Introductory Note
The federal cases discussed in this section of the materials are a continuation of the dialogue being had in the federal courts in an effort to understand mediation as a dispute resolution process distinguishable from a settlement negotiation between the parties and a settlement conference presided over by the court. What we see is a growing appreciation of mediation, but resistance to the notion of blanket privilege or “protection” barring material evidence from being offered and heard by the decider of fact at trial. A case in point is Milhouse v. Travelers Commercial Ins. Co., 982 F.Supp. 2d 1088 (C.D.Cal. 2013), where the trial court allowed testimony of what the plaintiffs’ settlement demands were at mediation because to deem such evidence inadmissible at trial would violate the due process rights of defendant to provide a defense to its alleged liability for bad faith and punitive damages. “To exclude this crucial evidence would have been to deny Travelers of its due process right to present a defense.” Id. at 1108. While the trial court’s decision in Milhouse was affirmed on appeal, the Ninth Circuit declined to address the merits of this issue because it deemed the issue waived due to the fact that Milhouse’s counsel failed to object to the proffered evidence on the basis of the mediation privilege, and did not alert the district court that he believed that California Evidence Code section 1119, not Federal Rule of Evidence 408, controlled the issue concerning the admission of evidence from mediation proceedings. “641 Fed. Appx. 714. “By failing to object on the basis of the mediation privilege at trial, the Milhouses did not preserve for appeal whether the district court erred when it admitted mediation statements.” Id. at 717.
In the past couple of years, we have seen a number of district court decisions where the courts have shown their acceptance of confidentiality protection for communications had during the mediation under California Evidence Code § 1119, but have demonstrated a tendency to parse confidentiality issues more closely than their state court counterparts. For example, in Haskins v. Employers Ins. of Wausau, 2015 WL 369983 (N.D. Cal., Jan. 28, 2015), the court held that plaintiff’s mediation brief was subject to discovery because it was prepared by or on behalf of fewer than all of the mediation participants and plaintiffs (through their counsel) had expressly agreed in writing to its disclosure via a letter written to counsel for plaintiffs’ insurer, thus satisfying the express waiver requirements of Evidence Code §1122(a)(2). For another example, in Doublevision Entertainment, LLC v. Navigators Specialty Ins. Co., No. C14-02848, 2015 WL 370111 (N.D. Cal., Jan. 28, 2015), the court held that California’s mediation confidentiality protections provided grounds to grant a protective order for some – but not all – communications had during, before and after a mediation held in a related state court action: to wit, only two of five pre-mediation emails were protected because the other emails did not discuss mediation strategy and were not prepared for the upcoming mediation. To qualify for protection, the words “prepared for use in mediation” need to be stated or the substance has to refer to mediation strategy. Post-mediation memorandum were held to be protected because it recounted statements made during mediation. “The end of the mediation did not strip the privilege that attached to statements and communications made during the mediation.” Post-mediation emails were held to not be protected because they were exchanged long after the end of the 10-day period prescribed by Evidence Code §1125(a)(5), did not recount anything from the earlier mediation, and could not be prepared for the purpose of or pursuant to a mediation because no subsequent mediation was scheduled, planned or under discussion.
Finally, we have seen the federal courts cut a straight and narrow path preferring the application of federal privilege law over California’s statutory mediation confidentiality protections whenever the dispute involves both state and federal law claims – even when the federal claims have been dismissed. In In re TFT-LCD (Flat Panel) Antitrust Litigation, 835 F.3d 1155 (9th Cir. 2016), Sony and HannStar entered into a mediated settlement agreement that was effectuated through their respective attorneys’ email exchanges with the mediator in which they accepted the “mediator’s proposal” emailed by the mediator. When HannStar refused to pay, Sony sued in federal court to enforce the agreement. The district court denied Sony’s motion for summary judgment on the ground that the emails by which HannStar accepted the mediator’s proposal did not meet section 1123’s conditions for admission.[1] Judgment was entered for HannStar and Sony appealed. On appeal to the Ninth Circuit, the judgment was reversed on the grounds that the district court should have applied the federal law of privilege even though Sony had dismissed its federal question claims and was proceeding in district court under the court’s diversity jurisdiction to enforce a state law contract claim. The Ninth Circuit acknowledged that the general rule is that federal privilege law applies where there are federal question claims and pendent state law claims present, and that state law governs privilege when state law supplies the rule of decision, 635 F.3d at 1158, citing Agster v. Maricopa County, 422 F.3d 836, 839 (9th Cir. 2005) and Fed. R. Evid. 501. The Court held, however, that the rule was slightly different when the action was one to enforce a settlement of both federal and state claims, as it had clarified in Wilcox v. Arpaio, 753 F.3d 872 (9th Cir. 2014).[2] Applying Wilcox to the case at hand, the Court found that the district court erred in applying California privilege law concerning mediation confidentiality because, at the time the parties engaged in mediation, their negotiations concerned (and the mediated settlement settled) both federal and state law claims.[3] As such, the Court concluded that federal privilege law applies, and remanded the matter for redetermination applying federal privilege law.
Against the foregoing backdrop, the following are a few interesting federal courts cases from 2017.
Westport Ins. Corp. v. California Casual Management Co., 249 F.Supp. 3d 1164 (N.D.Cal., Apr. 17, 2017) – Communications had prior to mediation concerning attendance at the mediation are admissible and not protected by California Evidence Code § 1119.
School district’s primary general liability insurer brought an action against the school administrators’ excess insurer seeking declaratory relief and equitable contribution after it settled students’ negligent supervision claims against the district and its administrators. The parties filed cross-motions for summary judgment. Before reaching the merits of those motions, the court was asked to rule on several evidentiary objections, including defendant’s objection to plaintiff’s reference to two letters exchanged prior to the mediation discussing who would attend the mediation. The district court ruled that while the letters were not important to its analysis in the case, they were admissible. In this regard, the court ruled that California Evidence Code § 1119 was inapplicable to the letters because they were not between the disputants in the mediation (which involved the students, the District and the Administrators), but were communications had outside of the mediation between counsel and only concerned who would attend the mediation. 249 F.Supp. 3d at 1172.
Federal Deposit Ins. Corp. v. Nova Financial and Investment Corp., No. CV-15-00855, 2017 WL 956095 (D.Az., Jan. 10, 2017) – Mediator allowed to give a declaration in support of one party’s proposed interpretation concerning the scope of the release included in the mediator’s proposal that the parties accepted.
The FDIC and Nova Financial participated in a private mediation. After failing to come to an agreement in person, the parties reached an oral agreement during a telephone conference with the mediator had that same evening. The mediator then sent an e-mail to the parties to confirm the terms of the settlement that had been discussed. Neither party objected at that time to the mediator’s description of the settlement terms and neither party later disputed that a settlement had been reached. However, within two days of the settlement, a number of disagreements arose when the parties attempted to reduce the settlement agreement to writing. The parties were able to resolve all disagreements except the scope of the release provision, which stated that the release was as to “Defendant and its respective heirs, executors, administrators, representatives, successors, and assigns.” A lawsuit ensued to decide the scope of the release, with defendant contending that it was intended to be a “broad” release that included its employees, officers, directors, shareholders, subsidiaries, affiliates and agents. The mediator gave a declaration that supported defendant’s position, stating that he (the mediator) believed that the release was broad and that the reference to “Nova” included defendant and any “related parties.” The noted that while it had “great respect for the mediator, his legal acumen and his integrity,” it did not find his interpretation – however commercially reasonable it might be – to be an objective assessment of the parties’ agreement.
While it is surprising to see a mediator weigh in at all with respect to a controversy that later developed between the settling parties, with regard to mediation confidentiality under Arizona law, the court noted that the mediator’s interpretation was based not on anything discussed during the mediation, but from his understanding of what is “typical in commercial disputes.” On this point, the court noted in footnote 1 that “[i]f the mediator’s assessment of what is typical in commercial disputes did not arise ‘during a mediation,’ he is not barred from sharing it…. To the extent the mediator’s views are affected by his assessment of what occurred at the mediation, they are barred by statute.” *3.
Apelian v. Allstate Ins. Co., No. CV16-4977, 2017 WL 6028742 (C.D.Cal., Mar. 9, 2017) – Defendant and its counsel sanctioned for not attending the court-facilitated mediation in good faith and not including in their mediation statement information required by the Magistrate Judge pursuant to his “settlement order.”
This case illustrates how much more arm-twisting power a Magistrate Judge has over a court-assigned mediation than that of a panel mediator when confronted with recalcitrant parties and/or counsel who have been required to engage in some sort of alternative dispute resolution before being allowed to take up precious federal court time with a trial. But it raises the question of whether a settlement conference conducted under the auspices of FRCP 16 can properly be called a “mediation.”
The case was referred to a Magistrate Judge for a settlement conference, which it appears was conducted as a “mediation” because the Magistrate Judge issued an order in which he listed the information required to be included in the parties’ “mediation statements.” That order put the parties and counsel on notice that their failure to strictly follow the order could result in an award of sanctions. Post-settlement conference, the Magistrate Judge ordered the defendant to pay $12,500 in attorney’s fees to plaintiff’s counsel and $500 to the Court Clerk. He also ordered defendant’s counsel to pay $950 to the Court Clerk. The reason for the sanctions was defendant’s failure to include seven of the eight required categories of information, the tardy submission of its mediation statement two days past the deadline and the Magistrate Judge’s finding that defendant and its counsel had not attended the settlement conference in good faith.
On review, the district court judge to whom the case was assigned denied defendant’s motion for review finding that the court had no “definite and firm conviction” that the Magistrate Judge’s decision was reached in error or that it was contrary to law. With regard to the legal basis for awarding sanctions, the court noted that under FRCP 16(f), federal courts may impose sanctions, including attorney’s fees, on a party that is “substantially unprepared to participate – or does not participate in good faith” in a Rule 16 settlement conference or who fails to comply with a Rule 16 settlement conference order.
Comment: While the Magistrate Judge’s “settlement order” referred to a “mediation statement,” it would seem to be more appropriate for that brief to be described as a settlement conference statement, especially since the order included a provision for sanctions under FRCP 16 if the order was not strictly adhered to. Moreover, if the settlement conference was truly a “mediation” covered by General Order No. 11-10, the Magistrate Judge – acting in the capacity as mediator – would be constrained with respect to how much he / she could report to the court about the mediation. Here, the sanctions order stated that defendant and its counsel had “engaged in a pretense” and had “paid no heed in connection with the requirements of Defendant’s mediation statement, its timely submission, etc.” These are not statements that a panel mediator could include in his / her report to the court using the ADR-03 form.