Mediation Confidentiality at Second and Ninth Circuits: Stability v. Who Knows?

Who knows?

By: Donald L Swanson

You’d expect, these days, that mediation confidentiality is enforced everywhere.

But that expectation is wrong.

Bankruptcy Hypothetical

Let’s start with a bankruptcy hypothetical:

Debtor is a small business in Chapter 11 and hopes to reorganize—not liquidate.

Debtor reaches a mediated settlement with a large creditor, removing an obstacle to reorganization. Mediating parties seek Bankruptcy Court approval of the settlement (as required by Fed.R.Bankr.P. 9019(a)).

Small Creditor holds a claim in Debtor’s bankruptcy and is one of Debtor’s competitors.  This creditor is active and antagonistic in Debtor’s bankruptcy, doing everything possible to torpedo reorganization.

Small Creditor objects to the mediated settlement on various grounds, including “bad faith” and seeks discovery of mediation communications to support its “bad faith” allegations.  The mediation parties resist.

The Question

How will the discovery dispute fare? Let’s narrow the issue to this question:

–“Does a federal privilege or confidentiality rule protect mediation communications from discovery?”

A Comparison

The answer to the question depends on which circuit court of appeals covers the bankruptcy court in question. For illustration purposes, let’s compare declarations on confidentiality rules by these two courts:

Second Circuit Court of Appeals — which hears appeals from federal courts in Connecticut, New York and Vermont; and

Ninth Circuit Court of Appeals — which hears appeals from federal courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and Northern Mariana Islands.

–Second Circuit Court of Appeals–Stability

In its In re Teligent, Inc., bankruptcy opinion [Fn. 1], the Second Circuit Court of Appeals establishes mediation confidentiality as a preeminent value that is enforced with vigor.

The Second Circuit’s Teligent opinion involves a mediation where rules and documents “are silent” on when “confidentiality restrictions” might be lifted. For such context, the Teligent opinion provides this legal test:

Disclosure is warranted “only if the party seeking disclosure” demonstrates,

(i) “a special need for the confidential material,”
(ii) a “resulting unfairness from a lack of discovery,” and
(iii) a “need for the evidence” that outweighs “the interest in maintaining confidentiality”; and

“All three factors are necessary to warrant disclosure” of mediation communications.

In support of this legal test, the Second Circuit explains:

“Confidentiality is an important feature” of mediation;

“Promising participants confidentiality” in mediation “promotes the free flow of information that may result in the settlement of a dispute” and protects “the integrity of alternative dispute resolution generally”;

“We vigorously enforce the confidentiality provisions of our own alternative dispute resolution” program because “we believe that confidentiality is essential”; and

This legal test is consistent with standards governing “modification of protective orders” under Fed.R.Civ.P 26(c) and their “strong presumption” against modification.

Application of the Second Circuit’s In re Teligent standard has resulted in denial of mediation discovery in such cases as In re Residential Capital, LLC, 536 B.R. 132 (Bankr. S.D.N.Y. 2015), where:

The issue was whether mediated settlements for plan confirmation were “reasonable”; and

The Bankruptcy Judge describes In re Teligent’s confidentiality test as “a very high bar to overcome.”

–Ninth Circuit Court of Appeals—Who Knows?

The Ninth Circuit Court of Appeals, by contrast, offers no standard for mediation confidentiality—none.  It keeps us guessing, instead.

In Wilcox v. Arpaio, 53 F.3d 872 (9th Cir. 2014), for example, the Ninth Circuit declares:

That “federal privilege law governs”; but

It “need not determine,” in Wilcox, “whether a mediation privilege should be recognized under federal common law” or “the scope” of any such privilege.

In Sony Electronics v. Hannstar Display, 835 F.3d 1155 (9th Cir. 2016), for further example, the Ninth Circuit holds that “the federal law of privilege applies” to the mediation confidentiality dispute. But it, once again, declines to explain or decide what that privilege might be—or if it even exits.

To this day, the Ninth Circuit has failed or refused to declare whether a federal mediation privilege actually exists or, if such a privilege does exist, what its scope might be.

Here are some further details:

Mediation confidentiality issues at the Ninth Circuit tend to be about admissibility—not discovery;

The Ninth Circuit has a penchant for allowing mediation information into evidence based on “waiver” [Fn. 2]; and

The Ninth Circuit did exclude mediation information on one occasion—but it did so on the basis of an agreement between the parties, not because of a federal privilege or confidentiality rule [Fn. 3].

The Ninth Circuit has provided one item of specific confidentiality guidance, which is, actually, not very helpful. The guidance is this:

Privileges “are created by federal common law”; but

It’s doubtful that a district court can augment the list of privileges by local rule” [Fn. 4].

So . . . don’t be relying (in the Ninth Circuit) on any protection from a local court rule on mediation confidentiality!

To be sure, the Ninth Circuit did, in Facebook, concede that local confidentiality rules can have a protective effect for confidential information—like any court order. But the Ninth Circuit has yet to actually apply this concession to exclude any mediation information from discovery or evidence.


The expectation, these days, is that courts everywhere have a high-regard for mediation confidentiality and will enforce such confidentiality with diligence.

Such expectation is probably accurate in the vast majority of courts—just about everywhere.

But there is a huge swath of exception, across the entire western landscape of our federal courts.

–How can this be?

Footnote 1: 640 F.3d 53 (2nd Cir. 2011).
Footnote 2: See, e.g., Babasa v. Lenscrafters, Inc., 498 F.3d 972 (9th Cir. 2007); Wilcox v. Arpaio, 53 F.3d 872 (9th Cir. 2014); and Milhouse v. Travelers Commercial Insurance Co., Case No. 13-56959 & 13-57029 (9th Cir., Feb. 23, 2016, Unpublished).
Footnote 3: Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034, 1040 (9th Cir.2011).
Footnote 4: Id., emphasis added.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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