On Professional Practice: Protecting Confidential Information in Commercial Mediations

Vol. 20 No. 1

By

In this new feature, Paul M. Lurie and Sharon Press will raise issues of professionalism and their practical applications.  

Despite efforts that began more than 10 years ago with the creation of the Uniform Mediation Act, there is no uniformity in the United States as to how or when information disclosed in mediation may be used or protected from use in subsequent legal proceedings. This confusion about the protection of information may discourage parties in commercial disputes from using mediation. For those parties who decide to enter mediation, the Model Standards of Conduct for Mediators make the mediator responsible for promoting understanding “of the extent to which the parties will maintain confidentiality of information they obtain in a mediation.” (Standard V.C.)

Surprisingly, Federal Rule of Evidence 408 and similar state rules protect only statements of compromise. State laws range from not protecting confidential information produced in mediation at all to broadly protecting that information (the California Evidence Code) to completely protecting it (the Uniform Mediation Act, now enacted in 11 states and the District of Columbia). Courts in the same state or federal district may vary in how they treat mediation confidentiality. Further, many disputes are mediated through arrangements with mediators appointed by dispute resolution service providers including the American Arbitration Association (AAA), JAMS, and the International Institute for Conflict Prevention and Resolution (CPR). The rules of those providers also lack consistency and have varying weaknesses with respect to the protection of confidential information.

There are several mechanisms to protect information disclosed in mediation. One option is to create a privilege, which is the approach of the Uniform Mediation Act. An inherent problem with the privilege approach is that courts frequently find that the privilege has been waived. Another option is the use of evidentiary exclusion rules, which is California’s approach. That option is less subject to findings of waiver, but some critics bemoan its lack of flexibility in sympathetic situations involving claims of fraud or lawyer malpractice. Creating privileges or evidentiary exclusions can be challenging because courts and legislatures are reluctant to restrict the availability of evidence in legal proceedings. A third option is creating confidentiality by contract. This approach uses dispute resolution service provider rules that are incorporated by reference into the parties’ agreement to mediate.

Commercial mediation involving businesses disputes exists only by reason of contractual agreement: the disputing parties agreed in a contract, which may have been effectuated before or after the dispute arose, to resolve their dispute in mediation. Therefore, it makes sense to use those agreements to also protect confidentiality. The contract approach allows those agreements to be customized to cover information, including preventing the public disclosure of a settlement or lack thereof.

On the following page we provide a suggested mediation confidentiality clause that can be used in agreements to mediate commercial disputes.

Confidentiality Clause for Mediation

A.     Preamble

            The parties are involved in a commercial dispute that they desire to resolve as quickly and inexpensively as possible. Toward that end, the parties have retained the services of a qualified mediator who is a signatory to this agreement. In order to overcome the current impasse, the parties desire to exchange information freely with the mediator and also with each other to assist the mediator in finding ways to overcome impasse. The parties will more freely exchange information knowing that if the dispute goes to court or arbitration for a binding decision, information that they would not have been required to disclose in the subsequent proceeding would not become available to adverse parties. Therefore, they are entering into this agreement to further their interest in settlement.

B.     Definitions

1.      Mediation is a process in which a neutral person or persons facilitate communication between the disputants to help them reach a mutually acceptable agreement.

2.      A mediator is a neutral person who conducts a mediation and includes any person designated by a mediator to assist in the mediation or to communicate with the participants in preparation for a mediation.

3.      A mediation consultation is a communication between a person and a mediator for the purpose of initiating, considering, or reconvening a mediation or retaining the mediator.

4.      Mediation is the process that begins upon the execution of the mediation agreement and ends by written notice of termination by any party. Mediation is not automatically terminated because the parties also use court or arbitration processes.

C.     All information arising out of or received in connection with the mediation or mediation consultation shall be confidential including:

1.      the agreement to mediation and its terms;

2.      the occurrence of the mediation;

3.      any information (documents, statements, communications) created solely for the mediation including views, suggestions, admissions, proposals, and materials indicating willingness to accept a proposal;

4.      information disclosed in private to a mediator by a party;

5.      the outcome of the mediation and the terms of any settlement;

6.      reports to a court or arbitration panel about what transpired in mediation.

D.     Concerning information in paragraph C, outside the mediation, participants in the mediation, including the mediator, any person present, and any person involved in the administration of the mediation shall not:

1.      disclose, make reference to or rely upon; or

2.      give testimony or evidence about; or

3.      compel any other person to testify about or produce as evidence

4.      confidential information exchanged in the mediation.

E.      As an exception to paragraphs C and D, information may be disclosed or admitted as evidence in a subsequent legal proceeding to the extent:

1.      the parties have given their authority;

2.      necessary to bring the settlement agreement into effect or to enforce it;

3.      disclosure is specifically required under law only to the extent necessary for compliance of any term including the confidentiality agreements;

4.      disclosure is required in the overriding public interest only to the extent necessary to satisfy such interest;

5.      it evidences the existence of an agreement not to take a default or to extend the deadline for
acting or refraining from acting in a pending civil action or arbitration;

6.      offered to report, prove or disprove professional malpractice or misconduct (solely for the         purpose of the professional malpractice proceeding or the internal use of the governmental body conducting the investigation of the conduct);

7.      offered for the limited purpose of establishing or refuting legally recognized grounds for voiding or reforming a settlement agreement reached during a mediation.

F.      Evidence that is otherwise admissible or discoverable is not rendered inadmissible or nondiscoverable as a result of its use in the mediation process. 

G.     In addition to the foregoing restrictions, the confidential information shall not be disclosed to the public, including the media. [OPTIONAL]

This clause is based on Model Confidentiality Clause for Mediation Rules presented at the UIA World Forum of Mediation Centres, Dublin 2006.

Paul M. Lurie is a partner with Schiff Hardin LLP in Chicago, IL. He has been legal counsel for major real estate owners, developers, and design and construction firms for more than 40 years. He now is a professional mediator and arbitrator. He can be reached at plurie@schiffhardin.com. Sharon Press is Professor of Law and Director of the Dispute Resolution Institute at Hamline University. Previously, she served for 18 years as director of the Florida Dispute Resolution Center. She can be reached at spress01@hamline.edu.

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