Does Mediation Confidentiality Protect Communications Between Two Parties on the Same Side of the Table?

The Ninth Circuit held last week that mediation-related communications between two parties on the same side of the table are inadmissible under California’s mediation confidentiality statute in subsequent litigation between those two parties. Apollo Education Group, Inc. v. National Union Fire Ins. Co., 2019 WL 3822322 (9th Cir. Aug. 15, 2019). As discussed below, Apollo raises some interesting questions concerning the reach of mediation confidentiality.

The Broad Scope of California’s Mediation Confidentiality Statute

As we have previously discussed, California takes an extremely broad view of the mediation confidentiality provisions in the California Evidence Code with California’s Supreme Court stressing on several occasions that courts may not craft exceptions to those provisions due to public policy concerns. See Wolf v. Loring Ward Int’l, Ltd., 2019 WL 1922920, at *9 (Cal. Ct. App. Apr. 30, 2019) (citing three leading California Supreme Court cases).

For example, in Cassel v. Superior Court, 244 P.3d 1080 (2011), the plaintiff had agreed in mediation to settle certain business litigation. He later sued the attorneys who had represented him at the mediation for legal malpractice and other claims on the ground that, because of a conflict of interest, they had induced him to settle for a lower amount than he had told them he would accept, and for less than the case was worth.

Before trial, citing California’s mediation confidentiality statute, the defendant law firm sought to exclude all evidence of their discussions with the plaintiff immediately preceding, and during, the mediation concerning mediation settlement strategies, and defendants’ efforts to persuade the plaintiff to reach a settlement in the mediation. The trial court granted the motion, but the Court of Appeal vacated the trial court’s order on the ground that California’s mediation confidentiality statute is intended to prevent the damaging use against a mediation party of positions taken during the mediation, but not to protect attorneys participating in the mediation from the malpractice claims of their own clients.

On further appeal, the California Supreme Court reversed, holding that while it understood the policy concerns of the appellate court with compromising the plaintiff’s ability to prove his legal malpractice claim, the plain language of the mediation confidentiality statute — rendering inadmissible “evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation” — was not confined to communications between mediation disputants, but also protected communications between the plaintiff and his attorneys, even if these did not occur in the presence of the mediator or the other parties.

The Ninth Circuit’s Apollo Decision

Consistent with Cassel, the Ninth Circuit held in Apollo that mediation-related communications between two parties on the same side of the table are inadmissible under California’s mediation confidentiality statute in subsequent litigation between those two parties.

In Apollo, a pension fund had commenced a federal securities class action against Apollo Education Group, Inc. (Apollo). Apollo was insured by National Union Fire Insurance Company (National Union). During the pendency of the pension fund’s appeal from the dismissal of its complaint, Apollo, National Union and the pension fund agreed to mediation. Both Apollo and National Union signed the mediation agreement, which expressly adopted California Evidence Code §§ 1115–28, including a provision mirroring Section 1119 of the California Evidence Code that “[n]o evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, the Mediation shall be admissible or subject to discovery.”

As a result of the mediation, Apollo and the pension fund reached a $13.125 million settlement. National Union, however, refused to consent to the settlement. After Apollo paid for the settlement from its own funds, it sued National Union in Arizona federal court for breach of the insurance policy and bad faith.  National Union moved for summary judgment, and the court granted the motion.

On appeal to the Ninth Circuit, Apollo argued that the lower court had erred in precluding Apollo from introducing into evidence a memorandum and two letters from Apollo’s attorneys to National Union’s attorneys during the mediation concerning the status of the mediation, their analysis of the merits of the pension fund’s appeal, and the reasons Apollo believed the proposed settlement was reasonable.

Among other arguments, Apollo contended that its mediation-related communications to National Union fell outside the purview of the California mediation statute because National Union was on the same side of the table as Apollo during the mediation. Citing Cassel, the Ninth Circuit rejected that argument: “that the documents were disclosed to participants on the same side of the mediation table is immaterial.”

Two observations:

1. Would the Result in Apollo Have Been Different Under a Different State Mediation Statute?

The Ninth Circuit’s conclusion in Apollo clearly depended on its application of California’s mediation statute. Had a different state mediation statute applied, the result may well have been different. For example, as previously discussed, in Alfieri v. Solomon, 365 P.3d 99 (2015), the Oregon Supreme Court disagreed with Cassel, and held that the Oregon mediation statute limits the privilege only to interactions “assisted” and “facilitated” by the mediator, and does not cover discussions between the parties and their counsel without the mediator’s participation.

To be sure, the fact pattern in Alfieri concerned communications between a party and his counsel. But the language in the decision would appear broad enough to apply to communications between parties on the same side of the table.

On the other hand, the relevant communications in Apollo were expressly marked as subject to mediation confidentiality.

2. Is Apollo Inconsistent With TFT?

As previously discussed, in In re TFT-LCD (Flat Panel) Antitrust Litig., 835 F.3d 1155 (9th Cir. 2016), the Ninth Circuit held that where a mediation seeks to resolve both federal and California state law claims, federal law (and not the California Evidence Code) governs the question of mediation privilege.

Yet, even though the mediation in Apollo concerned federal securities law claims exclusively (without any state law claims whatsoever), the Ninth Circuit analyzed the question of mediation privilege under the California Evidence Code.

So is Apollo inconsistent with TFT? I think not because the mediation agreement in Apollo expressly adopted the California Evidence Code as the standard governing confidentiality. While the Ninth Circuit did not expressly address TFT in Apollo, and apparently neither party raised the issue, the Ninth Circuit did observe that the “language of the Mediation Agreement closely mirrors . . .  sections of the California Evidence Code.” In contrast, in TFT, the parties apparently did not expressly specify the applicable standard.

It thus appears that if parties to a mediation expressly agree that a particular standard will govern the confidentiality of their mediation, courts will respect that choice. Indeed, there appears to be no reason parties may not expressly adopt any standard of mediation confidentiality they desire regardless of where the mediation occurs, where the litigation is pending, and where the parties themselves reside.

In sum, parties to a mediation should aim for precision and clarity in their mediation agreements in terms of what standards they agree should apply in the event mediation confidentiality is subsequently challenged.