ADR

Editor’s note: This article describes a hypothetical situation.

Bob’s client, Allan, was a whiner. Always complaining about his lawsuit. Forever knocking Bob about his inability to end it quickly. Upset that Bob did not apply scorched-earth tactics.

Bob was miserable. “Improve your intake procedures,” his friends suggested. But a new intake procedure would not get rid of Allan. Bob needed an outtake procedure. No matter what happened, Bob resolved (to himself and to no one else), he would settle Allan’s case at the upcoming mediation session and get Allan out of his life. There was no alternative resolution.

Bob had a foolproof settlement plan. It was unorthodox. And it was not ethical.

On the day before the mediation session, Bob met with Allan to prepare. Bob told Allan all about the mediation process. Bob discussed Allan’s claims and the other side’s defenses. Bob explained the strengths and weaknesses of Allan’s case. Bob critiqued Allan’s proposed opening statement. “Tone down the part about the conniving lawyers,” Bob suggested.

The coup de grace: Bob asked Allan to sign the last page of the two-page confidentiality agreement. “Mediation is a confidential process,” Bob explained. “This confirms that none of us can use anything we say or do at the mediation.”

The mediation session unfolded as Bob expected. Allan whined and complained. He rejected the other side’s offer. He refused to make a demand. And he told Bob his settlement demand was increasing by the minute.

At the end of the long day, Bob asked the mediator for a private meeting. Just Bob and the mediator. Bob said Allan did not want to meet with the other side or with the mediator. However, Bob said, Allan would accept the other side’s settlement offer on one condition — that Allan did not have to see or talk to the mediator or the other side ever again. “Enough is enough. Allan wants out of this lawsuit. Out of the conference room. Out of this mess.”

Meeting with the other side’s lawyer a few minutes later, Bob said he would prepare a simple release to memorialize the settlement.

Three weeks later, Bob invited Allan to his office and presented Allan with a settlement check, which Allan threw back in Bob’s face, screaming, “I did not settle my case at the mediation.” Bob had anticipated this reaction from his always-unreasonable client: “Yes, you did settle at the mediation. Here is the settlement agreement you signed.” Bob handed him a “confidential settlement agreement and mutual general release” with Allan’s signature. Bob had appended to the settlement agreement the signature page from the two-page confidentiality agreement Allan signed the day before the mediation.

Bob’s plan worked in at least one respect: Allan fired Bob on the spot.

One week later, Allan’s new lawyer served Bob with a complaint that pleaded causes of action for malpractice, breach of fiduciary duties and fraud arising from Bob’s representation of Allan. The complaint claimed Bob had tricked Allan into settling his claims by inducing Allan to sign a supposed confidentiality agreement the day before the mediation, and later attaching the confidentiality-agreement signature page to the settlement agreement.

Bob had let his malpractice coverage lapse. He was on his own. His first tactic was a demurrer: The complaint was legally insufficient because it alleged Bob’s purported deception occurred during a mediation session; and the mediation confidentiality privilege precludes any reference to anything said or done at or in the course of the mediation. Bob quoted the Pennsylvania mediation privilege:

“General rule. — Except as provided in Subsection (b), all mediation communications and mediation documents are privileged. Disclosure of mediation communications and mediation documents may not be required or compelled through discovery or any other process. Mediation communications and mediation documents shall not be admissible as evidence in any action or proceeding, including, but not limited to, a judicial, administrative or arbitration action or proceeding.”

Can Bob successfully hide behind a mediation privilege and thereby keep his deceptive acts under wraps? Yes, in California. No, in Pennsylvania.

In Hadley v. The Cochran Firm, 2012 Cal. App. Unpub. LEXIS 5743 (Cal. App. Aug. 3, 2012), the California Court of Appeals for the Second District, in an unpublished opinion, rebuffed a malpractice claim based on claims surprisingly similar to the allegations of Bob’s case. There, the defendant law firm sought to dismiss all claims “because they [were] based on events and statements that occurred at an underlying mediation, and therefore barred as a matter of law by the mediation confidentiality statutes.”

Concluding that the mediation confidentiality provisions are “clear and absolute,” the court administered its coup de grace:

“Evidence of anything said for the purpose of, in the course of, or pursuant to a mediation cannot be disclosed in a legal proceeding, with certain statutory exceptions. Writings prepared for the purpose of, in the course of, or pursuant to a mediation are also protected from disclosure.

“By using the broad phrase ‘in the course’ of a mediation, the legislature intended to protect a broad range of statements from later use as evidence in litigation. … ‘Judicial sifting of statements made at a confidential mediation to select those which can be used as evidence … contravenes the legislative intent underlying adoption of [the confidentiality provisions].’”

Bob particularly liked the court’s conclusion: “Therefore, communications between a client and his or her attorney are covered by the confidentiality provisions, even if their application would preclude a client from seeking redress for attorney malpractice.” Bob also liked that there is no danger Hadley will be reversed. On October 17, the California Supreme Court refused to review the decision.

Would the Pennsylvania mediation privilege statute likewise render inadmissible the evidence of the circumstances under which Allan was “fraudulently induced to sign a document at the mediation that [Bob] later represented to be a settlement agreement”?

If you read the Pennsylvania cases, as Bob cheerfully did, you would conclude that Allan will not be able to disclose Bob’s deceptions because they occurred in the course of and as part of the mediation process:

• Brown v. City of Pittsburgh, 2010 U.S. Dist. LEXIS 52927, *52 n.22 (W.D. Pa. May 27, 2010): “The Pennsylvania mediation statute, 42 Pa.C.S. § 5949, states that all mediation communications and related documents are privileged and may not be disclosed or compelled through discovery.”

• American International Specialty Lines Insurance v. Chubb Custom Insurance, 2011 Phila. Ct. Com. Pl. LEXIS 265, *12 (C.P. Sept. 16, 2011): “Both Pennsylvania and California law generally prohibit discovering mediation documents and communications.”

• Executive Risk Indemnity v. Cigna, 81 Pa. D. & C. 4th 410, 429 (C.P. 2006): “By its language, the mediation privilege in 42 Pa. C.S. § 5949 is one of the broadest privileges in Pennsylvania. It absolutely protects not only results but all communications including any demands for settlement or offers in compromise from disclosure. The only exceptions are for evidence necessary for litigation surrounding a settlement itself and for criminal conduct during the mediation.”

However, these cases forget two things.

First, the Pennsylvania mediation statute is not ironclad. Unlike the sweeping California mediation privilege, which does not contain exceptions to the broad rule of confidentiality, the Pennsylvania statute includes an exception that appears to contemplate Bob’s shenanigans:

“The privilege and limitation set forth under Subsection (a) does not apply to a fraudulent communication during mediation that is relevant evidence in an action to enforce or set aside a mediated agreement reached as a result of that fraudulent communication.”

Under the Pennsylvania statute, Allan could use and introduce into evidence Bob’s mischief and thereby seek to “set aside” the putative settlement agreement — the purported “confidential settlement agreement and mutual general release” — that was “reached as a result of [Bob's] fraudulent communication.” The law of contracts and the law of agency may be impediments, but at least Allan can present the facts.

Second, and more fundamentally, the Pennsylvania statute probably does not “protect” Bob’s pre-mediation session communications with Allan in the first place.

The statute defines a “mediation communication” as “a communication, verbal or nonverbal, oral or written, made by, between or among a party, mediator, mediation program or any other person present to further the mediation process when the communication occurs during a mediation session or outside a session when made to or by the mediator or mediation program.”

Bob’s assertion that he spoke to Allan the day before the mediation started — outside the presence of the mediator — does not confer privileged status on communications and documents shared only by Bob and Allan, and not involving the mediator. Reason: Communications between the parties or between a party and his or her lawyer, and not involving the active participation of the mediator, are not privileged.

Bottom line: Bob should have followed his childhood fantasies and set up shop in California. •

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, where he practices all types of alternative dispute resolution, both as a neutral and as counsel to parties engaged in ADR. He is a former co-chair of both the Philadelphia Bar Association’s alternative dispute resolution committee and the fee disputes committee. Contact him at 215-851-8406 or cforer@eckertseamans.com.