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Mediation Case Law Updates

Is A Pre-Dispute Mediation Order Immediately Appealable?

March 9, 2015

gavel 300x200Contracts are, with increasing frequency, requiring pre-dispute mediation before a complaint can be filed in arbitration or in court. In Hangartner v. Alexander, 2015 IL App (4th) 140272-U, the court was faced with the question of whether a trial court order requiring pre-dispute mediation was immediately appealable. It is well-established that orders granting or denying a request for pre-dispute arbitration are immediately appealable. Courts find that such orders are in the nature of injunctions and therefore appealable. Hangartner, however, held that an order granting or denying a request for mediation based on a contractual requirement is more in the nature of an administrative action taken by a court to control its docket. Thus, an order enforcing or refusing to enforce a contractual mediation requirement cannot be appealed until the end of the case.

Refusing to hear appeals of orders granting or denying mediation requests until the end of a case effectively makes it impossible to hear such appeals. Once the case has been decided on the merits, it is too late to order a mediation or prevent a mediation from taking place. Yet, this is probably a good thing from a policy standpoint. An order incorrectly granting or denying a request for arbitration will irretrievably place a dispute in the wrong forum. An order incorrectly granting or denying a request for mediation will have no prejudicial effect on the merits of the ligation.

What Is the Remedy for Breaching a Mediation Confidentiality Clause?

January 19, 2015

Mediation Confidentiality ClauseMost mediation contracts include a confidentiality clause providing that all statements made and information exchanged during the mediation cannot be used for any purpose outside of the mediation. But what happens if someone violates that clause?

This question was raised before the Federal Circuit in Higbie v. U.S., 2015 WL 152660 (Fed.Cir. 2015), when, after a failed mediation, the government submitted affidavits to the court citing statements made in mediation. It was undisputed that this violated the contractual confidentiality clause, but the plaintiff sought money damages and the government argued that no monetary damages could be awarded.

The language of the mediation contract was standard issue: “Any documents submitted to the mediator(s) and statements made during the mediation are for settlement purposes only.” A two-judge majority ruled that this language provided only one remedy: exclusion of the material from the court proceeding. They ruled there was no evidence of an intent to provide a monetary remedy in the mediation confidentiality clause.

A dissenting judge, however, said that there was no reason to depart from the default rule that contract provisions implicitly carry a monetary remedy. Given the strong public policy favoring confidentiality in mediation, plus the fact that an after the fact exclusion of statements may be too late to mitigate the damage done, I think the dissent makes the stronger argument. Consider the situation if the government had disclosed the confidential communications to a newspaper instead of just attempting to use them in court. Under the reasoning of the majority, the plaintiff would have no remedy because the court cannot exclude materials from a newspaper once they have been published. It will be interesting to see whether the majority opinion or the dissent prove more persuasive to future courts.

Can a Mediation Trigger the Time Limit for Removal to Federal Court?

November 17, 2014

In Friedlander v. Fifth Third Bank, Inc., 2014 WL 5313946 (E.D.Ky. 2014), the plaintiff brought a state court action against three defendants, only one of which was a citizen of the same state as the plaintiff. In a May 14 mediation, the plaintiff settled with two of the three defendants, including the one non-diverse defendant. This created the potential for a removal petition based on diversity of citizenship. On July 16 a Stipulation of Dismissal was filed that included the non-diverse defendant, and on July 23 the remaining defendant filed a removal petition in federal court based on diversity. Since removal petitions must be filed within 30 days after a defendant learns that there is a basis for federal jurisdiction, the question arose as to whether the time limit for removal was triggered by the May 14 mediation – in which case the removal petition was untimely – or the July 16 filing of the stipulation of dismissal — in which case the removal petition was timely.

The court ruled the removal petition timely, noting that a defendant must receive “solid and unambiguous” information that a case is removable. The agreement to settle reached at the May 14 mediation was, in the court’s view, “fraught with uncertainty [and could be] thwarted by a last minute change of heart.” While the court’s opinion is not completely clear, it appears that the settlement agreement reached at the mediation was oral; the court noted that “any oral representations between May 14 (the date of the mediation) and July 16 (the date the stipulation of dismissal was filed) would have been insufficient to start the thirty-day clock.” It is not clear, therefore, whether a complete written settlement agreement, executed at the mediation, would have triggered the running of the removal time period.  What is clear is that the oral agreement reached at the mediation with the sole non-diverse defendant did not constitute clear and unambiguous evidence that diversity existed, and therefore the removal time period was not triggered by the mediated settlement.

Court Inquires Into Materials Exchanged During Mediation For Class Action Settlement Approval

October 17, 2014

ABA American Bar Association, Section of Litigation, Alternative Dispute ResolutionThis article was also published by the American Bar Association’s Section of Litigation, Alternative Dispute Resolution Committee.

Confidential mediation statementsIn Ogbuehi v. Comcast of California/Colorado/Florida/Oregon, 2014 WL 4961109 (E.D.Cal. Oct. 2, 2014), the Court was asked to grant preliminary approval of a class action settlement reached through mediation before class certification. Preliminary approval of a class action settlement requires only that the court determine whether the proposed settlement is within a range of possible approval. Final approval — particularly before a class is formally certified — requires a more rigorous review and a determination as to whether the settlement is fair, reasonable, and adequate.

The Court granted the requested preliminary approval, but noted that it had reservations on whether it would grant final approval of the settlement. In order to make the required fairness determination, which included examining the settlement process for evidence of collusion or other conflicts of interest, the Court ruled that the parties would have to submit “more detailed evidence concerning the mediation and negotiation of the proposed settlement agreements.” The Court stated that it would need to “understand the nature of the negotiations” before making its final determination. Of particular concern were certain estimates of potential liability that were disclosed and discussed during the mediation. The Court therefore ordered the parties to submit “information exchanged during their private mediation including, but not limited to, mediations statements and any relevant communications during the parties’ negotiations.” Recognizing that such materials might be confidential, the Court permitted the parties to request that confidential materials be reviewed in camera.

Should Carriers Declining Coverage Attend A Mediation?

September 16, 2014

Denying insurance carriers mediationInsurance carriers are generally an essential party to a mediation, but what if they resolutely deny any coverage? Booth v. Davis, No. 10-4010 (D.Kan. 2014), was a substantial legal malpractice lawsuit. One group of insurers agreed to attend a mediation session, but others refused based on their denials of coverage. Plaintiff asked to court to compel the “denying carriers” to attend, but the court refused. The narrow reason for the ruling was a local rule that required attendance at a mediation of the party or an authorized representative, and since Defendant was going to personally attend, the local rule’s requirement would be fulfilled, and the court lacked the power to compel other entities to attend.

The broader reason cited by the Court, however, was that the presence of the “denying carriers” would not serve any purpose because of their coverage denials. But was that true? What if those denials of coverage were questionable? The non-attending carriers would certainly refuse to contribute towards a settlement if not in attendance at the mediation, and Plaintiffs might consequently believe that the mediation was not presenting all of the available resources to put together a settlement. If those carriers were required to attend, on the other hand, even if they refused to contribute a penny, Plaintiffs would feel like they at least had a fair opportunity to get some contribution from those entities.

One of the keys to a successful mediation is getting plaintiffs to believe that they are getting the best deal the defendant has to offer, and defendants feeling confident they are paying the lowest amount the plaintiff will take to settle. No one wants to walk away from a mediation thinking they left money on the table. There may be cases, therefore, where having certain parties attend a mediation will increase the chances of success, even if those parties will almost certainly refuse to contribute a penny, because plaintiffs will feel like they had a fair opportunity to obtain the best possible settlement.

You may also be interested in my recent article in the Chicago Bar Record about how to ensure that a mediated settlement is binding.

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