Declarations of Disclosure Must Be Exchanged Before
Entry of Mediated Judgments and Are Not Exempt
From Disclosure Under Mediation Confidentiality Privilege
By Thurman W. Arnold III CFLS
Judge Thomas Trent Lewis is one of the pre-eminent trainers of Certified
Family Law Specialists for the Rutter Group and other continuing legal
ed seminars. He is a top California Family Trial Court jurist, sitting
for the Los Angeles County Superior Court. But the recent Second Appellate
District reversal of Judge's Lewis' ruling in
Lappe v. Superior Court filed December 19, 2014, reminds us that the appellate justices don't
always agree with the best among our colleagues and bench officers. Click
the link to read it.
Lappe was decided on a Writ of Mandate appealing an order of Judge Lewis that
would have shielded from disclosure the preliminary and final declarations
of disclosures that the parties purportedly exchanged during their mediation,
although the appellant Wife (Gilda) contended that in fact there was no
such exchange and that instead she was pressured, outside the presence
of the mediator, to sign the Declaration Re Service (
Judicial Council Form FL-140) that represented, under oath, that they had in fact been exchanged. The
FL-140 speaks to the Schedule of Assets and Debts that is
Judicial Council Form FL-142.
I find this alleged fact very odd, because as a mediator, I
always ensure that at least the Preliminary Declaration is completed, shared,
and discussed early on in the mediation proceedings and before any agreement
is reached. This is, after all, a perfect 'road map' for framing
the issues. I cannot imagine any mediator not doing likewise - but evidently
that did not happen here. I see it this way because the mediation process
has to be about ensuring there exist no imbalances of power as between
the parties, and I believe a mediator's responsibilities include assuring
informed consent of both the parties to any agreements reached. How can
that possibly occur without an exchange of at least the PDD, followed
by a knowing waiver of the FDD, assuming that is proper in any given case?
The more complex the marital history, and the bigger the pie to identify
and divide, it would seem the more compelling the need to insist the parties
not waive the Final Declaration of Disclosure. Of course, the mediation process
is supposed to "belong" to the parties, and not to be a function
of mediator bias or even mere preferences, but still the idea of full
disclosure and waivers must be discussed between the parties.
I remember an adage drilled into me in Law School so many years ago - "bad
facts make bad law." To some extent, this seems to apply to the appellate
court ruling of Justice Kitching, who authored this reported decision;
on other levels, however, it makes sense. In my view, this appellate decision
rests at the feet of the mediator, and not of Judge Lewis who simply was
attempting to honor the mediation process in the ruling for which he is
reversed. As such, it is instructive to all California mediators in guiding
how they manage their mediations, but the decision itself may have unforeseen
repercussions for others who have mediated their cases in the past, especially
if their judgments have not been entered or were entered without the formalities
that led to a reversal in this case.
Marriage of Lappe
Gilda and Murray were married for 16 years, having two children. Gilda
was a stay-at-home mom, and Murray was a physician and businessman who
developed a medical device called the eScreen. Gilda filed for divorce,
and early on the parties agreed to mediate their dissolution without utilizing
their own attorneys. The mediation was a success - the parties reached
a marital settlement agreement which, among other things, provided that
Murray would pay Gilda $10 million dollars to cash her out of the community
interest of shares in eScreen, Inc.
The agreement included a contractual provision that "[t]he parties'
Preliminary/Final Declarations of Disclosure shall be inadmissible in
a court of law, and otherwise protected from disclosure, pursuant to the
provisions of Section 1119(b) of the California Evidence Code."
Section 1119(b) bars discovery of admissibility of writings "prepared for the
purpose of, in the course of, or pursuant to, a mediation."
Evidently the parties filed their Declarations re Service of Disclosures
before, or together with, a stipulated judgment which incorporated the
marital settlement agreement.
I cannot imagine a mediator allowing that language to be inserted into
an MSA, and this is a red flag to me and maybe it was to the appellate
court justices, too. It is not uncommon to waive the FDD per
Family Code section 2105 - but this agreement would have the result of insulating both disclosure
documents from subsequent scrutiny, essentially rendering the judgment
impossible to attack for breach of fiduciary duty at a later date because
there would be nothing to test what was known at time of settlement against.
Gilda learned that Murray had sold eScreen for $75 million dollars shortly
after the judgment was entered. She filed an application to set aside
the judgment on the grounds of fraud, perjury, duress, and mistake. She
asserted that she learned five months after the judgment was entered that
Murray was selling 100% of the company for this stunning amount. She contended
that she had no idea Murray was shopping eScreen for sale, presumably
including during the period of the mediation, and, that had she known
he was, she would never have sold her CP interest in the company for a
measly $10 million.
Personally, that averment does not pass the sniff test for me, because
obviously by selling her interest in the business she was giving Murray
the right to do whatever he wished with it and - what, was he going to
operate it in perpetuity? On the other hand, given the nature of mediation
and the fact that Gilda seemed to be unprotected in terms of divorce counsel
(unlikely, however), a $20 million value (equally divided) was represented
to be true and fair by someone, and that would reasonably be expected
to be Murray given his role as businessman and Gilda's as a relatively
unsophisticated homemaker. We have no idea how this $20 million "value"
was fixed, and whether any neutral forensic accountants were utilized
during mediation -
but shouldn't they have been in a case of this magnitude?
Essential to Gilda's set-aside motion was proof that there had been
no actual exchange of the PDD and FDD, or if there was, evidence of what
those documents represented to her in terms of value. After all, the Family
Code requires that the FDD disclose business and income-producing opportunities
that arise after separation from any investment or significant business
activity outside the ordinary course in order to allow the other spouse
to make an informed decision whether he or she wishes to participate.
FC section 2102(a)(2), 2105(d)(3). The key policy being ensuring that spouses make
informed decisions before waiving valuable rights.
Gilda thereupon sought production of the disclosure statements through
discovery, following filing her set-aside motion. Murray objected to the
production, taking the position that mediation confidentiality and the
express terms of the stipulated judgment precluded him having to turn
over those documents (if they existed). Judge Lewis appointed a discovery
referee who concluded that the declarations of disclosure were not subject
to mediation confidentiality because the documents had "independent
legal significance" and the "public policy" declared by
the Family Code favoring disclosure to ensure fair and equal property
divisions trumped mediation confidentiality. Ironically, that is not exactly
what Justice Kitching ultimately holds in
Lappe. Judge Lewis did not agree with the referee's recommendations, and
ruled in favor of Murray that he did not have to disclose or produce the
disclosure documents. Hence, the Writ and thence the reversal.
Lappe discusses a number of cases upholding and limiting mediation confidentiality,
but for me the chief among them that are relevant to best practices for
family law mediators are
Elden v. Superior Court (1997) 53 Cal.App.4th 1497 and
Marriage of Woolsey (2013) 220 Cal.App.4th 881.
Elden held that parties to mediation don't have to strictly follow the California
disclosure statutes during the mediation (or arbitration) in order to
reach a binding settlement, so long as before the settlement is entered
as a judgment the parties have exchanged something that does so comply
(i.e., a PDD or an FDD unless waived pursuant to FC section 2105). In
that sense, one would think this is a mere formality and possibly that
is what Judge Lewis concluded.
Woolsey likewise held that where the parties had agreed to mediation, "strict
compliance" with the "technical procedural requirements" of
sections 2104(PDDs) and 2105 (FDDs) was not required, but, per section 2106, there still
must be an exchange of these prior to entry of Judgment.
Lappe reiterates that the mediation confidentiality privilege is not absolute
- especially where the Family Code requires the exchange of declarations
before a Judgment can even properly be entered. What may or may not be
confidential also turns on what communications would encourage mediation
"by permitting the parties to frankly exchange views, without fear
that disclosures might be used against them in later proceedings."
Fair v. Bakhtiari (2006) 40 Cal.4th 189. While the California Supreme Court has consistently
held that trial and appellate courts should not uphold judicially crafted
exceptions to mediation confidentiality, the legislature must resolve
the competing policy concerns. Here, the legislature has clearly expressed
a preference for the exchange of declarations of disclosure
before a judgment can be entered. This does not, of itself, mean that a mediated settlement will be set
aside because of what is or is not in the subsequent exchange; instead,
it ensures full and fair disclosure of all relevant facts to both parties.
In most cases, this will be pro forma, I suspect.
I imagine that Judge Lewis holds mediation in his heart as sacrosanct,
and if so I agree with him.
Lappe should not be viewed as disapproving
Woolsey, and in fact it does not. It merely reiterates that before a mediated
settlement can be approved, the parties must comply with the disclosure statutes.
But it does beg the question of what happens to prior mediated settlements
which have not yet been submitted for judgment, where one party refuses
after mediation to exchange a PDD or waive the FDD? Can they thereby block
a settlement which they now wish to escape, based upon this ruling, and
game the system and the other party? We will see - I have that very issue
pending before the Court in Indio, involving a mediation that occurred
five years ago in a different state between a married same-sex couple
that must proceed in California because this is where they married and
their home state did not recognize same-sex marriage. Of course, neither
the mediator nor the parties knew anything back then about California
rules regarding declarations of disclosure. Evidently the remedy here
is a motion to compel the FDD per
Family Code section 2107(a), prior to the actual entry of Judgment, since
Elden continues to stand for the proposition that, in mediations, the exchange
need not be contemporaneous with the MSA itself.
In any event, mediations don't have to end like this.
Many mediators bring in co-mediators and neutral forensics (i.e., real
estate appraisers, accountants, therapists, and others) to help the parties
understand and work through the issues. This can be expensive, though,
and often one or both parties resists the expense or the scrutiny such
would require. It is true that often the more-empowered spouse is the
one pushing mediation.
But it is the role of the mediator and NOT the Court to manage the process,
and to ensure that agreements that waive these important safeguards are
entered into that do become a part of the record. This result does a disservice
to both the parties, and possibly to all of us who are dedicated to supporting
mediated outcomes. But possibly there are reasons for what happened that
are not evident in the decision and, of course, mediators must remain
silent and so cannot defend themselves.
For the Lappes, the litigation they sought to avoid by agreeing to mediate
their family law dispute is now in full flame, with lawyer fees ablazing.
Gilda was awarded her costs on appeal. I predict Lappe II, next year.
Author: Thurman W. Arnold III CFLS