Shaoxing City etc. Products v. Landsberg & Associates CA2/2 ( 2015 )

Filed 6/25/15 Shaoxing City etc. Products v. Landsberg & Associates CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
SECOND APPELLATE DISTRICT
DIVISION TWO
SHAOXING CITY MAOLONG B257823
WUZHONG DOWN PRODUCTS, LTD et
al., (Los Angeles County
Super. Ct. No. BC455229)
Plaintiffs and Appellants,
v.
LANDSBERG & ASSOCIATES et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Rolf M. Treu, Judge. Affirmed.
Timothy D. McGonigle for Plaintiffs and Appellants.
Gordon & Rees, David L. Jones, Christopher R. Wagner and A. Louis Dorny for
Defendants and Respondents.
* * * * * *
A creditor retained a second set of attorneys to represent it in a bankruptcy
proceeding after its first set of attorneys missed a deadline to challenge a different
creditor’s lien. While represented by the second set of attorneys, the creditor mediated
the dispute with the debtor and settled for less than the full amount of its debt. The
creditor then sued the second set of attorneys for malpractice. The trial court granted
summary judgment to the attorneys, concluding that the mediation confidentiality
1
statutes, Evidence Code section 1115 et seq., prevented the creditor from proving that
the attorneys’ alleged malpractice caused the settlement to be far less than the full amount
of the debt. We conclude this was correct, and affirm.
FACTUAL AND PROCEDURAL HISTORY
An arbitrator determined that plaintiffs Shaoxing City Maolong Wuzhong Down
Products, Ltd. (Shaoxing) and Shui Yan Cheng’s (Cheng) (collectively, plaintiffs) were
entitled to a total of $5.35 million from Aeolus Down, Inc. (Aeolus), Wei Xu, and Wei
Dong (collectively, debtors). After the arbitrator issued its tentative ruling but before
plaintiffs obtained a judgment confirming the arbitration award, Aeolus entered into a
security agreement with Zhejiang Hengdi Bedding Co., Ltd. and Zhejiang Liuqiao
Feather Co., Inc. (collectively, Zhejiang), and Zhejiang filed a blanket lien attaching to all
of Aeolus’s assets.
Soon after plaintiffs obtained the judgment, debtors filed for bankruptcy.
Plaintiffs hired defendants Keehn & Associates, and L. Scott Keehn (collectively, Keehn)
as counsel in order to obtain discovery and challenge Zhejiang’s lien as a fraudulent
transfer. After Keehn missed the deadline without obtaining any discovery or
challenging Zhejiang’s lien, plaintiffs retained Landsberg and Associates and Ian
Landsberg (collectively, Landsberg) and officially substituted Landsberg for Keehn as
their bankruptcy counsel. With Landsberg as counsel of record, plaintiffs engaged in
1 All further statutory references are to the Evidence Code unless otherwise
indicated.
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mediation with debtors and, on February 22, 2010, ultimately agreed to accept $3.75
million—$1.6 million less than the arbitration award.
On February 18, 2011, plaintiffs sued Keehn and Landsberg for malpractice. Each
set of defendants moved for summary judgment, and the trial court granted those
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motions. With respect to Landsberg, the trial court ruled that California’s mediation
confidentiality statutes, section 1115 et seq., barred plaintiffs’ malpractice claim because
they (1) rendered inadmissible the evidence plaintiffs would need to prove a causal link
between Landsberg’s alleged negligence and harm to plaintiffs arising from the lower
settlement amount, and (2) made it impossible for Landsberg “to effectively defend
against plaintiffs’ malpractice claim.”
Plaintiffs timely appeal.
DISCUSSION
We independently review whether the trial court properly granted summary
judgment due to the absence of any triable issue of material fact. (Code Civ. Proc.,
§ 473c.) In doing so we liberally construe the evidence in support of the party opposing
the motion, and resolve doubts against summary judgment and in favor of trial. (Ibid.;
Mt. Hawley Insurance Company v. Lopez (2013) 215 Cal.App.4th 1385, 1393-1394.)
Among other things, California’s mediation confidentiality statutes provide that
“[n]o evidence of anything said or any admission made for the purpose of, in the course
of, or pursuant to, a mediation . . . is admissible or subject to discovery . . . .” (§ 1119,
subd. (a).) This prohibition reaches “[a]ll communications, negotiations or settlement
discussions by and between participants in the course of a mediation . . .” (§ 1119,
subd. (c)). Consistent with its purpose of “encourag[ing] 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, 194), the mediation
2 Plaintiffs separately appealed the order granting summary judgment for Keehn.
See B256988.
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confidentiality statutes are to be read “broadly” (Simmons v. Ghaderi (2008) 44 Cal.4th
570, 580), and are to be “strictly enforced” (Cassel v. Superior Court (2011) 51 Cal.4th
113, 127 (Cassel)). Exceptions to this confidentiality are enumerated by statute; courts
may not carve out new exceptions unless (1) “due process is implicated” or (2) “literal
construction would produce absurd results” and thereby “violat[e] the Legislature’s
presumed intent.” (Id. at p. 124.)
Because the mediation confidentiality statutes apply to communications between a
client and his attorney (Cassel, supra, 51 Cal.4th at pp. 119, 137), they can render
confidential the statements that form the very basis for a client’s claim for malpractice
against that attorney. (Id. at p. 122 [“Applying the mediation confidentiality statutes . . .
to protect . . . mediation-related discussion between a mediation disputant and the
disputant’s attorneys may indeed hinder the client’s ability to prove a legal malpractice
claim against the lawyers.”]; Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 163
[same] (Wimsatt).) What is more, “the mediation confidentiality statutes include no
exception for legal malpractice actions by mediation disputants against their own
counsel” (Cassel, at p. 132), and the absence of any such exception does not implicate
due process or lead to an absurd result (id. at p. 119). The net effect is that “when clients
. . . participate in mediation, they are, in effect, relinquishing all claims for new and
independent torts arising from mediation, including legal malpractice causes of action
against their own counsel.” (Wimsatt, at p. 163; Amis v. Greenberg Traurig, LLP (2015)
235 Cal.App.4th 331, 340 [“‘[M]ediation confidentiality was never intended to protect
attorneys from malpractice claims’; however . . . that seemingly unintended consequence
is for the Legislature, not the courts, to correct.”], quoting Wimsatt, at p. 164 (Amis).)
To prove their claim for legal malpractice, plaintiffs must establish “(1) the
existence of the duty of the professional to use such skill, prudence, and diligence as
other members of the profession commonly possess and exercise; (2) breach of that duty;
(3) a causal connection between the negligent conduct and the resulting injury; and
(4) actual loss or damage resulting from the professional negligence.” (Oasis West Realty
LLC v. Goldman (2011) 51 Cal.4th 811, 821, italics added.) To show causation “[i]n a
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litigation malpractice case, the plaintiff must establish that but for the alleged negligence
of the defendant attorney, the plaintiff would have obtained a more favorable judgment or
settlement in the action in which the malpractice allegedly occurred.” (Viner v. Sweet
(2003) 30 Cal.4th 1232, 1241.)
Although, as plaintiffs argue, the mediation confidentiality statutes do not reach
Landsberg’s premediation promises regarding what it would accomplish during its
representation or its postmediation admission that it could have obtained a better
settlement had Keehn not done such a poor job challenging Zhejiang’s lien, those
statements pertain to Landsberg’s professional duty and its breach of that duty. But the
requisite “causal connection” between Landsberg’s breach and the alleged injury of a
reduced settlement amount depend on why plaintiffs accepted the smaller settlement. The
decision to settle “involves a wide spectrum of considerations” (Barnard v. Langer
(2003) 109 Cal.App.4th 1453, 1461, fn. 13), and the only way to prove whether
Landsberg’s poor representation was the reason why plaintiffs accepted the reduced
settlement—rather than some other consideration—is to know what happened (and, more
to the point, what was said) during the mediation. But that is precisely what the
mediation confidentiality statutes preclude plaintiffs from offering into evidence.
(Accord, Amis, supra, 235 Cal.App.4th at p. 340 [affirming summary judgment in
lawyer’s favor in a malpractice case because plaintiff “cannot prove that any act or
omission by [the lawyer] caused him to enter the settlement agreement and, hence, to
suffer his alleged injuries, because all communications he had with [the lawyer]
regarding the settlement agreement occurred in the context of mediation.”].)
3
Plaintiffs level three challenges at this outcome. First, they fault the trial court for
relying in part on how the mediation confidentiality statutes would rob Landsberg of its
3 Landsberg also argued to the trial court, and now argues on appeal, that Shoaxing
is barred from pursuing their malpractice claim because it is a suspended California
corporation. We grant plaintiffs’ motion for judicial notice of the Secretary of State’s
records indicating that as of April 30, 2015, Shaoxing is not suspended (§§ 459, 452,
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ability to defend against plaintiffs’ action. To begin, this was an alternative rationale that
in no way affects our analysis of how the mediation confidentiality statutes also preclude
plaintiffs from prosecuting their case. The trial court was correct to rely on this concern
in any event. That is because courts are reluctant to allow a lawsuit to proceed when the
plaintiff can use mediation confidentiality to prevent a defendant from eliciting
statements necessary to respond to the plaintiff’s claims or to put the plaintiff’s
nonconfidential evidence in proper context. (Amis, supra, 235 Cal.App.4th at p. 342;
accord, Cassel, supra, 51 Cal.4th at p. 136 [noting unfairness of “allow[ing] a client to
support a malpractice claim with excerpts from private discussions with counsel
concerning the mediation, while barring the attorneys from placing such discussions in
context by citing communications within the mediation proceedings themselves”];
Solin v. O’Melveny & Myers (2001) 89 Cal.App.4th 451, 463 [plaintiff in malpractice suit
cannot use attorney-client privilege as a “sword” by precluding attorney from presenting
client confidences in defense].) Plaintiffs respond that their use of mediation
confidentiality as a sword does not violate Landsberg’s due process rights and, as we
noted above, only violations of due process warrant the creation of new exceptions to the
mediation confidentiality statutes. This is unpersuasive; the threshold for recognizing
new exceptions has nothing to do with the impropriety of using mediation confidentiality
as a sword.
Second, plaintiffs argue that Landsberg has already expressly waived mediation
confidentiality and might do so in the future. Plaintiffs assert that Landsberg previously
waived the protection of the mediation confidentiality statutes when, after the mediation
concluded, Landsberg told plaintiff Cheng and Landsberg’s bankruptcy co-counsel that
Keehn’s failure to conduct discovery had hurt the negotiations. However, an express
waiver is valid only if it is (1) in writing, or (2) oral, as long as it is recorded by a court
reporter or audio recording while in front of the mediator, the parties all state the
subd. (c)), and reject this argument as moot. (See Bourhis v. Lord (2013) 56 Cal.4th 320,
325-328.)
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agreement to waive is binding, and the oral statement is reduced to writing and signed
within 72 hours thereafter. (§§ 1122, subd. (a), 1118.) Landsberg’s statements do not
meet these requirements. Plaintiffs further contend that they are willing to waive the
mediation confidentiality statutes if Landsberg is also willing, but we are tasked with
evaluating the propriety of summary judgment on the record before the trial court
(GuideOne Mutual Insurance Co. v. Utica National Insurance Group (2013) 213
Cal.App.4th 1494, 1501), not based on what the parties might, but have yet to, do in the
future.
Third, plaintiffs posit that the mediation confidentiality statutes do not apply at all
because the mediation in this case was ordered by the bankruptcy court, and was
consequently not voluntary. As a general matter, the applicability of these statutes is not
contingent upon the mediation being voluntary. “Mediation” is defined as the “process in
which a neutral person . . . facilitate[s] communication between the disputants to assist
them in reaching a mutually acceptable agreement” (§ 1115, subd. (a)), and this definition
is silent as to the mandatory or voluntary nature of the process. Although mandatory
settlement conferences ordered by superior courts are excluded (§ 1117, subd. (b)(2);
Cal. Rules of Court, rule 3.1380), that exception by its terms does not apply to mediations
ordered by the courts of another sovereign. Even if it did, the disputed evidence is that
the mediation was “voluntary”; that is what the Confidentiality Agreement signed by the
parties stated. Plaintiffs argue that they have contrary evidence—namely, documents
from the bankruptcy court and statements that Landsberg allegedly made to bankruptcy
co-counsel and co-counsel’s employee. But we declined plaintiffs’ motion to judicially
notice the bankruptcy court filings, and the trial court sustained evidentiary objections to
the statements. Plaintiffs ask us to revisit and review the trial court’s evidentiary rulings,
but we conclude the trial court did not abuse its discretion in excluding this evidence.
(Natkin v. California Unemployment Ins. Appeals Bd. (2013) 219 Cal.App.4th 997,
1002.) Landsberg’s alleged statement to co-counsel’s employee was relayed through co-
counsel, and for that reason constitutes hearsay. Landsberg’s alleged statement to co-
counsel recounted by co-counsel himself is not hearsay, but was properly excluded
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because the bankruptcy court order Landsberg referenced was never produced and its
absence was never explained; as a result, plaintiffs did not comply with the secondary
evidence rule. (§§ 1521, 1523.)
We conclude that the mediation privilege bars plaintiffs’ legal malpractice claim.
DISPOSITION
The judgment is affirmed. Landsberg is entitled to costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
_______________________, J.
HOFFSTADT
We concur:
____________________________, P. J.
BOREN
____________________________, J.
CHAVEZ
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