Just before Christmas, Travelers Commercial Insurance Company (“Travelers”) submitted its brief in opposition  (Travelers reply 3.pdf ) to that submitted by the Southern California Mediation Association (“SCMA”) as amicus curiae on the issue of mediation confidentiality. In its amicus curiae brief, SCMA queried whether the Ninth Circuit Court of Appeals should recognize a “due process” exception to mediation confidentiality, and if so, what would be the proper scope of such an exception.

By way of background, plaintiffs suffered the total loss of their home in Yorba Linda, California in November 2008, when the Yorba Linda Freeway Complex fire swept through their neighborhood. After filing a claim with their insurer Travelers but reaching no resolution, they agreed to mediate the dispute; no resolution was reached.

Dr. and Mrs. Milhouse then filed suit in state court which Travelers removed to federal court. In August 2013, the case was tried before a jury. The issues were whether Travelers breached its contract with the plaintiffs and breached the implied covenant of good faith and fair dealing (or, in essence, acted in bad faith) in not settling their claim.

During trial, the court allowed in as evidence, statements of what had occurred during the mediation on the basis that the parties had waived mediation confidentiality. More importantly, the court ruled that even if the parties had not waived it, the statements would be admitted to provide due process to Travelers to defend itself against claims that it had acted in bad faith by refusing to settle.

The jury found that Travelers had breached its contract with plaintiffs and awarded damages to plaintiffs but also found that Travelers had not acted in bad faith such that plaintiffs were not entitled to punitive damages.

Both sides appealed. Plaintiffs argued that the trial court committed error by allowing testimony of what occurred during mediation while Travelers argued that state law did not apply but rather Federal Rule of Evidence 408 applied which allowed the parties to introduce such statements at trial. Travelers also argued that plaintiffs had waived this issue by not raising it below.

Not surprisingly, in response to SCMA’s amicus curiae brief, Travelers raises the argument of waiver once again, and also urges that “Due Process” as set forth in the Fourteenth Amendment to the U.S. Constitution trumps all federal and state laws including California’s laws on mediation confidentiality. That is, due process dictates that when plaintiffs attempt to blame the failure of the mediation on Travelers, Travelers should not be silenced by “mediation confidentiality” but be given its due process right to defend itself against such alleged unfounded assertions.

As before, Travelers also argues that SCMA is seeking an advisory opinion because plaintiffs waived the issue of mediation confidentiality (either pursuant to California law and/or the contract of mediation confidentiality signed by the parties at the mediation) by not raising it in the trial court.

Finally, as it did in its opening brief, Travelers notes that there is a difference between “confidentiality” and “privilege”. While the California statutes provide that mediation communications are “confidential”, they do not provide them to be “privileged communications”. Thus, Travelers argues, that the California statutes do not apply but rather Federal Rule of Evidence 408 applies which “…allows admission of statements made during ‘compromise negotiations about the claim’, including statements made during mediation, so long as they are offered for purpose other than proving or disproving ‘the validity or amount of a disputed claim.'” ((Cross-Appellants Reply Brief/Answer to Amicus Curiae Brief at p.44  (Case No. 13-56959, docket entry no. 59.) (Travelers reply 3.pdf)

After much thought on this issue, and discussion with my colleagues, my guess is that the Ninth Circuit will agree with Travelers that Plaintiffs waived the argument on mediation confidentiality and thus, refuse to issue an advisory opinion. It will avoid the issue by saying it was waived below. I hope I am wrong, but we shall see. Stay Tuned!

…. Just something to think about.


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