How Frequently Does Malpractice Occur in Mediation?

By Donald L. Swanson

California has been studying this question: should a malpractice exception be added to California’s mediation confidentiality laws?

If, for example, a mediating party sues his/her/its attorney for malpractice committed during a mediation session, should statements made during the mediation session be admissible evidence in the malpractice lawsuit?

Or should such statements remain confidential, as currently required by California law?

Here is a 2015 report from that study.

One suggestion in the study report is to leave confidentiality laws as-is on this malpractice question, unless there is “some reliable research” showing that “a substantial problem” exists.  A related conclusion is that there is “scant evidence” of “a systemic problem created by mediation confidentiality.”

Infrequent Misconduct

The study identifies some empirical data on mediation misconduct.  And here is a finding from such data:

Mediation misconduct is relatively infrequent,

–but allegations of such misconduct do occur occasionally, and

–at least a few of those allegations “appear to have some merit.”

Hear no evil, see no evil . . .

Any Remedy?

So . . . what is to be done for the “few” whose claims “appear to have some merit”?

Are we to pretend that we hear no evil, see no evil . . . ?

Are we to tell them something like, “Too bad, so sad . . . you have no redress”?

Such responses would be like a scene from that cinematic masterpiece [sarcasm intended] called, “Dumb and Dumber”:

–One of the dumb guys has just been saved by a bullet-proof vest supplied by the FBI, when he says, “Hey, what if he shot me in the head?!”  To which the FBI agent responds, “That’s a risk we were willing to take.”

Fortunately, the Commission appears to be exploring ways to provide recourse for mediation malpractice claimants while still preserving confidentiality to the greatest extent possible.

Good for them!

What do you think about a malpractice exception to mediation confidentiality?


How Mediation Confidentiality is Waived — A Ninth Circuit Decision

img_1628By: 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–That’s according to the U.S. Ninth Circuit Court of Appeals, from an unpublished “Memorandum” decision in Milhouse v. Travelers Commercial Insurance Co., Case No. 13-56959, 13-57029 (9th Cir., Feb. 23, 2016).


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?

Another Demonstration of Uncertainty Over Mediation Confidentiality in Bankruptcy

Uncertainty on what it is, what it means, and how it is to be used

By: Donald L. Swanson

“The court declines to adopt a new mediation privilege under the facts of this case.”

Judge Cynthia A. Norton, U.S. Bankruptcy Judge  — December 19, 2016

The case is In re Lake Lotawana Community Improvement District, a Chapter 9 municipale bankruptcy in the Western District of Missouri (Case No. 16-42357).  The issue is whether the municipal debtor satisfies this Chapter 9 eligibility requirement:

–“the debtor . . . has negotiated in good faith with creditors” (11 U.S.C. § 109(c)(5)(b)).

To evaluate the “negotiated in good faith” requirement, In re Lake Lotawana creditors request discovery of mediation statements from Debtor’s pre-bankruptcy mediation efforts.

Mediation Statements are Protected from Discovery

The Court denies the discovery request on December 19, 2016.  But it takes a 22-page opinion to do so because, (i) there is no “mediation privilege” under Federal law, and (ii) there is no local rule on mediation confidentiality in the Western Missouri Bankruptcy Court.

Here are the legal theories and rationales the judge goes through to prohibit discovery of the mediation statements.

  1. The “ordinary work product” privilege protects a mediation statement submitted to a mediator, because the statement is prepared in “anticipation of litigation.”  And the creditors in this case fail to demonstrate a “substantial need” or “undue hardship” to overcome this privilege.
  2. The “opinion work product” privilege protects the “mental impressions, conclusions, opinions, or legal theories of a party’s attorney.” While not “absolute,” this privilege can only be overcome in “rare and extraordinary circumstances,” which don’t exist in this case.
  3. The § 109(c)(5)(b) “negotiated in good faith” eligibility element is not a statutory waiver of confidentiality protections.  Judge Norton distinguishes these legal authorities:
    1. In re City of Stockton, 475 B.R. 720 (Bankr. E.D. Cal. 2012), authorized disclosure of mediation information to the Court – not to opposing parties.
    2. “Bad faith” claims against insurers, which focus on whether the insurance company “properly processed the insured’s claim,” allow for discovery of private information because the insurance company has a “virtual monopoly over” the evidence required to establish good faith. No such monopoly exists in this case.
  4. The “sword and shield doctrine” provides that “a party who raises a claim that will necessarily require proof by way of a privileged communication cannot insist that the communication is privileged.” The Judge explains the inapplicability of this doctrine to mediation statements in this case as follows:

–The mediation statement “is certainly not necessary to establish good faith negotiation. There is other evidence, including the District’s offers and counteroffers that establish whether the District negotiated in good faith.”

[Editorial Note:  From the foregoing quotation, it’s obvious that the Court intends to allow discovery and receive evidence on offers and counter offers made during the mediation session.  So . . . is other mediation information discoverable or admissible too?]

  1. “Third-party disclosure” of the mediation statement to the mediator and to the Court for in camera review is not a waiver of any privilege because the disclosing parties did not actually intend that an opposing party see the statement.

[Editorial Note:  Under this rationale, a mediating party who voluntarily discloses a mediation statement to an opposing party is waiving this protection.]

Does a Mediation Privilege Exit?

On the question of whether a “mediation privilege” or “settlement privilege” [these two terms are used interchangeably] exists, Judge Norton says:

–“The Eighth Circuit has not addressed the merits of recognizing a federal common law settlement privilege.”  [Note: The Western District of Missouri is part of the Eighth Circuit.]

–“Of the Circuits that have addressed the issue, only the Sixth Circuit has adopted a settlement privilege.”

–“The Seventh Circuit and Federal Circuit have declined to adopt the privilege.”

Should a New Mediation Privilege be Created?

Judge Norton identifies the following four factors for establishing a new privilege under Fed.R.Evid. 501:

–“(1) whether the asserted privilege is ‘rooted in the imperative need for confidence and trust’; (2) whether the privilege would serve public ends; (3) whether the evidentiary detriment caused by an exercise of the privilege is modest; and (4) whether denial of the federal privilege would frustrate a parallel privilege adopted by the states.”

On this new privilege issue, Judge Norton concludes:

–“Here, the District has failed to address the Supreme Court’s factors for recognizing a new privilege. The District has also failed to produce evidence to support why those factors are satisfied in this case. Thus, the court finds that the District has failed to ‘overcome the significant burden of establishing” a new privilege.'”


The absence of a rule on mediation confidentiality (Federal or local) is problematic for the In re Lake Lotawana Community Improvement District case:

–The Bankruptcy Judge goes to great reasoning lengths to keep the mediation statement confidential.

–Yet, in the same opinion, the Bankruptcy Judge offers up other types of information from the mediation session, itself, to be used as evidence.

This is a problem.   And the problem needs to be addressed:

–A Federal rule on mediation confidentiality needs to be adopted; and

–Every bankruptcy court needs to assure that its own local rules provide for mediation confidentiality.



Here’s a big “thank you” to Bill Rochelle of “Rochelle’s Daily Wire” (a publication of the American Bankruptcy Institute) for promptly bringing this new opinion to our attention.

Mediation Confidentiality: The Second Circuit’s Sensible Standard for Disclosure

A Sensible Legal Standard?!

By: Donald L. Swanson

“Confidentiality is an important feature” of mediation, because it “promotes the free flow of information that may result in the settlement of a dispute.”

“We vigorously enforce the confidentiality provisions” of our own mediation system “because we believe that confidentiality is essential” to its “vitality and effectiveness.”

U.S. Second Circuit Court of Appeals, In re Teligent, Inc.

Mediation confidentiality requirements in bankruptcy courts can come from a variety of sources: local court rules, protective orders from the court, and agreements between the parties.  The legal standard identified and applied in the In re Teligent case appears to apply with equal effect to all such sources.


The facts of the In re Teligent, Inc., case are convoluted.  Here’s a simplified version of what happened:

–Teligent, Inc., fires its Chairman/CEO, Alex Mandl, and forgives the $12 million he owes.

–Then, Teligent, Inc., files bankruptcy in the Southern District of New York.

–The bankruptcy estate then sues Mandl, to set aside the $12 million debt forgiveness.

–A mediation session occurs in the lawsuit but does not result in a settlement.

–After trial, the Bankruptcy Court enters a $12 million judgment against Mandl.

–Then, Mandl fires his attorney, moves for a new trial in Bankruptcy Court, and asserts a malpractice claim against his former attorney.

–A second mediation occurs between Mandl and the judgment creditor.  The former attorney is invited to participate to address the malpractice claim—he declines.  This mediation does not produce a settlement.

–A settlement is later achieved with the judgment creditor, which requires Mandl to pursue the malpractice claim and share any recovery with the bankruptcy estate.

–Both mediation sessions occurred under the protection of confidentiality orders.

–A malpractice action is then filed by Mandl.

–During discovery Mandl seeks information from the mediation sessions.

–A request is made in the Bankruptcy Court for relief from the confidentiality protective orders.

–The Bankruptcy Court denies the request, the District Court affirms on appeal, and an appeal is taken to the Second Circuit.

The Legal Standard

The Second Circuit identifies a three-factor test to evaluate the request for relief from confidentiality requirements.

“A party seeking disclosure of confidential mediation communications must demonstrate:

(1) a special need for the confidential material,

(2) resulting unfairness from a lack of discovery, and

(3) that the need for the evidence outweighs the interest in maintaining confidentiality.”

“All three factors are necessary to warrant disclosure of otherwise non-discoverable documents.”

The Second Circuit, in the In re Teligent, Inc. case, decides to enforce confidentiality.  And it provides this analysis under the three-factor test:

(1) a special need for the confidential material.

The requesting party is seeking “a blanket lift” of confidentiality but has “failed to submit any evidence” to support a “special need” for “any specific communication.”

(2) resulting unfairness from a lack of discovery

There is no “unfairness from a lack of discovery” because the evidence sought “was available through other means, including through responses to interrogatories or depositions.”

(3) the need for the evidence outweighs the interest in maintaining confidentiality.

The failure to “demonstrate a special need” is also fatal under this third element.  .

A Presumption

The Court emphasizes, under the third factor, that mediation confidentiality requirements have a “presumptive entitlement to remain in force.”

Otherwise, if courts were to “cavalierly set aside” such confidentiality restrictions, parties might be “less frank and forthcoming” in mediation or might “limit their use of mediation altogether.”

Editorial Note:

This three-factor test, and its application by the Second Circuit, seems to be a wise and well-reasoned and sensible approach.





A List of Bankruptcy Districts that HAVE and HAVE-NOT Adopted Local Mediation Rules

An old-time courtroom — hanging onto the past

By: Donald L. Swanson

I’ve been asked many times for the number of bankruptcy court districts who, (i) HAVE adopted local rules on mediation, and (ii) HAVE-NOT adopted such rules.

–The have-not courts, it seems, are hanging on to the past — for reasons that are unknown . . . and not readily apparent.

In response, I’ve offered information on what I’ve recently read — that its, roughly, a 50/50 split.  But such information isn’t satisfactory.

So, I asked a legal assistant in our office, Sarah O’Callaghan, to do the research and come up with a list of districts that HAVE and HAVE-NOT adopted local mediation rules.

Here’s her list, consisting of 57 of 94 districts (60.64%) that HAVE adopted such rules (listed as, “Yes”) and 37 of 94 districts (39.36%) that HAVE NOT (listed as, “No”).

We are asking everyone who reads this article to review the following list for districts that are familiar to you and let us know of any corrections that need to be made — thanks!

1st Circuit District of Maine Yes – Rule 9019-02
District of Massachusetts Yes – Rule 7016-1 & Appendix 7
District of New Hampshire Yes – LBR 7016-1(c)
District of Puerto Rico No
District of Rhode Island Yes – Alternative Dispute Resolution Plan (Amended March 1, 2006)
2nd Circuit District of Connecticut Yes – LBR 9019-2
Eastern District of New York Yes – Rule 9019-1
Northern District of New York Yes – Rule 9019-1 & Appendix IV
Southern District of New York Yes – Rule 9019-1
Western District of New York No
District of Vermont Yes – Rule 16.1 (ENE)
3rd Circuit District of Delaware Yes – Rule 9019 (1-7)
District of New Jersey Yes – LBR 9019-1 & LBR 9019-2
Eastern District of Pennsylvania Yes – Rule 9019-3
Middle District of Pennsylvania Yes – Rule 9019-02 & Rule 9019-3 (Mortgage Modification Mediation Program)
Western District of Pennsylvania Yes – Rule 9019 (2-7)
District Court of the Virgin Islands Yes – Rule 9019-2
4th Circuit District of Maryland Yes – Rule 9019-2
Eastern District of North Carolina Yes – Rule 9019-2
Middle District of North Carolina Yes – LR 9019-2 (Mediation Settlement Conference)
Western District of North Carolina Yes – LR 9019-2 (Mediated Settlement Conference)
District of South Carolina Yes – LR 9019-2
Eastern District of Virginia No
Western District of Virginia No
Northern District of West Virginia No
Southern District of West Virginia Yes – 9019-2
5th Circuit Eastern District of Louisiana No
Middle District of Louisiana No
Western District of Louisiana No
Northern District of Mississippi Yes – Rule 9019-1
Southern District of Mississippi Yes – Rule 9019-1
Eastern District of Texas Yes – LR 9019
Northern District of Texas Yes – L.B.R. 9012-2
Southern District of Texas No
Western District of Texas Yes – L. Rule 1001(h) & Appendix L-1001-h
6th Circuit Eastern District of Kentucky No
Western District of Kentucky No
Eastern District of Michigan Yes – Rule 7016-1(h)(13) & 7016-2
Western District of Michigan Yes – LBR 9016-1
Northern District of Ohio Yes – Rule 9019-2 (Governed by L.C.R. 16.4 – 16.7)
Southern District of Ohio Yes – Rule 9019-2
Eastern District of Tennessee Yes –Rule 9019-2
Middle District of Tennessee Yes – Rule 9019-2
Western District of Tennessee No
7th Circuit Central District of Illinois No
Northern District of Illinois No
Southern District of Illinois No
Northern District of Indiana Yes – B-9019-2
Southern District of Indiana Yes – B-9019-2
Eastern District of Wisconsin No
Western District of Wisconsin No
8th Circuit Eastern District of Arkansas No
Western District of Arkansas No
Northern District of Iowa No
Southern District of Iowa No
District of Minnesota Yes – Rule 9019-2
Eastern District of Missouri Yes – Rule 9019
Western District of Missouri No
District of Nebraska Yes – Rule 7016-1 & 9014-1(C)
District of North Dakota No
District of South Dakota No
9th Circuit District of Alaska No
District of Arizona Yes – Rule 9072
Central District of California Yes – LBR Appendix III
Eastern District of California No
Northern District of California Yes – 9040-1 through 9050-1 (Bankruptcy Dispute resolution Program)
Southern District of California Yes – 7016-11
District  of Hawaii Yes – LBR 9019-2
District of Idaho No
District of Montana Yes – 9019-1
District of Nevada Yes – LR 9019 & LR 3015 (Mortgage Modification Mediation)
District of Oregon Yes – Rule 9019-2
Eastern District of Washington Yes – Rule 9019-2
Western District of Washington Yes – Rule 9040-1 (Honorable Thomas T. Glover Mediation Program)
District of Guam No
District of the Northern Mariana Islands No
10th Circuit District of Colorado Yes – LBR 9019-2
District of Kansas Yes – LBR 9019.2
District of New Mexico No
Eastern District of Oklahoma Yes – Rule 9019-2
Northern District of Oklahoma Yes – Rule 9019-2
Western District of Oklahoma Yes – Rule 7016(f)
District of Utah Yes – Rule 9019-2
District of Wyoming Yes – 9019-2
11th Circuit Middle District of Alabama No
Northern District of Alabama No
Southern District of Alabama No
Middle District of Florida Yes – Rule 9019-2
Northern District of Florida Yes – Rule 7016-1 & Addendum B
Southern District of Florida Yes – Rule 9019-2
Middle District of Georgia No
Northern District of Georgia No
Southern District of Georgia No
D.C. Circuit District of Columbia No

Five Reasons Why Mediation Must be Added to the Federal Bankruptcy Rules

img_1684By: Donald L. Swanson

Mediation needs to be included — explicitly and by name — in the Federal Rules of Bankruptcy Procedure.

Mediation Authorization and Confidentiality

The new mediation provision must cover two specific subject areas: (i) mediation authorization, and (ii) mediation confidentiality.

Authorization.  If a city is a Chapter 9 debtor in a jurisdiction without local mediation rules, does authority exist to appoint a mediator?  What if the bankruptcy judge wants to appoint a proactive mediator team, like Detroit: does the judge have authority to do so?

Such questions could be resolved affirmatively by a Federal bankruptcy rule.

Confidentiality.  If a bankruptcy mediation occurs in a jurisdiction without local mediation rules, what is the source of confidentiality protection?

Such question could be resolved satisfactorily by a Federal bankruptcy rule.

All other areas of mediation practice and procedure can be addressed in local rules.  See, e.g., Model Local Rules on mediation proposed by the American Bankruptcy Institute (“ABI”).

Proposed Rule Amendments

 A.  The title of Fed.R.Bankr.P. 9019 should be amended to read: “Rule 9019.  Compromise, Arbitration and Mediation.”

 B.  The following language should be added as a sub-part (d) to Fed.R.Bankr.P. 9019:

“(d) Mediation

(1) The court may assign to mediation any dispute in a bankruptcy case; and the parties to any dispute may stipulate to mediation, subject to court approval.

(2) The mediator and the mediation participants are prohibited from divulging, outside of the mediation, any oral or written information disclosed by the mediation participants or by witnesses in the course of the mediation.

(3) The mediator shall not testify or be compelled to testify in regard to the mediation or the mediation communications in connection with any arbitral, judicial or other proceeding.”

–Such language is taken from the ABI’s Model Local Rules on mediation.

Five Reasons for Proposed Rule Amendments

REASON NO. ONE:  Bankruptcy Courts Are a Rare Mediation-Rules Exception

Every bankruptcy-related court has a Federal rule on mediation, except for the bankruptcy courts themselves.  And mediation is a central dispute-resolution tool throughout other Federal courts and all Federal agencies.  To illustrate:

U.S. District Courts

Mediation appears in Fed.R.Civ.P. 16(c)(2), which authorizes “using special procedures to assist in resolving the dispute.”  And mediation appears in Fed.R.Civ.P. 53, which authorizes the appointment of a mediator as “settlement master.”

[Note: Fed.R.Civ.P. 16 is not included in the Fed.R.Bankr.P.  9014(c) list of incorporated rules. And Fed.R.Bankr.P.  9031 rejects Rule 53 special masters in bankruptcy.]

Bankruptcy Appeals to BAP and to District Court

Fed.R.Bankr.P. 8027 governs appeals from bankruptcy courts to a bankruptcy appellate panel or to a district court.  It provides for “notice” to appealing parties of the requirements of the appellate court’s mediation procedure.  Rule 8027 is relatively new: adopted in 2014.

U.S. Circuit Courts of Appeals

Fed.R.App.P. 33 provides that the circuit courts “may direct” parties “to participate in . . . a settlement conference.”  All of the Circuit Courts of Appeals have adopted local mediation rules.  And they are serious about enforcing their mediation confidentiality rules (see, e.g., In re Anonymous, 283 F.3d 627 (4th Cir. 2002); and In re Teligent, 640 F.3d 53, 57-58 (2nd Cir. 2011)).

Other Federal Courts

–The U.S. Tax Court has a Federal mediation rule [Rule 124(b) Tax Court Rules of Practice and Procedure].

–The U.S. Court of Claims has a Federal mediation rule [Appendix H, Rules of the United States Court of Federal Claims].

–The U.S. Court of International Trade has a Federal rule on mediation [Rule 16.1 USCIT Rules, Forms, Guidelines and Administrative Orders].

Federal Agencies

The entire executive branch of the Federal government is subject to a broad policy favoring mediation and other ADR processes.  This is because of the Administrative Dispute Resolution Act of 1996, which provides:  “Each agency shall adopt a policy that addresses the use of alternative means of dispute resolution and case management.”  For example:

–The General Counsel of the Army reports:

“Stemming from the Administrative Dispute Resolution Acts of 1990 and 1996, federal agencies have introduced ADR processes as a means of resolving just about every type of dispute, in just about every area of endeavor.”

–The Office of Personnel Management’s “Alternate Dispute Resolution Handbook” indicates:

“In the 1990s, Congress passed three statutes . . . which, collectively, required each agency to adopt a policy encouraging use of ADR in a broad range of decision making, and required the federal trial courts to make ADR programs available to litigants.”

REASON NO. TWO:  Many Bankruptcy Courts Have No Local Mediation Rules

60% of bankruptcy districts in the U.S. have adopted local rules on mediation.  The other 40% have not.

However, the existence of a local mediation rule does not mean the rule is adequate.  In Minnesota, for example, the Bankruptcy Court has a one-sentence local rule on mediation (Rule 9019-2) that reads:

“The court may refer any adversary proceeding or contested matter for mediation by any other federal judge or any mediator chosen by the parties.”

This Local Rule authorizes mediation to occur in Minnesota’s Bankruptcy Court.  But where is the provision for confidentiality?

–A Federal rule would resolve this deficiency.

REASON NO. THREE:  Bankruptcy’s ADR Rules are Antiquated – Having Changed Little Over the Past Century

Alternative dispute resolution provisions (“ADR”) involving arbitration and compromise have been part of U.S. bankruptcy laws since at least 1898.

The U.S. “National Bankruptcy Act of 1898” provides for “Arbitration of Controversies” and for “Compromises” in consecutive sections as follows:

–“§ 26.  Arbitration of Controversies.–(a) The trustee may, pursuant to the direction of the court, submit to arbitration any controversy arising in the settlement of the estate.”

–“§ 27.  Compromises.– (a)  The trustee may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interests of the estate.”

Today’s Fed.R.Bankr.P. 9019, similarly, provides:

“(a) Compromise. On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.  . . .

(c) Arbitration. On stipulation of the parties to any controversy affecting the estate the court may authorize the matter to be submitted to final and binding arbitration.”

The compromise and arbitration provisions of today’s Rule 9019 have, obviously, been around in largely-the-same-form for more than a century as next-door-neighbor provisions.  However, in today’s practice:

–Arbitration is an infrequently-utilized ADR tool for resolving bankruptcy disputes, despite being explicitly authorized in the Federal Rules of Bankruptcy Procedure.

–Mediation, on the other hand, is a frequently-utilized ADR tool for resolving bankruptcy disputes, but isn’t even mentioned in the Federal Rules of Bankruptcy Procedure.

Accordingly, bankruptcy’s ADR rule needs to be upgraded from its century-old provisions to include today’s primary ADR tool in bankruptcy – i.e., mediation.

And Fed.R.Bankr.P. 9019 is a logical place to include such a provision.

REASON NO. FOUR:  The Ninth Circuit Says that Local Rules on Mediation Confidentiality are Unenforceable as a Privilege

The vast majority of all U.S. Federal courts have local rules on mediation confidentiality—and they enforce such rules.

But the Ninth Circuit Court of Appeals casts doubt on the enforceability of such local rules:

“A local rule, like any court order, can impose a duty of confidentiality as to any aspect of litigation, including mediation. . . .  But privileges are created by federal common law.  See Fed.R.Evid. 501It’s doubtful that a district court can augment the list of privileges by local rule.”

The Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034, 1040-41 (9th Cir. 2011).

This Facebook, Inc., case involves a mediated agreement — hand-written — that subsequently falls apart.  One party tries to enforce the agreement and offers evidence “of what was said and not said during the mediation.”  The other party objects, based on the District Court’s local rule requiring mediation confidentiality, and the District Court sustains the objection.

The Ninth Circuit, on appeal, affirms the evidence exclusion, based on a confidentiality agreement between the parties.  But it rejects the local confidentiality rule basis for exclusion, as quoted above.

REASON NO. FIVE:  Local Rules on Mediation Confidentiality are Intended by Congress as Interim-Only Provisions

The Alternative Dispute Resolution Act of 1998 clarifies the role of local rules on mediation confidentiality.  28 U.S.C. § 652(d) says:

“(d) Confidentiality Provisions.— Until such time as rules are adopted under [28 U.S.C. §§ 2071 et seq.] providing for the confidentiality of alternative dispute resolution processes . . . , each district court shall, by local rule adopted under section 2071(a), provide for the confidentiality of . . . dispute resolution communications.”

Here’s what this statute is saying:

  1. First, each district court (including it’s bankruptcy unit)  is directed to adopt a local rule on mediation confidentiality, under 28 U.S.C. § 2071(a), as a first-and-interim step in a two-step process; and
  2. Then, Federal rules need to be adopted on mediation confidentiality, under 28 U.S.C. § 2073 (for district courts) and § 2075 (for bankruptcy courts), to complete the two-step process.

A District Court has confirmed the reality of this two-step process with these words (from Olam v. Congress Mortgage Co., 68 F.Supp.2d 1110, 1121 (N.D.Cal. 1999)):

“In § 652(d) of the Act, Congress directed each federal district court (until national rules are adopted under 28 U.S.C. § 2071 — a process not likely to be completed for years) to ‘provide . . . for the confidentiality of [mediation processes].'”

The first step has been completed for many Federal courts.  But the second step has never been completed for any Federal court.


For the reasons stated above, an amendment to Fed.R.Bankr.P. 9019 is needed to add mediation authorization and mediation confidentiality provisions, which would apply to all bankruptcy courts in every district.


A Final Step to Uphold Mediation Confidentiality in Federal Courts

Completing the steps

By: Donald L. Swanson


(d) Confidentiality Provisions.— Until such time as rules are adopted under [28 U.S.C. §§ 2071 et seq.] providing for the confidentiality of alternative dispute resolution processes . . . , each district court shall, by local rule adopted under section 2071(a), provide for the confidentiality of . . . dispute resolution communications.”

–Alternative Dispute Resolution Act of 1998 (28 U.S.C. § 652(d)).

Here’s what this 1998 statute is requiring:

  1. First, each district court is directed to adopt a local rule on mediation confidentiality, under 28 U.S.C. § 2071(a), as a first-and-interim step in a two-step process; and
  2. Then, a Federal rule needs to be adopted on mediation confidentiality, under 28 U.S.C. § 2072, to complete the two-step process.

This two-step requirement is confirmed by Olam v. Congress Mortgage Co., 68 F.Supp.2d 1110, 1121 (N.D.Cal. 1999)):

–In 28 U.S.C. § 652(d), “Congress directed each federal district court” to provide “for the confidentiality” of mediation processes by local rule; and

–Such local rules will operate, “until national rules are adopted under 28 U.S.C. § 2071 — a process not likely to be completed for years.”

The first step has been completed for nearly all of the Federal district courts and courts of appeals and for many of the bankruptcy courts.

Unfortunately, however, the second step has never been completed for any of these courts.  And nearly two decades have passed since Congress established the Federal confidentiality rule requirement.

The necessity for this two-step process is demonstrated by the Ninth Circuit Court of Appeals from this ruling in The Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034, 1040-41 (9th Cir. 2011):

“A local rule, like any court order, can impose a duty of confidentiality as to any aspect of litigation, including mediation. . . .  But privileges are created by federal common law. See Fed.R.Evid. 501. It’s doubtful that a district court can augment the list of privileges by local rule.”

[Note:  See this article for further information on the Facebook, Inc., case.]


Mediation confidentiality is, obviously, crucial to the viability and effectiveness of mediation processes.  But confidentiality is in jeopardy under the Ninth Circuit’s Facebook, Inc., quote above.

–So . . . if we want to assure that mediation confidentiality is firmly established, the Federal-rule step (in the two-step process established by 28 U.S.C. § 652(d)) needs to be completed.

–And the completion of such final step needs to occur in both the Federal Rules of Civil procedure and the Federal Rules of Bankruptcy Procedure.

There’s No-Such-Thing as a “Mediation Privilege” in Federal Court?!

A beautiful scene

By: Donald L. Swanson

It’s a beautiful scene:  Federal courts applying and enforcing their local rules on mediation confidentiality.

–Nearly all U.S. District Courts and U.S. Circuit Courts of Appeals, and many Bankruptcy Courts, have such local rules.

But then the Ninth Circuit Court of Appeals comes along with a bombshell.  It suggests that local rules on mediation confidentiality cannot be enforced in the Federal courts:

“A local rule, like any court order, can impose a duty of confidentiality as to any aspect of litigation, including mediation. . . .  But privileges are created by federal common law.  See Fed.R.Evid. 501.  It’s doubtful that a district court can augment the list of privileges by local rule.”

The Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034, 1040-41 (9th Cir. 2011).

Say what?!

There is no Federal mediation privilege?!  . . . even when a Federal court has a local rule requiring mediation confidentiality?!

–Apparently not, according to the Ninth Circuit.

[Note:  An evidentiary privilege means that a person cannot be compelled, as a witness, to disclose certain (“privileged”) information — as more fully discussed here.]

Facebook Facts and Ruling

The Facebook case involves a mediated settlement agreement – a hand-written document — that subsequently falls apart in negotiations over the final deal document.  One party tries to enforce the hand-written agreement and offers evidence “of what was said and not said during the mediation.”

–The other party objects because the District Court’s local mediation rules require confidentiality of mediation communications.  The District Court sustains the objection.

The Ninth Circuit, on appeal, affirms the evidence exclusion.  But it does so on the basis of a confidentiality agreement between the parties — not on the basis of the District Court’s local rule requiring mediation confidentiality.

–As quoted above, the Ninth Circuit explicitly rejects the idea that the District Court’s local rule on mediation confidentiality can exclude mediation-related evidence.  And it basis this rejection on the Federal Evidence Rule on privileges: Rule 501.

–Granted, the quote above is mere dicta, since the Court bases its ruling on another legal standard, but the quote is still authoritative for trial courts in the Ninth Circuit.  The broader question is whether the dicta is persuasive for other courts.

Two Legal Standards

1.  Federal Evidence Rule 501

Fed.R.Evid. 501 is the Federal rule on evidentiary privilege.  It is titled, “Privilege in General,” and reads:

“The common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise:

–the United States Constitution;

–a federal statute; or

–rules prescribed by the Supreme Court.

But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.”

2.  28 U.S.C. § 652(d)

The Alternative Dispute Resolution Act of 1998, in 28 U.S.C. § 652(d), reads:

“(d) Confidentiality Provisions.— . . . each district court shall, by local rule adopted under section 2071(a), provide for the confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications.”


–What’s the effect of a district court’s local rule requiring mediation confidentiality, adopted under the Congressional mandate of 28 U.S.C. § 652(d)?

–How does Rule 501, as explained in the Facebook case, square with the confidentiality directive in 28 U.S.C. § 652(d)?

Putting it Together

Here’s what appears to be happening:

–Federal trial and appellate courts prohibit discovery of information and exclude evidence under their own mediation confidentiality rules.  And they do so seriously, vigorously, and with regularity.  They also evaluate (and sometimes grant) exceptions to confidentiality, based on a balancing of competing interests.

–The Ninth Circuit, in Facebook, is saying that local confidentiality rules do not rise to the level of an evidentiary “privilege” under Rule 501.

It’s difficult to see how these two positions can be reconciled.

–Perhaps it’s merely a question of degree between “confidentiality” and “privilege”?

–Perhaps the enforcement of local confidentiality rules by Federal courts is rising to the level of Federal common law under Rule 501?

–Perhaps 28 U.S.C. § 652(d) qualifies as “a federal statute” that “provides otherwise,” as required by Rule 501?

Regardless, here’s guessing that all Federal courts, of every stripe, will continue applying and  enforcing their own local rules on mediation confidentiality—except for trial courts in the Ninth Circuit.

[Note:  For a skeptical view of the Ninth Circuit’s position, see footnote # 15 in this case.]


A Federal bankruptcy rule on mediation confidentiality needs to be adopted by the U.S. Supreme Court – as authorized in 28 U.S.C. § 2075.  Such a rule would satisfy the “rules prescribed by the Supreme Court” provision in Fed.R.Evid. 501.

And . . . it looks like a mediation confidentiality provision also needs to be added to the Federal Rules of Civil Procedure, under 28 U.S.C. § 2072, to overcome the Ninth Circuit’s no-mediation-privilege opinion in The Facebook, Inc. v. Pacific Northwest Software, Inc.


Mediation Confidentiality: Federal Evidence Rule 408 Leaks Like a Sieve

It leaks like a sieve

By: Donald L. Swanson

Chapter 11 Debtor successfully mediates confirmation disputes with a half-dozen creditors.  Now, a hold-out creditor moves for discovery of the mediation communications in an effort to torpedo plan confirmation.

The mediating parties come to realize that their Bankruptcy Court has no local rule requiring mediation confidentiality.  And, of course, there is no Federal bankruptcy rule on mediation confidentiality, either.

Uh, oh!

So, the mediating parties set their sights on the Federal rule of evidence that protects confidentiality of settlement negotiations.  Hopefully, they think, Fed.R.Evid. 408 will stand-in-the-gap for arguing that their mediation communications are privileged.

The Rule

Rule 408 prohibits admissibility of the following types of evidence “to prove or disprove the validity or amount of a disputed claim or to impeach”:

(1) “promising, or offering” to settle; and

(2) “conduct or a statement made during compromise negotiations about the claim.”

Two ideas behind this Rule, according to its official Notes, are:

–Irrelevance.  Settlement negotiations may be motivated by a desire for peace or by a multitude of other reasons that have nothing to do with the merits of the case; and

–Policy.  Confidentiality promotes the policy that favors the settlement of disputes.

Evidence Leaks

Unfortunately, the evidence privilege, afforded by Fed.R.Evid. 408, leaks like a sieve.  Here are some reasons why:

–Enumerated Exceptions.  Rule 408 allows the court to admit settlement-related evidence “for another purpose.” Examples provided in the rule include, “proving a witness’s bias or prejudice” or “negating a contention of undue delay.”

–Judicial Exceptions.  Settlement discussions have been admitted:

–To establish that the threshold amount-in-controversy exists for Federal diversity jurisdiction;

–To determine when a statute of limitations began to run;

–To determine the reasonableness of an attorney fee award;

–To determine whether a settlement agreement has been performed or breached.

Discovery Leaks

Sieve-like holes in the Rule 408 privilege are even more-pronounced in the context of discovery.

Fed.R.Civ.P. 26(b) authorizes discovery of “any nonprivileged matter that is relevant to any party’s claim or defense.”  This Rule 26(b) is incorporated into bankruptcy contexts by Fed.R.Bankr.P. 7026 & 9014(c).

Based on such discovery-rule language, and since Rule 408 “does not provide a blanket ban” on admissibility, “most courts reject a discovery privilege for settlement-related materials.”

Accordingly, “it is wise to assume that settlement-related evidence will be discoverable.”


Unfortunately for these mediating parties, Fed.R.Evid. 408 cannot be relied upon to protect the confidentiality of their mediation information.

Note:  I am indebted for information and quotations in this article to Burns, Admissibility of Settlement-Related Evidence at Trial, American Bar Association, July 31, 2013.

Mediation Without Confidentiality Rules: This Needs to Change

Caesars (photo by Marilyn Swanson)

By: Donald L. Swanson

“You don’t need my permission. Just click your heels together three times and say, ‘There is no place like mediation.’”

–U.S. Bankruptcy Judge Benjamin Goldgar, In re Caesars Entertainment hearing on 2/18/2016.

Despite such a statement, the Bankruptcy Court in Chicago had already, prior to February 2016, revoked its local rules on mediation.

Fast-forward to mid-September of 2016. This same Bankruptcy Court in the same In re Caesars case bemoans a mediator’s failure to provide evidence on usually-confidential mediation details.

–In response, the mediator resigns.

What these events reveal is the desperate need for a Federal Bankruptcy Rule on mediation with confidentiality requirements.

The reality, in Chicago’s Bankruptcy Court, is that no mediation rule exists: no local rule, no Federal rule, no statute . . . nothing. So, when a mediation session does occur in such Court, there is no basis for imposing confidentiality requirements on the process.

–The parties might agree to confidentiality. But such an agreement does not bind others or the Court.

Rule 408 of the Federal Rules of Evidence provides confidentiality protection for settlement discussions. But this protection is limited, and it is subject to significant exceptions: e.g., “The court may admit this evidence for another purpose” [Rule 408(b)].

–A state mediation statute might, arguably, be applicable. But the In re Caesars Judge gives no credence, whatsoever [not even a nod], to the Illinois Alternative Dispute Resolution Act, which provides for mediation confidentiality.

So . . . when the Judge in In re Caesars declares his expectation that the mediator should have provided substantive evidence on usually-confidential mediation details, the Judge is acting within existing rules.

–Such judicial expectation may be anathema to those who view mediation confidentiality as nearly-sacred.  But the Judge is, technically, acting appropriately.

–This needs to change!

Similarly, if there are 40 additional bankruptcy courts in the United States without local mediation rules, these 40 additional bankruptcy courts are in the same boat as the Bankruptcy Court in Chicago: they have no mediation rules.

–This also needs to change!

The way to accomplish the needed change is to adopt a Federal Bankruptcy Rule on mediation that imposes mediation confidentiality requirements upon all bankruptcy courts.

–Such a Rule needs to be adopted as quickly as possible.

–With such a Rule in place, the In re Caesars mediator-resignation flap could not have occurred–either in Chicago or in any other bankruptcy court in these United States.