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| Jeff Kichaven |
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| Teresa Frisbie |
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| Tyler Codina |
The problem has always been that, if your mediation takes place in State 1, whose laws protect mediation confidentiality, and what you say in that mediation is relevant to a lawsuit in State 2, whose laws do not protect mediation confidentiality, the courts of State 2 may apply their own evidence laws and order you to testify.
Now, the problem is worse. When you mediate commercial cases online, participants may be in different states. This makes it more difficult to say where the mediation actually takes place. If only some of the participants in your mediation are in State 1, the courts of State 2 have even greater discretion to disregard the laws of State 1.
The idea that online mediations — or any mediations, really — are confidential is therefore a myth. Let's prove it.
Our saga begins on the prairie with Larson v. Larson,[1] a sibling rivalry between Arny Larson and Arla Harris, on the one hand, and Charles Larson, on the other. They were fighting over various family assets.
The lawsuit was in Wyoming. They mediated in Colorado, face to face. Their mediation agreement said, "All communications, whether oral or written, made in the course of the mediation process … are confidential by this agreement and the Colorado Dispute Resolution Act."
At the end of their mediation, they signed "basic terms of settlement," but then could not agree on final documentation. Back in Wyoming, Arny Larson and Arla Harris moved to enforce the term sheet. They sought production of a PowerPoint Charles Larson used at the mediation in Denver. The magistrate judge allowed discovery and admission of the PowerPoint. The U.S. Court of Appeals for the Tenth Circuit reviewed for abuse of discretion.[2]
There was a true conflict of laws. Colorado privileges these documents, while Wyoming expressly allows discovery of confidential mediation communications when a party seeks judicial enforcement of a purported mediated settlement agreement.[3] There was also their mediation agreement.
The Tenth Circuit didn't care:
Although Wyoming's choice of law rules state that "the law of the state chosen by the parties to govern their contractual rights and duties will apply [citations omitted]," this general rule was overridden by the longstanding principle that Wyoming courts will "not apply another jurisdiction's law 'when it is contrary to the law, public policy, or general interests of Wyoming's citizens. [citations omitted].'" Therefore, the magistrate judge applied Wyoming law and allowed discovery of the presentation.
We conclude the magistrate judge did not err in his decision.[4]
While this disregard of Colorado's more protective law might surprise or even shock you, it might not bother those of you who don't see a realistic possibility that what happens in your mediation could later become relevant to a lawsuit in Wyoming. But Larson is hardly an outlier.
Let's take our saga to the Big Apple. As recently as 2017, New York courts used similar choice-of-law analysis to compel disclosure of material seemingly privileged under the laws of another state. And it's much more possible that what you say in your mediation could become relevant to a lawsuit in New York.
The key case is Matter of People of the State of New York v. PriceWaterhouseCoopers LLP.[5]
There, then-Attorney General Eric Schneiderman sought to compel Exxon Mobil Corp. and PwC to comply with a subpoena to PwC in connection with New York's climate change suit against Exxon. The Appellate Division affirmed an order granting a petition to compel production of documents.
PwC and Exxon contended that communications between them took place in Texas, Texas protects those communications from discovery under an accountant-client privilege (New York has no such privilege), and under the "balancing test" of the Second Restatement of Conflict of Laws, Texas privilege law should apply to protect those documents from discovery.
The Appellate Division didn't care, either:
We reject Exxon's argument that an interest-balancing analysis is required to decide which state's choice of law should govern the evidentiary privilege. Our current case law requires that when we are deciding privilege issues, we apply the law of the place where the evidence will be introduced at trial, or the place where the discovery proceeding is located.
A remarkable result, especially considering that New York's "current case law" hardly required it, and in fact seemed to the contrary.
Just one year before, New York law was synthesized by the chief judge of the U.S. District Court for the Southern District of Ohio, Judge Edmund A. Sargus Jr., in Wilmington Trust Co. v. AEP Generating Co.:[6]
Under New York's choice of law principles, the governing law is that "of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation."[7] New York courts "apply an interest-balancing test to determine which state has the greatest interest in applying its law."[8] "In cases requiring a choice of privilege law, the interest analysis usually has led New York courts to apply the law of the jurisdiction in which the assertedly privileged communications were made."[9]
Since some New York courts are willing to swim against the current and disregard another state's accountant-client privilege, even when the assertedly privileged communications were made in that state, does that mean they will also disregard another state's mediation privilege? At least one case points in that direction.
In Hauzinger v. Hauzinger,[10] a divorce action, Carl Vahl served as mediator. After the mediation, Aurela Hauzinger subpoenaed Vahl to produce records and to testify in a proceeding to determine whether the terms of the Hauzingers' separation agreement "were fair and reasonable at the time of the making of the agreement." Vahl moved to quash the subpoena on grounds, among others, that the Hauzingers had signed a confidentiality agreement. The trial court refused to quash the subpoena, and the Appellate Division affirmed, notwithstanding the confidentiality agreement that the Hauzingers had signed.
In 2008, the New York Court of Appeals issued its memorandum opinion,[11] affirming the Appellate Division. The Court of Appeals conveniently noted something the Appellate Division did not — that both spouses had waived whatever confidentiality attended their mediation. Therefore, Vahl was required to produce documents and testify. But the larger issue of New York courts' insensitivity to mediation confidentiality, as demonstrated by the Appellate Division, remains an open question.
While PwC and Hauzinger seem result-oriented, New York courts' hunger to get all relevant evidence before them is not all bad. Society needs courts to get decisions right. And in order to get decisions right, courts want to consider all evidence relevant to those decisions. That's why the general rule everywhere is that all relevant evidence is admissible. (In New York, it's Evidence Rule 4.01.) A corollary of that rule, as the U.S. Supreme Court held in United States v. Euge, obliges everyone who has relevant evidence to testify:
The scope of the "testimonial" or evidentiary duty imposed by common law statute has traditionally been interpreted as an expansive duty limited principally by relevance and privilege. As this court described the contours of the duty in United States v. Bryan, 339 U. S. 323, 331 (1950): "[P]ersons summoned as witnesses by common authority have certain minimum duties and obligations which are necessary concessions to the public interest in the orderly operation of legislative and judicial machinery ... We have often iterated the importance of this public duty, which every person within the jurisdiction of the Government is bound to perform when properly summoned."
While the Court recognized that certain exceptions would be upheld, the "primary assumption" was that a summoned party must "give what testimony one is capable of giving" absent an exemption "grounded in a substantial individual interest which has been found, through centuries of experience, to outweigh the public interest in the search for truth."[12]
How do mediation privileges of other states stand up in New York under this standard, "a substantial individual interest which has been found, through centuries of experience, to outweigh the public interest in the search for truth"?
Not well.
Centuries of experience? The Uniform Mediation Act was approved by the National Conference of Commissioners on Uniform State Laws in 2001. In almost 20 years, only 11 states and the District of Columbia have adopted it. The last state to adopt it was Hawaii in 2013. It has been introduced as legislation in only two other states — Georgia and Massachusetts.[13]
While some other states, such as California, have mediation confidentiality laws more protective than the Uniform Mediation Act,[14] New York has only minimal statutory protection for mediation confidentiality. New York's Civil Practice Law and Rule 4547 makes settlement negotiations inadmissible solely "as proof of liability for or invalidity of the claim or the amount of damages." It is therefore consistent with New York policy for New York courts to be inclined to disregard the more protective mediation confidentiality laws of other states.
Would it help to seek confidentiality protection in New York under federal law, rather than the law of another state? No.
Beyond the minimal protections of Rule 408 of the Federal Rules of Evidence (which generally parallels CPLR 4547), there is no federal mediation privilege. There isn't even much of a settlement privilege in federal law:
Did you know there is a settlement privilege? Not many do, primarily because few courts have adopted the privilege. The Sixth Circuit adopted a federal common-law settlement privilege in Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (CA6 2003), but other courts reject the Goodyear decision. See, e.g., In re MSTG Inc., 675 F.3d 1337 (Fed. Cir. 2012); Matsushita Elect. Indust. Co. v. Mediatek, Inc., 2007 WL 963975 (N.D. Cal. 2007).[15]
The U.S. Court of Appeals for the Federal Circuit stated plainly that a settlement privilege does not outweigh the public interest in the search for truth:
[W]hile there is clearly an important public interest in favoring the compromise and settlement of disputes, disputes are routinely settled without the benefit of a settlement privilege. It is thus clear that an across-the-board recognition of a broad settlement negotiation privilege is not necessary to achieve settlement.[16]
So here is the key conclusion: It is easier to ask a New York court to apply Lego as described in Wilmington Trust rather than PwC, and use the evidence law of a more protective state to keep your mediation confidential, if the "assertedly privileged communications" were made in that other state. Even then, though, a New York court might order disclosure.When you mediate online, with participants in different states, it's harder to show where their mediation communications were "made." If even one mediation participant was in New York or another less protective state, then even under Lego, the chances a New York court will order disclosure increase.
The lesson, therefore, is this: Don't assure your clients any mediation is confidential. Be wary of mediation agreements that promise the law of any more protective state will apply. Nobody can guarantee that result.
However, do assure your clients mediation is still valuable. Your clients can still participate actively and meaningfully, with unparalleled opportunities for collaboration and teamwork between clients and lawyers.
Jeff Kichaven is an independent mediator with a nationwide practice. He specializes in insurance, intellectual property and professional liability matters.
Teresa F. Frisbie is a mediator and the director of the Dispute Resolution Program at Loyola University Chicago School of Law.
Tyler Codina is a second-year law student at Loyola University Chicago School of Law, currently pursuing a certificate in transactional law.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 687 Fed.Appx. 695, 706 (10th Cir. 2017).
[2] Slip Op. at 18.
[3] Slip Op. at 19.
[4] Slip op. at 20.
[5] 2017 NY Slip Op. 04071, 150 AD 3d 578, May 23, 2017.
[6] Case No. 2:13-cv-1213, SD Ohio 2016, slip op. at 6
[7] Lego v. Stratos Lightwave Inc.
, 224 F.R.D. 576, 578 (S.D.N.Y. 2004).[8] Condit v. Dunne
, 225 F.R.D. 100, 107 (S.D.N.Y. 2004).[9] Lego, 224 F.R.D. at 579.
[10] 43 A.D. 3d 1289, 842 N.Y.S. 2d 646 (4th Dep't 2007), aff'd, 10 N.Y. 3d 923, 862 N.Y.S. 2d 456, 892 N.E. 2d 849 (2008).
[11] http://www.nycourts.gov/reporter/3dseries/2008/2008_05781.htm.
[12] United States v. Euge
, 444 US 707, 712-13 (1980) (IRS empowered to compel handwriting exemplars under its subpoena power).[13] https://www.uniformlaws.org/committees/community-home?communitykey=45565a5f-0c57-4bba-bbab-fc7de9a59110&tab=groupdetails.
[14] Cal.Ev.C. 1115 et. seq.
[15] https://presnellonprivileges.com/2015/02/10/important-lessons-about-the-settlement-privilege/.
[16] In re: MSTG Inc.
, 675 F.3d 1337, 1345 (Fed.Cir. 2012).For a reprint of this article, please contact reprints@law360.com.