Do you interview potential mediators to determine, among other factors, their style of mediation? If so, here’s a link to an article that goes beyond the overly simplistic “evaluative” and “facilitative” categories to examine some of the different approaches mediators can take: https://www.mediate.com/articles/lande-unified-conceptual.cfm. The article is short, on point, and might give you some ideas for how to question your next potential mediator.
The Illinois Uniform Mediation Act provides that, with narrow exceptions, communications in a mediation are privileged and, if the mediation agreement so provides, confidential. Since most mediation agreements provide that all mediation communications are confidential, it would appear that, on the surface, comments made in a mediation are protected against most attempts to use them outside of the mediation.
However, in Thiems v. United Fire & Cas. Ins. Co. (S.D. Ill. March 26, 2021), the plaintiff sued their insurance carrier based on conduct in a prior lawsuit, and the plaintiff sought to admit into evidence remarks by a mediator during a mediation in that underlying lawsuit. While the court barred the discovery based on relevance, it made this curious statement:
“The Court agrees with Plaintiff that neither the Illinois Uniform Mediation Act’s provisions regarding confidentiality (710 ILCS 35 et seq.) nor the Mediation Agreement between the parties in the underlying case have application in this case – litigation between United Fire and its insured, Thiems.”
The notion that the UMA does not apply in subsequent litigation because the parties in the later litigation differ is by no means settled law. Compare, Accent Delight International Ltd. et al v. Sotheby’s et al, (S.D.N.Y. 2020) (applying a heightened burden on the party seeking the discovery of mediation materials from a prior lawsuit). How courts rule on this varies, depending upon the applicable state law, the language of the mediation agreement, and many other factors. What Thiems shows, however, is that the applicability of mediation privilege and confidentiality in a subsequent case raises complex legal issues.
Practice ramifications: A full discussion of the law on the confidentiality of mediation materials in subsequent litigation requires a much lengthier discussion. The recent Thiems decision, however, shows that the law is complex and therefore somewhat unpredictable. This might lead the lawyer participating in a mediation where there is a chance of a subsequent lawsuit raising issues about what happened in that mediation to be cautious about the kinds of remarks made during the mediation. Such caution, however, might decrease the mediation’s chance of success. Counsel will therefore need to weigh the benefits of protecting a client from the potential use of mediation communications in some theoretical future piece of litigation against the benefits of doing everything possible to make the current mediation successful.
In Choksi v. Choksi (Tex. App. 2020), the Texas court of appeals examined the impact of the following language in a mediated settlement agreement:
“This binding mediated settlement agreement is not subject to revocation and is not appealable.”
The parties no doubt inserted this language in an effort to thwart a “buyer’s remorse” situation where one party tries to back out of a settlement, which is just what eventually happened. The plaintiff refused to honor the agreement, arguing in response to a motion to enforce that it was entered into under duress and was based on a mutual mistake of fact. “Buyer’s remorse” is a problem that seems to arise on occasion in mediated settlements, likely because they are often reached at the end of a long and tiring day of negotiation. So, how did the two concepts in this clause – non-revocability and non-appealability – fare, and should lawyers consider including those in mediated settlements?
Non-revocability: While the court rejected plaintiff’s arguments that the agreement was based on duress and mutual mistake of fact, the court did not rely in any way on the non-revocability language, nor could it. If an agreement is based on duress or mutual mistake of fact, no valid agreement was ever formed, so the non-revocability language would fail, along with the rest of the contract.
Non-appealability: The appeals court pointed out that the particular language at issue made no sense because settlement agreements are not appealable. What the parties could have done, it held, but had not, was waive the right to appeal a judgment enforcing the settlement agreement. Thus, at least in theory, a mediated settlement agreement could provide that the parties waive their right to appeal any judgment entered on the settlement agreement, which would shorten the process triggered by a party that tried to challenge the settlement agreement.
My conclusion: I don’t think either prong of this provision is likely to be of much value in thwarting a case of buyer’s remorse. A better approach, I think, is to provide that should a party need to go to court to enforce the settlement agreement, the losing party must pay the prevailing party’s attorney’s fees and expenses.
Nearly all mediations involve parties that view the same facts in a very different light. But in a great many mediations, the parties go further: they are convinced the other side is not taking its position in good faith, but rather is knowingly lying or engaging in some nefarious scheme. It is, for example, all too common in a commercial mediation to walk into one caucus room and be told that the other side knows it is lying on a particular point, and they walk in the other caucus room and hear the identical assertion.
Why is this phenomenon so common? I think this is due, in part, to the fact that when there are strong emotions underlying a position, the parties just cannot believe someone can hold a contrary position in good faith. Another factor may be that parties unconsciously seek to quell doubts about their own position by convincing themselves the other side is not only wrong, but also acting in bad faith.
Whatever the cause, the view that an opponent is acting bad faith can be a serious impediment to settlement. It is much more difficult to make concessions and reach a middle ground with someone acting in bad faith. You would be giving some ground not just to an opposing view, but to someone acting immorally. It is also harder to shed feelings of insult, anger and other emotions if you believe the other person is intentionally causing those feelings.
So how do you deal with this? There is no magic bullet, of course, but I suggest two contradictory approaches, each of which can be effective in the right situation:
- Point out the extreme nature of a party’s belief. I have summarized a party’s view in this way: “So you believe that every single thing that the other person has said is all a complete lie, and they are really executing a scheme to do ________.” Sometimes putting it in such stark terms can jolt someone into recognizing at least some good faith on the other side.
- Point out why this makes settlement so much more inviting: I have summarized a party’s view on the other’s bad faith, and said: “Is this a person you want to keep fighting or going to court against?” Sometimes the recognition of how awful they consider the other person can cause a party to think they need to settle the issue and be done, or to decide that they don’t want to risk fighting this person in court.
While, as I said above, there is no magic bullet, I don’t think it advisable to try to avoid it or sugar coat it the issue of bad faith. If people believe the other person is acting maliciously, that belief needs to be listened to and reality tested so that people can honestly confront the nature of their dispute.
Arbitration clauses are increasingly common in both commercial and consumer contracts, and some of those clauses now require that the parties mediate before commencing an arbitration. Such a clause can be beneficial because, while parties all know the advantages of an early settlement, many litigators view an early request for mediation as tantamount to an acknowledgment of the weakness of their position. A contractual mediation requirement enables early settlement discussions without triggering this real or perceived problem.
One problem with such mediation clauses, however, is that they can be difficult to enforce. The remedy for a violation of such a clause might be nothing more than a stay of the arbitration pending completion of a mediation, and just asking for such a remedy might trigger the “fear of showing weakness” concern the clause was intended to eliminate.
In Makeen v. Woodstream Falls Condo. Ass’n (In re Makeen), B.A.P. (10th Cir. 2020), the court noted that the mediation clause at issue provided for $25,000 in liquidated damages if a party failed to comply with the mediation requirement, a provision that would seem to single-handedly eliminate any enforcement issues for a mediation requirement. The court did not, however, deal with whether the liquidated damages provision was enforceable, and Illinois, like virtually all jurisdictions, has specific requirements for such clauses to be enforceable.
My takeaway: Given that that a liquidated damages provision will not likely cause any harm, and that it also has a fair shot at being enforceable, it would seem worthy of inclusion in many contractual mediation provisions.
Covid Update: If you’ve been wondering whether to mediate by Zoom or any other video platform, take the leap. Parties and mediators are getting increasingly comfortable with this procedure and finding similar rates of settlement.
It is critical, at the end of a successful mediation, to secure a binding agreement to the material terms of the settlement, even if the parties intend to later draft a more formal document. This is typically done by having the parties agree to a settlement term sheet. What you want to avoid is creating any delay in making this term sheet binding, because any delay gives a chance for a party to experience buyer’s remorse and try to back out of the deal.
Securing agreement to the term sheet at the end of a virtual mediation can be tricky unless the parties have an electronic signature program such as DocuSign ready to go. Even emailing a document to each side to print out, scan, and return can create a delay that could unsettle the agreement.
A simple method that I’ve used is where the mediator emails the agreement to both sides and simply asks for a response to that email confirming agreement. This creates a written record of agreement, and can be done while the mediation session is still going on, thereby eliminating any delay in getting a binding agreement.
But is this email system binding? In Overfield v. Starbucks Corp. (D. Kan. 2020), even though there was an in-person mediation, rather than have the agreement signed then and there, the mediator emailed the document to both sides about an hour later, to which both parties responded “Yes, agreed.” The court found this agreement binding. So, emailing an agreement to both sides, and requesting a response indicating their agreement, should be a viable and quick way of securing a binding contract.
In Tellis v. LeBlanc, (W.D. La. 2020), in the course of litigating a motion to strike a jury demand, the defendant cited facts it had learned in a prior unsuccessful mediation about the nature of the plaintiff’s case. The plaintiff moved for sanctions based on defendant’s use of that information because the communications in the mediation were supposed to have been privileged and confidential. The court agreed that the use of the information was improper, but found no evidence that the defendant had acted in bad faith, and therefore denied the request for sanctions. The court noted that the disclosure was made for no purpose other than to highlight a position asserted in a brief, and that there was no effort to prejudice the plaintiff in any improper way.
Takeaway: While assuring privilege and confidentially in a mediation, either contractually, by court rule, or by statute, is essential, it can be difficult to obtain a remedy if one party subsequently violates the confidentiality of the mediation.
Interesting side-note: In the background section, the court noted that the magistrate who conducted the mediation ordered the parties to submit confidential statements before the mediation containing a “bottom-line settlement proposal.” I have never encountered this, and feel it could well create an obstacle to successful a negotiation. If anyone has seen this technique used in a mediation, I’d love to hear whether it was helpful or not.
In Homes v. Navigators Specialty Ins. Co. (E.D. Tex., 2019), the plaintiff filed a complaint, six months later the parties mediated unsuccessfully, and a week later the plaintiff sought to amend the complaint to add new parties. The court denied the motion to amend in part because the plaintiff delayed seven months before seeking to amend when the plaintiff had all the necessary information at the time the case was first filed.
While this holding is fairly straightforward, in its discussion the court noted that had new facts supporting the amended complaint first been learned in the mediation, the amendment might have been timely, because leave to amend was sought only a week after the mediation had concluded. Although not discussed by the court, this poses the challenging question of whether it is allowable to use facts learned in a mediation to amend a pleading, given the confidential and privileged status of all mediation communications.
The answer to this question is far from clear and might vary from state to state. In Illinois, for example, the Illinois Uniform Mediation Act provides that mediation communications are privileged, which means they cannot be used as evidence. This, however, only precludes using a new fact learned in mediation to prove an allegation; it may not be a bar to using a fact learned in mediation to merely allege a new claim.
My standard mediation contract, like those of many other mediators, has the parties agree that mediation communications are confidential and can only be used to resolve the lawsuit. Would a court hold that such a contract precludes amending a pleading based on facts learned in a mediation? Would a court find that amending a pleading was a breach of such a contract and strike the pleading?
While the law is unclear, from a policy perspective using something learned in a mediation to amend a pleading runs contrary to the goal of enabling parties to talk freely in a mediation without fear of statements later being used against them. My takeaway is that one should be thoughtful before revealing a new fact to the other side in mediation, because it is not clear whether any such fact could or could not be used to make a new allegation. One suggestion would be to disclose the fact in confidence to the mediator, in caucus, and discuss the pros and cons of revealing that fact to the other side.
In Ill. Tool Works, Inc. v. Ace Specialty Ins. Co., 2019 Ill. App 181945 (1st Div. 2019), the plaintiff received a letter threatening a lawsuit (a copy of a proposed complaint was attached), but inviting the plaintiff to participate in a mediation to resolve the matter. The plaintiff accepted the invitation and the matter settled. The defendant insurer then refused to pay the costs of the mediation because the policy provided that the insurer owed a defense only for “suits.” The court agreed, noting that a mediation, by itself, is not a “suit.” The court further noted that the policy had other provisions that referenced “claims,” which is a broader term than “suits,” implying that had the policy provided a duty of defense for “suits and claims,” the mediation would have been covered.
The result itself is not surprising. It is hard to argue that a letter threatening a lawsuit is an actual lawsuit. The important takeaway, however, is that if you choose to mediate a case before a lawsuit has been filed (a great way to save your client time and money), make sure to check any applicable liability policies before doing so.
Parties are increasingly including a mediation provision in their contractual arbitration clauses, requiring an aggrieved party to mediate before filing an arbitration. Although one might wonder about the success rate of mediations that take place when a party is forced to do so by contract, any settlements achieved so early in the process result in enormous cost savings. It would seem, therefore, that the downside of a contractual mediation requirement – a wasted day in an unsuccessful mediation – would be outweighed by even the slim chance of being able to settle before litigation is filed.
Courts have typically enforced contractual mediation clauses, dismissing arbitration claims if the party bringing the claim has failed to exhaust a contractual mediation requirement. Rodriguez v. Tex. Leaguer Brewing Co. (Tex. App., 2019), however, involved an interesting twist on this issue. The plaintiff ignored the contractual arbitration clause and filed a court case. When the defendant responded by moving to dismiss, arguing that the case should be sent to arbitration, the plaintiff argued that the defendant could not enforce the arbitration clause because it had failed to request a mediation. The plaintiff argued that mediation was a condition precedent to arbitration, and having failed to meet that condition precedent, the defendant could not enforce the contractual arbitration requirement.
The court was not impressed with plaintiff’s argument:
when the agreement requires the parties to mediate before arbitration, a party who proceeds first to litigation waives the right to mediation and cannot assert the mediation provision as a condition precedent to arbitration. … Because the Rodriguezes filed suit without first seeking mediation, they have waived their right under section 9.4 to insist on mediation before arbitration….
My takeaway: The plaintiff was in an untenable position when it tried to enforce a mediation requirement after having itself tried to sidestep the entire mediation/arbitration process by running to court. But absent egregious circumstances like this, contractual mediation requirements are enforceable, and also seem quite sensible.