This is another in a series of updates on legal mediation news in the United States by long-time Mediate.com News Editor, Keith Seat. See our related Newsletter Service for your clients and referral sources.
A federal trial court concluded that California’s strict mediation confidentiality provisions were not applicable in a bad faith claim by homeowners against their insurer, as the insurer needed to be able to show that its failure to settle the case was the result of the homeowners’ excessive demands in mediation. The court relied on the seminal California Supreme Court case, Cassel v. Superior Court, in which due process is recognized as a limit on the mediation confidentiality statute, even though the Supreme Court was not concerned about shielding legal malpractice when only civil damages were at issue. Here, however, the federal court concluded that the insurer’s due process right to defend itself outweighed confidentiality, where the homeowners initially demanded $7 million in mediation for a house the court found to be worth about $1 million. While the parties also had signed a confidentiality agreement covering the mediation, it was never presented to the court and thus could not exclude testimony about the mediation. The decision is being appealed to the Ninth Circuit.
Milhouse v. Travelers Commercial Ins. Co., No. SACV 10-01730-CJC (U.S.D.C. C.D. Cal., November 5, 2013)
After the parties signed a term sheet in mediation to resolve a class action, one side tried to prevent the document from being introduced in court based on a mediation confidentiality agreement, but a federal trial court concluded that if a full settlement had been reached the term sheet would be admissible regardless of the confidentiality agreement, and the court could review the document to make that determination. The court noted that neither the U.S. Court of Appeals for the Seventh Circuit nor the U.S. District Court for the Northern District of Illinois has recognized a federal mediation privilege.
Craftwood Lumber Co. v Interline Brands, Inc., No. 11 C 4462 (U.S.D.C. N.D. Ill., April 9, 2014)
A federal trial court readily concluded that settlement agreements and settlement negotiations were protected from discovery by a mediation privilege if they took place in mediation, but were not protected if they occurred outside mediation. The court noted that most courts recognize a federal common law mediation privilege, and that the U.S. Court of Appeals for the Federal Circuit had observed that all states have apparently enacted a mediation privilege, while there is no state consensus regarding a settlement negotiation privilege. In addition to the mediation privilege, the trial court noted that the local rules of the court and the parties’ agreement to mediate also provided additional confidentiality protection among litigants.
U.S. Ethernet Innovations, LLC v. Acer, Inc., No. C 10-03724 CW (U.S.D.C. N.D. Cal., March 31, 2014)
A California court of appeals overturned the trial court’s decision that a standardized home purchase contract which required homeowners to give notice and an opportunity to correct any construction defects, and then to mediate prior to filing litigation against the builder, was an unconscionable contract of adhesion and violated California’s 2002 Right to Repair Act. The appellate court found that there was nothing unfairly one-sided about the mediation terms, as required for a contract to be unconscionable.
McCaffrey Group, Inc. v. Cital, No. F066080 (Cal. C.A. 5th Dist., March 24, 2014)
A liquidated damages clause requiring payment of the entire $85,000 in dispute, which was settled in an agreement requiring payment of only $38,000, was held by a California appellate court to be an unenforceable penalty as there was no reasonable relationship to the damages actually suffered by the failure to make a timely payment of the settlement amount, notwithstanding an express waiver of any challenges to the liquidated damages in the settlement.
Purcell v. Schweitzer, No. D063435 (Cal. C.A. 4th Dist., February 24, 2014)
The Detroit bankruptcy judge has ordered three mediators – all federal judges – to work with Detroit and Wayne, Oakland and Macomb Counties to address the possibility of a regional water authority. The bankruptcy judge also ordered Detroit’s bond insurers to mediate with the city. Detroit Free Press (April 17, 2014); The Bond Buyer (March 21, 2014)
Mediation has resulted in a tentative settlement between bankrupt San Bernardino and its biggest creditor, Calpers, which should help in reaching mediated settlements with other creditors. However, the firefighters union is frustrated after seven mediation sessions, but were rebuffed by the bankruptcy judge from taking steps in litigation that might interfere with mediation. Bloomberg News (March 14, 2014)
To promote mediation of agriculture-related disputes, the State Agriculture Development Committee published the New Jersey Agricultural Mediation Program Handbook. The Handbook explains how mediation works as an alternative to the Right to Farm Act’s formal dispute resolution process or to resolve USDA program disputes, and gives examples of successful mediations.
NJ.com (March 28, 2014); NJ SACD Website; Handbook
Legislation has been introduced in Connecticut to create a pilot mediation program for disputes among condominium owners or between owners and their condominium associations. The mediation program is to be run by the courts, with the presiding judge selecting a special master to conduct the mediation without compensation.
LegiScan (March 19, 2014)
Guidance on Settling Employment Disputes with Clean Records
Resolution of federal employment disputes in mediation (and direct negotiation) often includes an agreement to give the employee a clean record. The U.S. Merit Systems Protection Board has issued a lengthy report, Clean Record Settlement Agreements and the Law, discussing the range of issues that can arise and focusing on how to make clear commitments in settlement agreements and successfully carry out those commitments.
U.S. Merit Systems Protection Board (December 5, 2013); Report