Mediation Confidentiality at Work

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A confidential setting? (Photo by Marilyn Swanson)

By: Donald L. Swanson

Every now and then we get a refresher on mediation confidentiality and how it works.  Here is one such refresher.

The case is Apollo Education Group, Inc. v. National Union Fire Insurance, Case No. CV-15-01948 in Arizona’s U.S. District Court.  The District Court addresses the admissibility into evidence of three documents from a mediation and finds all three to be privileged, confidential and inadmissible (Doc. 70).

On appeal, the U.S. Court of Appeals for the Ninth Circuit affirms, in an unpublished Memorandum dated August 15, 2019 (Case No. 17-17293).

Here’s the story.

Underlying Dispute

Apollo purchases a Liability Insurance Policy from National Union.

Then, Teamsters Local 617 Pension & Welfare Funds brings a class action against Apollo in Arizona’s Federal District Court.  The District Court dismisses the Teamsters complaint with prejudice, and Teamsters appeals.

While on appeal, Teamsters and Apollo agree to mediate, and National Union participates in the mediation as Apollo’s insurer.

Teamsters and Apollo reach a $13.125 million settlement in mediation, which settlement is then approved by the District Court.

Though its remaining Policy limit is $13.5 million, National Union refuses to consent to the settlement.  So, Apollo pays the settlement out of its own pocket and then sues National Union for breach-of-contract and bad-faith.

In its suit against National Union, Apollo offers documents into evidence to support its claims.  National Union objects to three of those documents on grounds of mediation confidentiality.

Mediation Confidentiality

According to the District Court’s Order, confidentiality standards in this dispute arise by statute and by agreement of the parties:

  • By Statute—the mediation occurred in California and is, therefore, subject to California’s mediation confidentiality statutes, which are to be strictly applied in favor of confidentiality, even when confidentiality may compromise a petitioner’s ability to prove a claim; and
  • By Agreement—the parties entered into a pre-mediation agreement that, (i) specifically incorporates California’s mediation statutes, (ii) includes a provision that makes evidence of any statement or admission “for the purpose of, in the course of, or pursuant to, the Mediation” inadmissible and undiscoverable, and (iii) authorizes parties to mark a document as confidential.

Three Documents at Issue

Apollo offers three documents (a Memorandum and two letters) into evidence to support its claims.

National Union objects to admission of all three under California’s statutory mediation privilege and the parties’ pre-mediation agreement.

Apollo responds that the scope of the mediation privilege is limited, regarding such documents, because:

  1. the privilege does not apply to an otherwise admissible document simply because it was obtained in connection with a mediation;
  2. the privilege applies only to communications that would not exist but for the mediation; and
  3. a party may waive the privilege with respect to its own communications

District Court’s Ruling on Each Document

 –The Memorandum

One of Apollo’s attorneys sent National Union’s attorneys a Memorandum outlining Apollo’s analysis of risks presented by the Teamster’s appeal.

The Memorandum:

  • bears the designation, “Privileged and Confidential, Attorney-Client Communication, Attorney Work Product, Common Interest Privilege, and Subject to Mediation Confidentiality Agreement”; and
  • states that it is being provided, (i) “in the course of the mediation,” and (ii) pursuant to an express agreement that it is “a confidential mediation communication.”

Accordingly, the District Court rules that California’s mediation statutes and the parties’ pre-mediation agreement preclude introduction of the Memorandum into evidence.

The District Court finds Apollo’s contrary arguments, about a limited privilege, unavailing because:

  1. The Memorandum was not merely provided in connection with a mediation—it was prepared for the sole purpose of discussing the status of the mediation;
  2. The Memorandum would not exist but for the mediation and the confidentiality protections provided therein, which fact Apollo objectively believed because of the confidentiality designation it placed upon that document; and
  3. The mediation privilege cannot be unilaterally waived—instead, all mediating parties must agree to disclosure of privileged information, which parties would include both Apollo and National Union in this instance.

–The Summary Letter

One of Apollo’s attorneys sent National Union’s attorney a letter, which identifies itself as confidential in bold, italics, and underlined words.  The letter, (i) provides a summary of the current status of the mediation process, including Teamster’s offer and Apollo’s counteroffer, and (ii) analyzes why Apollo believes the settlement offer is reasonable.

Apollo’s designation on the face of this letter that it is a mediation communication avoids any doubt as to Apollo’s intent. And the content of the letter is clearly related to the mediation.

Accordingly, the District Court rules that the Summary letter is inadmissible under both California law and the pre-mediation agreement of the parties.

–The Analysis Letter

As an enclosure with the Summary letter, Apollo includes a letter analyzing Teamster’s case on appeal.  The letter is authored by Apollo’s appellate counsel and sent, initially, to Apollo’s in-house counsel.  This Analysis letter contains highly confidential material and is covered by the attorney-client privilege.

Apollo then forwards the Analysis letter to National Union, as an enclosure with the Summary letter.  The District Court finds that, but for the mediation and the desire to convince National Union to approve the settlement, it is highly unlikely that Apollo would have forwarded such a highly-confidential letter to National Union.

Apollo specifies in the Summary letter: “attached is a highly confidential letter from Apollo’s lead appellate counsel.”  Additionally, the Analysis letter is included as an enclosure with a document that is clearly marked as a mediation communication.

Accordingly, the District Court rules that the Analysis letter falls within the mediation privilege and cannot be introduced into evidence.

Conclusion

It’s helpful, every now and then, to have an opinion come along as a refresher on what mediation confidentiality is all about and how the mediation privilege can, and should, work.

And the Apollo v. National Union opinion does just that!

** 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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