact, she would not have agreed to surrender her community interest in the company for only $10 million. Gilda served a request for production of documents on Murray, which included a request for the declaration of disclosure that Murray said he served upon Gilda prior to entry of judgment. Murray objected, refusing to produce the declaration on the grounds that it was protected from disclosure by the mediation confidentiality statutes. Gilda brought a motion to compel.
A discovery referee believed that the motion should be granted on the grounds that declarations of disclosure have “independent legal significance,” but the trial court refused to confirm the referee’s proposed order. Murray argued, and the trial court agreed, that the referee erred by relying on a nonstatutory exemption for documents having independent legal significance in violation of the California Supreme Court’s repeated instruction that courts may not craft judicial exceptions to mediation confidentiality.
Gilda brought a petition for writ of mandate to overturn the trial court’s ruling, arguing that the Evidence Code’s mediation confidentiality provisions cannot be applied in a marital dissolution proceeding to bar the discovery and admissibility of financial disclosures mandated by the Family Code. The court of appeal issued an order to show cause why the petition should not be granted. The appellate court agreed with Gilda on the basis that “manifest as this [exclusionary] rule is, it does not answer the threshold question presented by this case…that is, do the mediation confidentiality statutes apply in the first instance to statutorily mandated disclosures that must be made regardless of whether the parties participate in mediation? We conclude the answer to this question is ‘no.’”26 The court of appeal decision reminds practitioners that family code disclosure re – quirements are important to ensure full and accurate disclosure of assets and liabilities at the early stages of marital dissolution proceeding, to ensure fair and sufficient child and spousal support awards, and to achieve a proper division of community assets and debts.27
The court of appeal decision emphasizes that it was not doing what the state supreme court has forbidden, namely, creating a judicial exception to the mediation confidentiality doctrine. Because the declarations were not prepared “for the purpose of, in the course of, or pursuant to, a mediation,”28 the court simply recognized that the confidentiality statutes do not apply in the first instance, because the statutorily mandated declarations do not fall within any category delineated by Section 1119.
The Lappe appellate decision does not instruct whether ancillary papers associated with a disclosure declaration, like a worksheet prepared to finalize it, are similarly admissible. The answer will likely turn on the facts of a specific case. Very recently, in addition, some family law practitioners have argued that there should be a different mediation confidentiality rule for family law actions, one that creates an exception to mediation confidentiality for communications in mediation between spouses or registered domestic partners that result in a fraudulent breach of fiduciary duty. Such a rule, however, would eviscerate the idea that “whatever happens in mediation stays in mediation.” What documents would fall within the new law and thus be subject to production? How related to the alleged fraud must the documents be? Given the interest of the divorce bar in the question of the parameters of mediation confidentiality, the Lappe decision will not likely end litigation over which document is or is not part of the parties’ declarations of disclosure.
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