Everything You Say Might Be Used Against You: The Uncertainty of the Federal Mediation Privilege

Statements made during mediation are privileged and confidential — right? In the context of federal bankruptcy proceedings, the answer is not so simple. Some practitioners will be surprised to learn that there is no such thing as a federal “mediation privilege.” The mediation privileges that most practitioners are familiar with are actually creatures of state law. But when it comes to bankruptcy proceedings, there are no such federal, statutory equivalents. Therefore, bankruptcy courts must turn to Rule 501 of the Federal Rules of Evidence, and the common law, for guidance.[1]

The Creation of Federal Privileges

Rule 501 of the Federal Rules of Evidence governs the creation of federal privileges.[2] In Jaffee v. Redmond, the U.S. Supreme Court analyzed Rule 501 and enumerated four factors to determine whether a new privilege should be created: “(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.”[3] Applying the Jaffee factors, some bankruptcy courts have acknowledged the existence of a federal mediation privilege, while others have not.

Relevant Examples

In In re RDM Sports Group Inc., co-defendants in an adversary proceeding sought to compel turnover of documents related to a settlement reached at mediation.[4] The parties opposing turnover asserted, among other things, that the materials were protected by a mediation privilege. After analyzing the Jaffee factors and the analyses of other district courts, the RDM Sports court found that a mediation privilege did exist. In so finding, the court noted that “the encouragement of settlement negotiations and alternative dispute resolution is a compelling interest sufficient to justify recognition of a mediation privilege.”[5] Moreover, the court stated:

It would appear that, regardless of whether the confidentiality afforded to these communications arises in the form of a privilege or merely a prohibition on voluntary disclosure, the evidence is strong that parties engage in mediation with an expectation that the information will remain protected from future use by other parties. Therefore, it seems logical to assume that once this expectation is removed, the willingness of those parties (or more accurately their counsel) to engage in mediation, with full knowledge that the information will not be protected from disclosure in the event of future federal litigation, would decrease.[6]

The court, however, limited the scope of the privilege to “protect only those communications made to the mediator, between the parties during the mediation, or in preparation for the mediation.”[7] Therefore, the mediation privilege would not extend to “documents prepared prior to the mediation, merely because those documents were presented to the mediator during the course of the mediation.”[8]

On the other hand, in In re Lake Lotawana Cmty. Improvement Dist., the Western District of Missouri bankruptcy court declined to acknowledge the existence of a federal mediation privilege.[9] In that case, certain movants sought the production of a chapter 9 debtor’s pre-petition mediation statement. The Lake Lotawana court relied heavily upon the reasoning in Carman v. McDonnell Douglas Corp., where the Eighth Circuit Court of Appeals noted that a “party that seeks the creation of a new evidentiary privilege must overcome the significant burden of establishing that permitting a refusal to testify or excluding relevant evidence has a public good transcending the normally predominant principle of utilizing all rational means for ascertaining truth.”[10] The Lake Lotawana court also noted that other courts had declined to adopt mediation and/or settlement privileges.[11] Under the facts of the case, the Lake Lotawana court found that the debtor had “failed to overcome the significant burden of establishing a new privilege,” and therefore held that there was no applicable mediation privilege.[12]

It is important to note that even when bankruptcy courts have found the existence of a mediation privilege, the privilege’s protections are not absolute. Some courts have found that the “mediation privilege” can be defeated by an appropriate showing of need. In the Second Circuit, for example, 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.”[13]

How Have Bankruptcy Courts Coped?

In an effort to ensure the confidentiality of mediation communications, some bankruptcy courts have added appropriate provisions to their local rules. For example, the U.S. Bankruptcy Court for the District of Delaware has adopted Local Rule 9019-5(d)(i), which states, among other things, that “[t]he mediator and the participants in mediation are prohibited from divulging, outside of the mediation, any oral or written information disclosed by the parties or by witnesses in the course of the mediation.” Additionally, in the U.S. Bankruptcy Court for the Southern District of Florida, Local Rule 9019-2(F) states that “[c]onduct or statements made in the course of mediation proceedings constitute ‘conduct or statements made in compromise negotiations’ within the meaning of Rule 408 of the Federal Rules of Evidence, and no evidence inadmissible under Rule 408, shall be admitted or otherwise disclosed to the court.”

Conclusion

Some commentators contend that “[f]ew areas of mediation law are as uncertain as the existence and applicability of a federal mediation privilege.”[14] That, of course, is not reassuring. When it comes to mediation, the ability of the parties to freely share information without the risk of reprisal is key. Accordingly, for those who practice in jurisdictions where the bankruptcy courts have not adopted applicable local rules regarding mediation, it is advisable to require all parties attending mediation to execute applicable confidentiality agreements, and perhaps include provisions similar to those adopted by bankruptcy courts through their local rules. Otherwise, what you say at mediation might later be used against you.