CONFIDENTIALITY IN MEDIATIONS AND SETTLEMENTS – THE SECOND CIRCUIT’S PERSPECTIVE

The importance of upholding confidentiality in mediation and settlement processes derives from the desire to encourage the settlement of disputes, protect express or implied agreements between parties, and to ensure the integrity of ADR processes more generally. In short, confidentiality in such processes allows parties to speak fully and frankly about all issues (both factual and legal) in a dispute when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.

The purpose of this note is to briefly comment on some recent Second Circuit decisions that address the circumstances and extent to which parties’ otherwise confidential information (be it viva voce or documentary evidence) may be disclosed. These decisions follow the United States Court of Appeals for the Second Circuit’s decision in Teligent, which held that for mediation materials subject to court-ordered confidentiality to be disclosed, the party seeking disclosure must demonstrate: (a) a special need for the confidential material; (b) resulting unfairness from a lack of discovery; and (c) that the need for the evidence outweighs the interest in maintaining confidentiality.

Following the Teligent decision, the Second Circuit has been split as to the standard to be applied to private mediations not otherwise blessed by a court order (see Rocky Aspen and Dandong). Is it the heightened standard of relevance adopted in Teligent or the lower “good cause” standard under Rule 26(c) of the Federal Rules of Civil Procedure?

The decision in Accent Delight International clarifies the position. It concerned the alleged fraudulent conduct of an agent for the plaintiffs that was hired to assist with purchasing a world-class art collection. It was alleged that the agent purchased a number of works – including Leonardo da Vinci’s Christ as Salvator Mundi – and improperly profited by selling the works to the plaintiffs at a premium. It was also alleged that Sotheby’s assisted the agent with the fraud by facilitating the Christ as Salvator Mundi transaction. A mediation between Sotheby’s and the original seller took place in relation to Sotheby’s obligations in connection with that transaction and resulted in a confidential settlement agreement. The plaintiffs sought disclosure of certain information relating to that mediation. It was held that the policy reasons for upholding confidentiality (mentioned at the outset) applied equally to court-sponsored and private mediations. Indeed, it was said that any suggestion otherwise would cut across those policy reasons and discourage parties from private mediation entirely.

The Accent Delight International decision makes it clear that relevance in and of itself is insufficient to warrant disclosure. The inability to obtain such documents elsewhere is also insufficient. The relevant inquiry is whether the party seeking discovery can otherwise obtain the information in withheld documents. On this basis, the plaintiffs’ request for disclosure was denied as the plaintiffs had, amongst other things, access to the documents from the relevant underlying transaction subject to the mediation.

Although the Second Circuit identifies the underlying policy reasons, even applying the heightened standard means that protection of those policy reasons is relatively weak compared to other states and common law jurisdictions, which have adopted various iterations of an explicit mediation privilege that protects communications made in connection with mediation – private or otherwise – from discovery. See, e.g., Spruce Env't Techs., Inc. v. Festa Radon Techs., Co., 370 F. Supp. 3d 275, 278-79 (D. Mass. 2019); In re RDM Sports Grp., Inc., 277 B.R. 415, 430 (Bankr. N.D. Ga. 2002); Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 977 (6th Cir. 2003); and Unilever Plc v The Proctor and Gamble Co [2000] 1 WLR 2436 (UK). To this end, individuals and entities doing business in New York should be aware of the quite real risk that certain information disclosed during mediation and/or settlement discussions may lose the protection of confidentiality. There is no doubt that such a risk discourages parties from engaging in full and frank alternative dispute resolution processes. Absent some uniform mediation or settlement privilege being adopted in federal court, some options for reform in New York are beyond the scope of this note but include adopting the Uniform Mediation Act or something similar to California’s Evidence Code Section 1119 (which bars the admissibility or discovery of evidence or any admission made in mediation).

James Anson-Holland is an LLM Candidate at New York University, School of Law, where he attends with the assistance of a Dean’s Graduate Award.