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Court of Appeal, First District, Division 2, California.

R. Thomas FAIR, Plaintiff and Appellant, v. Karl E. BAKHTIARI et al., Defendants and Respondents.

Stonesfair Financial Corporation, Defendant, Cross-Complainant and Respondent, v. R. Thomas Fair, Plaintiff, Cross-Defendant and Appellant.

No. A100240.

Decided: October 12, 2004

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Gilbert R. Serota, Curt Holbreich, San Francisco, for Plaintiff, Cross-Defendant and Appellant, R. Thomas Fair. Shartsis, Friese & Ginsburg, LLP, Arthur J. Shartsis, Erick C. Howard, San Francisco, for Defendants and Respondents, Karl E. Bakhtiari, Maryann E. Fair, Stonesfair Financial Corporation, Stonesfair Management Company and Stonesfair Corporation;  and attorneys for Cross-complainant and Respondent, Stonesfair Financial Corporation.

Plaintiff R. Thomas Fair appeals the trial court's denial of his motion to compel arbitration.   The motion was based on an arbitration clause in a document that was 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).   Plaintiff contends this document constitutes a valid, admissible settlement agreement between the parties and the trial court erred in ruling to the contrary.   We find the trial court erred in denying the motion to compel arbitration because (1) the settlement agreement satisfies a statutory exception to the inadmissibility of written or oral communications made during mediation, and (2) the settlement agreement contains a valid agreement between the parties to arbitrate all disputes.   We therefore shall reverse.


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 plaintiff's 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. Fair's 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 Fair's 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.   Am't 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 plaintiff's 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.   We've 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 it's settled and there's a dismissal on file, you need not come in.”   The trial court also granted a request by plaintiff's counsel to continue plaintiff's 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 plaintiff's counsel objected to the inclusion of numerous terms in the draft agreement that had not been agreed to in the settlement terms document.   Plaintiff's 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 plaintiff's 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 plaintiff's motion to compel arbitration.

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


Plaintiff contends the trial court erred in denying his motion to compel arbitration pursuant to Code of Civil Procedure section 1281.2.3

In its order denying plaintiff's motion to compel arbitration, the court first sustained defendants' objections to admission of the settlement terms document into evidence, citing Evidence Code section 1119,4 and stating that section “1123 has not been satisfied and the exceptions do not apply.   There is no waiver.”   The court also sustained defendants' objection to admission of a paragraph of plaintiff's counsel's declaration, in which he stated the intent of mediator Lynch and all counsel involved in drafting the settlement terms document was for that document to be a binding, enforceable agreement.   Finally, the court denied plaintiff's motion to compel arbitration, stating, “There is insufficient demonstration of an arbitration agreement given the inadmissibility of the Term Sheet.  [¶] Further, Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 105 Cal.Rptr.2d 597 [ (Condee ) ] is distinguishable as the public policy factors underlying mediation are not involved.”

In deciding whether the trial court should have granted plaintiff's motion to compel arbitration, we must determine, first, whether the settlement terms document satisfies any of section 1123's exceptions to the confidentiality requirements of section 1119 and, if so, whether the arbitration provision in the settlement terms document constitutes a valid agreement to arbitrate disputes.**

I. Applicable Standard of Review

 The threshold question regarding whether the settlement terms document-assuming it does in fact constitute an agreement between the parties-satisfies any of the exceptions in section 1123 to the inadmissibility of settlement agreements reached during mediation, is subject to de novo review, since reviewing courts “independently determine the proper interpretation of [a] statute.”  (Burden v. Snowden (1992) 2 Cal.4th 556, 562, 7 Cal.Rptr.2d 531, 828 P.2d 672.)   Likewise, interpretation of the language of the settlement terms document is subject to de novo review.  (See Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684, 99 Cal.Rptr.2d 809.)


II. Applicability of Section 1123

Section 1119 provides:  “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.”

 In Foxgate Homeowners' Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1, 3-4, 108 Cal.Rptr.2d 642, 25 P.3d 1117 (Foxgate ), the California Supreme Court held that the Court of Appeal had erred in creating a judicial exception to the confidentiality requirements of section 1119 and section 1121 (regarding confidentiality of a mediator's reports and findings).   The court observed that “confidentiality is essential to effective mediation, a form of alternative dispute resolution encouraged and, in some cases required by, the Legislature.”  (Foxgate, at p. 14, 108 Cal.Rptr.2d 642, 25 P.3d 1117.)   Therefore, to encourage mediation by ensuring confidentiality, the statutory scheme (which includes section 1119) “unqualifiedly bars disclosure of communications made during mediation absent an express statutory exception.”  (Foxgate, at p. 15, 108 Cal.Rptr.2d 642, 25 P.3d 1117, fn. omitted.)

The court in Foxgate further stated that because the language of sections 1119 and 1121 is clear and unambiguous, “judicial construction of the statutes is not permitted unless they cannot be applied according to their terms or doing so would lead to absurd results, thereby violating the presumed intent of the Legislature.  [Citations.]”  (Foxgate, supra, 26 Cal.4th at p. 14, 108 Cal.Rptr.2d 642, 25 P.3d 1117.)   The court found, moreover, that a judicially crafted exception to the confidentiality requirements of sections 1119 and 1121 “is not necessary either to carry out the legislative intent or to avoid an absurd result.”  (Foxgate, at p. 14, 108 Cal.Rptr.2d 642, 25 P.3d 1117;  accord, Rojas v. Superior Court (2004) 33 Cal.4th 407, 424, 15 Cal.Rptr.3d 643, 93 P.3d 260 (section 1119's confidentiality requirements are not subject to a “good cause” exception);  Eisendrath v. Superior Court (2003) 109 Cal.App.4th 351, 362, 134 Cal.Rptr.2d 716 [rejecting claim of implied waiver of mediation confidentiality rights].)

Section 1123, which is relevant here, provides:  “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.”

Both section 1119 and section 1123 were enacted in 1997.   They took the place of former section 1152.5, and section 1123 essentially restates several of former section 1152.5's terms, except that section 1123, subdivision (b), is new.   The Law Revision Commission Comments to section 1123 explain that this subdivision was added “due to the likelihood that parties intending to be bound will use words to that effect [i.e., to the effect that the agreement is “enforceable or binding”], rather than saying their agreement is intended to be admissible or subject to disclosure [under subdivision (a) ].” (Cal. Law Revision Com. com., 29B pt.   3 West's Ann. Evid.Code (2004 supp.) foll. § 1123, p. 157.)   This comment, as well as the language of subdivisions (a) and (b) of section 1123 itself, shows that the Legislature's concern was not with the precise words used in a settlement agreement, but with the need for the words to unambiguously signify the parties' intent to be bound.

 Based on this commonsense reading of the statute, we find that the exception specified in section 1123, subdivision (b), to section 1119's confidentiality requirements, is applicable to the present case.   While it is true that the settlement terms document does not contain the words “enforceable” or “binding,” there is language in the document, i.e., “words to that effect,” that makes plain the parties' intent to be bound. (§ 1123, subd. (b).)

The final provision of the settlement terms document states:  “Any and all disputes subject to JAMS arbitration rules.”   The “JAMS Comprehensive Arbitration Rules and Procedures” govern, inter alia, “binding Arbitrations of disputes or claims that are administered by JAMS and in which the Parties agree to use these Rules.”   The inclusion of this term requiring resolution of all disputes under JAMS arbitration rules shows that the parties contemplated that an arbitrator would, in the event of any disputes related to the settlement terms document, consider and resolve such disputes.   In other words, inclusion of the arbitration term demonstrates that the parties necessarily intended the settlement terms document to be “enforceable or binding.” (§ 1123, subd. (b).)

Thus, because inclusion of the arbitration provision is consistent solely with an intention on the part of the parties for the settlement terms document to be enforceable or binding, we find that that provision constitutes “words to that effect” under subdivision (b) of section 1123.  Section 1123 plainly reflects a legislative intent not to make inadmissible settlement agreements that the parties intend to be enforceable.   To find section 1123 inapplicable in the present case would frustrate that intent.7

Consequently, we conclude the trial court erred in finding that the exceptions to confidentiality specified in section 1123 were inapplicable and that the settlement terms document was inadmissible for that reason.

III. Existence of a Settlement Agreement †


The order denying plaintiff's motion to compel arbitration is reversed.   The matter is remanded to the trial court with directions to vacate its order denying plaintiff's motion to compel arbitration, and to enter an order granting that motion.   Costs on appeal are awarded to plaintiff.


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 (which presently represents defendants on appeal) would also represent defendants in this matter.

3.   Code of Civil Procedure section 1281.2 provides in relevant part:  “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists ․”

4.   All further statutory references are to the Evidence Code unless otherwise indicated.

FOOTNOTE.   See footnote *, ante.

FOOTNOTE.   See footnote *, ante.

7.   We note that the majority of states that have enacted statutes regarding mediation confidentiality require only that a settlement agreement be in writing and signed by the parties to be admissible, without the added requirement that the parties expressly provide for its admissibility or enforceability.  (See, e.g., Deason, Enforcing Mediated Settlement Agreements:  Contract Law Collides with Confidentiality (Nov.2001) 35 U.C. Davis L.Rev. 33, 46-47 & fn. 33 [citing cases].)Similarly, the Uniform Mediation Act (Act), drafted by the National Conference of Commissioners on Uniform State Laws, which approved and recommended the Act for enactment in all states in 2001, provides that there is no privilege for a mediation communication that is in a written agreement (including a handwritten agreement), and is signed by all parties to the agreement.  (Act § 6(a)(1);  22 N.Ill.U. L.Rev. (Spring 2002) 165, 210, 213.)   The Reporter's Notes to section 6 of the Act explains that “[t]he exceptions in Section 6(a) apply regardless of the need for the evidence because society's interest in the information contained in the mediation communications may be said to categorically outweigh its interest in the confidentiality of mediation communications.”  (22 N.Ill.U. L.Rev., supra, at p. 212.)Our Legislature has made a different choice in requiring further confirmation that the parties intended a settlement agreement prepared during a mediation to be admissible and/or enforceable.   It is not for us to second-guess the wisdom of the California requirements, but merely to determine their applicability to the present situation.

FOOTNOTE.   See footnote *, ante.


We concur:  HAERLE and RUVOLO, JJ.