Ethics and the attorney as mediator or third party neutral

I.

INTRODUCTION

The use of mediation and other alternative dispute resolution (ADR) methods has increased dramatically over the years. Lawyers, judges and the parties involved in a dispute should all be aware of the advantages and disadvantages of the different methods available. This article provides a commentary on mediation, including the efforts to revise the Uniform Mediation Act, the ethical issues affecting third party neutrals, whether the use of ADR methods constitutes the practice of law, and the role of the attorney as a third party neutral.

II.

THE MEDIATION PROCESS

Mediation is a non-binding, confidential dispute resolution process before one or more third party neutrals. Individuals and entities generally participate in mediation on a voluntary basis in order to resolve their dispute through nonbinding negotiations with the assistance of a third party neutral. Experienced lawyers and non-lawyers are privately retained to serve as mediators and neutrals. Some organizations also maintain a roster of people trained in dispute resolution. All of these individuals are experienced in using methods of conciliation to aid parties in settlement or other mutually acceptable resolution of a dispute.

Alternate dispute resolution methods are used to resolve a variety of disputes. Examples include disputes between employer and employee, insurer and insured, health provider and patient, manufacturer and customer, professional and client, insurer and reinsurer. Contract issues and disagreements with government agencies are also properly subject to ADR methods.

Many court systems sanction both voluntary and compulsory mediation programs that use the services of a lawyer as the third party neutral. In commercial disputes many non-lawyers, by virtue of their education, training, and life or work experiences, are selected to serve as neutrals. Many courts favor the use of ADR methods to reduce court congestion and to assist parties in reaching a faster and usually more economical resolution to their dispute. However, objections have been lodged against non-lawyer neutrals who participate as mediators in court-related dispute resolution proceedings. This issue was the subject of study by the American Bar Association's Section of Dispute Resolution in 1999. That study resulted in the following resolution:

The section of dispute resolution has noted that many court connected ADR programs and other dispute resolution programs have restricted participation to neutrals who are lawyers. The section believes that the eligibility criteria for dispute resolution programs should permit all individuals who have the appropriate training and qualifications to serve as neutrals, regardless of whether they are lawyers.'

Ill.

UNAUTHORIZED PRACTICE OF LAW

In the case of Birbrower Montalbano Condon & Frank v. Superior Court,2 the California Supreme Court addressed the issue of unauthorized law practice by unlicensed lawyers during ADR proceedings. Birbrower Montalbano, a New York law firm, was retained to represent a California client during California arbitration proceedings. The firm was unlicensed in California. The court determined that the firm could not recover payment of its fees for services performed in California because its conduct constituted the unlawful practice of law. The Birbrower decision, however, stands in sharp contrast to the decision in Williamson v. John D. Quinn Construction Corp.3 In Williamson, the New York federal court held that a New Jersey law firm, though unlicensed in New York, could collect fees for its legal representation of a client during a New York arbitration.

The conflict between these legal decisions emphasizes the care that attorneys must take while engaged in conduct that might be considered "legal" in nature. Meeting with a client or witnesses, providing advice over the phone, or even sending a fax that contains legal advice when the attorney is not licensed in the jurisdiction could be problematic. Unless the particular jurisdiction has decided the issue, it is difficult to predict the rules of engagement in ADR cases. The use of a non-lawyer neutral in mediation could be challenged on grounds that the neutral has engaged in the unauthorized practice of law. If that occurs, the results are not clear. Under the circumstances, it would be prudent for both the non-lawyer mediator, as well as the lawyer mediator, to avoid any activity that might be construed as legal in nature so as to precipitate sanctions.

Conflicting case law on these issues often occurs because there are differing views as to whether arbitration constitutes a "legal proceeding." If it is not, participation as an arbitrator or party representative should occasion no issue about the unlicensed practice of law. However, problem situations may arise as a result of conduct that is tantamount to the practice of law, such as preparing a document intended to be binding on the parties and filed in court. In light of the holding in Birbrower, the parties can only speculate about international implications. It is questionable, for example, how the California courts might interpret a similar situation involving international arbitration under the InterAmerican Convention on International Commercial Arbitration. If one party elected to be represented by a non-lawyer and the other party retained an unlicensed out-of-state attorney, would the treaty provisions "trump' the California state licensing rules governing the practice of law?

These concerns are further complicated by noting that the rules of many ADR organizations allow a party to be represented by either a lawyer or an authorized non-lawyer. Such rules can be found in the proposed Uniform Mediation Act, the Uniform Arbitration Act, the commercial and international rules of the American Arbitration Association, and the rules of the Inter-American Commercial Arbitration Commission.

IV.

THE MEDIATOR'S PREPARATION AND CONDUCT OF A HEARING

The mediator's preparation and conduct are critical to a successful ADR session. First and foremost, the mediator must convey to the participants and their counsel that he or she is fair, impartial and familiar with the issues at hand. The mediator's words and conduct should indicate a sense of neutrality that remains evident throughout the hearing. Under no circumstances should a mediator appear to favor either party.

At the outset, the mediator will advise the parties about the role he or she will perform and describe the procedure that will predominate the session. The mediator will inform the parties that he or she will meet privately (caucus) with each party to discuss their respective positions at some point during the process. The parties are informed that these talks are confidential as to content and cannot, without prior consent, be revealed to the other party. During the caucus the participants are encouraged to disclose confidential information that will assist the mediator in better understanding the parties' positions in the dispute. Hopefully, the caucus will provide a sense of each party's position and concerns, enabling the mediator to better serve his or her role.

The mediator next will inform participants that he or she will not function as a decision-maker. If the mediator is a lawyer, the mediator will clarify that he or she will not act as a lawyer for either party. The mediation process is intended to empower the parties to find their own solution. A mediator may function as a negotiator or facilitator, but never as an advocate.

The mediator must walk a fine line. Where one party appears with counsel and the other does not, the mediator should suggest that the unrepresented party retain counsel.

Intuitively, the mediator must know when, and to what extent, a mediator should enter the parties' discussions. If a mediator believes that a party is not acting properly, the mediator may suggest adjournment rather than continue the hearing under adverse circumstances. Such an adjournment provides time to consider vehicles for improving the situation.

Unlike litigation or arbitration, a mediation session has no "winners or losers." At the conclusion of the mediation, the participants and their counsel should feel that the settlement or solution was equitably agreed between the parties.

V.

CONFIDENTIALLY STANDARS

Confidentially standards and guidelines, intended to protect mediations by cloaking them with confidentiality, are variously delineated in governmental, judicial and private association rules.4 Sometimes the vagueness of the confidentiality provision or the public policy of the given jurisdiction may render it difficult for the mediator or the parties to determine the scope of confidentiality actually afforded to the proceedings.5

Under some standards it remains unclear as to when, what and to whom the confidentiality provision is applicable. For example, does the confidentiality provision protect statements made by a non-party or an expert witness? Furthermore, in a mediation involving a government agency, what is the impact of a request made under an applicable provision of the Freedom of Information Act?

Various groups and associations that actively support ADR methods have enacted their own mediation standards. These standards are intended to be followed when the mediation proceeds under the auspices of a given organization.

In an ad hoc mediation, the mediator and counsel often will fashion their own stipulation of confidentiality suited to their particular needs. Absent any legal representation, the mediator may provide a stipulation form for the parties' consideration.

Regardless whether the mediation proceeds under the auspices of any given organization, the parties and their attorneys always are entitled to modify the confidentiality form. Despite careful preparation, however, there remains a concern that the cloak of confidentiality may be lifted under the provisions of an overriding statute, equitable principle, public policy or waiver.

VI.

THE UNIFORM MEDIATION ACT STANDARDS

As noted, there are numerous statutes, administrative rules and regulations throughout the United States that relate to mediation. However, these laws are not uniform in their provisions. Individuals and groups that are interested in mediation have expressed concern over the absence of nationwide guiding principles that define a uniform standard for mediation. Additionally, they have noted the absence of any specific standard governing the duties of a lawyer who serves as mediator or third party neutral.

The American Bar Association, the American Arbitration Association, the Uncitral Rules, and the Conflict Resolution Association (formerly the Society of Professionals in Dispute Resolution), as well as various other groups have enacted their own standards regulating the conduct of a mediator. During the past four years, the National Conference of Commissioners on Uniform State Laws (NCCUSL), in conjunction with several other groups and associations that include the American Bar Association, have been working to draft a new Uniform Mediation Act. Its latest version, dated February 20, 2001, will be discussed and revised during summer, 2001. State legislatures will consider the resulting efforts for possible enactment into law.

The Uniform Mediation Act is intended to foster dispute resolution in accord with principles of integrity and confidentiality. It seeks to promote a nationwide uniform mediation standard. The guidelines address issues of privilege, disclosure, waiver, confidentiality and the rights of non-party participants. Under proposed Section 3(5), a "mediator" is defined as "an individual, of any profession or background, who conducts a mediation."'

The Act provides for the party to be represented by a designated individual. Section 9 states that "[a]n attorney or other individual designated by a party may accompany that party and participate in the mediation."9 Any waiver of this right may be rescinded.

Interested parties do not completely agree with the wording of the latest draft, and it likely will be subject to further revision and modification. Submission to the NCCUSL of a final draft is contemplated sometime during the summer of 2001. Once approved and adopted, the Act will furnish uniform standards and guidelines for use in both official and private mediations nationwide.

VII.

ADDITIONAL EHTICAL STANDARDS FOR THE LAWYER/THIRD

PARTY NEUTRAL

Although the standards of the Uniform Mediation Act apply to the lawyer neutral, it is also suggested that the lawyer is subject to further professional ethical standards. The attorney-client relationship, governed by the Model Rules of Professional Conduct enacted by the American Bar Association, enhances ethical standards for the lawyer neutral. However, these rules do not specifically address all issues which may confront the lawyer who serves in the nonrepresentational role of a mediator or neutral arbitrator. Likewise, though the Uniform Mediation Act defines the ethical standards of conduct to be followed by both the mediator and the participants during a mediation, it does not separately address the ethical concerns of the lawyer when acting as a third party neutral.

The American Bar Association's rules of professional conduct, however, are likely to apply since these rules relate to both the legal and non-legal conduct of an attorney. Certain constituencies proposed that further guidelines would be appropriate for the lawyer serving as a third party neutral. Accordingly, a task force was formed to recommend further clarification in the ABA Model Rules of Professional Conduct.

Following discussion with other interested groups, the Center for Public Representation (CPR) Institute for Dispute Resolution and the Georgetown University Law Center have drafted a proposed model rule of professional conduct that defines a lawyer's obligations while acting as a mediator or third party neutral. This draft is under study by various associations, as well as the American Bar Association's Commission on the Evaluation of the Rules of Professional Conduct (also referred to as the "Ethics 2000 Commission"), with a view toward incorporating the final draft into the ABA Model Rules of Professional Conduct. The draft wording notes that a lawyer who accepts the role of a neutral functions in a nonrepresentational capacity. The drafters have also circumscribed the extent to which the neutral might participate in events that create conflicts or implicate other ethical concerns. Thus, the draft seeks to identify and assimilate ethical concerns that the attorney might encounter in both the neutral and representational roles. It articulates guidelines for recognizing and avoiding potential ethical problems.

Among the issues addressed in the draft are confidentiality, privilege, waiver, informed consent, screening, conflicts of interest and the need for diligent inquiry about the neutral's activity regarding past, present and future client relationships. The draft also considers the necessity for timely disclosure of potential conflicts to clients and parties during the ADR proceedings. The need to determine the impact of other cases handled by the attorney's firm is also addressed.

The lawyer serving as a neutral also may be subject to ethical provisions contained in court rules, the code of ethics for arbitration in commercial disputes, the model standards of conduct for mediators (both created jointly by the American Arbitration Association and the American Bar Association), or the rules of the Conflict Resolution Association. In addition, an attorney should examine any request that he or she serve in a hearing regarding the same or any closely related subject matter in which the attorney's law firm is or has represented a client. Receipt of confidential material of a conflicting nature by the mediator during a caucus, whether or not disclosed to the firm, could result in disqualifying the firm from any current or future cases. It is evident that the ethical standards that apply to both the lawyer and non-lawyer mediator are only the starting point for the lawyer neutral. In order to determine whether a potential conflict exists, the lawyer neutral is obligated to consult a larger universe of activities involving the firm. Unless the lawyer neutral obtains an appropriate written waiver from interested clients and meditation participants, the lawyer faces potential risks of ethical misconduct as well as claims for damages from the aggrieved client or party.

The ABA Commission on Evaluation of the Model Rules of Professional Conduct has issued its Ethics 2000 report. The report recommends that a client's "informed consent" to a conflict be confirmed in writing. In the comment to proposed Rule 1.7, the Commission notes: "the writing need not take any parocular form; it should, however, include disclosure of the relevant circumstances and reasonably foreseeable risks of the conflict of interest, as well as the client's agreement to the representation despite such risks."10 The proposed rule does not require that the client sign the writing unless the matter falls within a list of prohibited transactions.

With regard to the nature of disclosure, the lawyer neutral should note that the duty to seek out and disclose possible conflicts continues throughout the hearing. Inadequate inquiry or disclosure may result in severe consequences if the conflict is later discovered. A court might void an arbitration award or overturn a settlement agreed to in mediation.

There are occasions when efforts at mediation prove unsuccessful and the parties elect to continue their efforts with arbitration. Under these circumstances, the parties may request that the lawyer "change hats" from mediator to arbitrator. If the lawyer accepts, he or she may be inviting the perils of a treacherous journey. The lawyer must consider the purpose behind any such request. Do the parties think the lawyer is a fair person? Has the lawyer implied during a caucus that he or she is sympathetic to a settlement amount or a material position on the issues? To what extent might the lawyer rely on information learned in a caucus, but never revealed to the opposing party? If the lawyer considers such information to be material and probative, is there an obligation to effect disclosure so that the opposing party has an opportunity for challenge? Finally, how will the promise of confidentiality, given during the mediation, affect the ensuing arbitration? These situations are complex and perplexing, but they will surely test the neutral's impartiality and the fairness of any hearing. Accordingly, while some mediators have no problem with switching roles, the best advice is avoidance unless it was agreed from the outset that the neutral is to be retained as both a mediator and arbitrator in the matter.

VII.

UNIFORM ARBITRATION ACT

The National Conference of Commissioners on Uniform State Laws (NCCUSL) voted to adopt the Revised Uniform Arbitration Act (RUAA), which has been offered as a model act for review and adoption by legislative bodies nationwide. There is some similarity between the conflict and disclosure requirements of the Uniform Mediation Act and the RUAA disclosure requirements. Section 12(a) of the RUAA provides:

Before accepting appointment, an individual who is requested to serve as an arbitrator, after making a reasonable inquiry, shall disclose to all parties to the agreement to arbitrate and arbitration proceeding and to any other arbitrators any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding ...11

Facts that could affect the outcome might include: individual interest, personal or financial, in the outcome of the arbitration or failure to reveal existing or past relationships with any of the parties or their counsel or representatives, witnesses or the other members of the panel."

Under the terms of Section 12(e), "[a]n arbitrator appointed as a neutral who does not disclose a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party is presumed to act with evident partiality under section 23(a)(2)."'3 Likewise, Section 23 prescribes that awards may be vacated under certain conditions:

(a) Upon [motion] of a party to the arbitration proceeding, the court shall vacate an award if:

(2) THERE WAS:

(A) evident partiality by an arbitrator appointed as a neutral;

(B) corruption by an arbitrator, or

(C) misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding.14

Accordig, a court might sanction nondisclosure by vacating the award.15

IX.

CONCLUSION

The universe for identifying potential conflicts is greater for the lawyer than for the non-lawyer. The lawyer must make a diligent effort to avoid accepting any appointment that involves the same subject matter currently or formerly handled by the lawyer or the lawyer's firm.

In this regard, the American Bar Association's expanded ethical standard for the lawyer neutral, as proposed, will offer more suitable guidelines by which lawyer neutrals can measure their activities. Regardless of whether the mediator is a lawyer, however, conflicts of interest, ethical considerations, model rules and Acts, and general ADR tactics should be understood and employed by any neutral to insure a successful mediation.

1American Bar Association http://www.abanet.org/dispute/assoc.html. 2949 P.2d 1 (Cal. 1998).

(3)537 F. Supp. 613 (S.D.N.Y. 1982).

4'Examples include Rule 12 of the American Arbitration Association Commercial Mediation Rules; the Alternate Dispute Resolution Act of 1998, which requires all federal district courts to operate ADR programs, including mediation, and which provides in Section 652(d) that each district court must create a local rule governing confidentiality; Florida Rules for Certified and Court Appointed Mediators Rule 10.360; the Federal Administrative Dispute Resolution Act of 1996 (ADRA), and the American with Disabilities Act Mediation Guidelines. See http://www.cardozo.yu/cojcr/lines.htm.

5See, e.g., Model Standards of Conduct for Mediators at http://www.abanet.org/ftp/pb/dispute/modstan.txt. These Model Standards result from a joint effort of the American Arbitration Association, American Bar Association, and the Society of Professionals in Dispute Resolution (now known as the Conflict Resolution Association). And see the Federal ADR Council policy statement entitled, "Confidentiality in Federal Alternative Dispute Resolution Programs," published in the Federal Register of October 4, 2000.

6 See Model Standards of Conduct for Mediators, Section V, "Confidentiality." See also CPR-Georgetown Commission Draft principles for ADR Provider Organizations, Section IX, "Confidentiality," available at http://www.cpradr.org/. Use heading, "What's New; New CPR Projects, Programs & Pledges."

7NIF. MEDIATION ACT 3(5) (Interim Draft 2001).

8Id. at 8.

91d. at 9.

10Id.

11 INIF. ARBITRATION ACE SEC 12(a) (2000).

12Id. at sec 12(a)(1)-(2).

13 Id. at sec 12(e).

14 Id. at sec 23(a)(2)(A)-(C).

15 Id. at sec 23(a).

ANTHONY M. LANZONE

Anthony M. Lanzone is a 1953 graduate of St. John's University School of Law. He has conducted a domestic and international law practice as a trial attorney with extensive involvement in arbitration and mediation. Mr. Lanzone is a panel member ofa number of ADR organizations. He presently limits his activity to consultations and to serving as a third party neutral. Mr. Lanzone has been an active member of the Federation of Insurance & Corporate Counsel since 1975, serving as a member of the Projects & Objectives Committee. He also has chaired both the Reinsurance and Excess & Surplus Lines Sections, and he is a frequent lecturer and author.

Copyright Federation of Insurance & Corporate Counsel Summer 2001
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