By John S. Kiernan & Clay Cogman
Participants in mediations conducted by Phillips ADR Enterprises (PADRE) all agree in writing before the mediations begin, and again orally at the outset of mediation sessions, to keep all written and oral mediation communications strictly confidential without any qualifiers or limitations. Sometimes, parties to those agreements or outsiders nevertheless try to pierce that confidentiality for purposes relating to, among other things, unresolved litigation claims. In an order dated September 20, 2023, Judge Jed S. Rakoff of the Southern District of New York rejected such an effort by Jes Staley, a former senior executive of JP Morgan Chase & Co (JPMC).
JPMC had impleaded Mr. Staley as a third-party defendant after JPMC was sued in the Southern District of New York on behalf of a putative class of Jane Does, and by the Government of the U.S. Virgin Islands. The complaints against JPMC claimed that it had improperly facilitated illegal sex trafficking of underaged girls by its former customer Jeffrey Epstein.
The Plaintiffs, JPMC, the U.S. Virgin Islands, and Mr. Staley engaged in a multilateral mediation before Former U.S. District Judge Layn Phillips. The mediation resulted in a settlement of the class plaintiffs’ claims against JPMC, but not JPMC’s third party claims against Mr. Staley claiming he bore responsibility for actions for which the plaintiffs contended JPMC was liable. Thereafter, Mr. Staley sought discovery of written mediation statements not previously exchanged and other communications in the mediation as part of litigating whether JPMC’s reasons for settling undermined its third party claims against him.
Just as Southern District of Indiana Bankruptcy Judge Robyn L. Moberly did three years earlier in a different but analogous challenge to PADRE’s confidentiality agreement, Judge Rakoff summarily rejected Mr. Staley’s claim of entitlement to discover mediation statements and other communications to or from Judge Phillips as mediator. Jane Doe 1 v. JPMorgan Chase Bank, N.A. v. James E. Staley, 22-civ-10019, Dkt. 224 (S.D.N.Y. Sept. 20, 2023). Reaching beyond the general prohibitions in Federal Rule of Evidence 408 against the admissibility of settlement communications into evidence, the court applied a rigorous test for even permitting discovery of those confidential communications, which he found the Staley application had not met.
In both cases, the courts found the combination of Federal Rule of Evidence 408, applicable decisional law, the wording of the confidentiality agreement PADRE required all participants in the mediation to sign, and the essential goal of encouraging candor from mediation participants to be dispositive of the requesting party’s attempt to make use in litigation of mediation communications that were intended to be confidential when made. While case law and some statutes provide for exceptionally narrow circumstances when confidential information about statements in mediations can be discoverable, and Rule 408 provides for narrow exceptions to its otherwise categorical prohibition against admission of evidence about settlement communications, these two results show that the exceptions are unlikely to lead to discoverability or admissibility of evidence about mediation communications, and particularly so when the party seeking to apply the exception has executed a PADRE confidentiality agreement.
The Epstein-Related JPMC Mediation
Mr. Staley’s request for discovery arose in the context of a pre-trial ruling by Judge Rakoff that Mr. Staley was entitled to discovery into the reasons for JPMC’s settlement of the class claims against it. When JPMC succeeded in settling the class victims’ claims against it in mediation sessions before Judge Phillips (for a publicly reported $290 million), JPMC’s third-party claims against Mr. Staley did not settle. Mr. Staley thereupon sought, and obtained, a court order allowing him discovery into the reasons underlying JPMC’s settlement. Mr. Staley sought to develop evidence that JPMC’s settlement was unreasonable or had nothing to do with any action or inaction by him, and argued that such evidence could undermine JPMC’s claim against him.
JPMC provided documents and proffered a deposition witness on this issue but declined to provide mediation statements or other communications to or from Judge Phillips or other materials generated solely for the mediation, on the basis that they are protected by a “mediation privilege.” When Mr. Staley moved to compel, JPMC and Judge Phillips both submitted oppositions arguing that certainty in the confidentiality of mediation communications is essential to fostering candor in mediation discussions, which in turn is central to the prospects of success in achieving mediated solutions that are in the public interest.
The Governing Law
Federal Rule of Evidence 408 declares inadmissible in any civil proceeding, “to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction”, two kinds of evidence:
“(1) Furnishing, promising or offering – or accepting, promising to accept, or offering to accept – a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim.”
This substantial protection of the confidentiality of mediation communications, which are indisputably “compromise negotiations” under the Rule, did not by itself completely resolve Mr. Staley’s request for discovery of mediation communications, for two reasons.
First, Rule 408 recites an exception: “[t]he court may admit this evidence for another purpose, such as proving a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.” Mr. Staley argued that his request for documents fell within this “another purpose” exception, in that he was seeking mediation communications for the permissible purpose of establishing “JP Morgan’s subjective motive as it relates to the bank’s wholly separate claims against Mr. Staley.”
Second, Rule 408 by its terms relates only to questions of admissibility of evidence, and does not specifically address questions of discoverability. For the rules regarding discoverability, it is necessary to determine the law applicable to the dispute and the standards applicable to requests for discovery.
Those rules are sometimes found in the Uniform Mediation Act, which has been adopted in 12 states, and sometimes in other legislative enactments, court decisions or agreements between parties. Mediation rules of all types consistently recognize that permitting disclosure of mediation communications that were intended to be confidential is at odds with the fundamental goal of causing parties to feel sure they can be candid in those communications—an essential element of effective mediations—without facing a risk that someone may pierce the cloak of confidentiality.
New York decisions addressing discoverability of otherwise confidential mediation materials have been governed by the Second Circuit’s three-part test articulated in In re Teligent, 640 F.3d 53, 57-58 (2d Cir. 2011). The court in that case denied discovery to a law firm that had not participated in a mediation in which the resulting settlement agreement included arrangements for advancing a malpractice claim against the law firm. Although the law firm was unsurprisingly interested in the genesis of this deal point, the court found that the law firm had not shown “(1) a special need for the confidential material it sought; (2) resulting unfairness from a lack of discovery; and (3) that the need for the evidence outweighed the interest in maintaining confidentiality.”
For efforts to obtain discovery or reveal confidential information by parties who were involved in at least a portion of a mediation, the confidentiality of mediation communications can also be affected by party agreements. For example, the Uniform Mediation Act provides in section 8 that “Mediation communications are confidential to the extent agreed by the parties or provided by other laws or rules of this State.” (Emphasis added.) Before the mediation sessions involving JPMC and Mr. Staley with Judge Phillips, each participant, including Mr. Staley, signed a Mediation Confidentiality Agreement that stated in part:
“The parties hereby agree that all statements of the parties, counsel and mediator, as well as the materials generated solely for purposes of the mediation, shall constitute conduct or statements made in compromise negotiations and, shall therefore, not be admissible pursuant to Rule 408 of the Federal Rules of Evidence, and shall not be disseminated or published in any way. In short, no statement made during the course of the mediation or any materials generated for the purpose of the mediation may be offered into evidence, disseminated, published in any way, or otherwise publicly disclosed.”
States differ as to whether they protect against disclosure of mediation communications by statute or rule. Section 6 of the Uniform Mediation Act itemizes the extraordinary circumstances where disclosure of a mediation communication might be acceptable. California, the headquarters of PADRE, provides in § 1119(a) of its Evidence Code that “[n]o evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and the disclosure of the evidence shall not be compelled, in any … civil action.” Subsection (c) of that provision adds that “[a]ll communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.” See Cassel v. Superior Court, 244 P. 3d 1080, 1083 (Cal. 2011) (finding these provisions “clear and absolute” and concluding that “[e]xcept in rare circumstances they must be strictly applied and do not permit judicially crafted exceptions or limitations, even where competing public policies may be affected”).
While New York does not have a corresponding statutory mediation privilege, New York courts have repeatedly recognized the confidentiality of mediation materials. See, e.g., NYP Holdings, Inc v. McClier Corp, 836 N.Y.S.2d 494, 2007 WL 519272, at *4-5 (Sup. Ct. Jan 10, 2007 (refusing to direct disclosure, or even production for in camera review, of documents created in connection with mediation); Irizarry v. Hayes, 66 Misc. 3d 1223(A), 2020 WL 809380, Slip Op. at n.14 (N.Y. Sup. Ct. Feb. 5, 2020 (“If the mediation process … were subject to an invasion through disclosure, depositions and other devices, the entire purpose of mediation – as the alternative to litigation – would be extinguished”).
Judge Rakoff’s Decision
Judge Rakoff’s decision summarily rejected Mr. Staley’s request for discovery of confidential mediation materials. After confirming the importance of protecting the confidentiality of mediation communications, he found that “the mediation statements sought here” did not satisfy the Teligent tests because they “would be of limited utility to Staley in light of the limitations on their use imposed by Federal Rule of Evidence 408 and the confidentiality agreement entered into by all parties to the mediation, including Staley.” That is, the determination of discoverability of confidential materials under the already rigorous Teligent test can be significantly affected by the additional limitations on use of such materials.
While Judge Rakoff recognized that the validity of a claim for indemnification following a settlement like JPMC’s claim can depend on an analysis of the reasonableness of the settlement, he also pointed out that “any assessment of the reasonableness of JP Morgan’s settlement with the Doe class requires a purely objective assessment, and so JP Morgan’s subjective views of the relative strengths of its claims (one of the bases for Staley’s argument) has only limited relevance.” As a result, the materials being sought were not reasonably expected to yield evidence admissible under the Rule 408 exception for evidence sought for “another purpose.” Similarly, Judge Rakoff held that “to the extent JPMorgan is required to prove Staley caused the Doe settlement – as opposed to the underlying liability that led to it – the Court is not convinced that these mediation statements would offer any information of sufficiently unique value to overcome the important interest in maintaining the confidentiality of the mediation process.”
The 2020 Indiana Bankruptcy Court Decision
The prior decision by Judge Robyn L. Moberly in a proceeding in the Indiana bankruptcy court, rejecting an effort to offer mediation exhibits under seal (and even without seal as to some exhibits) in connection with a summary judgment motion, yielded a similar outcome. USA Gymnastics v. ACE American Insurance Company et al., 19-50012, Dkt. 354 (Bankr. S.D. Ind. Mar. 23, 2020). The decision was principally based on the PADRE confidentiality agreement (substantively identical to the PADRE agreement at issue in the JPMC dispute) that all parties executed before commencement of the mediation proceeding.
The Indiana bankruptcy proceeding followed another multi-party mediation relating to claims of sexual abuse, this time by Dr. Larry Nasser. The mediation parties included gymnast plaintiffs, Dr. Nasser, Michigan State University, U.S.A. Gymnastics (USAG) and multiple insurers. The mediation before Judge Phillips resulted in a settlement of some claims, but not the gymnasts’ claims against USAG. USAG filed for bankruptcy and initiated an adversary proceeding against some insurers alleging breach of duties under their policies and seeking a declaratory judgment of insurance coverage.
USAG then sought permission from Judge Moberly to file certain exhibits containing communications from the mediations. It did not dispute that most of this confidential material should not be made public, but proposed to solve that problem by filing exhibits under seal. It further argued that the materials were not inadmissible under Rule 408 because “they either pertain to disputed claims that were not part of the mediations or can be offered to prove estoppel under the exceptions to Rule 408(b),” such that they were being offered for “other purposes” than the ones prohibited by the Rule. USAG further proposed that since Rule 408 was directed only to prohibitions against admissibility of evidence, the Court should allow USAG to offer the evidence as part of its motion, in the contemplation that the Court would not rule on its admissibility until it had seen the full briefing on USAG’s motion for summary judgment on coverage.
Judge Moberly elected to address the effect of the parties’ written agreement first. While the first sentence of the PADRE Confidentiality Agreement signed by all parties describes what materials will be considered subject to the protections of Rule 408 and consequently inadmissible, Judge Moberly recognized that the second sentence is even more constrictive regarding communications relating to the mediation. By providing that “no statement made during the course of mediation or any materials generated for the purpose of mediation may be offered into evidence,” the PADRE confidentiality agreement goes beyond Rule 408’s proscription against admission of evidence to prohibit confidential materials’ “even being offered as evidence.” (Emphasis added.) As a result, the court declared, USAG’s proposal to offer the exhibits under seal initially and let the court review them and decide later whether to admit them was “foreclose[d]” by the sweeping language of the second sentence of the PADRE confidentiality agreement USAG had signed. In addition, while Rule 408 contains an exception permitting use of confidential statements during settlement negotiations for “other purposes” apart from the ones recited in the Rule, Judge Moberly found that the broad language of “[t]he [PADRE] Confidentiality Agreement leaves no room for the exceptions set out in Rule 408(b).”
In response to USAG’s contention that no confidentiality provision should apply to the exhibits it wanted to proffer because the issue in the action (coverage for defense professional fees) had not been a part of the prior mediation, Judge Moberly concluded that this coverage issue was clearly a “subset” of the dispute that had been mediated. In response to USAG’s contention that its proposed exhibits were admissible because they supported a finding of estoppel – which USAG characterized as a permissible “exception” under Rule 408 – Judge Moberly reiterated that “[t]he [PADRE] Confidentiality Agreement provides a mediation privilege that reaches farther than Rule 408 and does not provide for an estoppel exception.”
Conclusion
The privilege attached to communications in mediation is not absolute under many states’ laws. Statutes and court decisions contain exceptions to permit disclosures in such extraordinary contexts as claims of malpractice during the mediation, revelations of child or intimate partner abuse or commission of a felony, showings that the materials have otherwise become public, or exceptional need for the materials (as the Second Circuit recognized in Teligent). But in the typical range of commercial disputes, and especially when the parties have executed an agreement like the PADRE Confidentiality Agreement, parties should be confident that their communications will be protected and that they will not be punished for having displayed candor in their mediation processes by seeing their candid communications revealed outside of the mediation.
