This decision underscores the uncertainty in federal law relating to mediation confidentiality.
California has adopted an extensive statutory scheme that, with narrow exceptions, protects the confidentiality of mediation proceedings and precludes introduction in evidence of any communication made during the course of a mediation. Cal. Evid. Code §§ 1119; 1121; 1123. This scheme has been called essential to effective mediation “because it promotes a candid and informal exchange [that can be] achieved only if participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.” Rojas v. Superior Court, 33 Cal. 4th 407, 415–16 (2004) [internal quotes omitted]. There are consequences to the scope of California’s mediation privilege that warrant consideration. Notably, the prohibition against use of these communications can make it difficult, if not impossible, to gather evidence to pursue a claim against one’s attorney or insurer for misconduct during a mediation or to enforce or set aside a settlement reached in mediation.
In contrast, the Federal Rules of Evidence only protect matters disclosed in the course of compromise or settlement when offered at trial to prove liability, but do not preclude statements offered for other purposes. Fed. R. Evid. 408.
The recent Ninth Circuit decision in In re TFT–LCD (Flat Panel) Antitrust Litigation, 2016 WL 4547357 (9th Cir. Sept. 1, 2016) underscores the difference between California and federal law at to the scope of protection afforded to statements made during mediation.
In that case, Sony and HannStar participated in pre-lawsuit mediation of price fixing claims that Sony alleged against HannStar. The mediator made a mediator’s proposal by email to Sony and HannStar under a “double-blind” procedure where the parties would separately provide their acceptance or rejection to the mediator alone. Both parties accepted the proposal and the mediator notified the parties by email, concluding: “This case is now settled subject to agreement on terms and conditions in a written settlement document.” Subsequently, HannStar informed Sony that it did not intend to pay the settlement. Sony sued, alleging federal and state antitrust claims and breach of contract for HannStar’s alleged reneging on the settlement agreement.
Sony later dismissed its state and federal antitrust claims, but moved for summary judgment to enforce the settlement agreement under California law. The district court denied the motion, finding California’s mediation confidentiality statutes precluded admission of the email exchange with the mediator because it lacked a statement that the settlement was intended to be enforceable or binding. A judgment was entered and Sony appealed.
The Ninth Circuit reversed and remanded, holding that the federal, rather than California, law of privilege applies. It first recognized that, under Rule 501 or the Federal Rules of Evidence, federal common law governs any claim of privilege in the federal courts, but in a civil case, state law governs a claim of privilege relating to state law claims or defenses. The Court then noted that, under Wilcox v. Arpaio, 753 F.3d 872 (9th Cir. 2014), federal privilege law governs where the evidence in question relates to both federal and state law claims. Finally, the Ninth Circuit held it was of no moment that Sony had dismissed all of its federal claims by the time its motion for summary judgment was filed. “[T]he eventual dismissal of federal claims does not govern whether the evidence related to federal law. Because, here, at the time the parties engaged in mediation, their negotiations concerned (and the mediated settlement settled) both federal and state law claims, the federal law of privilege applies. Accordingly, the district court erred in applying California privilege law to resolve this dispute.” In re TFT–LCD (Flat Panel) Antitrust Litigation, 2016 WL 4547357 at *3.
The most critical lesson from this case is to understand the different treatment under federal and California law afforded to statements made in mediations. To ensure that evidence of a mediated settlement is admissible in a state court action to enforce that settlement, you need to keep the requirements of California Evidence Code section 1123 in mind. The written evidence of the agreement must state that it is “enforceable or binding or words to that effect.” Cal. Evid. Code § 1123(b). Otherwise, you may not be able to introduce evidence of the mediated settlement, such as the declaration testimony by a party or attorney that an agreement was reached, to enforce the settlement because of the expansive scope of California’s mediation privilege.
A second lesson is to recognize the potential impact of including federal claims in a mediation conducted in California. In this case, at least, the Ninth Circuit was amenable to applying the federal mediation privilege because federal claims were asserted at the time of the mediation. It may even be sufficient that a federal claim could have been asserted on the same facts or was simply threatened, as the mediation in In re TFT–LCD occurred before a suit was filed and the parties consequently had not yet specifically asserted any federal claims or counter-claims against one another under federal law. Thus, litigants should be wary that statements made in a mediation, which the parties expected to be confidential, may be fair game in a subsequent federal lawsuit because a federal claim was or could have been asserted at the time of the mediation.
The Ninth Circuit’s remand to the district court to determine the impact of federal common law implies that a separate federal common law mediation privilege exists beyond Federal Rule 408 and that it differs from California law. However, the Ninth Circuit has had several opportunities to define the scope of such a federal mediation privilege and has so far declined to do so. See Wilcox v. Arpaio, 753 F.3d 872, 877; Babasa v. LensCrafters, Inc., 498 F.3d 972, 975 n. 1 (9th Cir. 2007). At least one district court has recognized a federal “mediation privilege.” Folb v. Motion Picture Indus. Pension & Health Plans, 16 F. Supp. 2d 1164, 1179–80 (C.D. Cal. 1998), aff’d, 216 F.3d 1082 (9th Cir. 2000) (“Accordingly, this Court finds it is appropriate, in light of reason and experience, to adopt a federal mediation privilege applicable to all communications made in conjunction with a formal mediation.”) Another has declined to do so. Molina v. Lexmark Int’l, Inc., 2008 WL 4447678, at *9 (C.D. Cal. Sept. 30, 2008) (“No Circuit court has ever adopted or applied such a [mediation] privilege; indeed, both the Ninth and the Fourth Circuits have expressly declined to consider whether such a privilege exists.”) It remains to be seen whether, after further proceedings on remand, In re TFT–LCD will end up back in the Ninth Circuit for consideration of adoption of a federal mediation privilege, similar to California’s.
1. There is an exception to mediation confidentiality to allow for the introduction of a written settlement agreement into evidence that requires, in part, that the agreement provide, “it is enforceable or binding or words to that effect.” Cal. Evid. Code § 1123(b).
2. The Honorable Barbara M. G. Lynn, United States Chief District Judge for the Northern District of Texas, sitting by designation, dissented, stating the analysis should focus on the claims pending when the admission of evidence is sought. As the federal claims had been settled at the time of Sony’s motion, the dissent reasoned the evidence could not have related to any federal claim and state law should have applied.
Chad A. Westfall is a partner with Musick, Peeler & Garrett in its San Francisco office. His full bio and contact information can be found at: http://musickpeeler.com/professional/Chad_Westfall/