Mediation Confidentiality: Does it Really Exist in Federal Court?

//Mediation Confidentiality: Does it Really Exist in Federal Court?

Does mediation confidentiality exist in federal court? The answer is far from clear. Depending on the circumstances, it is both “yes” and “no.”

BABASA v. LENSCRAFTERS

My quest for this answer started by happenstance when I read the Ninth Circuit Court of Appeals’ opinion in Babasa v. LensCrafters, Inc., 498 F. 3d 972 (9th Cir. 2007) issued on August 16, 2007 (“Babasa“). Although the Court focused on whether it had removal jurisdiction under 28 U.S.C. §1446(b), along the way, it also opined that mediation confidentiality is of no moment.

Factually, in April 2005, Patrick Babasa and others filed a putative class action in state court against LensCrafters, Inc. alleging various California Labor Code violations. After the plaintiffs filed an amended complaint, the parties agreed to enter mediation.

In December 2005, counsel for Babasa and the other plaintiffs sent a letter to counsel for LensCrafters confirming certain issues regarding the size of the class and the number of potential violations. The letter noted that it was sent “

[i]n preparation for the mediation.” It further discussed the amount of potential damages, noting that missed meal periods amounted to $4.5 million while potential penalties amounted to an additional $5 million under provisions of the California Labor Code (“Letter”).1

When the mediation did not resolve the case, on November 27, 2006, LensCrafters filed a notice of removal of the action to federal court, alleging that LensCrafters was not aware that the case was appropriate for removal until its counsel had a telephone call with opposing counsel on November 1, 2006.

Under the federal removal statute, 28 U.S.C. §1446(b), LensCrafters was required to file a notice of removal within thirty (30) days of its first notice that the case is one which is or has become removable. Thus, the issue was whether the December 2005 Letter $mdash; prepared for purposes of mediation and thus subject to mediation confidentiality under the California statutes – provided such notice or could LensCrafters rely on the November 1, 2006 telephone conversation between counsel as its first notice.

The district court determined that the December 2005 Letter was the operative document providing such notice and sent the case back to state court because the request for removal was not filed within thirty (30) days of that letter, and therefore, not timely.

The Ninth Circuit affirmed, rejecting LensCrafters’ argument that the “. . . letter could not serve as proper notice of the amount in controversy for removal purposes because the letter is privileged under state law.” Id. at 974 (i.e., mediation confidentiality found in California Evidence Code §1119.)2

The appellate court side-stepped the issue:

It is far from clear whether the. . . letter falls within the scope of the California mediation privilege. But we need not decide whether it does or not, because California privilege law does not directly apply in the present context. Id. at 974.

Citing Fed. R. Evid. 501, the Ninth Circuit determined that “state law does not supply the rule of decision here.” Id. Because federal law determines whether this case meets the amount in controversy requirement necessary for diversity jurisdiction in federal court, 28 U.S.C. §1332, then it is also federal law that applies to determine whether the Letter constituted notice for purposes of removal jurisdiction. Id. at 974-975.

The Ninth Circuit found that, clearly, upon reviewing the December 2005 Letter in which plaintiffs claimed damages in the millions, LensCrafters would have been put on notice that the case was removable to federal court. Id.

In a footnote, the appellate court further avoided the issue by noting that because LensCrafters did not raise the argument that the Letter is privileged under some federal evidentiary privilege (as opposed to the state mediation confidentiality statute) or that it falls within a federal common law privilege or even a federal mediation privilege, the Court would not consider these notions and certainly would not determine their applicability. Id. at 975, fn.1.

In short, the Court focused quite narrowly: since this was an issue to be decided under federal law, California state law on mediation confidentiality did not apply.


1 These amounts would constitute notice of damages and thus, that plaintiffs’ damages exceeded the amount in controversy requirement for federal jurisdiction under 28 U.S.C. §1332. In essence, this would give notice to LensCrafters the case could be removed to federal court.

2 California Evidence Code §1119:

THE ALTERNATIVE DISPUTE RESOLUTION ACT OF 1998

After reading this decision, the question arises: is there mediation confidentiality in federal court? If so, what are its parameters? If not, then why not and what happens in all those mediations conducted under the auspices of the district and appellate courts?

Technically, the answer to the first question should be “yes”: There is mediation confidentiality in federal court. This is due to the Alternative Dispute Resolution Act of 1998, Pub. L. No. 105-315, 112 Stat. 2998 (105th Cong. 2nd Sess.) (Oct. 30, 1998) codified at 28 U.S.C. §§651-658. (“ADR Act”). In Section 2 of this Act, Congress finds among other things, that:

(1) alternative dispute resolution, when supported by the bench and bar, and utilizing properly trained neutrals in a program adequately administered by the Court, has the potential to provide a variety of benefits, including greater satisfaction of the parties, innovative methods of resolving disputes, and greater efficiency in achieving settlements. . . .

(2) certain forms of alternative dispute resolution, including mediation, early neutral evaluation, mini-trials, and voluntary arbitration, may have potential to reduce the large backlog of cases now pending in some federal courts throughout the United States, thereby allowing the courts to process their remaining cases more efficiently. . . .

In Section 3, Congress then authorizes the district courts to adopt, by local rule, the use of alternative dispute resolution (“ADR”) processes that include not only mediation, but early neutral evaluation, mini-trials and voluntary arbitration, as well.

Section 4 (28 U.S.C. §652) addresses “Jurisdiction” including confidentiality:

(d) Confidentiality Provisions – Until such time as rules are adopted under Chapter 131 of this title providing for confidentiality of alternative dispute resolution processes under this chapter, each district court shall, by local rule, adopted under section 2071(a), provide for the confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications.

While a cursory review of Chapter 131 of Title 28, United States Code (28 U.S.C.
§§2071-2077) reveals that Congress has yet to amend this chapter to include an ADR confidentiality provision, both district and appellate courts amended their local rules to include such confidentiality provisions. See, e.g. Central District of California Local Rule 16-15.8 (confidentiality of proceedings); Northern District of California ADR Local Rule 5-12 (confidentiality in early neutral evaluation); 6-12 (confidentiality in mediation) and 7-5 (confidentiality at settlement conferences) and Ninth Circuit Court of Appeals Rule 33-1 (confidentiality in settlement conferences).

Thus, at least by federal statute and local court rule, mediations are to be kept confidential.
However, now it gets interesting.


(a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.

(b) No writing, as defined in Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.

(c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.

FOLB v. MOTION PICTURE INDUSTRY PENSION AND HEALTH PLANS, INC.

Several months before Congress enacted the ADR Act, supra, the Honorable Richard A. Paez, United States District Judge sitting in the Central District of California issued an opinion in Folb v. Motion Picture Industry Pension and Health Plans, et al. 16 F. Supp. 2d 1164 (C.D. Cal 1998) (July 8, 1998), aff’d., 216 F. 3d 1082 (9th Cir. 2000) (“Folb“). The issue was whether to affirm or overrule the Magistrate’s decision on plaintiff’s motion to compel production of a mediation brief and communications between counsel who were privy to the brief.

Plaintiff Scott Folb sued for gender discrimination and retaliatory actions based on his alleged whistle blowing activities. The defendants allegedly relied on a complaint by a co-employee, Vivian Vasquez, that Folb had sexually harassed her. Plaintiff contended that defendant used this as a pretext for firing him for whistle-blowing because he alleged that the Directors of the Pension Plans had violated their fiduciary duties under federal law. During the litigation, the parties attended a formal mediation with a neutral in an attempt to settle the case. While the parties did not settle at mediation, Vasquez settled her claims with the Defendant Plans soon thereafter. Without permission, counsel for the Defendant Plans shared Vasquez’ mediation brief with outside counsel, hired to investigate Vasquez’ sexual harassment claim.

Plaintiff Scott Folb then issued a subpoena to that outside counsel for the mediation brief to which the attorney objected, claiming mediation confidentiality under Fed. R. Evid. 408 and Cal. Evid. Code §1119. The Magistrate denied the motion to compel any documents or notes connected to the mediation.

The district court took a more narrow approach, concluding that while production of the mediation brief should be denied, information relating to settlement negotiations conducted after the conclusion of the formal mediation, was discoverable.

To reach this conclusion, the Court started with Rule 501 of the Federal Rules of Evidence which provides:

Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law applies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law.

The Court then noted that the Ninth Circuit already concluded that in a federal question case containing pendent state law claims, the principles of common law supply the law of privilege (i.e., the rule of decision.) Id. at 1169. That is, federal common law applies, and the issue for the Court was whether a federal mediation privilege existed. Id. at 1170.

Looking to the U.S. Supreme Court for guidance, the Court, quoting Jaffee v. Redmond, 518 US 1, 135 L. Ed. 2d 337, 116 S. Ct. 1923 (1996) noted that, “. . . the federal courts are authorized to define new privileges based on interpretation of “common law principles. . . in light of reason and experience. Jaffee, 518 U.S. at 8.” “Id. However, “. . . that authority must be exercised with caution because the creation of a new privilege is based upon consideration of public policy.” Id. at 1171. Here, one must remember that the “. . . general rule is that the public is entitled to every person’s evidence and that testimonial privileges are disfavored.” Id. Thus, a court must determine whether the “public good” of recognizing a testimonial privilege outweighs the general duty of everyone to give evidence. Id. To determine this and thus whether an asserted federal common law privilege (i.e., here, a federal mediation privilege) should be recognized, four factors must be considered:
To determine whether an asserted privilege constitutes such a public good, in light of reason and experience, the Court must consider (1) whether the asserted privilege is “rooted in the imperative need for confidence and trust[;]” (2) whether the privilege would serve public ends; (3) whether the evidentiary detriment caused by exercise of the privilege is modest; and (4) whether denial of the federal privilege would frustrate a parallel privilege adopted by the states. Id. at 9-13. Id. at 1171.

Applying these four factors, the district court determined that a federal mediation privilege pursuant to federal common law principles enunciated in Fed. R. Evid. 501 should exist. Id. at 1171-1181.

The court then defined the contours of the privilege:

The mediation underlying the instant dispute was a formal mediation with a neutral mediator, not a private settlement discussion between the parties. Accordingly, the mediation privilege adopted today applies only to information disclosed in conjunction with mediation proceedings with a neutral. Any interpretation of Rule 501 must be consistent with Rule 408. To protect settlement communications not related to mediation would invade Rule 408’s domain; only Congress is authorized to amend the scope of protection afforded by Rule 408. Consequently, any post-mediation communications are protected only by Rule 408’s limitations on admissibility. Id. at 1180.

In short, communications to the mediator and between the parties during the mediation, are protected. Also protected are communications made to the neutral in preparation of the mediation. But, subsequent communications between the parties are not protected: to gain that protection, the parties must return to mediation! Otherwise, the province of Rule 408 settlement negotiations would be invaded! Id.
So, the stage is now set: But, do other courts follow suit?

RECENT CASES

Not really; only a few courts have followed Folb, recognizing the existence of a “federal mediation privilege” grounded in Fed. R. Evid. 501.An often cited case recognizing a federal mediation privilege is Sheldone v. Pa. Turnpike Com’n, 104 F. Supp. 2d 511 (W.D. Pa 2000) involving a claim brought under the Fair Labor Standards Act. During the litigation, Plaintiffs, members of the local union, sought discovery of documents generated during the course of a mediation of union grievances. Id. at 511-512. The Defendant employer sought a protective order, urging the court to adopt a federal mediation privilege. After discussing the four factors discussed in Jaffee v. Redmond, supra, the district court adopted the privilege, but then defined its contours in accordance with W. Dist. Local R. 16.3.5.(E), 16.3.1: (1) it protects from disclosure all written and oral communications made in connection with or during a mediation made before a neutral mediator; (2) no such written or oral communication may be used for any purpose – including impeachment – in any proceeding; and (3) except for a written settlement agreement or any written stipulations executed by the parties or their counsel, no party or counsel shall be bound by anything done or said during the mediation process. However, the court made clear that this privilege does not protect from disclosure “any evidence otherwise” and independently discoverable merely because it was presented during a mediation. Id. at 517.

A more recent example is Sampson v. School Dist. 2008 U.S. Dist. Lexis 91421, 105 Fair Empl. Prac. Cas. (BNA) 96 (E.D. Pa, Nov. 5, 2008). In its discussion, it cites other cases allegedly recognizing the privilege, but noting that in some of these instances, the “privilege” is actually based on the local rule enacted pursuant to the ADR Act.

Similarly, the United States Bankruptcy Court in Hays v. Equitex, Inc. (In Re: RDM Sports Group, Inc.), 277 B.R. 415, 2002 Bankr Lexis 468 (Bankr. N.D. Ga 2002), similarly recognized this “privilege” although noting that neither the Eleventh Circuit nor any federal district court in that circuit has done so. Id. at 426. Again, its analysis centers on the factors enunciated in Jaffee v. Redmond, supra, and adopts the scope of the privilege set out by the court in Sheldone, supra:

The mediation privilege should operate to protect only those communications made to the mediator, between the parties during the mediation, or in preparation for the mediation. Therefore, the mediation privilege does not apply to shelter from disclosure documents prepared prior to the mediation, merely because those documents were presented to the mediator during the course of the mediation. Id. at 431.

But see, In Re: Subpoena Issued to CFTC, 370 F. Supp. 2d 201, 67 Fed. R. Evid. Serv. (CBC) 117 (D.D.C 2005) (refusing to recognize a federal “settlement” privilege under Fed. R. Evid. 501.)

In EEOC v. Albion River Inn, Inc., 2007 U.S. Dist. Lexis 97805 (N.D. CA, Sept. 4, 2007), the court side-stepped the issue of whether a federal mediation privilege existed by noting that in the matter before it, there was no formal mediation or court ordered mediation, but only a third party attempting to help adverse parties resolve their dispute. Thus, even the local rules governing mediation confidentiality did not apply.

To confuse the issue even more, a more recent court in the Central District of California (which decided Folb), took a different stance. In Molina v. Lexmark International, Inc., 2008 U.S. Dist. Lexis 83014, 77 Fed. R. Evid. Serv. (Callaghan) 905 (C.D. CA. Sept. 30, 2008) (“Molina“), the Honorable Margaret Morrow, U.S. District Judge, questioned the existence of the federal common law mediation privilege, noting that the Folb court insisted that its holding be limited to its facts which were that a third party who did not participate in the mediation sought discovery of the mediation materials. Id. at 25-26. The Court further noted that no circuit court has ever adopted or applied such a privilege: “indeed both the Ninth and Fourth Circuits have expressly declined to consider whether such a privilege exists.” Id. at 30.

Factually, plaintiff Rob Molina filed a class action against his former employer, Lexmark International, in Los Angeles Superior Court, alleging violations of the California Labor Code relating to vacation and personal day pay and under California’s Unfair Competition Act, Business and Professions Code §§17200-17208. Two weeks before trial in state court, defendant Lexmark removed the matter to federal court. Plaintiff Molina filed a motion to remand, asserting the removal was untimely. Id. at 2-10. As in Babasa, the issue was whether information learned during settlement negotiations which continued after the mediation started the 30 day window for removal or could Lexmark rely on an expert report received much later and just before trial as its first notice that this action was removable to federal court. Id. at 17-21.

In holding that the removal was not timely and remanding the matter back to Los Angeles Superior Court, the Court clarified the issue. The Court explained that there is a difference between an evidentiary privilege and confidentiality:

“Confidentiality” refers to a duty to keep information secret while “privilege” refers to protection of information from compelled disclosure”… Communications are confidential when the freedom of the parties to disclose them voluntarily is limited; they are privileged when the ability of third parties to compel disclosure of them, or testimony regarding them, is limited. (Citation omitted). Id. at 35.

As noted, the district court in Molina had to decide whether information obtained during a mediation could be used for removal purposes. In so doing, it noted that numerous courts, including Babasa have concluded that “. . . Rule 408 does not make settlement offers inadmissible in the removal context as evidence of the amount in controversy.” Id. at 42-43. The Court rejected the argument that either mediation confidentiality or Fed. R. Evid. 408 precluded the use of the information for purposes of removal. In a nutshell, the court stated the “rule” to be:

Accordingly, although the parties to a mediation generally have a duty to keep their discussions confidential, this duty does not prevent the use of mediation discussions for the limited purpose of establishing the amount in controversy. Id. at 45.

The court opined that this “rule” was in accord with the rationale behind both Fed. R. Evid. 408 and mediation confidentiality which is “. . . to encourage honest assessment and acknowledgement of litigation strengths and weaknesses by limiting the parties’ ability to make use of compromise discussions.” Id.

In sum, it seems that either under the rubric of “federal mediation privilege,” or “mediation confidentiality” or Fed. R. Evid. 408 or 501, the secrecy surrounding mediation is quite limited: neither of these prevents the use of information obtained during the mediation to establish the amount in controversy for removal purposes. Id. at 56. (See, also, Munoz v. J.C. Penney Corp., Inc., 2009 U.S. Dist. Lexis 36362 (C.D. Cal. April 9, 2009) holding that neither a “federal mediation privilege” nor Fed. R. Evid. 408 prohibits the use of information obtained from a settlement proposal letter to establish amount in controversy for removal purposes.) Depending on the intended use of the information, the confidential information obtained during a mediation may or may not be so confidential or privileged after all.

CONCLUSION

While each court has a local rule providing for confidentiality in mediation and/or other alternative dispute resolution processes, each court will interpret and apply it narrowly. That is, because “the public. . . has a right to every man’s evidence. . . and thus [to utilize] all rational means for ascertaining the truth” (Jaffee v. Redmond, supra, at 9), “although confidential, mediation is not privileged” (Molina, supra at 33). And, to be even more precise, this thought should be taken a step further: even though “confidential” for mediation purposes, information obtained during mediation may, indeed, be used for other purposes (e.g. removal jurisdiction.)

In short, beware and be wary: “mediation confidentiality” and/or “mediation privilege” in federal court may well be oxymoronic.

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By | 2017-05-13T07:38:47+00:00 August 31st, 2007|Featured Articles|0 Comments

About the Author:

Phyllis Pollack
Phyllis G. Pollack, Esq. the principal of PGP Mediation (www.pgpmediation.com), has been a mediator in Los Angeles, California since 2000. She has conducted over 1300 mediations. As an attorney with more than 35 years experience, she utilizes her diverse background to resolve business, commercial, international trade, real estate, employment and lemon law disputes at both the state and federal trial and state appellate court levels. Currently, she is the in­coming chair of State Bar of California’s ADR Committee. She has served on the board of the California Dispute Resolution Council (CDRC) (2012­2013), is a past president and past treasurer of the SCMA Education Foundation (2011­2013) and a past president (2010) of the Southern California Mediation Association (SCMA). Ms. Pollack received her BA degree in sociology in 1973 from Newcomb College of Tulane University and her JD degree from Tulane University School of Law in 1977. She is an active member of both the Louisiana and California bars. Pollack believes that it is never too late to mediate a dispute and recommends mediation over litigation as it allows the parties to decide their own solutions.