Opinion
No. 07CA1563.
October 16, 2008.
Appeal from the District Court, Cheryl L. Post, J.
Starrs Mihm Caschette, LLP, Elizabeth A. Starrs, Daniel A. Wartell, Denver, Colorado, for Plaintiff-Appellant.
John C. Hugger, Evergreen, Colorado, for Defendants-Appellees Aviation Manual Solutions, LLC, and Misty D. McCumsey.
Silver DeBoskey, P.C., Steven W. Kelly, Ruba M. Forno, Denver, Colorado, for Defendants-Appellees RVSM Solutions, LLC, J. Kent Hegwood, Jr., and Jerry Hegwood.
Plaintiff, GLN Compliance Group, Inc., appeals the judgment of the trial court enforcing a settlement agreement between GLN and defendants, Aviation Manual Solutions, LLC, RVSM Solutions, LLC, Misty D. McCumsey, J. Kent Hegwood, and Jerry Hegwood. We reverse and remand for further proceedings.
I. Background
In April 2006, GLN sued defendants for allegedly misappropriating its trade secrets and other confidential and proprietary information. The trial court ordered the parties to participate in alternative dispute resolution.
A mediation session was held in August 2006 before a retired judge who served as the mediator. After mediation discussions, the mediator asked the parties to make a record before a court reporter. The mediator began these proceedings by stating:
The record should reflect that the parties have previously sent me confidential settlement manuals and the like which I have reviewed, and I also spent a fair amount of time individually meeting with the parties here today in order to effectuate a settlement.
It's my understanding that we have one. . . . The record is for the purpose of getting this agreement on the record. A formal record will be prepared by counsel and then submitted and sent around for signatures and the like.
The attorneys for the parties then presented a summary of the agreement they had reached. At the conclusion of their presentation, the mediator asked the parties a series of questions designed to ensure that they understood the mediation agreement, that they had enough time to discuss it with their counsel, that no one had forced them to agree to it, and that GLN was "comfortable" with the mediation agreement.
At the end of the recorded session, the mediator engaged in the following exchange with one of the attorneys:
Mediator: [W]e have an agreement here, and counsel, you're going to be preparing this document and get it ready and send it around for signatures and the like?
Defendants' Attorney: I will circulate a draft as soon as I can get one prepared.
Mediator: Sure. . . .
Shortly thereafter, defendants performed several of the obligations required by the mediation agreement, including sending GLN a settlement payment in the form of a check. One of the terms of the mediation agreement was that the check would be sent to GLN promptly after the mediation session, but that GLN would not negotiate the check until a written mediation agreement was signed. GLN negotiated the check before any agreement was signed.
In late September, there was the following exchange of e-mails between one of defendants' attorneys and GLN's mediation attorney concerning the written mediation agreement.
GLN's Mediation Attorney: Please send me an [electronic] version of the proposed settlement agreement so that [I may] make some proposed changes.
Defendants' Attorney: Here it is. (I understood from yesterday's e-mail that the form was approved with the one change to the attorneys' fees provision?)
GLN's Mediation Attorney: Oh, yeah. Thanks.
GLN's Mediation Attorney: The primary concern is to make it clear that GLN may seek to protect its proprietary information if your . . . clients use such information in the future and may not transfer or convey any such information to third parties with impunity. That was my take. . . . It might be advisable to tone down the statement of the counterclaims against GLN, and I will attempt to do so.
GLN refused to sign the written mediation agreement. On the same day, without consulting its mediation attorney, GLN's president sent defendants' attorney a long letter, which contained profane and insulting passages. It began:
I reviewed the agreement you drafted for signature in regards the mediation. . . . What were YOU smoking? I am both disappointed and [outraged] at your conduct and the slanderous language used. So [let's] cut to the chase. That will not be signed. Period. While you may have thought it [clever] to see how much you can screw you own clients over . . . all you have done is succeeded in ensuring them a fast track to more civil and criminal issues, all of which I . . . will continue to pursue regardless of your babbling and [the] diatribe you sent.
In October, GLN's mediation attorney moved to withdraw as GLN's counsel, citing irreconcilable differences with his client. GLN filed a written objection, in which it stated that the case had reached a critical stage and the withdrawal of counsel could damage the parties' interests. GLN wrote, "A mediation session, which we thought was successful, was rendered unmanageable by opposing counsel and has been brought to a close." The court allowed GLN's mediation attorney to withdraw, and a new attorney entered his appearance for GLN.
Defendants filed a "Joint Motion to Enforce Settlement Agreement." The trial court held a hearing on the motion, at which GLN's president testified, and GLN's mediation attorney testified over GLN's objection. Among other arguments, GLN submitted that the mediation attorney's testimony was barred because the agreement reached at the mediation session had not been reduced to writing and signed by the parties, and because communications occurring at mediation sessions are "supposed to be confidential."
Defendants contended that GLN expressly agreed to the mediation agreement at the end of the mediation session, and this agreement was reflected by GLN's conduct afterward in accepting defendants' performance of elements of the mediation agreement. GLN responded that it did not agree to the written mediation agreement because it did not provide sufficient future protection for GLN's confidential information.
The trial court made findings of fact, including that GLN's mediation attorney had informed defendants' counsel that GLN had accepted the written mediation agreement; and that the sworn testimony of GLN's president at the hearing was not credible, and thus it was "not believed by the Court." The court then granted the motion to enforce the mediation agreement, concluding:
The [on-the-record] reading of the settlement agreement, together with the transcript, meets any requirement for a written document approved and accepted by the parties.
The trial court later ordered GLN to pay defendants' attorney fees under section 13-17-102, C.R.S. 2008, because it found that its actions were vexatious.
II. The Mediation Privilege Created by Colorado's Dispute Resolution Act
GLN contends that the trial court's decision to enforce the settlement agreement was erroneous because the agreement was neither reduced to writing, nor signed by the parties, in violation of Colorado's Dispute Resolution Act (the Act). We agree.
A. General Principles
We review de novo a trial court's interpretation of a statute because it raises a question of law. When interpreting a statute, we look first to its plain language. We interpret its terms consistently with their common meanings. K S Corp. v. Greeley Liquor Licensing Authority, 183 P.3d 710, 713 (Colo.App. 2008).
Our duty is to interpret statutes in a manner that gives effect to the legislature's intent, and we will not pursue a statutory construction that would lead to an unreasonable or absurd conclusion. Interpretations that conflict with obvious legislative intent must be eschewed. We must, if possible, interpret a statute to give all its parts "consistent and sensible effect." Richmond American Homes of Colorado, Inc. v. Steel Floors, LLC, 187 P.3d 1199, 1204 (Colo.App. 2008).
B. The Act's Provisions
The Act, sections 13-22-301 to -313, C.R.S. 2008, "governs the use of mediation as an alternative to litigation." Nat'l Union Fire Ins. Co. v. Price, 78 P.3d 1138, 1140 (Colo.App. 2003). "The Act applies to all mediation services or dispute resolution programs conducted in the state, including those conducted by a private mediator." Id.
Discussions in mediation sessions are confidential. Under section 13-22-307(2) (3), C.R.S. 2008 (section 307(2) and (3)):
(2) Any party or the mediator . . . in a mediation service proceeding or a dispute resolution proceeding shall not voluntarily disclose or through discovery or compulsory process be required to disclose any information concerning any mediation communication or any communication provided in confidence to the mediator. . . .
(3) Any mediation communication that is disclosed in violation of this section shall not be admitted into evidence in any judicial or administrative proceeding.
A "mediation communication" is defined by section 13-22-302(2.5), C.R.S. 2008 (section 302(2.5)), to be:
[A]ny oral or written communication prepared or expressed for the purposes of, in the course of, or pursuant to, any mediation services proceeding or dispute resolution program proceeding, including, but not limited to, any memoranda, notes, records, or work product of a mediator, mediation organization, or party; except that a written agreement to enter into a mediation service proceeding or dispute resolution proceeding, or a final written agreement reached as a result of a mediation service proceeding or dispute resolution proceeding, which has been fully executed, is not a mediation communication unless otherwise agreed upon by the parties.
(Emphasis supplied.)
C. Scope of the Mediation Privilege
"The Act creates a mediation privilege against compelled testimony and discovery. The mediation privilege rests with the parties to the mediation and the mediator." Patrick F. Kenney, The Mediation Privilege, 29 Colo. Law. 65, 65 (Nov. 2000) (footnote omitted); accord Jay M. Zitter, Annotation, Construction and Application of State Mediation Privilege, 32 A.L.R.6th 285 (2008).
The reason for such confidentiality, in the context of a pre-appellate argument conference, was discussed in Lake Utopia Paper Ltd, v. Connelly Containers, Inc., 608 F.2d 928, 930 (2d Cir. 1979);
It is essential to the proper functioning . . . that all matters discussed at these conferences remain confidential. The guarantee of confidentiality permits and encourages counsel to discuss matters in an uninhibited fashion often leading to []settlement. . . . If participants cannot rely on the confidential treatment of everything that transpires during these sessions then counsel of necessity will feel constrained to conduct themselves in a cautious, tight-lipped, non-committal manner more suitable to poker players in a high-stakes game than to adversaries attempting to arrive at a just resolution of a civil dispute. This atmosphere if allowed to exist would surely destroy the effectiveness of a program which has led to settlements. . . .
(Citation omitted.)
An exception to the mediation privilege is found in section 13-22-308(1), C.R.S. 2008 (section 308(1)), which states:
If the parties involved in a dispute reach a full or partial agreement, the agreement upon request of the parties shall be reduced to writing and approved by the parties and their attorneys, if any. If reduced to writing and signed by the parties, the agreement may be presented to the court by any party or their attorneys, if any, as a stipulation and, if approved by the court, shall be enforceable as an order of the court.
(Emphasis added.)
The foregoing sections of the Act were interpreted in National Union Fire Insurance Co., 78 P.3d at 1140-42. There, a trial court determined that the parties had reached a final oral settlement at a mediation session, that the mediator could be required to testify about the agreement, and that the agreement was enforceable by the court presiding over the civil case. A division of this court reversed, concluding that the mediation privilege barred evidence of the oral agreement reached during the mediation session. The division reached this conclusion by reading sections 302(2.5), 307(2), and 308(1) together:
[T]hese sections express the legislature's intent to create a blanket prohibition against disclosing mediation communication, whether or not the communication concerns a settlement, unless the parties consent or an exception applies. Taking into consideration the bar against admitting mediation communication into evidence, it is logical, therefore, that the existence and terms of a settlement agreement could not be proved without a signed writing that reflects those terms.
Nat'l Union Fire Ins. Co., 78 P.3d at 1141 (emphasis added).
Thus, the only way for a party to obtain a court's enforcement of a settlement agreement obtained in the course of mediation is to follow the requirements of section 308(1). To accomplish this result, six steps must be followed: (1) the parties must reach a partial or complete agreement; (2) the parties must agree to reduce the agreement to writing; (3) the parties must approve the writing; (4) the parties must sign the writing; (5) the parties must present the signed writing to the court; and (6) the court must approve it as an order of court. Id. at 1140; see Reese v. Tingey Construction, 177 P.3d 605, 610 (Utah 2008)("[The requirement of a writing] encourages parties to prepare a comprehensive, final settlement agreement free from misunderstandings and ambiguities. . . . Requiring a writing also permits parties to `ferret out' areas where additional clarification is necessary.").
D. Application of the Principles
Here, the parties dispute whether the first three factors discussed in National Union Fire Insurance Co. were present. Defendants contend that the record made before the mediator constituted an agreement, which was reduced to writing via its inclusion in a transcript, and which was approved by GLN's response to the mediator's questions concerning acceptance of it. They further argue that, assuming the transcript did not constitute a settlement agreement, GLN, as represented in the exchange of e-mails, agreed to the contents of the written agreement subsequently drafted by one of defendants' attorneys.
GLN counters that the record before the mediator was merely an outline of terms, which was subsequently to be reduced to a written document that the parties could examine. GLN also contends that, as represented by the various communications after the mediation session, it did not agree to the proposed written agreement.
We conclude that the transcript from the mediation session, the written draft of the settlement agreement, and the testimony of GLN's mediation attorney about the settlement agreement qualify as mediation communications under section 302(2.5). They were oral or written communications prepared or expressed for the purposes of a mediation proceeding, and they were not "a final written agreement . . . which has been fully executed," as required by section 302(2.5). Thus, the introduction of this evidence violated the mediation privilege contained in section 307(2) and (3). See James F. Carr, Patrick Kenney, Cynthia Savage Peter D. Willis, The Uniform Mediation Act: Its Potential Impact on Colorado Mediation Practice — Part II, 31 Colo. Law. 67, 70 (June 2002) (section 307(3) "provides that a disclosure in violation of the protection of the act does not permit a subsequent use of the mediation communication in a judicial or administrative proceeding").
Although (1) the record has factual support for the defendants' position concerning the first three factors of section 308(1), as interpreted by National Union Fire Insurance Co.; and (2) the trial court found that the testimony of GLN's president was not credible, indicating that there is little or no factual support for GLN's position concerning the first three factors, nothing in the record indicates that the final three requirements were satisfied. The parties did not sign a writing after the mediation session; they did not present a writing to the court; and they did not ask the court to approve a writing as an order of court.
Thus, following the analysis in National Union Fire Insurance Co., we conclude that there was no enforceable settlement agreement, because not all of the six conditions necessary for the trial court to enforce the settlement agreement under section 308(1) were satisfied. Further, defendants were unable to prove that a settlement agreement existed and what its terms were, because, under section 307(3), proof of the agreement was admitted contrary to the mediation privilege. See Nat'l Union Fire Ins. Co., 78 P.3d at 1141; Gordon v. Royal Caribbean Cruises Ltd., 641 So.2d 515, 517 (Fla.Dist.Ct.App. 1994) ("Since it is clear that the parties hereto did not effectuate a settlement agreement in accordance with [a Florida court rule concerning settlement agreements resulting from mediation], the confidentiality afforded to parties involved in mediation proceedings must remain inviolate."); Ellen E. Deason, Enforcing Mediated Settlement Agreements: Contract Law Collides with Confidentiality, 35 U.C. Davis L.Rev. 33, 47 (Nov. 2001) ("When there is no documented settlement, there is no exception to the privilege that would allow a party to prove the existence of an agreement.") (discussing Colorado's statutes and others similar to it).
Yaekle v. Andrews, 169 P.3d 196, 198-200 (Colo.App. 2007) ( cert. granted Oct. 9, 2007), does not dictate a different result. There, the parties executed a written and signed settlement agreement after a mediation session, which they followed with a revised settlement agreement, which was not signed. Relying on contract principles, the division concluded that the revised agreement was enforceable. In reaching the conclusion that the revised agreement satisfied section 308(1), the division observed:
[T]ne parties' agreement was reduced to formal documents as required by the [first] settlement agreement. . . . [T]he parties and their attorneys approved the agreement through their conduct and representations to the trial court.
Id. at 200.
However, unlike in Yaekle, the settlement agreement here was not signed, and GLN never indicated to the trial court that a written agreement had been approved or requested the court's approval of the settlement agreement.
E. Implied Waiver
We are also not persuaded that GLN impliedly waived the mediation privilege because we conclude that the mediation privilege cannot be waived by implication.
Recently, the California Supreme Court interpreted a similar statute, and concluded that the mediation privilege could not be impliedly waived. Simmons v. Ghaderi, 44 Cal.4th 570, 586-88, 80 Cal.Rptr.3d 83, 187 P.3d 934, 944-46 (2008). There, the court concluded that, because the language of the statute required express waiver of the mediation privilege, permitting implied waiver would violate the legislature's intent.
[T]he clear language of the statutory scheme and other indications of legislative intent reflect that disallowing an implied waiver would not produce absurd consequences, but was rather an intended consequence. [California's mediation privilege] sweeps broadly and renders all communications and writings made during mediation inadmissible except as otherwise specified in the statutes. [A statutory exception to the mediation privilege] plainly states that mediation communications or writings may be admitted only on agreement of all participants. Such agreement must be express, not implied.
Id. at 587, 80 Cal.Rptr.3d 83, 187 P.3d at 945 (citation omitted) (emphasis in original); see People v. Snyder, 129 Misc.2d 137, 138-39, 492 N.Y.S.2d 890, 892 (N.Y.Sup.Ct. 1985)("I find that even if the defendant can be found to have waived the confidentiality of the records pertaining to the mediation sessions in which he was involved, the statute, as drafted, permits no such waiver."); see also 1 Jay E. Grenning, Alternative Dispute Resolution appx. D (3d ed. 2007) (Uniform Mediation Act) ("[T]he mediation privilege does not permit waiver to be implied by conduct.").
Like the California statute construed in Simmons, the Act also "sweeps broadly," because section 307(2) and (3) render "any information concerning any mediation communication" inadmissible in judicial or administrative proceedings unless a statutory exception applies. The Act sets forth four exceptions to the mediation privilege in section 307(2)(a)-(d). Section 307(2)(a), the only exception arguably pertinent here, is like the exception discussed in Simmons, because it states that the mediation privilege does not bar the introduction of mediation communications if "[a]ll parties to the dispute resolution proceeding and the mediator consent in writing."
Thus, because of the similarities between the Act and the California statutes discussed in Simmons, we are persuaded by the reasoning employed in Simmons, and we apply it to this case. This reasoning leads us to conclude that section 307(2) indicates that our legislature intended that the only mechanism for waiving the mediation privilege available in this case would be an express written statement complying with the requirements of section 307(2)(a). Thus, allowing implied waiver of the mediation privilege would be contrary to our legislature's intent.
Because the record here does not contain an express written statement that complies with section 307(2)(a), we conclude that a waiver of the mediation privilege did not occur. Further, because our result arises from construing the relevant statutes, the trial court's finding that GLN's president was not credible does not affect our analysis.
III. Conclusion
We conclude that (1) the transcript of the settlement agreement, the written draft of the settlement agreement, and the mediation attorney's testimony about the settlement agreement are "mediation communications" under section 302(2.5); (2) there was no enforceable settlement agreement because the parties did not comply with the requirements of section 308(1); (3) the mediation privilege created by section 307(2) and (3) barred the introduction of the transcript of the settlement agreement, the written draft of the settlement agreement, and the testimony of GLN's mediation attorney about the settlement agreement at the hearing held on the motion to enforce the settlement agreement; (4) without the evidence of those documents and that testimony, the record does not establish the existence or parameters of a settlement agreement; (5) the mediation privilege was not expressly waived because the requirements of section 307(2)(a) were not followed; and (6) the language and structure of the Act indicate that the mediation privilege cannot be waived by implication.
We therefore reverse the trial court's judgment enforcing the settlement agreement and, consequentially, we must also reverse the award of attorney fees to defendants and deny their request for attorney fees on appeal. Our result and rationale convince us that we need not address whether the trial court's decision to allow GLN's mediation attorney to testify at the hearing to enforce the settlement agreement violated the attorney-client privilege.
We recognize this result may seem inflexible, but our conclusion is driven by the structure and language of the Act, and by the nature of the mediation process. Mediation meetings are often informal and fast moving. It is, therefore, reasonably likely in complex matters that disagreements will arise after the conclusion of mediation meetings about the specific terms of an agreement. Reading the agreement into the record provides some formality, but it remains an oral agreement. Having the settlement reduced to a formal writing, which the parties and the mediator clearly contemplated here, focuses the parties on what the specific language should be and what terms should be included or excluded.
The General Assembly has been clear in the Act to emphasize that mediation meetings must be confidential, and that mediation agreements must be made stipulated judgments of the court before they can be enforced to resolve disputes. This confidentiality encourages candor during the meeting, and it precludes equitable enforcement of putative mediation agreements. The requirement that agreements be written and signed provides considerable assurance that the parties fully understand and agree with the agreement's terms.
The judgment is reversed and remanded to the trial court for further proceedings consistent with this opinion.
Judge ROY concurs.
Judge TAUBMAN dissents.