When the Work of Mediation Extends Beyond a Settlement

By: Donald L. Swanson

Typically, the work of a mediation is concluded when settlement is reached.

But in some circumstances there is more work for a mediation to do.

One such circumstance is when the interests of others require a court to evaluate the settlement. In such a circumstance, the fact that a mediation occurred, with an able mediator, is evidence supporting the settlement.

Illustrations of such a circumstance are:

1. Seeking bankruptcy court approval of a settlement under Fed.R.Bankr.P. 9019(a); and
2. Determining whether a Chapter 9 debtor negotiated in good faith under § 921(c) of the Bankruptcy Code.

A Recent Illustration

Another illustration is from the October 8, 2019, opinion of Uschold v NSMG Shared Services, LLC, 333 F.R.D. 157 (N.D. Cal. 2019).

–Facts

The Uschold v NSMG plaintiffs had filed a class action lawsuit against their employer for wage-and-hour violations under state laws. The lawsuit began in state court but removed to federal court.

In federal court, the parties participated in two sessions of private mediation (one on October 24, 2018, and one on February 5, 2019). They were not able to reach a settlement during the mediation sessions but continued negotiating thereafter.

Within a month after the final mediation session, the parties:

• reached a settlement of all class action claims;
• memorialized the settlement terms in a written Settlement Agreement;
• filed a Notice of Settlement; and
• asked the Court for preliminary approval of the Settlement Agreement.

–Mediation as a Supporting Factor

In determining whether a class action settlement agreement should be given preliminary approval, one of the factors to be considered is this: whether the parties “have engaged in sufficient investigation of the facts.”

In support of the motion for preliminary approval of the settlement, Plaintiffs submitted a declaration of counsel attesting that the parties:

• engaged in two rounds of private mediation with an experienced mediator prior to reaching the settlement agreement;
• conducted discovery in advance of both mediation sessions;
• conducted additional discovery after the first mediation session concluded, including hours of informal interviews with key witnesses;
• continued negotiating after the second mediation session concluded and promptly reached a settlement; and
• engaged in non-collusive, arm’s length bargaining throughout the mediation sessions and thereafter.

–Court Ruling and Rationale

The federal court granted preliminary approval of the Settlement Agreement. In doing so, the court made these observations:

• The use of an experienced mediator and the presence of discovery support the conclusion that Plaintiffs were “armed with sufficient information about the case” to broker a fair settlement;
• Precedent exists for the proposition that two sessions of private mediation informed by discovery are sufficient to show that the parties were appropriately informed;
• The parties had already drafted three joint case management conference statements and participated in two case management conferences before engaging in mediation;
• There is no indication that Plaintiffs rushed into settlement or were otherwise ill-informed about the case; and
• On balance, the Settlement Agreement appears to be the product of serious, informed and non-collusive negotiations and should receive preliminary approval.

Conclusion

The Uschold v NSMG opinion provides another illustration of the post-settlement work that mediation can accomplish when a court must weigh-in on the significance of a mediated agreement.

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