Keeping the ‘R’ in ADR: How Olam Treats Confidentiality

Share:

Reprinted with permission from the December 1999 issue of Alternatives a publication of CPR Institute for Dispute Resolution.

In a comprehensive opinion issued Oct. 15, 1999, a U.S. Magistrate Judge for California’s Northern District held
that evidence of events occurring during court-sponsored mediation proceedings, including a mediator’s
compelled testimony, may be considered to determine the enforce- ability of a mediated settlement agreement.

The opinion was written by U.S. Magistrate Judge Wayne Brazil, an acknowledged expert on
court-sponsored ADR. The decision is noteworthy for its detailed analysis of evidentiary and choice-of-law
issues relating to mediation confidentiality. It is also relevant to two cases discussed in “Does Good Faith Avoid
a Breach of Mediation Confidentiality?” 17 Alternatives 157 (Oct. 1999). [Editor’s note: Alternatives asked the
coauthors to discuss the new case in these pages with regard to other recent law, since it was decided soon
after their October article.]

In Olam v. Congress Mortgage Co., 1999 W.L. 909731, ___ F. Supp.2d ___ (N.D. Cal. 1999), the defendants
sought to foreclose on the plaintiff’s two homes and the plaintiff sought relief under the federal Truth-in-Lending
statute. The parties agreed shortly before trial to participate in mediation conducted by a trained neutral on the
court’s staff. After a mediation session lasting about 15 hours, the parties reached agreement on a settlement
and reduced it to writing in a Memorandum of Understanding, referred to here as the “MOU,” signed by all
parties. The MOU contemplated the preparation of a formal settlement contract, but also stated that it was
“intended as a binding document itself.”

Subsequently, the plaintiff refused to sign the formal settlement contract, and the defendants moved to
enforce the MOU. In opposition to the motion to enforce, the plaintiff claimed that at the time she gave her
apparent consent to the MOU, she was subjected to “undue influence,” which voided her consent.

The plaintiff, a 65-year-old widow, claimed that during the mediation she sat alone in a conference room all
day, participated in no negotiations, was afraid to ask questions, did not read or understand the MOU, which
she was pressured to sign, and was so incapacitated by various ailments that she fainted several times.

The parties agreed to waive mediation confidentiality in order to resolve the defendant’s motion to enforce
the MOU. The court concluded, however, that testimony by the parties and their counsel would not be sufficient
to determine the motion to enforce settlement, and that “the mediator was the only source of presumptively
disinterested, neutral evidence” about what transpired at the mediation.” Id. at *25 (emphasis added). Under
California law, however, mediators are not permitted to testify “as to any statement, conduct, decision, or ruling,
occurring at or in conjunction with [the mediation].” Id. at *16, citing Cal. Evidence Code §§ 703, 1119. The court
held that the statute created an independent privilege for the mediator, and presumed that the mediator would
not testify unless compelled.

The court was required to determine: a) if California or federal law applied to the substantive and evidentiary
issues; b) whether to compel the testimony of the mediator; and c) whether the plaintiff had been subjected to
“undue influence,” negating her apparent consent to the MOU’s terms and rendering it unenforceable.

CALIFORNIA LAW APPLIED

The substantive issue–whether the parties entered into an enforceable settlement agreement–was a question
of contract law, and would be decided under California law, as there exists no general federal law of contracts,
Magistrate Judge Brazil ruled. Id. at *7. The evidentiary issue–whether the mediator should be compelled to
testify–required a more extensive analysis.

The plaintiff asserted that in a federal question case, the federal common law of privilege must supply the
rule of decision on evidence issues. In addition, the Alternative Dispute Resolution Act of 1998, 28 U.S.C. §
652(d), enunciates a policy of federal protection for mediation confidentiality. Brazil, however, rejected the
plaintiff’s argument as contrary to Rule 501 of the Federal Rules of Evidence, which directs that in civil cases
where state law controls the substantive issue, “the privilege of a witness…shall be determined in accordance
with State law.” The parties should have understood that evidentiary disputes about confidentiality would be
decided under state law, the court held, and it would be unfair to honor any contrary expectation. Id. at *9.
Further, California law affords strong protection to communications during mediation, so that confidentiality
would receive no less protection under state law than it would under federal law.

Nor can it be fairly inferred that, when it passed the ADR Act last year, Congress meant to limit FRE 501’s
effects. Rather, Brazil wrote, it is “more likely than not that Congress devoted no thought at all to the possible
implications of § 652(d) for F.R.E. 501.” Id. at *10. The court also rejected the argument that the act preempted
state laws on mediation privilege, since there is no indication in the act’s legislative history that Congress
intended such preemption.

THE MEDIATOR TAKES THE STAND

California statutes “aggressively extend confidentiality protection to mediation communications.” Id. at *11.
Notwithstanding this protection, Brazil held, a court may consider whether to override the mediator’s evidentiary
privilege because the parties entered into a written agreement which recited that it was a binding document,
and which provided that the court would have continuing jurisdiction over any disputes arising under it. Id. at
*17-*18.

In determining whether the mediator would be compelled to testify, the court adopted the two-part test
applied by the only California court to have considered an analogous issue, Rinaker v. Superior Court, 62 Cal.
App. 4th 155, 74 Cal. Rptr. 2d 464 (3d Dist. 1998). First, would the testimony of the mediator, taken under seal
or in camera, be of such value that it would outweigh “the harm that would be done to the values that underlie
the mediation privileges”? Olam, at *18. Such harm might be considerable, the court noted. For instance,
“ordering mediators to participate in proceedings arising out of mediations imposes economic and psychic
burdens that could make some people reluctant to agree to serve as a mediator, especially in programs where
that service is pro bono or poorly compensated.” Id. at *20. Mediators might also “feel violated by being
compelled to give evidence…against a party with whom they [had] tried to establish a relationship of trust.…”

If under this test the court orders the mediator to testify under seal or in camera, it proceeds to the second
step: Does the value of the mediator’s testimony outweigh the values and interests that would be harmed if the
mediator were compelled to testify? Id. at *18.

In applying this two-part test in Olam, the court emphasized that the parties themselves had waived the
benefits of confidentiality for purposes of deciding the motion to enforce: all parties wanted the mediator to
testify to the events that transpired at the mediation, while the court presumed, for the purposes of analysis,
that the mediator would refuse to testify unless compelled. Under these circumstances, the court held, declining
to compel the mediator to testify would deprive the court of the evidence it needed to assess the plaintiff’s
contentions reliably. Therefore, the court decided to take the mediator’s testimony in order to evaluate whether
to proceed to the second part of the two-part Rinaker test.

THE MEDIATOR’S VERSION

The mediator’s testimony was diametrically opposed to that of the plaintiff. Where the plaintiff claimed that she
spent the entire mediation session alone, in ignorance, fear and pain, culminating in the signing of a document
that she did not read or understand, the mediator painted a different picture. According to the mediator, the
plaintiff participated fully in the mediation. Her attorney was at her side almost continuously. The plaintiff told
her story cogently, participated in caucuses throughout the day, heard and apparently comprehended the
mediator’s reports on the negotiations as they occurred, suggested specific settlement terms, and at the end
of the day read the MOU carefully before signing it. After the lengthy session, the mediator drove the plaintiff
home. During the trip, the plaintiff voiced no reservations about the settlement or concerns about the mediation
process.

Once Brazil had heard the mediator’s testimony, he proceeded to the second part of the Rinaker test. He
determined that he should use the testimony and unseal it, because it “would make a contribution of sufficient
magnitude to justify the level of harm that using and disclosing the testimony would likely cause.” Indeed, the
testimony was “essential to doing justice.…”

Further, the court credited the mediator’s testimony, which was substantially corroborated by other
participants in the mediation, and found that the plaintiff’s version bore “little resemblance to the real historical
facts.” Based on the mediator’s experience as a neutral and teacher of mediation, the court found “patently
implausible” the plaintiff’s testimony that she did not participate in the mediation. Instead, the court held, the
plaintiff participated actively in the process, and under California law she had been subjected to no undue
influence in agreeing to the terms of the MOU. The court granted the motion to enforce the settlement
agreement, bringing a seven-year dispute to a close.

OTHER COURTS WEIGH IN

Olam is the latest (and most comprehensive) in a line of opinions that grapple with the conflict between
mediation confidentiality and the objective of achieving justice in the resolution of motions to enforce mediation
settlement agreements. Significantly, there are varying judicial responses to this conflict. For instance, Olam
is in contrast to two cases discussed recently in the authors’ aforementioned October Alternatives‘ article, “Does
Good Faith Avoid a Breach of Mediation Confidentiality?”

In Lyons v. Booker, 982 P.2d 1142 (Utah App. 1999), the plaintiff filed a motion to enforce a settlement
reached at a mediation conducted under the auspices of the state appellate court. The motion contained
references to the mediation. The response of the appeals court demonstrated a keen concern for mediation
confidentiality. It remanded the motion to the trial court for refiling, with orders to delete every reference to the
mediation from the motion. The court also barred the parties from disclosing to the trial court any statements
made during the mediation. The parties were also forbidden to make any use on remand of documents created
in connection with the mediation. Finally, the court publicly admonished the attorney who filed the motion to
enforce.

Similarly, in Willis v. McGraw, 177 F.R.D. 632 (S.D. W.Va. 1998), the court emphatically refused to enforce
a settlement purportedly reached through mediation, essentially holding that the benefits of confidentiality
outweighed the interests of the parties in resolving a settlement dispute.

Other courts have reached similar conclusions, refusing to compromise mediation confidentiality even when
necessary to resolve settlement disputes. See, e.g., Haghighi v. Russian-American Broadcasting Co., 945 F.
Supp. 1233 (D. Minn. 1996) (refusing to permit mediator to testify at evidentiary hearing on motion to enforce
settlement agreement; applying Minnesota privilege statute and Federal Rule of Evidence 501), rev’d on other
grnds., 173 F.3d 1086 (8th Cir. 1999); Gordon v. Royal Caribbean Cruises Ltd., 641 So. 2d 515, 517 (Fla. App.
1994) (reversing trial court order enforcing mediation settlement agreement after in camera evidentiary hearing;
confidentiality of mediation “must remain inviolate.”).

Absolute APPROACH ‘Tacitly REJECTED’

In Olam, on the other hand, the court tacitly rejected the bright-line approach employed by the Willis court.
Magistrate Judge Brazil in Olam accepted the difficult burden of weighing the factors militating for and against
intrusion into mediation confidentiality. Critical to the Olam decision were the parties’ waiver of confidentiality
and the existence of a written settlement agreement that provided for continuing jurisdiction to resolve
settlement disputes; the opinion suggests that the outcome would have been different in the absence of these
factors.

Although the Olam opinion is more detailed and closely reasoned than many, its approach is congruent with
other decisions that juggle the competing needs of confidentiality and settlement-enforcement. See, e.g., Few
v. Hammack Enterprises, Inc., 511 S.E.2d 665 (N.C. App. 1999) (state privilege statute did not prohibit
introduction of mediator’s testimony on whether settlement was reached, reversing trial court);
Snyder-Falkinham v. Stockburger, 457 S.E.2d 36, 39 (Va. 1995) (statements made during mediation constituted
“competent, credible evidence” supporting existence of settlement agreement); McKinlay v. McKinlay, 648 So.
2d 806 (Fla. App. 1995) (mediator may testify; party waived mediation privilege by alleging settlement
agreement was signed under duress). See generally, J. Lee & C. Giesler, “Confidentiality in Mediation,” Harv.
Negotiation L. Rev. 285, 293-94 (Spring 1998).

Whether courts will accept the burden of deciding motions to enforce mediated settlement agreements, or
whether they will refuse to consider such motions under a bright-line test that regards confidentiality as absolute,
cannot be predicted with accuracy. Confidentiality is a mediation benefit worthy of vigorous defense, as Brazil
recognized, but, as he concluded, when it stands in the way of the all-important need for resolution–the “R”
in ADR–confidentiality may become the proverbial tail wagging the dog.