Fair v. Bakhtiari

Filed 4/06/07 Fair v. Bakhtiari CA1/2

Opinion on remand from Supreme Court

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

This case comes to us on remand from the California Supreme Court, following its reversal of our previous decision. The trial court had denied plaintiff R. Thomas Fairs motion to compel arbitration. The motion was based on an arbitration clause in a document signed at the conclusion of mediation by plaintiff and defendants Karl E. Bakhtiari (Bakhtiari) and Maryann E. Fair (Maryann Fair), as well as by defendants Stonesfair Financial Corporation (SFC), Stonesfair Management Company, LLC (SMC), and Stonesfair Corporation (SC) (collectively Stonesfair entities).

On appeal from the trial courts denial of plaintiffs motion to compel arbitration, we reversed the judgment on the ground that the document in question satisfied a statutory exception to the inadmissibility of written or oral communications made during mediation. We also concluded that the document contained a valid agreement between the parties to arbitrate all disputes. (Fair v. Bakhtiari (Oct. 12, 2004, A100240).) The California Supreme Court granted review and reversed our decision. (Fair v. Bakhtiari (2006) 40 Cal.4th 189 (Fair).) It held that the document did not satisfy the statutory exception to the inadmissibility of communications made during mediation and remanded to this court for further proceedings. (Fair, at p. 200 & fn. 7.)

BACKGROUND

On March 6, 2002, plaintiff filed a third amended complaint against defendants.[1] The complaint alleged causes of action for breach of contract against Bakhtiari, SFC and SC; breach of fiduciary duty against Bakhtiari and Maryann Fair; corporate waste against Bakhtiari and Maryann Fair; assault against Bakhtiari; battery against Bakhtiari; wrongful and retaliatory termination in violation of public policy against Bakhtiari and SFC; wrongful termination against Bakhtiari and SFC; intentional infliction of emotional distress against Bakhtiari and Maryann Fair; unfair business practices against Bakhtiari, Maryann Fair and SMC; interference with economic relations against all defendants; conversion against Bakhtiari, Maryann Fair and SMC; fraud against Bakhtiari, Maryann Fair and SFC; and constructive fraud against Bakhtiari and Maryann Fair.

On March 20, 2002, SFC filed a cross-complaint against plaintiff, which alleged breach of fiduciary duty, misappropriation of trade secrets (Civ. Code,  3426 et seq.), misappropriation of property, intentional interference with prospective economic advantage, unfair competition, and conversion.

The parties thereafter stipulated to private mediation and participated in two days of mediation, on March 20 and 21, 2002, before Eugene Lynch, a mediator employed by Judicial Arbitration and Mediation Services (JAMS). On March 21, 2002, all parties and the mediator signed a one-page document, hand-written by plaintiffs counsel, entitled Settlement Terms (settlement terms document), which set forth nine numbered settlement terms, as follows:

1. Cash payment of $5.4 mm to T. Fair w/in 60 days.

2. Payment treated as purchase of all T. Fairs stock & interests (as capital gain to Fair)[.]

3. [Defendants] will not look to Fair for reimbursement or indemnification of any phantom income paid by them to date.

4. This provision relates solely to Fairs right to indemnity and does not preclude other rights of the parties. Fair will be indemnified as a former officer, director & employee by SFC/SMC/SC, according to applicable law, against all 3rd party claims, including LPs [limited partners] or IRS, arising from the operation of SFC/SMC. Fair will not make any adverse contacts with IRS [or] LPs re: SFC/SMC, at risk of loss of indemnity and will not suggest, foment or encourage litigation by LPs or any individual against defendants, at risk of loss of indemnity.

5. Maryann Fair disclaims any community prop[erty] interest in settlement proceeds.

6. Parties will sign mutual releases and dismiss with prejudice all claims. Amt of settlement will be confidential with appropriate exceptions.

7. All sides bear their own attorneys fees and costs, including experts.

8. If Fair needs to restructure cash payments for tax purposes, defendants will cooperate (at no additional cost to defendants).

9. Any and all disputes subject to JAMS arbitration rules.

Below item nine, the document was dated March 21, 2002, and was signed by plaintiff, Bakhtiari, Maryann Fair, mediator Lynch, Bakhtiari for SFC/SC, and Bakhtiari for SMC.

In early April 2002, the attorneys for the various defendants filed with the trial court Case Management/ADR Conference Questionnaires, in which they stated, After 2 days of Mediation, the case has settled. The Settlement Agreement is being circulated for approval and a Request for Dismissal with prejudice will be filed.

Counsel for the Stonesfair entities also drafted a 10-page document entitled Settlement Agreement and General Release, which plaintiffs counsel received on April 4, 2002.

At an April 17, 2002 hearing, counsel for Bakhtiari informed the trial court that this matter was mediated on March the 20th and 21st. Weve reached a settlement agreement. We are now in the process of exchanging settlement agreements. And there are some complicated taxation matters involved. All counsel then requested a 60-day continuance, which the court granted, stating, If its settled and theres a dismissal on file, you need not come in. The trial court also granted a request by plaintiffs counsel to continue plaintiffs time to respond to defendants cross-complaint for 60 days.

Meanwhile, the parties expressed differing views as to what interests plaintiff was to convey in return for the $5.4 million payment and plaintiffs counsel objected to the inclusion of numerous terms in the draft agreement that had not been agreed to in the settlement terms document. Plaintiffs counsel requested that the parties return to mediation in an effort to resolve these issues. Counsel for defendants subsequently cancelled a mediation session that had been scheduled with mediator Lynch for May 29, 2002.

On June 6, 2002, Bakhtiari and Fair replaced their attorneys with the law firm that had previously represented only the Stonesfair entities. On that same date, the attorney for all defendants filed a Case Management/ADR Conference Questionnaire, in which he stated that the prior questionnaire submitted in April 2002 indicated that the dispute settled after mediation. However, the parties were ultimately unable to reach an agreement as to the scope and subject matter of the proposed settlement terms. Accordingly, the case should be resolved through the regular court process.[2]

After defendants rejected plaintiffs request to arbitrate the disputed issues, plaintiff filed a motion to compel arbitration and stay proceedings on June 20, 2002. In the motion, he claimed that the settlement terms document was a settlement agreement, that it contained an arbitration clause, and that arbitration was needed due to a dispute that had arisen between the parties regarding the terms and meaning of the March 21, 2002 settlement agreement.

Following a July 24, 2002 hearing, the trial court filed an order, on September 6, 2002, denying plaintiffs motion to compel arbitration.

On September 10, 2002, plaintiff filed a timely notice of appeal.

On October 12, 2004, we issued an opinion reversing the trial courts order. (Fair v. Bakhtiari (A100240).) Following a grant of review, on December 14, 2006, the California Supreme Court reversed our decision and remanded the matter to this court for further proceedings. (Fair, supra, 40 Cal.4th 189.)

DISCUSSION

Issues on Remand

On remand, plaintiff asserts that three issues, all relating to the admissibility of the settlement terms document, remain for our decision. These issues include whether (1) the settlement terms document is admissible under a statutory exception similar to the one found inapposite by the Supreme Court; (2) defendants are judicially estopped from invoking mediation confidentiality due to their repeated representations to the trial court that the case settled in mediation; and (3) defendants repeated disclosure of mediation communications waived their right to claim mediation confidentiality.

I. Evidence Code Section 1123, Subdivision (a)[3]

In Fair, supra, 40 Cal.4th 189, the Supreme Court reversed our finding that the settlement terms document satisfied a statutory exception to the inadmissibility of written or oral communications made during mediation. Specifically, we had found that the settlement terms document was admissible pursuant to section 1123, subdivision (b), which provides an exception to the rule against admissibility of written settlement agreements where the agreement provides that it is enforceable or binding or words to that effect.[4] We held that the settlement terms document was admissible under subdivision (b) of section 1123 because an arbitration provision in the document provided words to [the] effect that the settlement terms document was enforceable or binding. Our Supreme Court found that we had given this subdivision an unduly expansive reading, that a narrower interpretation of the clause was required, and that, to be admissible under subdivision (b) of section 1123, the agreement, in addition to being signed by the parties, must include a direct statement to the effect that it is enforceable or binding. (Fair, supra, 40 Cal.4th at pp. 192, 197, italics added.)

Now, on remand, plaintiff contends that, even though the settlement terms document is not admissible under section 1123, subdivision (b), it is nevertheless admissible under section 1123, subdivision (a), which provides that a written settlement agreement prepared during mediation is not inadmissible when [t]he agreement provides that it is admissible or subject to disclosure, or words to that effect. According to plaintiff, the settlement terms document provides that it is subject to disclosure by expressly stating, in paragraph six, that [a]mt of settlement will be confidential with appropriate exceptions. We disagree.

The Supreme Court held that the arbitration clause in the settlement terms document did not constitute words to the effect that the document was enforceable or binding under section 1123, subdivision (b), explaining that words to that effect must be narrowly interpreted and the writing must directly express the parties agreement to be bound by the document they sign. (Fair, supra, 40 Cal.4th at p. 197.) In light of this holding, we certainly cannot now find that a provision in the settlement terms document providing for confidentiality of the settlement amount provides words to the effect that the rest of the document is admissible or subject to disclosure. ( 1123, subd. (a).) It is plain that this provision does not directly express any agreement whatsoever regarding the admissibility of the settlement terms document. (See Fair, at p. 197; compare Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1577-1578 [provision in settlement agreement that  the parties agree that this Confirmation of Settlement is exempt from the confidentiality provisions of Evidence Code Section 1152 et seq.  satisfied requirement of section 1123, subdivision (a), that agreement provide  that it is admissible or subject to disclosure or words to that effect ].)

II. Judicial Estoppel

Plaintiff contends defendants are judicially estopped from invoking mediation confidentiality due to their repeated representations to the trial court that the case settled in mediation.

The Supreme Court rejected plaintiffs effort to use evidence of what defendants told the trial court as a basis for making the settlement terms document admissible. The court stated: Plaintiffs characterization of defendants postmediation conduct is one reasonable interpretation of the facts in this case. However, we do not believe the Legislature contemplated that in order to rule on the admissibility of a settlement agreement under section 1123[, subdivision] (b), the court would examine extrinsic evidence to resolve competing claims over the parties intent. As explained above, the statute is designed to produce documents that clearly reflect the parties agreement that the settlement terms are enforceable or binding.  (Fair, supra, 40 Cal.4th at p. 198.) The court thus made clear that the statutory scheme related to mediation does not authorize an extrinsic evidence exception to mediation confidentiality.

Moreover, even assuming extrinsic evidence is permissible to assist in determining admissibility of the settlement terms document for purposes of deciding whether defendants are judicially estopped from invoking mediation confidentiality,[5] plaintiff has not satisfied all of the elements of judicial estoppel. Judicial estoppel applies when (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake. [Citations.] (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 183.)

Here, at the least, the third and fourth elements for application of judicial estoppel are absent. First, defendants never claimed in the trial court that the settlement terms document was admissible. Hence their position in the trial court is not inconsistent with their current position. (See Jackson v. County of Los Angeles, supra, 60 Cal.App.4th at p. 183 [fourth factor].) Second, the trial court did not adopt or accept as true the position (never asserted by defendants) that the settlement terms document was admissible. (Ibid. [third factor].) Accordingly, there is no basis for estopping defendants from claiming that the settlement terms document is not admissible.

III. Waiver of the Right to Claim Mediation Confidentiality

Plaintiff contends defendants repeated disclosure of mediation communications in the trial court and this court led to a waiver of their right to claim mediation confidentiality. These disclosures included both submission of copies of the settlement terms document itself and declarations describing communications that took place during mediation. The trial court found that that there was no waiver.

[T]he determination of waiver is a question of fact, and the trial courts finding, if supported by sufficient evidence, is binding on the appellate court. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.) In the circumstances of this case, we conclude that substantial evidence supports the trial courts finding that defendants had not waived the confidentiality of mediation communications.

Our Supreme Court has repeatedly noted that the mediation confidentiality provisions of the Evidence Code were enacted to encourage mediation by permitting the parties to frankly exchange views, without fear that disclosures might be used against them in later proceedings. [Citations.] Toward that end, the statutory scheme . . . unqualifiedly bars disclosure of communications made during mediation absent an express statutory exception. [Citations.] (Fair, supra, 40 Cal.4th at p. 194, citing Rojas v. Superior Court (2004) 33 Cal.4th 407, 415-416 (Rojas); Foxgate Homeowners Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1, 14, 15 (Foxgate).) In Eisendrath v. Superior Court (2003) 109 Cal.App.4th 351, 362-363 (Eisendrath), the appellate court applied the principles of Foxgate to the question of implied waiver of mediation confidentiality, and held that the implied waiver provisions in section 910 et seq. are limited to the privileges set forth therein and do not extend to mediation confidentiality rights found in section 1116 et seq.

In the present case, defendants disclosed the settlement terms document and related communications from the mediation only after plaintiff had already submitted the settlement terms document to the court. In addition, defendants objected to the courts consideration of mediation-related communications and all of their disclosures were made in an attempt to demonstrate the inadmissibility of the settlement terms document. In light of the pertinent holding in Eisendrath, as well as the strong policy in this state protecting mediation confidentiality, no waiver can be implied from defendants disclosures in the circumstances of this case. (See Eisendrath, supra, 109 Cal.App.4th at pp. 362-363; see also Rojas, supra, 33 Cal.4th at pp. 415-416; Foxgate, supra, 26 Cal.4th at pp. 14-15.)

This case is distinguishable from Regents of University of California v. Sumner (1996) 42 Cal.App.4th 1209, 1213, cited by plaintiff, in which Division Five of this District held that the appellants had waived mediation confidentiality where they themselves introduced a confidential settlement into evidence and did nothing to timely object to the introduction or consideration of such evidence. In this case, as already noted, defendants repeatedly objected to the admissibility of the settlement terms document on the ground of mediation confidentiality. Thus, even assuming waiver of mediation confidentiality is still possible in certain circumstances after Foxgate and Rojas, the present case does not present such circumstances.[6]

There was no waiver of defendants right to claim mediation confidentiality.

DISPOSITION

The judgment is affirmed. Costs on appeal are awarded to defendants.

_________________________

Kline, P.J.

We concur:

_________________________

Haerle, J.

_________________________

Richman, J.

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[1] Plaintiff commenced this action on May 30, 2001. However, because the history of this matter prior to the filing of the third amended complaint is irrelevant to the issues raised on appeal, the earlier factual and procedural details are not included in this opinion.

[2] On June 17, 2002, defendants informed the court that a second law firm would also represent defendants in this matter.

[3] All further statutory references are to the Evidence Code unless otherwise indicated.

[4] Section 1119 sets forth the general rule regarding confidentiality of mediation-related communications or writings, as follows: Except as otherwise provided in this chapter:

(a) No evidence of anything said or any admission made 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 evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.
(b) No writing, as defined in Section 250, 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 arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.
(c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.

Section 1123,which describes the various exceptions to the general rule found in section 1119, provides in its entirety: A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied:

(a) The agreement provides that it is admissible or subject to disclosure, or words to that effect.

(b) The agreement provides that it is enforceable or binding or words to that effect.
(c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure.
(d) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute.

[5] Our Supreme Court recently granted review in a case in which the appellate court had found that a party was estopped from asserting mediation confidentiality after months of voluntarily litigating matters that had occurred in mediation and receiving an adverse ruling. (Simmons v. Ghaderi (2006) 143 Cal.App.4th 410, review granted Dec. 20, 2006, S147848.)

[6] In Foxgate, the Supreme Court noted, without comment, the result in Regents of University of California v. Sumner, supra, 42 Cal.App.4th 1209. (Foxgate, supra, 26 Cal.4th at p. 10, fn. 7.)