Haight Brown & Bonesteel Professional Liability News

Haight Brown & Bonesteel has been dedicated to defending professionals throughout the State of California for over 40 years. We are pleased to provide you with our latest issue of Professional Liability News, a regular publication of Haight Brown & Bonesteel.


Does Mediation Confidentiality Protect The Attorney From Claims Of Negligence Arising Out Of A Settlement?

What is the potential impact of mediation confidentiality on a claim by a former client against his/her attorney arising out of a settlement reached at mediation? Let’s assume an attorney and client attend mediation and, after a day of negotiations and numerous conversations and meetings, the case is settled. Later, the client files a lawsuit against the attorney claiming there was negligent advice given by the attorney during the course of the mediation. Does the confidentiality provision of Evidence Code, section 1115, et seq. preclude the admissibility of any discussions or documents prepared for or during the mediation? What impact does this provision have on the negligence claim against the attorney?

Evidence Code section 1119 precludes the admissibility of anything said, or any writing made, for the purpose of, in the course of, or pursuant to, a mediation or mediation consultation. The scope of this mediation confidentiality has been developing in California over the past several years. In 2004, the California Supreme Court held that documents used during mediation – if such documents were prepared for, in the course of, or pursuant to mediation – were not admissible. Rojas v. Superior Court, (2004) 33 Cal. 4th 407. Three years later, the California Court of Appeal addressed the scope of the mediation confidentiality and held that matters directly involved in the mediation on which the plaintiff based a subsequent action were inadmissible, specifically finding that mediation briefs and e-mails sent the day before mediation were inadmissible. Wimsatt v. Superior Court, (2007) 152 Cal.App.4th 137.

Based on this statutory authority and case law, an attorney who is sued for negligence in connection with a settlement reached at mediation may have the ability to obtain a dismissal of the claim. Mediations typically will consist of numerous discussions between and among the attorneys, clients and mediator. These discussions are confidential. Arguably discussions which take place before mediation, in the preparation for mediation are also confidential. Likewise, documents utilized during mediation, if not otherwise admissible are also confidential and thus inadmissible in any subsequent civil action. As the Wimsatt court stated, this may result in a client having to forgo his legal malpractice lawsuit against his own attorney.

The scope of California’s mediation confidentiality is currently being addressed by California’s highest court in Cassel v. Wasserman, Comden, Casselman & Pearson, LLP (Case No. S178914). The questions posed are whether the private conversations of an attorney and client days before, but for the purpose of the mediation, are entitled to the protection of the mediation confidentiality and whether an attorney is considered to be a “participant” for purposes of application of the confidentiality.

The decision in Cassel may further expand the application of mediation confidentiality and thus provide more protection to attorneys in legal malpractice claims.


The Potential Demise Of The Business Judgment Rule That Protects Officers And Directors

Based primarily on Delaware law, California long ago established and consistently applied the Business Judgment Rule which “presumes that directors act in good faith, in the best interests of the corporation, for a reasonable business purpose, and that they made an informed decision.” The courts in both Delaware and California have limited their scrutiny to what another court called the “apparent integrity” of the procedures leading up to the decision in question, and have “declined to evaluate the merits of the wisdom of the transaction once it is shown … that in reaching the decision the directors followed an appropriately deliberative process.”

In the 2006 Walt Disney Company derivative litigation, the payment of over $130 million severance to Michael Ovitz upon exiting the Walt Disney Company, after a very short employment period, was held protected by the Business Judgment Rule. However, in the course of so holding, the Delaware Supreme Court noted that the directors’ duty of good faith requires not only that they refrain from acting against the interests of the corporation, but that they also take affirmative action when those interests require it. While stating it was not adopting a negligence standard, the Delaware Supreme Court held liability can arise “where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.” In re Walt Disney Company derivative litigation, (2006) 900 A.2nd 27, 67.

Directors’ duty of loyalty can invade their duty of care, so that when directors and officers conspire to commit stock option back-dating, or the directors turn a blind eye to its occurrence, liability can exist. That is exactly what was held by the Delaware Chancery Court in the Tyson Foods and Maxim Integrated Products cases in 2006. Intentional wrongdoing may no longer be the exception to the Business Judgment Rule.

As the conduct of some directors and officers becomes more and more egregious in the eyes of the public, the courts may pay heed to public sentiment and reduce, or even greatly eliminate, the protection of the Business Judgment Rule. To the extent existing D&O policies are written on the assumption that the Business Judgment Rule provides substantial protection for both the insurer and the insureds, that assumption may no longer be valid. Future underwriting should take this into consideration.


June 17, 2010, Special Motion to Strike Pursuant to California’s Anti-SLAPP Statute Granted

John Wilkerson, a partner in Haight Brown & Bonesteel’s Riverside office, was retained to represent an attorney who, along with his landlord client, was being sued for maliciously prosecuting a commercial unlawful detainer action. The complex underlying action not only involved the unlawful detainer action, but also 10 causes of action by the tenants against the landlord. After a three week jury trial, the tenants prevailed and were awarded approximately $100,000. The malicious prosecution action soon followed.

Haight Brown & Bonesteel made a special motion to strike pursuant to California’s anti-SLAPP statute. The Court granted the motion, striking the plaintiffs’ complaint, on the grounds that the plaintiffs could not show that the underlying unlawful detainer action was prosecuted without probable cause. Our client is entitled to his attorneys’ fees for prevailing on the motion.

This document in intended to provide you with general information about recent professional liability related cases and issues. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

June 1, 2010