Confidentiality and Due Process

Can mediation confidentiality threaten a party’s right to due process? A recent case out of the Central District of California, Milhouse v. Travelers, currently on appeal to the Ninth Circuit, held that the due process rights of a party can override the parties’ agreement, and a state evidentiary rule precluding the admission in any subsequent proceedings of statements made in mediation. The district court allowed an insurance company being accused of bad faith refusal to settle a claim, to introduce evidence of the plaintiffs’ demands made during a mediation, for the purpose of showing that it was the plaintiffs, not the insurance company, who were acting unreasonably.

Generally in California mediation confidentiality is treated as sacrosanct. Maybe a little less sacrosanct in federal court than in state court, but confidentiality is still highly protected in both systems. Courts understand the value of mediation in helping to resolve disputes. They also understand that parties are often reluctant to participate in mediation unless they can be assured that the statements they make in mediation will not be used against them if the case fails to settle and ends up in trial. Confidentiality allows parties to make admissions without fear they will be bound by them at trial, and to disclose information without having their statements used against them. But confidentiality also protects parties who take unreasonable negotiating positions during mediation. Parties deciding to mediate rely both on their freedom to make concessions, as well as their freedom to refuse to settle, without either stance being held against them later.

In the Milhouse case, the insurance company wanted to justify its conduct toward the homeowners seeking payments under their policy by showing that they were making extravagant demands during the mediation. The court decided that it was only fair to allow a party accused of bad faith to introduce evidence that the other side was acting unreasonably. But once the door is opened to allow statements made during mediation into evidence, it seems difficult to limit how wide that opening should remain. What is the scope of a “due process” exception to the generally strict protections for mediation confidentiality? And how would such an exception change parties’ willingness to participate in mediation?

From the court opinion, it’s difficult to discern on what basis the court concluded that due process demands that a party accused of bad faith must be allowed to introduce otherwise inadmissible evidence to rebut that claim. We don’t allow exceptions to other evidentiary privileges, such as attorney-client or spousal privileges, even where the evidence obtainable from that source might determine the outcome of the trial. We don’t generally consider due process violated by rules that exclude all kinds of potentially helpful evidence.

The district court’s opinion also fails to articulate a “rule” that would provide the necessary certainty for parties to preserve their expectations of confidentiality in mediation. Would it be limited to insurance bad faith cases? Or would anyone be able to claim that their due process rights were being violated if they were not allowed to offer evidence of statements made during mediation? While it’s true that mediation confidentiality can sometimes provide a shield for bad behavior, it’s difficult to see how we could remove that shield without destroying mediation confidentiality entirely, and that could dissuade many people from using mediation in the first place.

                       

Joe Markowitz

Joseph C. Markowitz has over 30 years of experience as a business trial lawyer.  He has represented clients ranging from individuals and small businesses to Fortune 500 corporations.  He started practicing with a boutique litigation firm in New York City, then was a partner in a large international firm both… MORE >