Tag: mediation

Another Look At What Constitutes Bad Faith In Mediation

Because a party can never be forced to settle, courts struggle with what constitutes “bad faith” in mediation.  In Lea v. PNC Bank, No. 15-776 (W.D. Pa. 2016), after the court ordered mediation, Defendant’s counsel told Plaintiff’s counsel that the mediation would be more productive if Plaintiff made a demand before the session. Plaintiff complied, but Defendant did not respond with a counter-offer before the mediation. Even at the mediation, no counter-offer was conveyed to Plaintiff. While defendant apparently proposed a counter-offer in a private caucus with the mediator, the mediator determined that relaying that offer to Plaintiff would not be productive, presumably because it was so far from Plaintiff’s demand.

Having attended a mediation at which it did not even receive an offer, Plaintiff moved for sanctions. The court agreed that Defendant had violated a local rule requiring the parties attending a mediation to act in good faith, which meant avoiding a waste of time and resources. The court ruled that “after counsel for Defendant recognized the Plaintiff’s demand was well beyond an amount to which his client might be agreeable, he had a duty to reach out to the Plaintiff’s counsel to discuss the issue.” The court did not, however, award attorneys’ fees, but rather only the half of the mediator’s fee that Plaintiff had paid.

While one can understand the frustration of the Court and Plaintiff, there is a problem with the court’s decision because it assumes that the parties or the mediator can determine, based on pre-mediation offers, that a settlement is not possible. Most mediations start with a large gap between the parties, but it is only during the mediation session that one finds out if these positions are firm or not. For this reason, other courts have taken a purely procedural approach to determining bad faith, under which if a party shows up to a mediation, and has full authority to settle, there is never bad faith, regardless of the settlement position taken by that party.

Court Rules That Binding Mediation Is Not The Same As Arbitration

ABA American Bar Association, Section of Litigation, Alternative Dispute Resolution

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

In Tirreno v. The Hartford, 2015 WL 8132972 (Conn.App. Dec. 15, 2015), the parties had agreed to resolve a dispute through binding mediation, by which they meant that the parties would first work with a jointly selected mediator to try to reach a settlement, but if no settlement were reached, the mediator would decide the claim and determine damages. These terms were agreed to orally and then memorialized in a series of emails between the parties. Pursuant to this agreement, the parties first attempted to reach a voluntary settlement but, when that failed, the mediator issued a written decision summarizing the mediation evidence and making a damage award. The Plaintiff refused to accept the damage award, however, and opposed Defendant’s motion to enforce it. The trial court granted the Defendant’s motion to enforce the mediator’s decision. Plaintiff appealed.

On appeal, Plaintiff reiterated its argument that the procedure the parties had used effectively was an arbitration, and that a Connecticut arbitration statute required any agreement to arbitrate to be reduced to writing. Plaintiff concluded that, inasmuch as the parties had never reduced their dispute resolution agreement to writing, the mediator lacked jurisdiction to decide the parties’ dispute. The appellate court had to decide whether the binding mediation procedure was the equivalent of arbitration and, if so, whether the mediator’s decision was enforceable.

The appellate court noted that there are no particular words required to form an agreement to arbitrate, but that there must be a clear manifestation of the parties’ intent to arbitrate. Here, the court found that the parties consistently referred to the submission of their case to a mediator who, if the parties could not reach a voluntary settlement, would take on the additional responsibility of assigning a final damages number. The only use of the word “arbitration” was by the mediator in the caption of his final decision. The court further noted that in emails between the parties, counsel stated that this method of dispute resolution would be “similar to arbitrating the case, but would not be as time-consuming and less expensive.” The court also found that the parties conduct was inconsistent with the proceeding being arbitration. For example, the Plaintiff complained that the proceeding was not a regular arbitration with each side presenting witnesses, and the defendant filed a motion to enforce a settlement, not a motion to confirm an arbitration award.

Based on all of this evidence, the appellate court concluded that there was no clear and direct manifestation of an intention to resolve their dispute through arbitration. Accordingly, the court ruled that the Connecticut arbitration statute was not applicable and confirmed the trial court’s decision to enforce the mediator’s decision as the parties’ settlement agreement.

Practice Pointers: This decision shows that binding mediation may be something quite different from an agreement to mediate plus an agreement to refer to arbitration any issues that the mediation does not resolve. Instead, when the parties give a mediator the authority to resolve any disputes not settled by the mediation, the resulting decision or award may be regarded by the court as a settlement agreement and enforced accordingly. As the Connecticut court stated in its final comment: “Our arbitration statutes may not be used as a sword to subvert a mutually agreed upon adjudication procedure or as a weapon of further court litigation.”

Extrinsic Evidence to Interpret a Mediated Settlement Agreement?

Mediated Settlement AgreementIn PNC Bank, N.A. v. Springboro Medical Arts (Ohio App. 2015), the parties concluded their mediation by signing a document that contained the “essential terms of the settlement.” The agreement further stated that counsel would later draft a settlement in “formal legal language” with such “additional documents” as were necessary. No formal document was drafted, however, and the defendant later contested the meaning of the mediation agreement.

The question before the court was whether it should consider extrinsic evidence in determining how to interpret the mediation agreement. The court decided that the mediation agreement was “fully integrated” and therefore no extrinsic evidence was permitted. The fact that the parties might later draft a more formal document did not mean the mediation agreement was not a binding contract that embodied a full meeting of the minds on all the essential terms.

What the parties did in this case – sign a written agreement at the end of the mediation, with the intent to later prepare a formal document – is very common, and very good, mediation practice. The court’s decision rightfully protects this practice from subsequent attempts to undermine the document signed at the end of the mediation. Buyer’s remorse, while not uncommon, should not be tolerated.

Make Sure Your Mediation Ends With A Signed Document

In Billhartz v. Billhartz, 2015 IL App (5th) 130580-U, the parties ended a mediation by reaching an agreement, which was reflected in a written memorandum of understanding, but which they did not sign. The Illinois Appellate Court ruled that there was no enforceable settlement agreement, overturning a trial court ruling that attempted to enforce the settlement based on the unsigned memorandum of understanding.

The issue was whether there was an enforceable oral settlement contract based on oral statements at the end of the mediation that the unsigned memorandum of understanding reflected what they had agreed to. The court ruled that there was no enforceable agreement two reasons. First, the court noted that the agreement to mediate provided that oral communications during the mediation would not be admissible for any purpose. Based on this, the court found that the parties only intended to enforce fully executed written agreements, not oral agreements. The court cited Illinois cases holding that oral agreements are not enforceable if the evidence shows that the parties intended execute a written agreement. Second, the court ruled that, from an evidentiary standpoint, it could not admit evidence that the parties orally agreed to a settlement because oral statements during a mediation are, under the Illinois Uniform Mediation Act, privileged and not admissible.

This case raises the question of what to do when the parties reach an agreement at the end of a mediation, but the complete document is too complex to prepare and execute at that time. My recommendation is that: (1) the parties sign a memorandum of understanding at the end of the mediation, and that (2) the memorandum of understanding should state that this document contains all the material terms of the settlement and constitutes a binding agreement, even though the parties intend to prepare and execute a formal settlement agreement.

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

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?

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.

Federal Law Governs The Mediation Privilege In Federal Court Even When State Claims Are Involved

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.

9th circuitMany states have statutes that create a privilege for mediation communications. There is no parallel federal statute, and federal courts have declined to create a federal common law privilege for mediation communications. Consequently, it is fairly well settled that cases in federal court that involve solely federal law claims do not apply a mediation communication privilege (unless provided for by local court rule), and that federal court diversity cases that involve solely state law claims will apply a state law mediation privilege.

It is more difficult, however, to determine what law controls the mediation privilege in a federal court case involving both federal and state law claims. This issue arose in Wilcox v. Arpaio, 2014 WL 2442531 (9th Cir. 2014), a federal court case involving both federal and state law claims that appeared to have settled in mediation. A dispute arose over whether a binding settlement had actually been reached. The Ninth Circuit held that state law governed whether a settlement had been reached for both the state and federal claims. A question then arose as to whether evidence from the mediation was admissible to determine if a settlement had been reached. The Ninth Circuit ruled that where a case involves both federal and state law claims, and the same evidence will be received on both claims, a federal court is not bound by state evidentiary rules.  Thus, the Court ruled that it need not apply the applicable state statutory mediation privilege.

It is not certain, however, that other courts will reach the same result.  Once the case settled, one could argue that the only remaining claim was a state law contract claim to enforce the settlement agreement.  The Court ruled that it was not bound by state privilege law because there were both federal and state law claims involved, but it is not clear that any federal claim remained once the dispute had been reduced to whether an enforceable settlement had been reached.  If a court were to conclude that all that remained was a state contract claim, the state mediation privilege would seem to apply.

Failure To Nail Down Scope Of Release Negates A Mediated Settlement

It is critical to nail down the scope of the contemplated release before concluding a mediation. Case in point: In Kaiser v. Trace, Inc., 2014 WL 1745419 (D.Idaho 2014), the parties reached an oral settlement of an employment discrimination case in a mediation, but did not write anything up. A follow-up email memorializing the terms of the settlement said only that “Defendant will prepare a standard release between the parties.” The draft settlement agreement submitted by the defendant to plaintiff contained three clauses in the release that the plaintiff would not agree to:

  1. plaintiff was barred directing prospective employers to the defendant for information,
  2. if defendant had to sue to enforce the agreement plaintiff would be responsible for defendant’s fees, and finally,
  3. plaintiff released the defendant, but defendant did not release the plaintiff.

Of particular concern to the plaintiff, not surprisingly, was the lack of a mutual release.

The court noted that, while the parties had agreed after the mediation that a settlement had been reached, given the differences on what should be in the release, the requisite meeting of the minds to create a binding settlement was lacking. Even if the above-mentioned clauses were part of Defendant’s “standard release,” which is what the parties agreed to, it was clear that Plaintiff did not intend to agree to such terms. Absent a true meeting of the minds, no settlement agreement had been reached.

While the lack of clarity in the terms of the released unraveled this settlement, the parties do not need to draft a complete release at the conclusion of a mediation. A simple sentence such as “the parties shall draft a full mutual release” will usually suffice. Additionally, any potentially contentious terms such as a fee provision or a confidentiality clause need to be spelled out during the mediation, because if they are not, the whole settlement may be in jeopardy.

Question on Mediated Settlement Not Appropriate Issue for Interlocutory Appeal

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.

proposed terms of mediation agreementIn Miller v. Basic Research, LLC, 13-4048, 2014 WL 1778046 (10th Cir. May 6, 2014), the parties mediated a class-action lawsuit. At the conclusion of several mediation sessions, they informed the court that the mediation had been successful and that they had a handwritten document stating the “Proposed Terms” of the settlement. When the parties attempted to draft the final agreement, however, negotiations broke down. The plaintiff filed a motion to enforce the mediated agreement, and the defendant opposed that motion. The district court ruled that the parties had reached a binding settlement because they “had in fact agreed to the material terms of a settlement and any ongoing disagreements concerned only ‘linguistic changes.'”

The defendant then sought to appeal that ruling. The defendant acknowledged that the ruling was interlocutory because, under Federal Rule 23, a class-action settlement must be approved by the court after a fairness hearing in which class members, after receiving notice, are entitled to participate. Because the fairness hearing had not yet taken place, the settlement was not final, and therefore the order finding that the parties had reached a binding settlement was interlocutory.

The defendant argued for appellate jurisdiction under the collateral-order doctrine, which permits an appeal of an interlocutory order where the district court’s order “[1] conclusively determine[s] the disputed question [on appeal], [2] resolve[s] an important issue completely separate from the merits of the action, and [3] [is] effectively unreviewable on appeal from a final judgment.” To meet this standard, the defendant noted that it would be difficult to appeal the question of whether there was an enforceable settlement once the settlement had been presented to the class and approved at a fairness hearing. The defendant also noted that it have to pay for notice to the class, which would be wasted money if the appellate court were late to determine that there was no enforceable agreement. The court rejected the defendant’s argument, ruling that, if the settlement is approved by the district court after a fairness hearing, the defendant will able to argue on appeal that no binding settlement was reached during the mediation. Therefore, the collateral-order doctrine was not applicable and there was no basis to hear an interlocutory appeal.

Finally, the conclusion of the court’s decision hints at a problem the district court will face on remand. Notice will have to be sent to class members informing them of the settlement and fairness hearing. It is likely that the notice will have to disclose the defendant’s position that there is no binding settlement agreement, a very odd disclosure for a class notice.

Mandatory Discovery Prior to a Voluntary Mediation?

Compel discovery in mediation

It is hard to have a successful mediation if one side feels it is missing information necessary to fully assess the case. Because mediation is generally a voluntary process, however, any pre-mediation exchange of information is generally left up to the parties, with (hopefully) the guidance of the mediator.

In Selective Way Insurance Company v. Schulle, 2014 WL 462807 (D.W.D.Va. 2014), after the parties agreed to mediate, the plaintiff filed a motion to compel the production of certain documents, and part of its argument was that information in those documents was necessary to fully assess its settlement position. The court granted the motion, first finding the documents relevant, but then adding:

[T]he court is a proponent of transparency in the mediation process and believes that disclosure of the requested information will facilitate the upcoming mediation. As other courts have recognized, discovery of [certain] information permits the remaining parties to assess their liability and “evaluate their risks in continuing with the litigation” and, thus, may ultimately “promote settlement of the remaining claims.”

The court also addressed a request by the producing part to limit the required production due to confidentiality and additional relevance concerns. The court rejected this, once again noting the impact on the upcoming mediation:

Moreover, as a practical matter, the proposed limitation would impact the likelihood of resolution at the upcoming mediation.

There is something odd about preceding mediation – a voluntary process based on cooperation – with a motion to compel. In the cited case, however, the timing of the motion to compel appears to have been advantageous to the moving party, not only because the documents would be an aid in the mediation, but also because the court seemed more inclined to grant a motion to compel on a close call due to the potential impact on the possibility of a settlement. One must, of course, weigh the dynamics of each situation, and in some cases a motion to compel could be viewed as an act of hostility causing the cancellation of a mediation, but the filing of such a motion is certainly worth considering.