Confidentiality and Other Ethical Issues in Mediation

CONFIDENTIALITY AND OTHER ETHICAL ISSUES IN MEDIATION
Copyright 1999, Jacquelin F. Drucker, Esq.

I. Sources of Confidentiality Obligations

A. Summary of Sources of Confidentiality Commitments and Obligations:

Court ADR plans, rules, and orders; statutory and regulatory provisions; evidentiary exclusions; evidentiary privileges; ethics rules; and contract provisions.

B. Court-Annexed Plans and Orders

1. The Alternative Dispute Resolution Act (ADRA) of 1998, which requires each federal district court to authorize use of ADR processes in civil actions, requires that the courts provide for confidentiality of ADR processes and prohibit disclosure of confidential dispute resolution communications. 28 USC §652(d).

2. Even before the ADRA, however, courts with mediation programs provided confidentiality protections through their plans and orders. Breaches of such confidentiality obligations by attorneys have led to sanctions. For example:

a. Bernard v. Galen Group, Inc., 901 F. Supp. 778 (SD NY, 1995). Judge Denny Chin granted defendant''s motion for sanctions and fined the plaintiff''s counsel $2500.00 for disclosing to the court terms of settlement offers which had been made during mediation proceedings conducted pursuant to the court''s mediation program. The mediation order, notice, and program provisions had specified that the entire mediation process was confidential and that parties and the mediator "may not disclose information regarding the process, including settlement terms, to the court or to third persons unless all parties otherwise agree."

b. Cohen v. Empire Blue Cross and Blue Shield, 178 F.R.D. 385 (ED NY, 1998). Rejecting a "defendant-is-talking-out-of-both-sides-of-its-mouth" defense, U.S. magistrate imposed a sanction of $750.00 against plaintiff''s counsel for violating confidentiality provisions of court-annexed mediation program by revealing to the court in an affidavit that, in the mediation of another case with the same defendant and a different plaintiff, the defendant had taken a position opposite to that which it was taking in the current litigation. This, the court held, was "a blatant violation of the confidentiality requirements that are essential to the mediation process," which were stated in the mediation plan and the local rules. Cf. Kitchen and Kitchen Farms v Kitchen, 231 Mich. App. 15, 585 N.W.2d 47 (Ct. App. Mich, 1998) (affirming lower court decision finding mediation summary from court-annexed process inadmissible but reversing the imposition of sanctions).

c. As background for the principles of confidentiality in mediation, the courts often cite Lake Utopia Paper Ltd. v. Connelly Containers, Inc., 608 F.2d 928 (2nd Cir., 1979), cert. denied, 444 US 1076, 62 L.Ed.2d 758, 100 S.Ct. 1093 (1980), in which the Second Circuit denied appellee''s request for costs and attorney fees in the appeal from district court''s confirmation of arbitration award. In support of the allegation that the appeal was frivolous, appellee stated in its brief that staff counsel for the court, in a confidential pre-argument settlement conference, had told the appellant that the appeal was baseless. Commenting on what it called a "serious breach of the confidentiality essential to the purposes of the pre-argument conference," the court noted, "If participants cannot rely on the confidential treatment of everything that transpires during these sessions then counsel of necessity will feel constrained to conduct themselves in a cautious, tight-lipped, non-committal manner more suitable to poker players in a high-stakes game than to adversaries attempting to arrive at a just resolution of a civil dispute." Id. at 930. See also Calka v.Kucker, Krause & Brue, 167 F.3d 144 (2nd Cir., 1999).

C. Statutory and Regulatory Protections

1. The numerous state statutes address mediation confidentiality and mediator protections and are remarkable both for their variations in approach and the narrow subject matters to which they apply. See, e.g., Revised Statutes of Nebraska §2-4812 and 4804 (farm mediation); Hawaii Revised Statutes §672-8 (design professional conciliation); 40 Pennsylvania Statutes §1301.702 ("binding mediation" of certain medical professional liability cases). But see California Evidence Code §§1115, et seq., relating generally to admissibility and confidentiality of mediation communications. Confidentiality provisions are common in statutory mediation provisions relating to labor relations, family law, and civil rights. See, e.g., Montana Code Annotated, §26-1-811 (family law mediation); Ohio Revised Code §4112.05 (civil rights charge conciliation); Iowa Code §20.17 (public sector collective bargaining mediation).

2. New York Civil Service Law ("The Taylor Law") §205(4)(b) is typical of many state statutory provisions which establish certain protections for mediators in the collective bargaining context. The Taylor Law protects NY Public Employment Relations Board (PERB) mediators from being compelled or volunteering to testify to information or to produce documents "relating to the resolution of a particular dispute in the course of collective negotiations acquired in the course of his official activities under this article." In Salmon River Central School Dist., 10 PERB 3023 (1977), a charging party, attempting to establish proof of an agreement, sought to introduce a memorandum of understanding that had been prepared by a PERB conciliator in the presence of only the charging party. PERB found the evidence inadmissible. See also East Ramapo Central School District, 31 PERB 3038, n. 3 (1998), citing Salmon River.

3. But compare Newark Bd of Ed v. Newark Teachers Union, 152 NJ Super. 51 377 A.2d 765 (NJ Super. App Div., 1977). In an unfair labor practice proceeding alleging a refusal to execute an agreement, the court upheld the NJ Public Employment Relations Commission''s (PERC) denial of a motion to quash a subpoena requiring employer''s counsel to produce counterproposals transmitted by PERC mediators and transcripts, minutes, and notes taken at joint negotiation sessions conducted in the presence of the PERC mediators . The agency''s relevant mediation confidentiality rule provided that "information disclosed by a party to a mediator in the performance of his mediation function" shall not be divulged voluntarily or by compulsion. The court endorsed PERC''s view that discovery may not be foreclosed just because documents either have been transmitted by a mediator or have been prepared by a negotiator during across-the-table negotiations with the other party in the presence of the mediator. Thus, counterproposals provided to the mediator for transfer to the other party were not considered to be within the scope of the rule''s confidentiality
provision. In camera inspection by the hearing examiner was deemed appropriate to ensure that any notations attributed to a mediator were redacted.

4. The NLRB policy protecting mediators of collective bargaining negotiations from subpoena was affirmed in NLRB v. Joseph Macaluso, Inc., 618 F.2d 51 (9th Cir, 1980). The Ninth Circuit upheld the NLRB''s revocation of a subpoena for an FMCS mediator to testify in NLRB enforcement proceeding, even though the mediator''s testimony would have been crucial to resolving a factual dispute regarding whether agreement had been reached. The court''s decision was based not upon a guarantee of confidentiality but upon the "public interest in maintaining the perceived and actual impartiality of federal mediators" which was found to outweigh the benefits derivable from the mediator''s testimony. See also Elizabeth Forward School District v PLRB, 624 A.2d 215, 154 Pa. Commw. 5 (Commw. Ct. App, PA, 1992), appeal denied, 531 Pa. 657, 613 A.2d 562 (1992) (quoting Macaluso, supra, and holding that, even if statutory preclusion of mediator testimony did not apply, public policy would require exclusion of mediator testimony as "necessary to the preservation of an effective system of labor mediation.")

5. The Administrative Dispute Resolution Act, 5 U.S.C. §§571, et seq., governs ADR activities in federal administrative agencies. Section 574 of the Act sets the minimum level of confidentiality to be provided in agency dispute resolution proceedings.

D. Evidentiary Exclusions

1. In In re Hillard Development Co., 221 B.R. 282 (S.D. FL, 1998), a U.S. Bankruptcy Court, relying on the FRE 408 exclusion of settlement-process statements, found statements made in mediation inadmissible.

2. Federal Rule of Evidence 408, Compromise and Offers to Compromise, provides: "Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution."

F. Federal Mediation Privilege under Federal Rule of Evidence (FRE) 501

1. Creation of the privilege: Folb v Motion Picture Industry Pension and Health Plans, 16 F.Supp.2d 1164 (C. Dist, CA, 1998). Creating a federal mediation privilege that would be applied under FRE 501, the court relied on a four-part analysis, citing: (1) the imperative need for confidence and trust among participants in mediation; (2) the important public ends served by promoting conciliatory relationships among parties to a dispute, reducing litigation costs, and decreasing size of federal and state court dockets, thereby increasing quality of justice in cases that do not settle; (3) the modest loss of likely evidentiary benefit, since most mediation-related evidence not otherwise discoverable would never come into being were it not for the confidentiality of the process; and (4) the consistent body of state law adopting such a privilege.

2. Application of the privilege. The court in Folb applied the newly created privilege to prevent a plaintiff alleging discrimination and whistle-blower violations from obtaining information disclosed in a mediation of a sexual harassment claim in which the plaintiff had been identified as the alleged harassor. The privilege was limited to information disclosed in formal mediation conducted by a neutral and was not applied to settlement communications made after the mediation, even though such post-mediation communication may have included information that initially had been disclosed in the mediation.

3. FRE 501 provides: "Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law. "

4. See also United States v Gullo, 672 F.Supp. 99 (WDNY, 1987). The court found that, under FRE 501, it would recognize the New York statutory confidentiality privilege under NY Judiciary Law §849-B.6 for mediations conducted through the Community Dispute Resolution Centers Program. The court therefore suppressed evidence of the terms of the settlement and all statements made during the dispute resolution process.

5. But see FDIC v. White, 76 F. Supp. 2nd 736 (N. D. TX, 1999). The court recognized that confidentiality is critical to the mediation process and that communications must be protected from unwarranted disclosure. Nonetheless, the court declined to find that the Alternative Dispute Resolution Act of 1998 evidenced a Congressional intent to create "an evidentiary privilege that would preclude a litigant from challenging the validity of a settlement agreement based on events that transpired at a mediation.[Footnote omitted.] Indeed, such a privilege would effectively bar a party from raising well-established common law defenses such as fraud, duress, coercion, and mutual mistake." See also Fields-D''Arpino v. Restaurant Associates, Inc., 39 F. Supp. 2d 412, 418 (SDNY, 1999), in which the court cited the confidentiality requirements of the ADRA but commented that "it did not make mediation communications privileged."

6. In a lengthy and thoughtful decision applying California law, the court in Olam v Congress Mortgage Co., 68 F. Supp. 2d 1110 (N.D. CA, 1999), accepted the principle of privilege but, in considering whether the parties entered into an enforceable mediated agreement applied a balancing test in determining that, regardless of the mediator''s privilege under state law, he could be compelled in this case to testify. The court provided for the mediator to testify in a closed proceeding, under seal. See also Allen v Leal, 27 F. Supp. 2d 945 (S. D. TX, 1998) (because of "public excoriation" of mediator''s reputation by plaintiff, court relieved him of his duty of confidentiality and permitted him to testify regarding allegations that he had coerced a counsel-assisted party into settlement).

G. Confidentiality Commitments Set Forth in Mediation Agreements

1. The following is common language used in mediation agreements to establish confidentiality:

"The entire mediation process is confidential. For example, if a party discloses information to the Mediator that it indicates is not to be disclosed to the other side, the Mediator will not disclose the information so designated. The parties and the Mediator will not disclose any information including offers, promises, conduct, statements, or settlement terms, whether oral or written, made by any of the parties or their representatives. Such information is confidential and privileged under any applicable state or federal privileges and any state confidentiality statutes, rules, or doctrine.

The Mediator will be disqualified as a witness, consultant, or expert in any pending matter or proceeding relating to the subject matter of the mediation (including any investigation, action, or proceeding which involves persons not party to this mediation). The Mediator and any documents and information in the Mediator''s possession will not be subpoenaed in any such investigation, action, or proceeding, and all parties will oppose any effort to have the Mediator and documents subpoenaed."

2. EEOC Confidentiality Agreement:

H. Provider Rules Addressing Confidentiality

1. Rule 12 of the American Arbitration Association''s National Rules for the Resolution of Employment Disputes, Effective January 1, 1999:

"Confidential information disclosed to a mediator by the parties or by witnesses in the course of the mediation shall not be divulged by the mediator. All records, reports, or other documents received by a mediator while serving in that capacity shall be confidential. The mediator shall not be compelled to divulge such records or to testify in regard to the mediation in any adversary proceeding or judicial forum.

The parties shall maintain the confidentiality of the mediation and shall not rely on, or introduce as evidence in any arbitral, judicial, or other proceeding

a. views expressed or suggestions made by another party with respect to a possible settlement of the dispute;

b. admissions made by another party in the course of the mediation proceedings;

c. proposals made or views expressed by the mediator; or

d. the fact that another party had or had not indicated willingness to accept a proposal for settlement made by the mediator."

II. Confidentiality Provisions of the Draft Uniform Mediation Act (March 2000 Draft)

A. National Conference of Commissioners on Uniform State Laws (NCCUSL) has developed a draft Uniform Mediation Act. The NCCUSL is a 100-year old organization which drafts model laws for adoption by the states. The Uniform Commercial Code(UCC) is the best known of these laws, but the NCCUSL has produced more than 100 other uniform laws. In developing the UMA, the NCCUSL has worked with the ABA''s Dispute Resolution Section.

B. The NCCUSL originally had planned to complete drafting in early 2000 so that it could take a final vote on the UMA in July 2000 and then forward it to the ABA for consideration. This time table reportedly may be revised to allow more time for the many interested organizations to comment.

C. Definition of Mediation. The UMA''s definitions of "mediation" and "mediator" focus on three factors which distinguish mediation from other ADR methods: (1) the mediator is impartial (which usually means that the mediator is not involved with disputants); (2) the mediator assists parties in their own negotiated resolution and is without binding authority to decide; (3) mediator is appointed by an appropriate authority or engaged by disputants (which is the triggering event for application of the confidentiality privilege). Draft Uniform Mediation Act, With Prefatory Note and Reporter''s Notes, Section 3 (March 2000).

D. Collective Bargaining Exclusion. After significant efforts by the Labor and Employment Law Sections of both the American Bar Association and the New York State Bar Association, the Draft was amended to provide that it will not apply to "disputes arising under, out of, or relating to a collective bargaining relationship." UMA Section 4 (b)(1).

E. Evidentiary Privilege

1. Applies to "mediation communication," which is "a statement made as part of a mediation." UMA Section 3 (c). Mediation communication also "may encompass" communication for the purposes of considering, initiating, continuing, or reconvening a mediation or retaining a mediator.

2. A disputant has a privilege to refuse to disclose and to prevent others from disclosing mediation communications. UMA Section 5(b). This right may be waived only if all disputants expressly waive the privilege in writing or in an adjudicatory proceeding. UMA Section 6(a).

3. A mediator has a privilege to refuse to disclose and to prevent others from disclosing the mediator''s mediation communications. UMA Section 5(d). This right may be waived only if done so expressly by all disputants and the mediator. UMA Section 6(b).

4. Information otherwise admissible or subject to discovery is not rendered inadmissible or protected from disclosure solely by its use in mediation. UMA Section 5 (b).

III. Model Standards of Conduct for Mediators

A. Agreed upon by AAA, ABA, and SPIDR

B. Three Major Objectives of the Standards

1. Establish guidelines for the conduct of mediators;

2. Inform parties of what to expect from the process;

3. Promote public confidence in mediation as a process for resolving disputes.

C. Model Standards of Conduct

1. Self-Determination: A Mediator Shall Recognize that Mediation Is Based upon the Principle of Self-Determination by the Parties.

2. Impartiality: A Mediator Shall Conduct the Mediation in an Impartial Manner.

3. Conflict of Interest: A Mediator Shall Disclose All Actual and Potential Conflicts of Interest Reasonably Known to the Mediator. After Disclosure, the Mediator Shall Decline Unless All Parties Choose to Retain the Mediator. The Need to Protect Against Conflicts of Interest Also Governs Conduct that Occurs During and After the Mediation.

4. Competence: A Mediator Shall Mediate Only When the Mediator Has the Necessary Qualifications to Satisfy the Reasonable Expectations of the Parties.

5. Confidentiality: A Mediator Shall Maintain the Reasonable Expectations of the Parties with regard to Confidentiality.

6. Quality of the Process: A Mediator Shall Conduct the Mediation Fairly, Diligently, and in a Manner Consistent with the Principle of Self-Determination by the Parties.

7. Advertising and Solicitation: A Mediator Shall be Truthful in Advertising and Solicitation for Mediation. [Cf. Code of Professional Responsibility for Arbitrators of Labor-Management Disputes, Rule C.3 ("An arbitrator must not advertise or solicit arbitration assignments.")]

8. Fees: A Mediator Shall Fully Disclose and Explain the Basis of Compensation, Fees, and Charges to the Parties.

9. Obligation to the Mediation Process. Mediators Have a Duty to Improve the Practice of Mediation.

D. Model Standard V, Confidentiality:

1. Full Text: "A Mediator Shall Maintain the Reasonable Expectations of the Parties with regard to Confidentiality. The reasonable expectations of the parties with regard to confidentiality shall be met by the mediator. The parties'' expectations of confidentiality depend on the circumstances of the mediation and any agreements they may make. A mediator shall not disclose any matter that a party expects to be confidential unless given permission by all parties or unless required by law or other public policy."

2. Comment: "Where the parties have agreed that all or a portion of the information disclosed during a mediation is confidential, that information should be inadmissible in court."

IV. Proposed Model Rule of Professional Conduct for the Lawyer as Third Party Neutral (April 1999 Draft)

A. Developed by the CPR-Georgetown Commission on Ethics and Standards in ADR

B. Will be presented to the ABA Ethics 2000 Commission

C. Purpose: As contrasted with the context-specific codes and rules developed by various professional entities and ADR-provider organizations (see, e.g., Model Standards of Conduct for Mediators (ABA, SPIDR, AAA); Code of Professional Responsibility for Arbitrators of Labor Management Disputes (AAA/FMCS/ NAA); American Arbitration Association Employment Mediation Rules), the purpose of the Proposed Model Rule, stated in its Preamble, is as follows: " . . . when lawyers serve as mediators or arbitrators their ethical duties and discipline under the Model Rules of Professional Conduct may be implicated. For these reasons, this proposed Rule is submitted to provide guidance for lawyers who serve as third party neutrals, and to advise judicial officers and state discipline counsel who enforce lawyer ethical or disciplinary standards."

D. Highlights

1. Identification of neutral processes: adjudicative, evaluative, facilitative, and hybrid

2. Topics addressed: Diligence and competence; Confidentiality; Impartiality (which includes disclosure); Conflicts of Interest; Fees; Fairness and Integrity of the Process

3. Confidentiality obligation includes a requirement that the attorney/neutral discuss confidentially rules and requirements with the parties at the beginning of any proceeding and obtain party consent with respect to any ex parte communication or practice. Proposed Model Rule 4.5.2(a)(1).

4. In those limited instances in which the neutral is permitted to disclose confidential information (necessary to prevent bodily injury or substantial financial loss from crime or fraud) the neutral in some situations must first make good faith effort to persuade the party''s counsel or the pro se party to not act or to warn those who might be harmed. Proposed Model Rule 4.5.2 (b) and (c).

5. Disclosure obligation includes a continuing duty to conduct a reasonable inquiry and effort to determine if any disclosable interests or biases exist. It is recommended that disclosures be made in writing. Rule 4.5.3(b) (2).

6. Neutral is required to disclose prior service as a neutral for any of the parties. Rule 4.5.3 (b)(1).

7. Conflict of interest provisions regarding subsequent interests or representation extend to one year or other reasonable period of time under the circumstances absent consent of all parties after full disclosure. Rule 4.5.4 (a)(4).

8. To maintain fairness and integrity of the process, the attorney/neutral should make reasonable efforts to ensure that the parties knowingly consent to and understand the process and to "determine that the parties have reached agreement of their own volition and knowingly consent to any agreement." The neutral also should be "especially diligent that parties who are not represented have adequate opportunities to be heard and involved" in the process, Rule 4.5.6.

V. Ethical Issues for Practicing Attorneys Serving as Mediators

A. Disqualification of attorney-mediator and attorney-mediator''s firm from subsequent representation of a party:

1. Fields-D''Arpino v. Restaurant Associates, Inc., 39 F. Supp. 2d 412 (SDNY, 1999). Prior to the commencement of litigation, the employer''s outside counsel arranged for one of its attorneys to meet with plaintiff, the employer''s director of recruitment, in an effort to resolve an employment dispute plaintiff had raised regarding her supervisor. The attorney was described to plaintiff as a neutral, third party and she agreed to meet at his office. At the meeting, plaintiff''s attorney participated by speaker telephone. When plaintiff commenced legal action alleging pregnancy discrimination, the firm took steps to represent the employer but made no effort to screen the attorney who had met with plaintiff. The plaintiff sought to have the employer''s firm disqualified because of the attorney''s role as mediator. The court observed that motions to disqualify counsel are disfavored but, noting the appearance of impropriety and the presumption that privileged information and confidences will be shared with other attorneys in a firm, the court disqualified the firm. Referring to mediation as a "vital alternative to litigation," the court stated that successful mediation "depends upon the perception and existence of mutual fairness throughout the mediation process" and requires that the critical expectation of confidentiality be maintained.

2. Poly Software International, Inc. v. Su, 880 F. Supp. 1487 (D. Utah, 1995). Two companies, Micromath and Polysoft Partnership, had used an attorney-mediator to mediate a copyright dispute. A few years later, Messrs. Su and Wang, formerly partners in Polysoft Partnership, had parted company and were suing each other in a copyright infringement action similar to the earlier matter. To represent him in the litigation, Mr. Wang retained the lawyer who had mediated between Micromath and Polysoft Partners. The court disqualified the attorney and his firm.

VI. Mediation-Related Breach of DR 1-102(A)(4): What a Tangled Web

A. In affirming a recommendation of the District of Columbia Board on Professional Responsibility, the court in In re Waller, 573 A.2d 780 (D.C. Ct. App., 1990), suspended an attorney from the practice of law for sixty days.

B. The court found that an attorney engaged in a misrepresentation in violation of DR 1-102(A)(4) when he told the court, in a written statement, that he had been lying when he told a court-appointed mediator that he was the attorney for a surgeon who had performed the medical procedure which was the subject of an action the attorney had initiated on behalf of the patient. In that statement, which the attorney later partially recanted, the attorney told the court that he had made the misrepresentation to the mediator in order to "test" whether remarks made in the mediation would be held in confidence. The attorney was disciplined for lying to the court when he said that he had lied to the mediator.