Articles

ETHICS IN MEDIATION AND ARBITRATION IN COLORADO

Richard M. Borchers
President, Legal Resolution Center
Former U.S. Magistrate Judge and
State District Judge

As court dockets have become more congested, there has been a greater focus on mediation, arbitration, and related processes (ADR). Proponents argue that ADR allows for faster, more economical resolution of cases. The merits of ADR will not be weighed in this section. An examination of ethical issues will be undertaken, as ADR is now an integral part of the legal community and attorneys should be aware of problems that may arise.

General Ethical Considerations in Providing Legal Advise: Is there an affirmative duty upon a lawyer to explain and detail ADR to a client? What if the lawyer does not advise a client concerning availability of ADR?

Rule 2.1 of the Colorado Rules of Professional Conduct reads as follows:

In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but also to other considerations such as moral, economic, social and political factors that may be relevant to a client's situation. In a matter involving or expected to involve litigation, a lawyer should advise the client of alternative forms of dispute resolution, which might reasonably be pursued, to attempt to resolve the legal dispute or to reach the legal objective sought.

Though the word "should" is used, rather than shall, the clear intent of the rule is to have lawyers advise their clients of ADR options. The comment to the rule reads, in part, as follows:

The last sentence of Rule 2.1 addresses the issue of alternative dispute resolution ("ADR"). Common forms of ADR include arbitration, mediation, and negotiations. Depending upon the circumstances, it may be appropriate for the lawyer to discuss with the client factors such as cost, speed, effects on existing relationships, confidentiality and privacy, scope of relief, statutes of limitation, and relevant procedural rules and statutes.

One commentator has argued that a competent lawyer is duty bound to advise clients concerning ADR alternatives. Arnold, "Professional Responsibility in ADR," SB41 ALI-ABA 527. The argument could be made that failure to advise of ADR options is reflective of a less than competent attorney.

Is there an ethical violation in Colorado if an attorney does not advise a client as to ADR options? A violation of the last sentence of Rule 2.1 probably cannot lead to disciplinary action in and of itself. The question then is whether a change to "shall" in Rule 2.1 would create a different result.

Arbitration: Arbitration has been touted as a cheaper, more efficient alternative to litigation in courts. The pros and cons of arbitration will not be debated in this section, but there are ethical considerations that must be examined.

Arbitration provides substantial freedom for the parties. The parties could include in their original arbitration clause in a contract that any arbitrator would be bound by an existing code of ethics. The agreement of the parties to arbitrate an issue could include a similar provision. Various codes of ethics do exist that could be incorporated as an integral part of the arbitration. See Code of Professional Responsibility for Arbitrators of Labor-Management Disputes, National Academy of Arbitrators, American Arbitration Association, and Federal Mediation and Conciliation Service, May 29, 1985.

There has been some discussion concerning regulation of ADR, but no ethical code exists statutorily at this time in this state. See Carrie Menkel-Meadow, When Dispute Resolution Begets Disputes of its Own: Conflicts among Dispute Professionals, UCLA Law Review, August 1997. Since arbitration can be conducted by non-lawyers, any code would have to cover all who conduct arbitration.

Colorado has a strong public policy toward arbitration. Peterman v. State Farm Mut. Auto Ins. Co., 961 P.2d 487, 493 (Colo. 1998): Kutch v. State Farm Mut. Auto Ins. Co., 960 P.2d 93 (Colo. 1998). The Uniform Arbitration Act in Colorado (UAA) does not provide statutory ethical guidelines for arbitrators or parties. C.R.S. § 13-22-201, et seq. The UAA provides the statutory framework for arbitration in Colorado. Judd Const. Co. v. Evans Joint Venture. 642 P.2d 922 (Colo. 1982). The UAA does provide that a court may be approached for appointment of arbitrators, if there is no agreement by the parties.

If the arbitration agreement provides a method of appointment of arbitrators, this method shall be followed. In the absence thereof, or if the agreed method fails or for any reason cannot be followed, or when an arbitrator appointed fails or is unable to act and his successor has not been duly appointed, the court on application of a party shall appoint one or more arbitrators. An arbitrator so appointed has all the powers of one specifically named in the agreement.

C.R.S. § 13-22-205. Thus, the UAA provides a means of obtaining an arbitrator from a third party, if no arbitrator can be agreed upon by the parties.

An attack on an arbitration award is limited. C.R.S. § 13-22-214. The General Assembly has provided, in part, that an award may be vacated by a court where:

(I) The award was procured by corruption, fraud, or other undue means;

(II) There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

Or

(III) The arbitrators exceeded their powers.

Major ethical violations might possibly be encompassed in these grounds, but an ex parte communication may be insufficient to allow the vacation of an award. If the parties include an ethical code in their arbitration clause or agreement, then violation of that code might rise to the level that would allow vacation of the award. This would be a difficult task, as it is not easy to convince a court to set aside an award. Giraldi v. Morrell, 892 P.2d 422 (Colo. App. 1994) (not evident that arbitrator refused to apply law agreed upon by the parties).

The standard in Colorado that must be met is very high before a court may set aside an arbitration award. In McNaughton & Rogers v. Besser, 932 P.2d 819 (Colo. App. 1996), the Colorado Court of Appeals was presented with an issue of arbitrator partiality. The court held, in part, as follows:

In summary, arbitrators have a duty to disclose any potential conflict, which would constitute evident partiality - that is, a relationship which would persuade a reasonable person that the arbitrator is likely to be partial to one side in the dispute. (citation omitted) Evident partiality has been found when a reasonable person would have to conclude that an arbitrator would be predisposed to favor one party to the arbitration. (citations omitted). Some facts indicating bias include pecuniary interest, familial relationship, and the existence of an adversarial or sympathetic relationship.

Id. at 822. The court refused to set aside the arbitration award even though one of the arbitrators (not the neutral) knew members of the law firm that was a party. See also Nasca v. State Farm Automobile Insurance Company, 12 P.3d 346 (Colo. App. 2000).

Representative Cases from Other Jurisdictions: The federal arbitration act provides a limited basis upon which an award may be set aside. Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 674 (7th Cir. 1983) (relationship of arbitrator to corporate officer at a different business fourteen years earlier insufficient to allow vacation of award).

Partiality for a party-designated arbitrator can be exceeded in certain instances. Metropolitan Prop. And Casualty Ins. Co. v. J.C. Penny Casualty Ins. Co., 780 F. Supp. 885 (D.Conn. 1991). A neutral arbitrator has a duty to fully disclose matters which might evidence partiality. Burlington Northern Railroad Co. v. TUCO, Inc., 960 S.W.2d 629 (Tex. 1997).

General Considerations: It is important to examine ethical issues in arbitration in the same way that one would in litigation. Ask the arbitrator(s) if there is any conflict individually or with members of their firm, if involved in the practice of law. Ask if the arbitrator(s) own stock in a company, if that company is a party or the insurer of a party. Ask the arbitrator(s) if a code of conduct will be adhered to by them. If in doubt, do not agree to have the individual act as the arbitrator or the neutral.

Mediation: The Colorado statutory basis for mediation is found in C.R.S. § 13-22-301 et seq. The statute is entitled "Dispute Resolution Act." This act establishes the Office of Dispute Resolution in the Judicial Department. A provision of this act appears to provide confidentiality to all mediators, not just those within the Office of Dispute Resolution. C.R.S. § 13-22-307.

Case Law: There is some case law that has been published that provides guidance for ethical issues in mediation. In Poly Software Int'l., Inc. v. Su, 880 F. Supp. 1487 (D.Utah 1995), motions were filed to disqualify counsel who were representing parties in a copyright action. One attorney had acted previously as a mediator in a companion case. The attorney was representing one of parties in the litigation. The court found that a mediator is an attorney who meets with the parties to explore settlement of the case. Id. at 1493. The court held, in part:

Where a mediator has received confidential information in the course of mediation, that mediator should not thereafter represent anyone in connection with the same or a substantially related matter unless all parties to the mediation proceeding consent after disclosure.

Id. at 1494. The key was receipt of confidential information, and the court disqualified the former mediator.

In Cho v. Superior Court, 39 Cal.App.4th 113, 45 Cal.Rptr.2d 863 (1995), the California Court of Appeals held that a former judge and his law firm were disqualified from representing a litigant in a case where the former judge had received ex parte information as part of court settlement conferences. In State v. Tolias, 135 Wash. 133, 954 P.2d 907 (1998), the Washington Supreme Court affirmed a conviction where the prosecutor had previously acted as a "mediator" in a criminal matter, as the court held that insufficient evidence had been presented to warrant disqualification of the entire prosecutor's office. The court was troubled by the allegations. In McKenzie Const. V. St. Croix Storage Corp., 961 F. Supp. 857 (D.V.I. 1997), an attorney who had served as a mediator prior to joining law firm was disqualified from litigation. This disqualification extended to the attorney's firm.

The Colorado Court of Appeals has ruled that a district judge who acts in as a settlement judge cannot thereafter act on the merits of the case or a related case. Tripp v. Borchard, 29 P.3d 345 (Colo.App. 2001). In that case, an attorney was sued for malpractice. His case was assigned to a district judge who had done a settlement conference in underlying litigation that lead to the malpractice case. The court held that the district judge should have disqualified himself because he had learned information through the settlement process.

Codes: There are established codes for the conduct of mediators, and at least one has become a court rule as it relates to court-appointed mediators. Proposed Standards for Professional Conduct for Certified and Court-Appointed Mediators, 605 So.2d 764 (Fla. 1992). Other codes have been drafted and are voluntary. See Alison Smiley, Professional Codes and neutral Lawyering: An Emerging Standard Governing Nonrepresentational Attorney Mediation, Georgetown Journal of Legal Ethics, Summer, 1993.

Codes have dealt with issues that might seem to be straightforward ethical issues: conflicts of interest; independence of the mediator; and confidentiality. One would hope that all mediators, be they lawyers or non-lawyers, would avoid matters, where conflicts of interest and lack of independence would prevail.

Compliance Problems: There are limitations to mediation and arbitration. Many lawyers have reservations concerning mediation, as settlement conferences often do not work and are costly to clients. More courts are ordering settlement conferences, even when the parties and counsel may believe the case is not ripe for such a conference.

Failure to appear or participate in a settlement conference can lead to disciplinary problems. People v. Proffitt, 854 P.2d 787 (Colo. 1993) (attorney failed to comply with mediation orders, along with many other disciplinary charges); but see, Pearson v. Dist. Ct., Eighteenth Jud. Dist., 924 P.2d 512 (Colo. 1996) (trial court erred in directing mediation in post dissolution dispute where domestic violence claim had been raised); Halaby, McCrea & Cross v. Hoffman, 831 P.2d 902 (Colo. 1992) (inappropriate for trial court to impose sanctions merely because settlement judge did not believe authority granted to defense attorneys was sufficient). Orders settling settlement conferences or mediation must be adhered to, regardless of whether such conferences end in futility.

Suggestions to Avoid Ethical Problems:

1. Request information from arbitrators concerning possible conflicts and matters that may raise issues of lack of impartiality.
2. Include in arbitration clauses or agreements that arbitrators will abide by a given code of conduct.
3. Abide by all orders directing mediation or settlement, despite concerns about the futility of such orders.

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