Lawson v. Brown's Day Care Center, Inc.

Lawson v. Brown's Day Care Center, Inc.  (98-447); 172 Vt. 574; 776 A.2d 390

[Filed 16-Apr-2001]


                                 ENTRY ORDER

                       SUPREME COURT DOCKET NO. 98-447

                             NOVEMBER TERM, 1999


Katherine, Bradley and Jordan Lawson	}   APPEALED FROM:
                                        }
                                        }
     v.	                                }   Caledonia Superior Court
                                        }	
Brown's Day Care Center, Inc., et al.	}
                                        }   DOCKET NO. 195-9-97Cacv	

                                            Trial Judge: Mary Miles Teachout

       In the above-entitled cause, the Clerk will enter:

       Duncan Kilmartin, a counsel for defendants in this case, appeals the
  Caledonia Superior Court's  order imposing a $2,000 sanction on him for
  filing unsealed information from a confidential  mediation session with the
  court.  He claims the court did not afford him procedural due process and 
  erred because his professional responsibilities required him to make the
  disclosure.  We reverse and  remand for a determination on the issue of
  Kilmartin's motivation in making the disclosure.

       In September 1997, plaintiffs Katherine and Bradley Lawson,
  represented by attorney Gareth  Caldbeck, filed the underlying civil action
  to recover damages for injuries to their daughter Jordan  Lawson, who
  choked on a rattle while at Brown's Day Care Center.  The Cooperative
  Insurance  Company retained Kilmartin to represent defendants.  Defendants
  also retained separate counsel due  to the prospect of an award in excess
  of their insurance coverage.  After the case settled, the superior  court
  sanctioned Kilmartin $2,000 and Caldbeck $1,000.  Kilmartin appeals;
  Caldbeck does not  appeal the sanction.  

       This case proceeded in an atmosphere of unbecoming hostility between
  Kilmartin and Caldbeck,  expressed in numerous filings with the court.  The
  wrangling escalated to the point where, in April  1998, the court
  commanded, "in filings with the court, the attorneys shall refrain from the
  use of  rhetoric containing personal criticism."  Nevertheless, as the
  court later noted, "Unfortunately, the  filings of such documents did not
  stop."  For example, on June 18, 1998, Kilmartin filed an  "emergency"
  motion to disqualify Caldbeck on the basis of obstruction of justice,
  subornation of  perjury, and presentation of false evidence.  Kilmartin
  based the motion on the belief that Caldbeck  had submitted false
  affidavits in the case.  The court denied the June 18 motion stating that
  the  "factual discrepancies described in the [m]otion are not unusual ones
  to occur in discovery, and the  court will not rule on an ex parte basis
  that they constitute a reason to halt a planned discovery  process or an
  early neutral evaluation of the case."  


 

       Under a pre-trial scheduling order, the court instructed the parties
  to engage in mediation with  attorney Peter Joslin.  The parties and their
  respective counsel met with Joslin on June 22, 1998, at  which time the
  parties agreed that all mediation proceedings were to remain confidential.

       On June 26, 1998, Kilmartin filed with the court an unsealed document
  entitled "Confidential  Disclosure under DR 1-103(A)," disclosing
  discussions that took place during the mediation session  and attaching a
  copy of a proposed settlement agreement.  Disciplinary Rule 1-103(A) of
  Vermont's  Code of Professional Responsibility, (FN1) applicable when
  Kilmartin made the disclosures, states:  "A lawyer possessing unprivileged
  knowledge of a violation of DR 1-102 shall report such  knowledge to a
  tribunal or other authority."  DR 1-102 prohibits a lawyer from engaging in
  "illegal  conduct involving moral turpitude," id. 1-102(A)(3); engaging in
  conduct involving "dishonesty,  fraud, deceit or misrepresentation," id.
  1-102(A)(4); or engaging in conduct that is "prejudicial to the 
  administration of justice," id. 1-102(A)(5).  

       Kilmartin asserted that Caldbeck had committed (1) a violation of 13
  V.S.A. § 8 when, during the  mediation, he proposed settlement terms under
  which defendants would refrain from making or  authorizing "any claims,
  complaints or allegations, civil or criminal, against any parties or other 
  persons" arising out of the lawsuit, and (2) a violation of DR 1-102 based
  on Caldbeck's negotiating  demand that Kilmartin forego any criminal or
  disciplinary complaint against him.  Accordingly, he  disclosed this
  perceived transgression, citing DR 1-103(A) which requires attorneys in
  this state to  report misconduct by other attorneys unless the information
  is privileged. (FN2)  In re Anderson, 11  Vt. L.W. 416 (2000) (mem.). 
  After reading the cover and title pages accompanying the disclosure,  the
  court returned the disclosure (unread) to Kilmartin, explaining in a
  notation written on the cover  page that it would "not participate in ex
  parte communications concerning the case."


 

       On July 2, Kilmartin filed a motion seeking permission to appeal the
  denial of his June 18 motion or,  in the alternative to, to disqualify
  Caldbeck.  This motion included the June 26 mediation disclosure. 
  Caldbeck's response, filed on July 6, also described statements made during
  mediation, but  requested that the court seal Kilmartin's motion.  Thus
  began an exchange of several filings between  the parties that disclosed
  more information pertaining to the confidential mediation.  The court 
  ordered the temporary seal of certain pages of these documents on three
  separate occasions, making  clear that its reason for doing so was to
  protect the confidentiality of the parties' mediation and  settlement
  discussions.  On August 24, the court released the record from temporary
  seal, except for  a portion of the draft settlement proposal regarding the
  settlement amount that is now permanently  sealed.  The court then ordered
  Kilmartin and Caldbeck to "appear and show cause why the court  should not
  impose sanctions for violating the confidentiality of the mediation session
  by filing  documents with the court containing descriptions of discussions
  at the mediation session and related  negotiations and proposed terms of
  settlement."  

       The superior court sanction decision, delivered orally on the record
  shortly after the close of the  September 2 hearing, shows that the court
  imposed the sanction for the following reasons:

            1.  The lawyers entered into a "verbal agreement that
       what took place  at the mediation session was confidential."
            2.  The session took place pursuant to an order of the
       court so the  attorneys made their promise "in connection
       with court business" and  their "obligations ran not just to
       the parties themselves, but to the  court and the court
       processes."
            3.  The attorneys had no reasonable expectation that
       they could file  documents with the court and have them
       sealed.
            4.	Although there may be exceptions to confidentiality,
       the material  disclosed "is precisely the kind of material"
       subject to  confidentiality. 

  The trial court reasoned that the agreement of confidentiality, entered
  into by all parties, coupled  with the fact that mediation occurred under a
  court order justified the sanctions.  The court stated that  it was
  "dealing with a situation where this was a session required by the court,
  conducted by a person  appointed by the court who did obtain the agreement
  for confidentiality by all present, including the  attorneys." 

       Nevertheless, it is important to recognize what is not part of the
  court's decision.  There is no finding  that Kilmartin made the filings for
  an improper purpose or in bad faith.  Indeed, there is no finding  that
  Kilmartin did not make the filing for exactly the purpose he stated: to
  disclose unethical conduct  and/or potentially criminal conduct and to
  disqualify the opposing lawyer.  

       Although the decision does talk of expectations as to sealing, there
  is no indication that it would not  be equally applicable to a complaint to
  the Professional Conduct Board or a complaint to the State's  Attorney. 
  The rationale clearly covers disclosure to anyone not part of the
  mediation. 


 

  The unstated assumption behind the decision of the court is that an
  attorney in Kilmartin's position  could never disclose anything that
  occurred in the mediation for any reason.  The court's order is  broad
  enough to make a person who commits professional misconduct, even criminal
  misconduct,  during a mediation immune from disciplinary sanction or
  prosecution because no one can lawfully  disclose the misconduct.  

       Although we have held that a court may sanction attorneys for
  misconduct through its inherent  powers, Van Eps v. Johnston, 150 Vt. 324,
  326-27, 553 A.2d 1089, 1091-92 (1988), here the court  found no exceptional
  circumstances and did not find that Kilmartin acted in bad faith.  A
  finding of  bad faith is essential to the court's power to impose the
  sanction it did.  See Roadway Express, Inc. v.  Piper, 447 U.S. 752, 767
  (1980) (a finding of bad faith must proceed any sanction based upon the 
  court's inherent powers).  Kilmartin is entitled to some explanation why
  the reasons for the  disclosure were not only wrong, but so wrong that they
  were advanced in bad faith.  The United  States Supreme Court has observed
  that "[b]ecause inherent powers are shielded from direct  democratic
  controls, they must be exercised with restraint and discretion."  Roadway
  Express, 447 U.S.  at 764.  We reiterated that point in In re Sherman
  Hollow, Inc., 160 Vt. 627, 630, 641 A.2d 753,  756 (1993) (mem.) ("sound
  discretion and restraint must be used when relying on . . . inherent 
  powers" to discipline a lawyer). 

       Even if we could accept the court's broad rationale for the sanctions
  it imposed, we are still faced  with Kilmartin's argument that he is
  entitled to notice that his conduct was improper.  See Chambers  v. NASCO,
  Inc., 501 U.S. 32, 53-54 (1991) (sanction under inherent powers serves the
  same  function as contempt); In re Paschal, 77 U.S. (10 Wall.) 483, 491
  (1870) (a proceeding seeking  sanctions for attorney misconduct is "in the
  nature of a proceeding as for contempt"); State v. Pownal  Tanning Co., 142
  Vt. 601, 605, 459 A.2d 989, 991 (1983) (party cannot be held in contempt
  for  violating court order unless order is "specific and definite so that
  it leaves no reasonable basis for  doubt as to its meaning").  Although we
  recognize that Kilmartin had notice of the hearing and an  opportunity to
  be heard, see Rich v. Montpelier Supervisory Dist., 167 Vt. 415, 420, 709 A.2d 501,  504 (1998), our concern is whether he had notice that the
  conduct he engaged in could subject him to  sanction.  Although the
  superior court indicated that it would not disqualify Caldbeck as sought by 
  Kilmartin, it never stated his conduct in seeking Caldbeck's
  disqualification was improper until its  decision imposing sanctions. 
  Thus, the rationale for the sanctions depends upon the court's  conclusion
  that Kilmartin knew he was violating his obligation of confidentiality,
  even in the face of  Kilmartin's assertion that the Code imposed upon him
  an obligation of disclosure.  We find it  difficult to conclude that
  Kilmartin had fair warning of the obligation he is charged with violating, 
  when he consistently asserted that he had the opposite obligation and the
  court never addressed his  position. (FN3) As recent commentators on the
  ethical obligations of lawyers in mediation observed,  "[p]eople understand
  confidentiality to mean different things, from totally secret and never to
  be 


 

  mentioned anywhere or to anyone, to a protection only from future court
  actions, that allows  disclosure in other circumstances."  F. Furlan et
  al., Ethical Guidelines for Attorney-Mediators: Are  Attorneys Bound by
  Ethical Codes for Lawyers When Acting as Mediators?, 14 J. Am. Acad. 
  Matrim. Law 267, 305 (1997). 

       In this regard, it is important to note that the sanction imposed upon
  Kilmartin is essentially  punitive-it will go to the State of Vermont and
  not to a litigant.  Indeed, the superior court called the  sanction a
  "fine."  In the recent case of Bigelow v. Bigelow, 170 Vt. ___, ___, 759 A.2d 67, 72-73  (2000), we found that special due process concerns are
  raised when the court orders a monetary  penalty payable to the court. 
  Thus, the attorney to be sanctioned is entitled to "specific notice of the 
  possibility of nonremedial sanctions, the opportunity to respond to such
  fines, and other procedural  safeguards."  Id. at ___, 759 A.2d  at 72
  (citing Mackler Prods, Inc. v. Cohen, 146 F.3d 126, 129 (2d  Cir. 1998),
  Law v. Nat'l Collegiate Athletic Ass'n, 134 F.3d 1438, 1443-44 (10th Cir.
  1998), and  Satcorp Int'l Group v. China Nat'l Silk Import & Export Corp.,
  101 F.3d 3, 5-6 (2d Cir. 1996)).  Both  Mackler Prods, Inc., 146 F.3d  at
  130, and Law, 134 F.3d  at 1443, held that a substantial fine could be 
  imposed only through the procedures applicable to a criminal proceeding
  because the adjudication  was fundamentally indistinguishable from criminal
  contempt.  Moreover, we reversed in Bigelow  because the attorney was not
  informed that he could be subject to a punitive sanction.  170 Vt. at  ___,
  759 A.2d  at 73.  The identical circumstances are present here and only
  heighten concerns that  Kilmartin did not have fair warning of the possible
  consequences of his actions.  We conclude,  however, that the lack of fair
  warning would have been addressed by a finding of bad faith.  If the  court
  found that Kilmartin acted in bad faith in making the disclosures, there
  would be no violation  of his due process rights because attorneys in this
  state are on notice that negotiating in bad faith  during settlement
  negotiations can result in sanctions.  See Van Eps, 150 Vt. at 327, 553 A.2d  at  1091.  

       Although Caldbeck claimed that Kilmartin filed the mediation material
  primarily to try the  underlying action in the press, we express no opinion
  on whether Kilmartin acted from improper  motives; we leave that to the
  trial court on remand.  We decide only that it was error for the court to 
  have imposed sanctions without finding any improper motives or bad faith
  and ignoring Kilmartin's  justification for making the filing, a
  justification that is valid on its face.  On remand, if the court  finds
  that Kilmartin revealed the mediation materials in bad faith, then a
  sanction would be an  appropriate exercise of the court's inherent powers.  


       Reversed and remanded.


 





BY THE COURT:


_______________________________________
Jeffrey L. Amestoy, Chief Justice

_______________________________________
John A. Dooley, Associate Justice

_______________________________________
James L. Morse, Associate Justice

_______________________________________
Denise R. Johnson, Associate Justice

_______________________________________
Marilyn S. Skoglund, Associate Justice


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                                  Footnotes


FN1.  The Rules of Professional Conduct replaced the Code of
  Professional Responsibility and apply  to lawyer conduct occurring after
  September 1, 1999. 

FN2.  The information at issue here was not protected by an
  attorney-client privilege.  See In re  Himmel, 533 N.E.2d 790, 794 (Ill.
  1988) (information disclosed to attorney by client in presence of third 
  parties not protected by attorney-client privilege).  Moreover, our
  evidence rules make information  disclosed in mediation inadmissible, but
  not privileged.  See V.R.E. 408.  The parties could not create an 
  evidentiary privilege by agreement.  Even if they could, it would be a
  large stretch to interpret an informal  oral agreement as creating an
  evidentiary privilege that insulates a party to a mediation from the 
  consequences of criminal or ethical misconduct.  The duty of disclosure is
  even broader under the  Rules of Professional Conduct.  Rule 8.3(c)
  requires disclosure unless the information is covered by  the lawyer
  confidentiality rule, Rule 1.6.  There is no exception for mediation
  proceedings even  where mediation is covered by an evidentiary privilege.  

FN3.  Not only did the court ignore Kilmartin's assertion that he was
  discharging his obligation  under DR 1-103(A) when he filed the documents
  that led to the sanction, it ignored Kilmartin's  position in rendering the
  sanction decision.