A reason for lawyers to love mediation . . .

. . . and for clients to be wary. A California court has held that an attorney cannot be liable to a client whom he gave bad advice during a mediation. John Amis, along with the corporation of which he was an officer and minority shareholder, got sued for breach of contract. During mediation, his attorney advised him to accept a settlement in which the corporation agreed to pay $2.4 million. He agreed to guarantee the corporation’s debt: anything the corporation could not pay, he would.
The whole point of a corporation is limited liability—its debts are not its owners’. But when this corporation could not pay anything, Amis found himself under a $2.4 millon  judgment. He sued his attorney who advised him to agree to the settlement, to which the court responded, “Nope.”
California law has a “privilege” for communications in mediation. Nothing said in one is admissible in court. The idea is that encouraging frank discussion of a case’s merits and difficulties will more likely produce a settlement. But the court said that the privilege covers not just what the parties say to each other or to the mediator but what they say to their own lawyers. So the attorney can tell the client anything at all without fear of getting sued for it.
In the court’s defense. it did not think this attorney’s mediation immunity was a good idea. In fact, it found the result unjust. But it had no choice given the statute and precedent.

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