Jeff Kichaven writes on mediation for the International Risk Management Institute. First published on IMRI.com.
These thoughts are tentative. My goal is to have this column be the first, not the last, step. Upon more complete reflection and dialogue, a consensus may emerge as to whether the rules should be changed a little, a lot, or not at all.
To recap, the essential problem, as I see it, is that “absolute confidentiality” exempts mediation from what we generally call “the rule of law.” I use the phrase “the rule of law” to describe a regime in which contracts can be enforced and torts redressed in more or less predictable and orderly ways, by some form of adjudication such as trial.
The rule of law is essential to the spread of commerce. We have all read articles about the absence of reliable judicial systems in Third World and post-Soviet countries, and how that absence deters investment and commerce in their economies. In short, absent the rule of law, people will be reluctant to do business or enter contracts with you, or expose themselves to the risk of tortious misconduct by your hand.
This is precisely the effect of the so-called absolute confidentiality rules in mediation. It is quite possible for at least three torts to take place in mediation—legal malpractice, mediator malpractice, and insurance bad faith. Each could expose its victims to dire consequences, and so society has determined that victims of these torts ought to have a forum available for redress. Yet absolute confidentiality frustrates these tort victims’ abilities to vindicate their rights.
If one of these torts takes place in mediation, absolute confidentiality will prevent the victims from introducing evidence of the misconduct in court. Judges will be constrained to dismiss these claims long before trial, and we will be left with the nightmare of “rights without remedies,” which is to say, no rights at all. I have asked numerous California State Court judges what they would do if confronted with a motion for summary judgment seeking dismissal of, for instance, a legal malpractice claim, if the evidence of the malpractice consisted of statements the accused lawyer made in mediation. Every single judge has responded the same way: Because the “absolute confidentiality” rules would prohibit introduction of the relevant evidence, the motion would be granted and the case dismissed. It will be as if, in mediation, clients’ rights to non-negligent lawyers and mediators, and good-faith treatment by their insurers, do not exist at all.
The only possible consequence of this will be that, sooner or later, American business will steer as clear of mediation’s lawless territory as it does of those economies where rights cannot be vindicated either. An occasional rumbling from the policyholder bar could escalate if new appellate decisions lead to perceived unfair results. And, if policyholders decide to steer clear of mediation, its benefits will be lost to insurers as well.
The Communications Involved
So the confidentiality rules need to be rethought to allow these torts to be redressed, if it is possible to do so without otherwise undoing mediation’s effectiveness. Perhaps it is. Here’s the big problem on the horizon, though: How do we allow a tort victim to introduce sufficient evidence to prove a claim, while still protecting the legitimate privacy expectations of those mediation participants who have no interest in the subsequent tort suit? To put these questions into the proper context, the analysis involves at least two types of mediation communications: Those between parties to the subsequent tort suit, and those involving nonparties to the subsequent tort suit. Finally, we need to consider the role of the special credibility of the mediator in the subsequent tort suit, and some reasons to be skeptical about calling mediators to testify nonetheless.
First, let’s consider mediation communications between parties to the subsequent tort suit. For example, suppose a client sues his or her lawyer for legal malpractice, alleging that the malpractice consisted of poor advice that the lawyer gave the client during the mediation. Clearly, there was no expectation of confidentiality between lawyer and client for this purpose. If the lawsuit arose out of advice given outside of the mediation, the lawyer could not invoke the attorney-client privilege to prevent the client from testifying. See, e.g., Cal. Ev. C. Sec. 958. It’s hard to see why the lawyer’s alleged misconduct should get greater protection because it took place in a mediation.
Similarly, suppose that a mediator’s conduct falls below the standard of care and causes damage. If the mediator is sued for negligence, conversations that the mediator had with the now-tort-plaintiff ought to be admissible as well. What the mediator and the now-tort-plaintiff said to each other was hardly said with an expectation of confidentiality, at least as to each other. Or if an insurer communicated in tortious ways directly with its policyholder, it is hard to see a legitimate expectation of privacy between them preventing the policyholder from introducing that evidence in a later bad faith case.
But what about conversations that involve not only the parties to the follow-on lawsuit, but that also involve others? These cause complications. In the case where the “other” has no interest in the follow-on litigation, there is no obvious answer.
Take, for example, a garden-variety sexual harassment case. Assume that the defendant in that case later wishes to sue either his own lawyer, the mediator, or his insurer, based on what happened in the mediation. In any of those later cases, the now-tort-plaintiff may wish to introduce evidence not only of what he said to the now-defendant, but also evidence of what the sexual harassment-plaintiff said during the prior mediation. To be sure, what that previous-plaintiff or her lawyer said may be highly relevant to the follow-on lawsuit. Whether a lawyer’s advice was proper, whether a mediator properly contributed to the conversation, whether an insurer reasonably refused to fund a settlement demand, may all turn, in part, on things the previous-plaintiff and her lawyer said, in response to which the now-defendants may all have based their actions.
But, wait a second!
The plaintiff in the previous sexual harassment suit has no interest in allowing her statements to become part of a public record in the follow-on suit, in which she has no interest at all. There is righteousness in her claim that she came to the mediation of her sexual harassment claim with an expectation of confidentiality. She will say that she disclosed embarrassing—even humiliating!—facts in order to persuade the defendants to settle with her. She will say that she took a settlement far below the “true” value of her case just to get matters behind her, and that disclosure of even the amount of the settlement would embarrass her. That’s why she insisted on a confidentiality provision in the settlement agreement. If the defendants have a malpractice suit against their lawyers or the mediator, or a bad faith suit against their insurer, she argues that they should have to prove it with evidence other than her confidential disclosures and agreements. There’s nothing in it for her to have any of that disclosed in later litigation to which she is not a party.
The Issue of Bad Faith
But perhaps, as Cassandra Franklin of the Los Angeles office of Dickstein, Shapiro, Morin & Oshinsky points out, the problem is no worse than in any other lawsuit that requires proof of a case-within-a-case. Negligent professional services constitute malpractice, or an insurer’s conduct may constitute bad faith, because of the real-world facts, not because real-world facts were disclosed at a mediation. So, for example, if a scoundrel deceives you into an inappropriate settlement, and your lawyer’s sin is failure to have uncovered the deception, perhaps the proof of the malpractice comes from a comparison of the terms of the settlement to the true facts surrounding the dispute—and that comparison can be made, albeit with more difficulty, without direct testimony of what was said at the mediation. Or, in the case of the sexual-harassment plaintiff described above, she could be subpoenaed and deposed by her former employer, now suing its attorney for malpractice or its insurer for bad faith, to testify to the facts of the underlying alleged harassment (if that testimony is relevant), rather than to testify to what was or was not disclosed at the mediation.
Insurance bad faith claims are a little trickier than malpractice claims, because the demand on the insurer and the insurer’s refusal to pay seem to be entirely within the scope of mediation confidentiality, if they took place at the mediation. The policyholder would presumably have to adjourn the mediation and recreate the demand and the refusal outside the mediation context. A reviewing court might conclude that the distinction the policyholder wishes to draw elevates form over substance to an improper degree, and reject the evidence anyway. Or the tactic may, if improperly handled, come across as improper collusion between the policyholder and the plaintiff who used it. But this could presumably be clarified in a statute.
According to Ms. Franklin (who represents policyholders), though, the mediation confidentiality provisions already do not apply to shield insurers’ bad faith in connection with mediations because of the California Supreme Court’s decision in White v. Western Title Insurance Co., 40 Cal. 3d 870 (1985). White made clear that in insurer’s duty of good faith and fair dealing does not terminate with the commencement of litigation. Id. at 886. Accordingly, statutory privileges do not apply to bar introduction of evidence of an insurer’s bad faith. Id at 889. Although under the California Evidence Code mediation confidentiality is not a “privilege,” many insurers appear to treat White as if it applies nonetheless, and insist on a “White waiver” in connection with mediation. However, if the statute were expressly to confirm the viability of White in the mediation context (for example, by expressly stating that mediation confidentiality could not be used to shield alleged bad faith behavior by insurers), then to that extent the rule of law in mediation would be restored.
The Reliability of Mediator Communications
One final point deserves note. When I speak with other mediators about the confidentiality rules, I often believe that their greatest concern is that they not be compelled to testify endlessly in follow-on suits involving settling parties with buyers’ and sellers’ remorse who want to rescind or avoid their deals, or those follow-on suits in which still-angry parties turn their wrath on their own lawyers or insurers. Importantly, this is not mere selfishness on mediators’ parts. Testimony of what mediators say, and what people say to mediators, is not always reliable. We all know it but it must be said again, everybody is trying to spin the mediator and, many times, we mediators spin right back. Parties and lawyers rarely tell mediators the truth, the whole truth, and nothing but the truth. And when mediators convey messages back and forth, parties and lawyers expect mediators to level, sharpen, sculpt, and otherwise put the facts in the light most favorable to the possibility of making a deal.
Many people think that mediators’ testimony would be unusually reliable because of our neutrality. But that faith must be tempered with the skepticism that there may be a big gap between what we remember and the truth. At least in suits other than those for mediator malpractice, there are serious questions as to whether mediators’ testimony should ever be allowed at all.
In all of these regards, the Uniform Mediation Act does a better job than the California Evidence Code. Sections 6(a)(5) and (6) of the UMA provide that its privilege does not apply to mediation communications that are relevant to claims of professional misconduct or malpractice based on conduct occurring during a mediation. The plain meaning of these sections may not cover claims of insurance bad-faith, but that can easily be added to the statute. Section 6(c) precludes mediators from being compelled to testify in malpractice cases involving professionals other than themselves. The California mediation community, and legislature, should take note.
Both the California Evidence Code and the Uniform Mediation Act should be viewed as works-in-progress. As we gain more experience with these confidentiality and privilege statutes in the real world, we should revisit them from time to time to make sure that they fulfill their stated purposes—to encourage and promote confidence in and use of the valuable dispute resolution tool we call mediation.