Once again, the Ninth Circuit has sidestepped discussing the contours of mediation confidentiality in federal lawsuits based on diversity jurisdiction. In an unpublished (and thus not having precedential value) Memorandum (Milhouseopinion ) affirming the trial court judgment, the appellate court held that Dr. and Mrs. Milhouse waived their claim of mediation confidentiality by not raising it as an objection at trial:
By failing to object on the basis of the mediation privilege at trial, the Milhouses did not preserve for appeal whether the district court erred when it admitted mediation statements. We therefore consider the issue waived and decline to address the merits of their tardy objection to the admission of the evidence. (Craig Milhouse v. Travelers Commercial Insurance, Case Nos. 13-56959 and 13-57029, Memorandum at 5-6. (February 23, 2016))
Dr. and Mrs. Milhouse suffered the total loss of their home during a fire in November 2008. They filed a claim with their insurer, Travelers Commercial Insurance Company (“Travelers”), but reached no resolution. So, they mediated the dispute to no avail. They then filed suit in state court. Travelers removed to federal court based on diversity jurisdiction.
In August 2013, the case was tried before a jury. The issues were whether Travelers had breached its contract with the plaintiffs and breached the implied covenant of good faith and fair dealing (or, in essence, acted in bad faith) in not settling their claim.
As the trial court requested that they limit their motions in limine, counsel allegedly agreed informally not to introduce into evidence any communications that occurred during the mediation.
However, at trial, counsel for Travelers elicited testimony about what had occurred during the mediation to show that the reason the case had not settled was because of the extreme demands made by Dr. and Mrs. Milhouse and their counsel and not because of Travelers’ recalcitrance. Counsel for the Millhouses objected to the testimony on grounds of hearsay and lack of foundation but not on grounds of mediation confidentiality. The court allowed the testimony determining that the parties had waived mediation confidentiality.
Although the jury found for the plaintiffs, it also concluded that Travelers had not acted in bad faith.
Plaintiff filed a motion for new trial urging that admitting the mediation communications into evidence was prejudicial. The trial court disagreed, stating that counsel had waived it by failing to object. Both parties appealed to the Ninth Circuit.
Noting that it reviews de novo the trial court’s decision whether to apply state or federal law in a diversity action, the appellate court avoided the issue altogether by holding that mediation confidentiality was waived by plaintiffs’ counsel failure to object during trial. Thus, the appellate court avoided a discussion of which applies: California’s Evidence Code section 1119 on mediation confidentiality or Federal Rule of Evidence 408allowing for the admission of evidence of settlement discussions when introduced to rebut a contention of undue delay.
Further, even though plaintiff’s counsel objected to the introduction of these mediation communications on the grounds of hearsay, the appellate court agreed with the district court that such statements did not constitute “hearsay” as they were “statements by a person authorized by the party to make a statement concerning the subject.” Fed. R. Evid. 801(d)(2)(C). That is, as plaintiffs were delivering their demands to Travelers through the mediator, the mediator was their authorized “agent” and spokesperson. As such, the mediator’s statements did not constitute hearsay!
Once again, the Ninth Circuit missed another opportunity to clarify the contours of mediation confidentiality in federal court. Until we know for sure, my advice is when in federal court, be careful… the law remains unsettled!
…Just something to think about.