A Massachusetts federal court recently addressed the circumstances under which an individual who served as a mediator in an unsuccessful mediation can subsequently decide the dispute as an arbitrator — a process known as “med-arb.” Spruce Envtl. Techs., Inc. v. Festa Radon Techs., Co., 370 F. Supp. 3d 275 (D. Mass. 2019).

In Spruce, a manufacturer of radon mitigation products (Spruce) sued its competitor (Festa) under the Lanham Act for allegedly running a false advertising campaign about Spruce and its products, and Festa counterclaimed under the Lanham Act for commercial disparagement. In October 2015, the parties agreed to mediate before a retired Massachusetts state judge (Judge Nancy Holtz) through JAMS.

The mediation was unsuccessful and the parties thereafter stipulated to a “med-arb” process that authorized Judge Holtz to arbitrate the dispute. In January and February 2018, without objection from either side, Judge Holtz conducted a four-day arbitration hearing. At the conclusion of the hearing, she ruled in favor of Spruce under the Lanham Act, and awarded attorneys’ fees and costs. Spruce moved to confirm the award, while Festa moved to vacate.

Festa argued that the stipulation to arbitrate before Judge Holtz was invalid as a matter of public policy because it violated Massachusetts’ mediation privilege statute. The court disagreed, citing Massachusetts cases suggesting that a party may waive its rights under the statute.

The court further noted that, since the lawsuit concerned a federal question under the Lanham Act, the question of waiver was actually governed by federal common law. Many federal courts (including District Courts in Massachusetts) have recognized the existence of a federal mediation privilege. While the scope of the privilege remains unclear, the court concluded that it can be waived if knowingly and intentionally relinquished.

To be sure, that conclusion is hardly novel given that the more well-established attorney client privilege can, for example, be waived under the circumstances specified in Rule 502 of the Federal Rules of Evidence. Instead, the core issue in Spruce appeared to be whether Festa waived its right to prevent the mediator from resolving the dispute using confidential information she may have obtained from Festa during the mediation.

The court concluded that Festa had knowingly waived its federal mediation privilege by stipulating to resolve the dispute through binding arbitration before Judge Holtz after having attempted to mediate the dispute before her for at least a month. Notably, the parties’ stipulation provided that counsel (1) request Judge Holtz to “conduct an arbitration in an action previously mediated by Judge Holtz,” 2) recognize that ex parte communications occurred during mediation, and 3) confirm that without “consent of the parties and counsel” the combined med-arb process could not proceed. Accordingly, both parties were fully informed of the risks of the med-arb process, and waived the mediation privilege.

In a recent blog post entitled “Undecided on Your Dispute Resolution Process? Combine Mediation and Arbitration, Known as Med-Arb,” the Harvard Law School Program on Negotiation noted the growing popularity of the hybrid approach known as “med-arb” under which “parties first attempt to collaborate on an agreement with the help of a mediator,” but then if the mediation fails to fully resolve the dispute, the parties agree to arbitration. Under such circumstances, the mediator can assume the role of arbitrator and render a binding decision quickly on any open issues, or a different individual can arbitrate the dispute from scratch.

An advantage of using the same individual to serve as both mediator and arbitrator is that if the mediation fails, the parties do not need to commence an arbitration from square one since the mediator is already familiar with the details of the dispute and can focus on unresolved issues. On the other hand, as the blog post notes:

When you know your mediator may ultimately decide your fate, you might feel inhibited about sharing confidential information with him about your interests. After all, what if the mediation moves on to arbitration and he uses that information against you?

Tellingly, the two comments published to the blog post both honed in on this concern. As Philip G. commented:

How can you be frank and open in the mediation part, when you always have to consider the impression that the mediator may get from your arguments and your position?

To which Raphael L. added “I always refer this situation to a different arbitrator due to this safety concern.”

We invite readers to share experiences they have had with the med-arb approach, and their views on the pros and cons of this hybrid approach.

×