Are Negotiations Between Parties During the Mediation Process Without the Mediator’s Participation Protected by the Mediation Privilege?

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When disputes enter into mediation, there are meetings and communications between the parties and the mediator, but after a mediation session ends, the parties may continue to negotiate independently by meeting and communicating between themselves outside the mediator’s presence. When and to what extent are those independent negotiations (conducted without the participation of the mediator) protected by the mediation privilege? Two recent federal cases address this issue, although not with the clarity one would have hoped. See Country Mut. Ins. Co. v. Martinez, No. CV-17-02974-PHX-ROS, 2019 WL 1787313 (D. Ariz. Apr. 24, 2019); Citizens Dev. Corp., Inc. v. Cty. of San Diego, No. 12CV0334-GPC(KSC), 2019 WL 172469 (S.D. Cal. Jan. 11, 2019).

Martinez

Martinez concerned a car accident in which two children were seriously injured after their mother crashed into a horse trailer. The children’s father (the ex-husband of the mother) sued five defendants in state court: the mother, the county with jurisdiction over the road on which the accident occurred, the engineering firm that designed the road, the firm that constructed the road, and the driver of the horse trailer. The mother’s insurer (Country Mutual) retained an experienced litigator (Burke) to defend her. The liability limits of the mother’s policy were $30,000 per occurrence, and an additional $30,000 per occurrence for uninsured/underinsured coverage. However, the father’s apparent litigation strategy was to pin the fault on the other defendants.

The father’s attorney (Lewis) retained five expert witnesses. Understanding that the mother was not the father’s target, Burke did not retain any experts on behalf of the mother, and instead stayed on the sidelines.

At some point, the father and the other defendants agreed to mediate. Burke did not attend, but sent one of his partners. Burke’s partner, however, left the mediation before it ended. Thereafter, while the mediation was still underway, Lewis sent a cryptic email to Burke seemingly proposing to resolve the claim against the mother within the policy limits (which was inconsistent with his prior demand). Burke did not respond, and the father subsequently settled with the county, construction firm and engineering firm at the mediation.

Subsequently, Lewis sent another offer to Burke proposing to settle the claims against the mother within the policy limits, but as he had in the past, also demanding a portion of the expert and court reporter fees (which exceeded $300,000). Burke declined. The mother then independently executed a settlement agreement with the father providing for a $30 million judgment against her. Country Mutual promptly filed a complaint in federal court for a declaratory judgment against the father, the children, and the children’s guardian that the mother had breached the cooperation clause in her policy by entering into that settlement. The defendants counterclaimed on the grounds that Country Mutual breached its duty to the mother to, inter alia, “treat settlement proposals with equal consideration.”

Part of the defendants’ evidence consisted of the email sent by Lewis to Burke during the mediation purporting to settle within the policy limits (which would have triggered the insurer’s “duty of equal consideration to its interests and those of the insured”).

The court examined whether Arizona’s mediation privilege barred it from considering that email as evidence. The relevant statutory provision protects all “communications during a mediation.” Since the mediation was ongoing when Lewis sent the email to Burke, it was a communication “during the mediation.” However, the court observed:

But “during a mediation” must be carefully defined when there is a multi-party mediation. In a multi-party situation, “during a mediation” can only sensibly refer to an ongoing mediation involving the parties who are communicating. In other words, merely because the mediation between [the father] and the other defendants was ongoing did not mean Lewis’s communications with everyone was privileged. For example, if Lewis and the other defendants had agreed to a mediation but Burke had never agreed to participate, Lewis’s communications with the parties involved in the mediation would be privileged but his communications with Burke would not. The mediation privilege should not be read as extending the privilege to communications between parties not actually involved in mediation.

The court further noted that “the mediation privilege must end at some point. That is, the parties who participate in a mediation cannot draw a permanent cloak of privilege around all their subsequent communications.” (emphasis added).

Combining those principles, the court ruled that the email was admissible (after redacting a reference to a mediation communication) because it was sent after Burke’s partner left the mediation. Thus, any mediation between the mother and father had ended even though the mediation between the father and the other defendants continued.

The court’s ruling would appear to stand for the proposition that once a mediation session between two parties ends, any subsequent negotiations between the parties are not protected by the mediation privilege. But it is not so simple. In a footnote, the court qualified its holding, stating that, “[i]f Country Mutual had represented that, from its perspective, it remained an active participant in the mediation, the question would be different.”

It is unclear what the court meant by “from its perspective, it remained an active participant in the mediation.” The intent seems to be that independent communications between parties after the conclusion of a mediation session may be deemed privileged if the parties somehow indicate that such communications are part of a mediation process that remains ongoing after the conclusion of the session with the mediator. However, in the case before it, there were no such indications, and therefore the court deemed the departure of Country Mutual’s attorney from the mediation as the end of the mediation between the father and the mother.

Citizens

The Citizens decision concerned a CERCLA claim asserted by the owner and operator of a lake against defendants that allegedly polluted the lake. The defendants were all municipalities, except for one private corporation, Hollandia Dairy.

The plaintiff and the municipal defendants entered into mediation to equitably allocate liability for cleanup costs between those defendants based on the evidence and expert reports provided to the mediator. Hollandia only participated in the mediation to a limited extent, and later moved to compel production of mediation-related documents from the plaintiff and other defendants.

The court held that the federal mediation privilege protected the following documents from disclosure: (i) communications to the mediator, (ii) communications between the parties during the mediation, and (iii) communication between the parties in preparation for a mediation session with the mediator. The court excluded, however, (i) communications between the municipal defendants regarding an investigation that ran concurrently with the mediation, even though the investigation yielded information used during the mediation, and (ii) communications arising out of negotiations between the parties after the conclusion of the mediation even if such communications contained information disclosed during the mediation. However, it is unclear from the decision whether the second exclusion of “subsequent negotiations” applied to any independent negotiations after the conclusion of a mediation session, or only to negotiations after the conclusion of the mediation process (as declared by the mediator).

Alfieri

In contrast to Martinez and Citizens is a 2015 Oregon Supreme Court case squarely holding that “mediation” (as defined in the Oregon mediation statute) “includes only that part of the ‘process’ in which a mediator is a participant. Separate interactions between parties and their counsel that occur outside of the mediator’s presence and without the mediator’s direct involvement are not part of the mediation, even if they are related to it.” Alfieri v. Solomon, 365 P.3d 99, 107 (2015) (emphasis added).

In Alfieri, the defendant was an attorney who had represented the plaintiff in a prior lawsuit alleging discrimination claims against the plaintiff’s former employer. After limited discovery, the parties entered into mediation. Before the mediation, defendant advised plaintiff about the potential value of his claims and the amount for which he might settle the lawsuit. Thereafter, the plaintiff, a representative of his former employer, their respective lawyers, and the mediator, participated in a mediation session. At the conclusion of the mediation, the mediator proposed a settlement. In the weeks that followed, defendant provided advice to plaintiff about the proposed settlement, and urged that he accept it. Plaintiff relented and signed an agreement with his former employer embodying the proposed settlement. Defendant continued to advise the plaintiff regarding the settlement agreement after its execution. Some months after the mediation ended, however, plaintiff concluded that defendant’s advice had been deficient and sued for malpractice.

The plaintiff’s complaint contained allegations concerning the mediator’s settlement proposal, defendant’s conduct during the mediation, and discussions between the plaintiff and defendant regarding the proposed settlement without the involvement of the mediator. The defendant moved to strike those allegations on the ground that they were inadmissible under Oregon’s mediation statute.

The trial court granted the motion to strike and dismissed the complaint. An appellate court reversed in part, holding that communications between the plaintiff and the defendant without the participation of the mediator that took place while the mediation process was still underway were protected by the statute, but that communications that occurred after the execution of the settlement were not protected.

The Oregon Supreme Court rejected that distinction. It cited the following statutory provision, which defines “mediation” as:

“[A] process in which a mediator assists and facilitates two or more parties to a controversy in reaching a mutually acceptable resolution of the controversy and includes all contacts between a mediator and any party or agent of a party, until such time as a resolution is agreed to by the parties or the mediation process is terminated.

Plaintiff argued that “mediation” (as defined by the statute) encompasses only activity that occurs in the presence of the mediator. Defendant countered that the statutory reference to a “process” indicates that the “mediation” contemplated by the statute includes all activity that facilitates resolution of the dispute, until the point at which a settlement agreement is signed or the mediation process is otherwise definitively ended.

The Oregon Supreme Court sided with the plaintiff’s narrower interpretation, reasoning that the statute limits the privilege only to interactions “assisted” and “facilitated” by the mediator. Discussions between the parties and their counsel without the mediator’s participation are not covered. While the fact pattern in Alfieri concerned communications between a party and his counsel, some of the language in the decision is broad enough to apply to independent negotiations between parties without the participation of the mediator. On the other hand, other language in the decision suggests that the Court was being solicitous of the plaintiff since if his private communications with his attorney during the mediation were inadmissible, he would have lose his malpractice claim.

Cassel

The Court in Alfieri noted that its decision excluding mediation-related communications between an attorney and his client from the scope of the mediation statute was contrary to the decision of the California Supreme Court in Cassel v. Superior Court, 244 P.3d 1080 (2011). In Cassel, the Court held that California’s mediation statute protected private communications between a party and his attorney that occurred outside the presence or hearing of the mediator or any other mediation participant, even if such protection resulted in the loss of the party’s malpractice claim. The Court cited the very broad language of the California statute:

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.

The Court concluded that the mediation statute is clear and absolute, and does not “permit judicially crafted exceptions or limitations, even where competing public policies may be affected.” A fortiori, given that they do not implicate any public policy concerns, independent negotiations between parties during the mediation process without the mediator’s participation should be protected under the California statute.

Takeaways

Given the uncertainties raised by these decisions, how might participants in a mediation and their attorneys ensure that any independent negotiations that occur without the mediator’s participation are protected?

For starters, the governing mediation agreement can provide that the mediation process remains ongoing after the conclusion of a mediation session unless and until the mediator declares otherwise, and therefore all negotiations between the parties in connection with the mediation are protected even if conducted without the participation of the mediator.

Further, any communications between the parties related to the mediation but independent of the mediator can be designated as mediation-privileged.

Additionally, after the conclusion of a mediation session, the parties and the mediator might also confirm in writing that (i) the mediation remains ongoing beyond the end of the session; and (ii) the parties may engage in bilateral negotiations independent of the mediator in connection with the ongoing mediation.

In sum, all relevant documents should make clear that unless and until the mediator declares the mediation over (such as by declaring an impasse), the mediation process (and therefore the mediation privilege) continues even outside the sessions with the mediator.

We invite readers to weigh in on this issue, and share any relevant experiences they may have had

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