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November 30, 2006

Dino v. Pelayo (2006) 145 Cal.App.4th 347

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The First District holds that an adversary with no confidential relationship to his opponent’s attorney cannot disqualify that attorney based on confidences exchanged in mediation.

Edward Suman represented Joe Dino when he sued Jess and Rose Pelayo to recover the balance of a real estate commission.  Dino acted as agent for both parties in the sale of the Pelayos’ assisted living facility to the Eslavas.  When the Eslavases could not acquire financing Dino assisted them in selling to a second buyer.  Dino alleged that the Pelayos remained responsible for the commission on the first sale.

In a cross-complaint, the Pelayos alleged that the Eslavases had agreed to assume their obligation to pay the commission and sought indemnification from them.  Suman represented both Dino and the Eslavases after obtaining a Conflict of Interest Waiver.  The Eslavases filed a cross-complaint against the Pelayos for breach of contract, duress and usury.

After an unsuccessful mediation, the Pelayos filed a motion to disqualify Suman arguing that a conflict of interest existed between Dino and Eslavas, and that their joint representation violated the Pelayos’ right to mediate confidentially with each party.  The trial court granted the motion.

The Court of Appeal noted that typically the complaining party in a disqualification motion must have a current or prior attorney-client relationship with that attorney.  Some courts have found the attorney-client relationship a prerequisite to disqualification.  Other courts focus on whether the attorney owed a duty of confidentiality to the complaining party, regardless of whether a lawyer-client relationship existed.  The Court of Appeal concluded that some sort of confidential or fiduciary relationship must have existed before a party is entitled to prevail on a motion to disqualify an attorney predicated on the actual or potential disclosure of confidential information.

The trial court found that the Pelayos had standing; that Suman represented parties with conflicting interests; and that his duty of loyalty and confidentiality to his clients was at risk.

The Court of Appeal held that the proper inquiry was whether Suman owed some duty of confidentiality to the Pelayos.  There was no attorney-client or other fiduciary relationship between the Pelayos and Suman that would permit them to disqualify him.

The Court of Appeal rejected the argument that the Pelayos had a right to mediation confidentiality or a “confidential mediation caucus” with Eslavas that was impaired by Suman’s representation of both Dino and Eslavas.  Prior case law rejected this argument finding that a “mediationdisqualification rule” would discourage mediation.  An attorney who mediated one case would thereafter risk disqualification in any other case againstthe same party.

In addition, a mediation-disqualification rule would bar clients from choosing joint representation if the attorneys they hired faced disqualification whenever their case proceeded to mediation.  Parties choose joint representation despite potential conflicts for a variety of legitimate reasons and the court must not interfere with their choice of counsel absent ethical considerations that affect the fundamental principles of the judicial process.

Finally a mediation-disqualification rule would essentially recognize a confidential relationship between a mediating party and the attorney jointly representing the opposing parties based solely on the potential exchange of confidential information as part of the mediating process.  Under California law, a confidential relationship is not created simply by the receipt of confidential information.  A confidential relationship hinges on an unequal relationship between parties in which one surrenders to the other some degree of control because of the trust and confidence which he reposes in the other.  This is not applicable to mediation confidentiality where the parties and their attorneys are not in anunequal relationship and the parties are dealing at arm’s length.

Comment: Courts are skeptical of motions to disqualify from adversaries outside of the attorney-client relationship.

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