This is the property of the Daily Journal Corporation and fully protected by copyright. It is made available only to Daily Journal subscribers for personal or collaborative purposes and may not be distributed, reproduced, modified, stored or transferred without written permission. Please click "Reprint" to order presentation-ready copies to distribute to clients or use in commercial marketing materials or for permission to post on a website. and copyright (showing year of publication) at the bottom.

self-study / Contracts

Jun. 12, 2024

Ceci n'est pas un contrat

Glendale Courthouse

Ashfaq G. Chowdhury

Judge

Columbia Law School, 2000

My attention was piqued by a recent summary of a California Court of Appeals decision: “A confidentiality clause in an agreement that repeatedly and explicitly stated that it created no enforceable rights was not enforceable.” (Daily Appellate Report, June 4, 2004 [summary of Mueller v. Mueller (June 3, 2024) --- Cal.Rptr.3d ---, 2024 WL 2809599].) Parties can agree to be bound by their agreement not to be bound. News at 11. But was the case really as simple as that?

The case arose from a “collaborative-law agreement.” “Collaborative law is a non-judicial alternative dispute resolution process commonly used for marriage dissolutions.” Mueller, supra, 2024 WL 2809599, at * 1.

“Family Code section 2013 is California’s collaborative law statute. It provides only that “(a) If a written agreement is entered into by the parties, the parties may utilize a collaborative law process to resolve any matter governed by this code over which the court is granted jurisdiction pursuant to Section 2000. [¶] (b) ‘Collaborative law process’ means the process in which the parties and any professionals engaged by the parties to assist them agree in writing to use their best efforts and to make a good faith attempt to resolve disputes related to the family law matters as referenced in subdivision (a) on an agreed basis without resorting to adversary judicial intervention.”

(Id.)

The couple at issue in the case “initially attempted to use collaborative law to wind down their marriage.” (Id.) The parties executed an agreement as part of that process:

“On its first page, the agreement states, in plain language, that it creates no enforceable legal rights or contractual obligations: ‘Each of us understands that this document does not give either of us enforceable legal rights that we did not already have. We both understand that these good faith undertakings set out in this document are not legally enforceable contractual obligations. We also understand that other documents will be signed in the Collaborative Divorce process that are legally enforceable contracts, including the Stipulation and Order re: Collaborative Matter, and the retainer agreements we sign with our lawyers and other nonparty participants, if any. We are not relying on this Agreement to create legally enforceable rights. However, we both commit to abide by the letter and spirit [of] this Agreement and we each expect that the professionals involved will do the same.’”

(Id.)

The collaborative-law agreement also contained a confidentiality clause:

“Communications related to collaborative matters made during the collaborative process are confidential and may not be disclosed to third parties. The parties agree that in any court or other proceeding, they will not request, subpoena or summons a collaborative lawyer, a collaborative party, or a nonparty participant in the collaborative process to make disclosure or testify as a witness regarding a communication made during the collaborative process, unless during the proceeding the agreement under this paragraph is expressly waived by all parties in writing.”

(Id. at *2.)

Later in the proceedings, the husband served subpoenas on both parties’ collaborative-law attorneys, for their testimony about statements the wife had made at one of the collaborative-law sessions. (Id.) The wife sought to exclude the testimony, arguing that “the confidentiality clause shielded her statements from disclosure.” (Id.) The husband “contended that the clause was merely advisory and ‘in the spirit of collaboration,’ conferring no legal rights or obligations.” (Id.)

The trial court found that the agreement was, on its face, unenforceable: “It is not a contract. It doesn’t give [the parties] any other duties other tha[n] what is provided in law. [¶] I think they went in knowing that while confidentiality is an important part in establishing trust and participating in collaboration, they also knew it was not enforceable that this confidentiality could be maintained.” (Id.) The trial court allowed the testimony of the subpoenaed collaborative-law attorneys. (Id.)

On appeal, the sole issue was the admissibility of the testimony of the subpoenaed collaborative-law attorneys. The Court of Appeal agreed with the trial court that the confidentiality clause was unenforceable because it was part of an agreement that was, on its face, unenforceable:

“[T]he agreement unequivocally states the parties’ understanding that it does not ‘give either of us enforceable legal rights that we did not already have;’ that ‘these good faith undertakings set out in this document are not legally enforceable contractual obligations;’ and that, while the parties commit to ‘resolve their differences fairly and equitably’ and abide by the agreement’s ‘letter and spirit,’ they ‘are not relying on this Agreement to create legally enforceable rights.’ There is no ambiguity here. While the agreement sets ground rules for how the parties intended to proceed, the parties agreed that the agreement has no legal force. We must give effect to its explicit language.

“It is an unusual agreement, to be sure. But as Professor Witkin explains, ‘[t]he word “contract” is often used with different meanings, e.g., as a synonym for “agreement” or “bargain.” It may refer to legally ineffective agreements, or wholly executed transactions; to acts of parties, to a document that evidences them, or to resulting legal relations.’ (1 Witkin, Summary of Cal. Law (11th ed., May 2023) Contracts, § 1, italics added.) Here, the agreement sets out a mutual understanding of the collaborative process that the parties agreed to follow. It is not a ‘contract’ in the traditional sense of an agreement that, once entered, gives rise to a legally enforceable obligation. (See 1 Witkin, supra, § 1.) By its terms, rather, it provided an aspirational and nonbinding framework of a process for, ideally, achieving a mutually agreed-upon marital dissolution without resorting to litigation.”

(Id. at *3.)

The appellate court rejected the wife’s argument that a “reasonable interpretation of the unenforceability language is that ‘a party cannot be forced to continue with collaborative dissolution,’” noting that while the agreement does do that, the wife’s argument did not address “the sweeping language that the parties used,” explicitly stating that the agreement created no “’legally enforceable rights.’” (Id. at *4.) The court noted that to adopt the wife’s approach would be to approve “a contractual version of Schrödinger’s cat” with the agreement being “simultaneously enforceable and unenforceable.” (Id.)

The wife argued that the confidentiality clause should have been deemed enforceable because, otherwise, “it would be a nullity.” (Id. at 4.) The court rejected this argument: “Her approach would leave the unenforceability language a nullity.” (Id. [emphasis in original].) In the court’s view, the unenforceability language and the confidentiality clause “are harmonized if, as the agreement directs, the confidentiality clause is construed consistently with the overarching provision that the parties intend to abide by the agreement’s terms even though they are not legally binding.” (Id.)

The court also rejected the wife’s public-policy and estoppel arguments. (Id.) The wife argued that confidentiality would make most collaborative law negotiations more effective. (Id.) While agreeing in principle, the court observed first that the wife “cite[d] no authority that permits [the court] to invoke public policy to make a contract term enforceable when the parties expressly agreed that it is unenforceable,” and that the wife’s argument “essentially ask[s] [the court] to create policies inherent in evidentiary privileges.” (Id. at 4.) Family Code § 2013 doesn’t include a confidentiality provision. And “[w]hile the Legislature has enacted an evidentiary privilege for mediations (Evid. Code, § 1119, subd. (b)), [the wife] concede[d] that the collaborative law process typically does not qualify as a mediation because, as was the case here, no neutral person conducts the process. (See Evid. Code, §§ 1115, subd. (a), 1117, subd. (a).) Confidentiality is left to the parties to negotiate.” (Id. at *1.) The wife’s public-policy argument is intriguing, as it seems uncontroversial that confidentiality would aid in producing meaningful discussions during the collaborative-law sessions. And the point the court makes in response is slightly head-scratching, given that the parties had apparently agreed in a separate provision to keep the discussions confidential.

One can see the added weight in the wife’s argument that there was no actual dissonance between the language about unenforceability and the confidentiality clause. The unenforceability language, which addresses the vague “good faith undertakings” the parties agree to, appears to be directed at making sure that those “good faith undertakings” are not confused for “legally enforceable contractual obligations.” (Id. at 1.) But the confidentiality clause is much more specific and direct: it appears to create a separate (and potentially severable) portion of the agreement, designed to protect and enhance the collaborative process: “‘Communications related to collaborative matters made during the collaborative process are confidential and may not be disclosed to third parties. The parties agree that in any court or other proceeding, they will not request, subpoena or summons a collaborative lawyer, a collaborative party, or a nonparty participant in the collaborative process to make disclosure or testify as a witness regarding a communication made during the collaborative process, unless during the proceeding the agreement under this paragraph is expressly waived by all parties in writing.’” (Id. at *2 [emphasis added].)

“[E]xpressly waived” suggests that the agreement contemplates that the confidentiality clause does indeed create enforceable rights, rights that are binding unless waived in writing. If the agreement in fact created no rights, one would assume there would be nothing that could be waived. (Cf. 1 Witkin, Summary of Cal. Law (11th ed., May 2023) Contracts, § 422 [“[I]f the contract has several distinct objects, of which at least one is lawful, the contract is valid and enforceable as to the lawful object, provided that this is clearly severable from the rest.”].) I’d assume a standalone confidentiality agreement for settlement discussions like the one here would, on its own, be enforceable. A plain reading of the contractual language could be seen to support the argument that, unlike agreements to make “good-faith efforts” at resolving matters, a specific agreement to keep discussions confidential is not—unlike the rest of the agreement—merely “aspirational” and therefore binding. (Id. at *3.)

In any event, the Court of Appeal stated that it ordered this case published “to highlight the importance of carefully drafting collaborative law agreements. Unlike mediations, our Legislature has not created an evidentiary privilege for collaborative law processes. (Compare Evid. Code, § 1119 with Fam. Code, § 2013.) If parties intend to keep the process confidential, they are responsible for drafting an enforceable contract that so provides.” (Id. at *1.) The takeaway appears to be that, if parties want to engage in the nonbinding collaborative-law process and also keep the proceedings confidential, they will need to do so in a way that avoids the pitfall of the sweeping unenforceability language the Mueller court seized upon in refusing to enforce any part of the agreement—including the confidentiality clause.

(My thanks to Judge Gary D. Rowe for his helpful comments on the first draft of this column.)

#1472

Submit your own column for publication to Diana Bosetti


Related Tests for Contracts


self-study/Contracts

Insurance bad faith litigation: Pre-suit and time-limited demands

By Reza Torkzadeh, Allen P. Wilkinson

participatory/Contracts

Sports and entertainment disruptions: what will happen

By Jeffrey G. Benz, Howard B. Miller

self-study/Contracts

E-signatures & the law

By Charles N. Bahlert, Patrick J. Wingfield

self-study/Contracts

Drafting contracts that sufficiently define material terms

By Robert A. Kashfian, Ryan D. Kashfian

self-study/Contracts

Contractual attorney fees fundamentals

By Matthew Ross