How Mediation Confidentiality is Waived — A Ninth Circuit Decision

By: Donald L. Swanson

Can mediation confidentiality be waived?

The answer is, “Yes.”

–That’s according to the U.S. Ninth Circuit Court of Appeals, from an unpublished “Memorandum” decision in Milhouse v. Travelers Commercial Insurance Co., Case No. 13-56959, 13-57029 (9th Cir., Feb. 23, 2016).

Facts

The Milhouse residence, located in California, had been destroyed in a fire – a total loss. Disputes arose with Travelers over their home insurance policy, which resulted in a lawsuit and a jury trial.

The jury rules in favor of Mr. and Mrs. Milhouse on breach of contract. But the jury rejects their bad faith claim and their request for punitive dames.

Mediation Confidentiality Issues

–Trial Court Ruling

The trial court enters a final post-trial order (dated November 5, 2013) on multiple issues, from which both parties appeal to the Ninth Circuit.

Here is what the trial court says, in such order, about mediation confidentiality:

1. “At trial, evidence was presented regarding statements made during the course of the mediation proceeding between Dr. and Mrs. Milhouse and Travelers.”

–Such evidence includes this: “the Milhouses made a $7 million demand of payment” in mediation and “asked for nearly a million dollars of attorney’s fees when their attorney had only worked on the case for a few weeks.”

2. “The Milhouses now challenge the admissibility of such evidence, and argue that it resulted in prejudicial error that warrants a retrial on the issue of bad faith.” Such argument “fails on two independent grounds”:

–Waiver.  “First, the Milhouses failed to raise the issue with the Court at or before trial, and therefore waived their right to claim any privilege.”

–As to the mediation confidentiality agreement between the parties, the trial court says, “the Milhouses never presented” such an agreement as evidence and “incorrectly assume” that the court “can exclude testimony on the basis of a confidentiality agreement it has never seen.”

–Due Process.  “Second, to find evidence of statements made at the mediation proceeding inadmissible at trial would violate the due process right of Travelers to provide a complete defense to its alleged liability for bad faith and punitive damages.”

–Ninth Circuit Ruling

One of the Milhouse arguments on appeal is that the trial court (the U.S. District Court for the Central District of California) “erred” when it “admitted mediation communications at trial.”

The Ninth Circuit evaluates and rules on mediation communications issues in the following manner:

–Procedural Background Evaluation:

–Pretrial.  Initially, both parties file pre-trial motions to preserve mediation confidentiality and exclude mediation evidence. But both parties end up withdrawing those motions.

–Trial.  The Milhouse attorney does not object at trial, on mediation confidentiality grounds, to any evidence, nor does he alert the trial court to the requirements of California’s mediation privilege law.

–Post-Trial.  The Milhouse attorney raises mediation confidentiality issues for the first time in a post-trial request for new trial.

–Ninth Circuit Ruling:

“We therefore consider the [mediation confidentiality] issue waived.”

Editorial Comments

1.  I understand the waiver finding by both the trial court and the Ninth Circuit. Waiver seems to make sense:

–The Milhouse attorney apparently forgets about the confidentiality objection at trial.  Or . . . perhaps he has a strategic reason for abandoning the objection, and he fails to raise the objection intentionally?  We’ll never know.

2.  But the District Court’s “due process” finding is a concern – for two reasons:

–California’s mediation privilege law is about as strict as they come, with exceptions being almost non-existent. And California law would probably not recognize the Court’s “due process” exception to its mediation privilege.

–The District Judge appears to be saying that a mediation confidentiality objection, if raised at trial, would have been overruled and the evidence admitted anyway.

The Ninth Circuit does not even mention the trial court’s due process ruling and bases it’s “affirmed” decision on waiver alone.

3.  In this diversity jurisdiction case, the courts wonder whether mediation confidentilaity is governed by California state law or by Federal Evidence Rule 408.  Why the U.S. District Court doesn’t reference its own Local Rule 16-15.8 on mediation Confidentiality is mentioned: but the probable reason is discussed here.

What do you think about the waiver issue?