Lawyers who handle mediations will want to be aware of this one.

After Grubaugh’s divorce was resolved by mediation she sued her lawyer for the allegedly bad advice during the mediation that led her to accept its result. The lawyer moved the trial court to order either that Grubaugh waived the mediation privilege (12-2238) or that she could not base her malpractice claim on communications she also had the right to keep privileged. The trial court accepted the “either” position, ruling that the claim waived the privilege. Grubaugh took special action.

The Court of Appeals accepted it and took the “or” position: Grubaugh did not waive the privilege but can’t sue based on privileged information. The traditional argument is that you can’t use a privilege as both a sword and a shield but the court says that while this applies at common law the mediation privilege is strictly statutory. Under the statute everything at mediation is inadmissible later unless the parties agree otherwise, disclosure is required to enforce the agreement or by another statute, or the information is relevant to a claim against the mediator. A malpractice claim against the lawyer isn’t one of those exceptions so Grubaugh didn’t waive the privilege by making one.

But the court then says in essence that since it would be unfair to prevent the lawyer from defending the malpractice claim, “striking from the complaint any claim founded upon confidential communications during the mediation process is the logical and necessary consequence of applying the plain language of this statutory privilege.” Sounds good but there really isn’t much more reasoning to it than that. The thought, presumably, if there was one, was that the legislature intended this result and that insulating lawyers from liability for malpractice during mediation was a policy decision within its power.

The court remands to let the trial court decide which communications were privileged and strike claims based on those.

The trial court had decided, according to the opinion, that the privilege did not apply because “the statute did not contemplate the precise issue presented.” Whether the opinion says it that way to make the ruling seem stupid we can’t and won’t say. Our guess, though, is that in context the trial judge was referring  to a constructive-intent argument, in which case – whether ultimately right or wrong – his analysis had at least as much legal thought behind it as the appellate court’s approach.

.(link to opinion)

This case about a Morris agreement on a title policy has a very complicated factual background. The court presents it at length. Our summary simplifies, though it does assume knowledge of Morris.

Some investors obtained from a bankrupt lender its deed of trust on a development in Tempe (Centerpoint) and then foreclosed it to take control of the development  itself. They also bought some adjacent property for a parking lot. With these transactions came title policies insuring their interest in the property. So when mechanics’ liens allegedly having higher priority were asserted the investors tendered the defense of those suits to the title insurers, which accepted under reservation. Eventually the investors needed to sell the property in order to pay off additional loans they themselves had taken out on it. They couldn’t do that without clearing the liens but didn’t want to clear the liens for fear of forfeiting their claim that the insurers should do that for them. Instead they came up with a scheme that we were going to make pithy and very witty comments about until we noticed that one of the lawyers in this case brags on his web page that he was its “architect,” in light of which the better part of valor is to let you form your own opinion. The investors formed a separate entity, which they controlled.  They sold the property and had part of the payment diverted to that entity, which used it to purchase the lien claims and an assignment of the lienholders’ rights against the investors. The entity then substituted itself as plaintiff in the lien claims against the investors. Finally, the investors as defendants agreed with the entity (i.e., themselves as plaintiffs) to a Morris deal on the lien claims, with a judgment three times the amount actually used to resolve the liens – which amount, if collected, the entity agreed to pay across to the investors.

When the insurers challenged this the trial court decided it that it was just fine and that, assuming coverage (which had yet to be determined), the insurers would owe the entity the amount of the stipulated judgment. And by finding that nobody had done anything wrong the court foreclosed – and therefore dismissed – claims of intentional interference with contract that the insurers were making. The insurers appealed.

The insurers wanted the court to hold that Morris doesn’t apply to title policies. The court says that it needn’t address that because even if Morris applied to title insurance in general it doesn’t apply here.

The court reviews the background and purpose of Morris agreements and finds that this agreement “falls outside [their] permitted parameters.” The agreement was not made at arms length. The lien claimants, by assigning their rights, “effectively settled their claims unconditionally . . . leaving no risk of excess liability for the insureds.” The amount of the judgment inflated both the amount and nature of the insured’s actual liability and hence of the insurance coverage.

The court therefore also reinstates the claims of intentional interference with contract and remands.

(link to opinion)