Claim Forfeited? California Appeals Court Upholds Exclusion of Estate Benefits for Non-Compliance with Court-Ordered Mediation

By Mylene Chan

A recently filed petition for review pending before the California Supreme Court raises a controversial issue regarding the fairness of court actions related to non-compliance with court-ordered mediation.

Breslin v. Breslin, 62 Cal.App.5th 801 (Jan. 26) (available at https://bit.ly/3xI7ige), is a probate case for which a cert petition was filed at California’s top Court on May 6.

The case involves a probate dispute regarding interests in a trust, with potential beneficiaries including 24 charities. The court ordered mediation, but most of the nonprofit groups did not attend. The attending parties reached an agreement.

The opinion notes, “The settlement agreement awarded specific amounts to various parties, including the appearing charities, and attorney fees with the residue to the intestate heirs.” Other non-attending parties were not included.

The probate court approved the settlement and explained that appellants lost their interests in the trust by failing to file responses and objections to the initial trustee’s petition and failing to participate or appear in the court-ordered mediation.

The appellate court upheld the probate court’s decision on the ground that the California Probate Code gives courts discretion to order mediation. “A party receiving notice under the circumstances here, who fails to participate in court-ordered mediation, is bound by the result,” the opinion states.  

The appellants argued that the court’s decision conflicts with existing California laws that are designed to honor a decedent’s testamentary intent, protect beneficiaries, avoid forfeitures, and encourage charitable giving. “Under the label of ‘forfeiture,’ the majority opinion has established what amounts to a terminating sanction for beneficiaries who fail to attend private mediation,” the petition states.

In a reply to the cert petition, Kevin G. Staker and Brandon P. Johnson, of Camarillo, Calif.’s StakerLaw Tax and Estate Planning Law Corp., on behalf of respondent David Breslin, who is the estate’s trustee, argued that the appellants were never vested beneficiaries and lost their alleged rights in the trust because they failed to participate in the court-ordered mediation.

Mark A. Lester, Katherine H. Becker, and Eric A. Hirschberg, attorneys at Jones, Lester, Schuck, Becker & Dehesa in Camarillo, Calif., who filed a brief on behalf of intestate respondents Paul G. Breslin and Kathleen Breslin LaForgia, took a similar position, and also noted that affirming the lower court decisions benefits the trust and estate practice. Respondent counsel Lester indicated in an email with the blog’s author that using mediation early in trust and estate disputes means that the vast balance of the estate gets to the beneficiaries rather than the attorneys. 

The California attorney general submitted a six-page amicus curiae letter in support of the appellants’ request that the state Supreme Court grant review of Breslin. The attorney general argued that the case raises important questions concerning whether a court has discretion to waive a beneficiary’s objections to a petition for approval of a settlement agreement and presents significant policy ramifications.

It is uncertain what trends Breslin would set nationally because Breslin raises several challenging issues, such as forfeiture, due process, cost burdens, and bad faith. For now, it does not appear that New York, for example, would endorse a similarly harsh sanction for non-compliance with court-ordered mediation.

In the past five years, in New York state and federal courts, a court has sanctioned parties for non-compliance only in rare cases. For example, in Workneh v. Super Shuttle Int’l, Inc., 2020 WL 3492000 (S.D.N.Y. June 8, 2020), the court dismissed the case; in Kantor v. Air Atl. Med., P.C., 2020 WL 7130732 (E.D.N.Y. Sept. 23, 2020), the court issued default judgments and recommended monetary sanctions, and in Rice v. NBCUniversal Media, LLC, 2019 WL 3000808, (S.D.N.Y. July 10, 2019), the court imposed a monetary sanction.

These three cases involved egregious behavior–such as repeated violations of court orders in a variety of contexts over the course of two years (responses to discovery requests, refusal to provide authorization, failure to appear as directed), and failure to communicate with the court and opposing counsel for almost a year–warranting serious sanctions. It appears, however, that New York judges might not quickly divest parties of rights for non-appearance as did the California court in Breslin.

If the California Supreme Court accepts Breslin and affirms the lower court rulings, it could signal a shift in the impact and effects of court-ordered mediation. The mediation community, as suggested by the cert petition, is watching closely.  Practitioners will want to monitor the case because of its potential to change the standards applied to parties in court-ordered mediation.

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The author, an LLM candidate, at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

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New California Law Prohibits Pre-Dispute Employment Arbitration Agreements

By Andrew Garcia

California last week enacted a new law that prohibits employers from requiring job applicants, or any existing employee, to enter into pre-dispute arbitration agreements as a condition of employment.

California Gov. Gavin Newsom signed the bill into law Oct. 10. It also criminalizes any retaliation against an employee who refuses to enter into a pre-dispute arbitration agreement.

Assembly Bill 5, introduced by Assemblywoman Lorena Gonzalez, D., San Diego, says that a violation of the amended California Labor Code is a misdemeanor. Despite the law’s harsh prescriptions for violators, the bill clarifies that it does not purport to invalidate any existing arbitration agreement that is consistent with the Federal Arbitration Act.

The California Chamber of Commerce identified AB 51 as a “job killer.” (See the chamber’s press release ahead of the first major hearing on the bill in March at http://bit.ly/2pmYYEu.)  The chamber said that the new law conflicts with the U.S. Supreme Court’s decision in Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017), among many cited cases that it notes are part of the Supreme Court’s jurisprudence favoring arbitration agreements. The chamber predicts that the law will be challenged and overturned, preempted by federal law. (You can read the chamber’s statement in opposition to the California Legislature, joined by 41 local chamber and specialized industry groups, at http://bit.ly/33zTLIz.)

As other jurisdictions wrestle with local restrictions, courts are beginning to see challenges.  A New York federal court last spring stuck down a New York state pre-dispute mandatory arbitration bar in a decision that was mirrored by the California Chamber’s view. See Latif v. Morgan Stanley & Co. LLC, No. 18-cv-11528, 2019 WL 2610985 (S.D.N.Y. June 26, 2019), where the U.S. District Court held that a newly enacted New York state law that invalidated pre-dispute employment arbitration agreements was preempted by the Federal Arbitration Act. See also, Andrew Garcia, “Update: Legislatures on Invalidating Pre-Dispute Arbitration Agreements,” CPR Speaks blog (Aug. 1) (available at http://bit.ly/2IPg6dd).

AB 51 is one of three bills signed by Gov. Newsom, a Democrat who took office in January, that expanded California’s workplace protection laws.  “Work is about more than earning an income,” he stated, adding, “For many, a job can provide a sense of purpose and belonging–the satisfaction of knowing your labor provides value to the world. Everyone should have the ability to feel that pride in what they do, but for too many workers, they aren’t provided the dignity, respect or safety they deserve. These laws will help change that.”

That move is a big change from Newsom’s predecessor. The new law is a reintroduction of an identical 2018 bill that was vetoed by then-Gov. Jerry Brown, also a Democrat–the second time Brown vetoed legislation restricting arbitration.  The California Chamber of Commerce opposition letter quotes Brown’s 2018 veto extensively, including the Kindred Nursing decision, which noted, “A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the [Federal Arbitration Act] than a rule selectively refusing to enforce those agreements once properly made. Precedent confirms that point.”

An August California court decision, however, shares the new law’s skeptical arbitration view. In OTO LLC v. Kho, 447 P.3d 680 (Cal. 2019) (available at https://stanford.io/2ON8f3x), the California Supreme Court rejected the validity of an arbitration agreement because, among other reasons, the defendant required plaintiff Kho to sign the agreement as a condition of his employment.

The court found that the porter who delivered the agreement remained at Kho’s place of work until he signed the agreement, which created an impression that he had to sign it immediately. Therefore, the court ruled that since Kho had no choice but to sign the arbitration agreement or lose his job without an opportunity to review the agreement in his native language, it could not be enforced.

To view the bill in its entirety, click here.

The author, a Summer and Fall 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

 

A DOA Exception? California’s Law Revision Commission Looks to Reassess Mediation Confidentiality as Commenters Blast its Legislative Recommendation

By Russ Bleemer

The prospects for a new California mediation confidentiality law that would provide an exception allowing parties to introduce evidence in a post-ADR malpractice case faded this week in the face of a frank report by the state commission that proposed the change.

“The opposition to the [California Law Revision] Commission’s tentative recommendation can only be described as overwhelming,” concludes Barbara Gaal, chief deputy counsel to the California Law Revision Commission, in a 36-page report released Wednesday.  She adds, “It is not unanimous, but it is deep and widespread. California’s mediation confidentiality statute may differ from those in other jurisdictions, providing greater protection in some respects, but a broad range of stakeholder organizations and many individuals appear to be well-satisfied with that approach and offer many reasons for their position.”

The new Sept. 27 report provides 155 pages of comments on a proposal to amend the state’s evidence that the commission has studied since 2012.  (The commission’s analysis is at http://bit.ly/2xQBnON; the comments are collected at http://bit.ly/2x2Dx9Y.) The amendment would add a new Section 1120.5 to the California Evidence Code, titled “Alleged misconduct of lawyer when representing client in mediation context.”

Because of an absolutist approach by the state’s courts, concerns have been raised for years over malpractice cases.  The state courts have barred the introduction of materials made in preparation for and used at mediation sessions in most cases.

The approach has provided a boost to California’s strong mediation culture, but has left victims of attorney malpractice with tough—some say insurmountable–paths to proving their claims.

The many comments submitted on the tentative recommendation “include scattered words of praise or appreciation for the Commission, its staff, its process, and its work on this study,” Gaal writes, but “[i]n general, however, they do not have much positive to say about the Commission’s proposal.”

Gaal urges the members of the commission to go back to the drawing board—not necessarily re-do the commission’s work (“Relationship Between Mediation Confidentiality and Attorney Malpractice and Other Misconduct – Study K-402,” available at http://www.clrc.ca.gov/K402.html), but re-examine the reasons the study was undertaken, and whether the commission wants to proceed with a recommendation to the legislature.

She writes that the staff urges the commission members to “re-read” the tentative recommendation’s “key policy considerations at stake” in the study in assessing the criticisms.  (Direct access to the tentative recommendation is at http://bit.ly/2x2ePqr .)

The 15-page policy section emphasizes that protecting mediation confidentiality “rests on four key premises”: confidentiality promotes candor in mediation; candid discussions lead to successful mediation; successful mediation encourages future use of mediation to resolve disputes; and mediation use in resolving disputes is beneficial to society.

“The preparation of a Commission recommendation is not a popularity contest, but rather a quest to develop an analytically sound proposal that will serve the citizens of California well,” Gaal advices. “Nonetheless, the degree of opposition to the Commission’s proposal suggests that careful reexamination of the competing consideration is in order.”

If the commission elects to go forward with the tentative recommendation, Gaal notes that the commission’s staff will prepare a memo—presumably on the reasons for the proposal to be forwarded to the legislature—for the commission’s December meeting.

The commission’s efforts were examined extensively in Jeff Kichaven, A California Correction? Legislature Will Consider Allowing Attorney Malpractice Proof from Mediation,” 35 Alternatives 97 (July/August 2017)(available at http://bit.ly/2sNUOm1), and “How California Intends to Recalibrate the Concept of Mediation Confidentiality,” 35 Alternatives 93 (June 2017)(available with a subscription or after login at www.cpradr.org at http://bit.ly/2sWyqr1).

Kichaven’s July/August Alternatives cover article, in which the Los Angeles mediator strongly backed the proposal, which will allow evidence from mediations pertaining to attorney malpractice to be introduced in litigation, was submitted as a comment.

The article also a comparatively rare show of support in the face of the avalanche of the “decidedly negative” reaction.  Among the reasons commenters opposed the proposal, according to the commission report:

  • It will undermine confidentiality;
  • It could harm mediation participants who are not parties to an attorney-client dispute
  • It will overburden the courts;
  • The proposed mediation confidentiality exception’s benefits are minimal compared to the downsides;
  • The exception “provides insufficient protection for mediator communications and will cause mediators to quit and mediator malpractice insurance rates to rise”;
  • It will threaten the stability of mediated settlements;
  • It would create the need to warn participants about the new proposed exception, “and that will create problems”;
  • It will hurt vulnerable groups;
  • It will affect attorneys disproportionately; and
  • It “is a trap for the unwary,” will yield unpredictable results, and unpredictable protection for mediation communications.”

“In light of the generally negative input on the tentative recommendation,” Chief Deputy Counsel Gaal writes, “the Commission should take a hard look at its options and consider how to proceed. While the Commission should not base its policy recommendations on political considerations, neither should it ignore practical reality. The goal of a Commission study is to achieve positive reform of the law. That requires the crafting of a balanced reform that has a realistic chance of enactment.” [Emphasis is in the original.]

The document lays out the Commission’s options: Proceed with the current proposal in the face of what likely will be strong legislative opposition; turn the tentative recommendation into an information report for the California Legislature without recommending or proposing legislation; limit the exception to the private attorney-client discussions in a mediation context, instead of allowing litigants to introduce communications from the proceedings itself, thereby shielding the mediator or its adversaries; develop an “informed consent approach” and circulate a revised tentative recommendation; or revisit all of the options raised in the study, including leaving the current law intact.

The author edits Alternatives to the High Cost of Litigation for the CPR Institute. CPR Institute Fall 2017 Intern Angela Cipolla contributed to research.