Understanding Mediation Agreements

While mediation is supposed to help avoid litigation, the parties sometimes end up in a dispute over the mediation itself. Practitioners thus need to understand their mediation agreements, which can play a key role in resolving such disputes. Heres a primer.

Unsettled Settlements:

By Jonah Orlofsky

ediations typically begin with the signing of an agreement to mediate. The proposed form of agreement is generally provided by the mediator and is a binding contract between the mediator and the parties to the litigation.
arise out of mediations. These include arguments about the terms of a mediated settlement, whether one party acted in bad faith, and even whether a settlement was fraudulently induced during a mediation.1 Although there is a statute governing some aspects of the mediation process (the Illinois Uniform

Practitioners often give short shrift to these agreements because they appear to have little effect beyond the mechanical aspects of the mediation, such as when it will take place and who pays the mediator. The reality, however, is that, while mediations are supposed to resolve disputes, in todays litigious world disputes can and do

Mediation Act), and local rules control some aspects of court-annexed mediation programs, the agreement can be a key factor in resolving disputes that arise out of the mediation. Practitioners, therefore, should understand the function and potential effect of the mediation agreement. This article examines some of their most common and important provisions.
__________ 1. One study found 1,223 published decisions between 1999 and 2003 resolving disputes arising out of mediation. James R. Coben & Peter N. Thompson, Disputing Irony: A Systematic Look at Litigation About Mediation, 11 Harv. Negot. L. Rev. 43, 45 (2006).

Jonah Orlofsky (www.orlofskylaw.com) is a certified mediator in Cook and Will counties, a member of American Arbitration Associations roster of neutral mediators, and a member of the Association of Attorney Mediators. He thanks Michael J. Leech, Esq. for his comments.
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Privilege and confidentiality

Privilege and confidentiality work in tandem to ensure that mediation communications are private and not used in the litigation, which is important to foster open communications in a mediation. Although not always carefully distinguished, privilege and confidentiality are different concepts that address different issues. The mediation privilege is an evidentiary rule that prohibits the use of mediation communications in the courtroom. Settlement communications are already inadmissible in both federal and Illinois state courts.2 The mediation privilege, however, is broader because it encompasses any communication that takes place during or relates to the mediation (scheduling communications, for example), regardless of whether it is a settlement communication under Rule 408. The privilege bars any party from using mediation communications at trial, in motions, or in arguments to the court. Confidentiality, on the other hand, does not address what can be used in the courtroom, but rather prohibits the disclosure of information about the mediation outside of the courtroom. Like a protective order, a confidentiality agreement prohibits talking to the press, potential witnesses, or friends and neighbors of the parties. Virtually all mediation agreements address privilege and confidentiality, and practitioners must understand the workings of both provisions and their interplay with overlapping statutes and court rules. Privilege. Section four of the Illinois Uniform Mediation Act (IUMA) provides a privilege barring the admission into evidence of mediation communications.3 Mediation communications in Illinois are privileged, therefore, even if there is no privilege provision in the mediation agreement. Despite the existence of this statutory privilege, however, most mediation agreements include such a provision. A contractual provision providing a mediation privilege does have one benefit; it ensures that mediation communications are privileged even if the statute does not apply. This can be important in cases involving out-of-state parties, for example, where there might be a question about whether the IUMA applies. To accomplish this, the contract need only say that mediation communications are privileged under the IUMA. Problems can arise, however, if the contract attempts to define the scope of the mediation privilege. A contractual provision can narrow the

scope or effect of the IUMA mediation privilege because the statute permits parties to waive its provisions.4 Consequently, if a mediation agreement goes beyond merely stating that the communications are privileged and attempts to spell out the scope of the privilege, you should compare the contract to the IUMA and determine whether the privilege has been narrowed.5 One common application of the mediation privilege is in cases where a post-mediation dispute arises over some of the terms of the final agreement. The mediation privilege, if applicable, may preclude evidence of oral communications that took place during the mediation as one means of determining what the parties intended. While a full settlement agreement is not necessary at the conclusion of a mediation6 because of the mediation privilege, it is important to spell out any terms that might create controversy. If a dispute arises, the privilege could preclude the testimony of any oral discussions during the mediation.

Though they arent always carefully distinguished, privilege and confidentiality are different concepts that address different issues in mediation.

An example of the importance of a contractual mediation privilege provision is a case arising out of the dispute (depicted in the movie The Social Network) about who had the original idea for Facebook. After the parties reached a settle__________ 2. Ill. R. Evid. 408; Fed. R. Evid. 408. 3. 710 ILCS 35/4. For a good discussion of the Illinois Uniform Mediation Act, see Sarah E. Cook & Sheryl E. Healy, The Uniform Mediation Act: Illinois Newest Privilege, 92 Ill. B. J. 92 (Feb. 2004). 4. 710 ILCS 35/5. 5. Because the IUMA refers to waiving the privilege, the parties are entitled to limit the privilege (i.e., allow matters to be used in court that would otherwise be privileged). The statute does not appear, however, to permit the parties to broaden the scope of the privilege (i.e., preclude testimony about matters that are not privileged under the IUMA). 6. A mediation produces a binding contract as long as all the necessary terms have been agreed upon. Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034, 1037-38 (9th Cir. 2011).

dential, while others are more detailed and spell out any exceptions to the confidentiality requirement. Note that specifying exceptions to the confidentiality requirement can raise questions about differences between the scope of the privilege and confidentiality provisions. If the agreement attempts to specify exceptions to the confidentiality requirement separately from any exceptions to the evidentiary privilege, its good practice to compare the scope of the privilege and confidentiality provisions to determine any differences in their coverage. Some mediation agreements specifically address caucus confidentiality. A caucus is a private session between the mediator and one of the parties, in contrast to a joint session where all parties are present. A question embedded in Disputes that arise in mediation every mediation is whether include arguments about the the mediator can disclose to the other side informaterms of a settlement, whether tion he or she has received one party acted in bad faith, and in caucus. There are two approaches: (1) caucus comeven whether the settlement was munications are considered fraudulently induced. confidential unless the mediator is specifically authorized to disclose something to the other side, or, alternatively, (2) the mediator legation that false statements were made can disclose anything learned in caucus except what a party asks the mediator to in the mediation.7 Confidentiality. The IUMA provides keep confidential. If this issue is addressed in the mediathat mediation communications are confidential to the extent agreed by the tion agreements confidentiality proviparties or provided by other law or rule sion, be sure to note how the mediator of this State.8 Thus, if the parties want proposes to handle it. to keep matters relating to a mediation confidential, a confidentiality provision Mediator neutrality in the mediation agreement is necessary. Mediator neutrality is fundamental As noted earlier, the privilege only pre- to the process. Many agreements, therevents matters relating to the mediation fore, explicitly state that the mediator from being used in the court case. A con- will be acting as a neutral and will not fidentiality provision precludes disclosure be providing legal advice to either side. of information outside of the courtroom. Because most mediators are lawyers, this Some confidentiality agreements ap- provision ensures that no one relies on pear in a separate document, while oth- anything a mediator says as constituters are in the general mediation agree- ing legal advice. This can be particularly ment. Using a separate confidentiality important if a mediator was selected document may be useful if non-parties for particular substantive expertise or such as relatives or advisors will be at- is being asked to evaluate the claim in tending the mediation. It is important to any way. ensure that everyone attending the meA neutrality provision is probably diation is bound by the confidentiality more informational than substantive beagreement. cause a mediator acts as a neutral reSome confidentiality provisions state gardless whether it is mentioned in the only that all communications are confi- mediation agreement.9 Should a claim
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ment in mediation, one side sued to void the settlement agreement, claiming that it had been intentionally misled about the value of Facebook during the mediation. Proving the claim would necessarily require testimony about what was said during the mediation. While the action was not subject to any statutory mediation privilege (California law controlled), a contractual provision in the mediation agreement created a privilege that precluded either side from offering evidence about what was said. Based on this provision, the court upheld the dismissal of the fraud claim because the plaintiff would be unable to introduce any evidence to support the al-

arise, however, in which a litigant alleges he or she received incorrect advice from a mediator, a neutrality provision might ensure swift dismissal.

Mediator protection provisions

Mediators, not surprisingly, want to avoid malpractice suits. The question of a mediators liability for negligence has not been addressed by the Illinois courts. However, an exception to the mediation privilege under the IUMA is for mediation communications sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a mediation party.10 This provision suggests the possibility of such claims, which have been filed in other jurisdictions.11 In addition to malpractice claims, mediators seek to avoid being drawn into subsequent disputes arising out of the mediation. It is not uncommon for parties to bring actions against each other arising out of a mediation,12 and it is not hard to envision one party or the other seeking the testimony of a mediator in such a claim. Consequently, mediation agreements typically contain one or more of the following provisions: The mediator is not liable for his or her acts or omissions or those of the parties in the litigation. The mediator cannot be subpoenaed to testify. The mediator will be defended and indemnified by the parties for any claim arising out of the mediation.

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7. Facebook, 640 F.3d at 1041. 8. 710 ILCS 35/8. If the mediation has been initiated pursuant to an Illinois state court-annexed program, local rules may address confidentiality. E.g., Cir. Ct. of Cook County Rs. 13.4(e)(xi), 20.7, and 21.07 (confidentiality in mediations in Domestic Relations, Law, and Chancery Divisions, respectively). In Illinois federal cases, if the mediation is pursuant to a court order, or pursuant to a court-annexed mediation program, local rules may provide for confidentiality. See LR. 83.5 of the Northern Dist., LR. 16.4(E)(7) of the Central Dist., and LR. 16.3 of the Southern Dist. 9. If the mediator is a lawyer, Rule 2.4 of the Illinois Rules of Professional Conduct describes the situations in which a lawyer will be considered a third-party neutral. 10. 710 ILCS 35/6(a)(6). 11. Although mediators have been sued, as of 2003, no cases exist in the official reporters in which a mediator ultimately paid a former client for injuries the mediator caused during a mediation. Michael Moffitt, Suing Mediators, 83 B.U. L. Rev. 147, 150-51 (2003). 12. E.g., Negron v. Woodhull Hosp., 173 Fed. Appx. 77, 79, 2006 WL 759806, at *1 (2d Cir. 2006) (action for sanctions alleging bad faith conduct in mediation); Wilson v. Wilson, 282 Ga. 728, 728, 653 S.E.2d 702, 703 (2007) (action to enforce mediated settlement).

Remedies for violation of the mediation agreement

Violations of the mediation agreement can be difficult to address. What does one do about a violation of the confidentiality provision, for example? One court dismissed a lawsuit because a plaintiffs breach of the confidentiality provision tainted the future course of the litigation,13 but such extreme sanctions are rare. More commonly, courts assess monetary sanctions for various failures to proceed in good faith.14 Mediation agreements sometimes address the difficulty in determining an appropriate sanction for violations by acknowledging that monetary damages would be inadequate and, therefore, that the parties may seek injunctions or other equitable relief for violations.

Mechanics of the mediation

The mediation agreement will state what the mediators fee will be, who is responsible for that fee, what pre-mediation submissions must be made, and when and where the mediation will take place. Some agreements also provide that each side bring someone with full settlement authority and may require that he or she appear in person. Spelling out these kinds of obligations in the mediation agreement will be relevant should one party accuse the other of failing to mediate in good faith.

Termination
Mediation agreements sometimes not often set out what constitutes a termination of the mediation. Local rules for court-annexed mediations may also address this issue.16 On one level, a termination provision simply determines when the mediator or the parties are relieved of any further obligation to mediate. This can be important if the parties have been ordered by a court to mediate in good faith. Such provisions can have a further impact, however. If the parties meet for a day and are unable to resolve the dispute, mediators may continue to work with them on reaching a settlement, whether by phone or through additional in-person meetings. This raises the question of whether the mediation is continuing, which in turn affects whether the contractual and statutory privilege and confidentiality rules still apply. For example, what if a dispute arises about whether a binding agreement was reached in telephone conversations with a mediator that took place a week after the formal mediation session concluded? If the mediation is deemed to still be ongoing, the statutory and contractual

provisions regarding the admissibility of communications remain in effect. If, however, the mediation is deemed to have terminated, all post-mediation communications will be admissible unless covered by Rule 408 of the Rules of Evidence. The question of whether a mediation has terminated, therefore, can impact the admissibility of communications in a subsequent dispute.17 If the mediation does not produce a settlement, the parties should determine whether the mediation has terminated, and a termination provision in the mediation agreement is obviously the first source to consult.

Conclusion
While the vast majority of mediations proceed smoothly, mediation agreements play a critical role in resolving disputes that do arise. This does not mean, however, that drafting a mediation agreement must be a complex and time-consuming matter. The form of the agreement is generally provided by a neutral mediator and should not favor one side or the other. Practitioners should, however, review and understand the provisions of mediation agreements before the mediation starts. That way, they can be aware of the impact that document might have during the mediation and in any disputes that may arise later.

Disclosure
The IUMA requires that mediators investigate all facts that might raise a question about their impartiality and disclose them before accepting the mediation.15 Some mediation agreements confirm that the mediator has made all necessary disclosures. Some also confirm that the parties have provided all necessary information for the mediator to make required disclosures. It seems unlikely that such a provision could preclude a future dispute about a mediators failure to disclose because the parties would not know the undisclosed fact. A disclosure provision of this kind, however, can be a useful reminder to parties to ensure that the issue has been properly addressed, and may also weaken a later challenge to a mediated settlement based on the mediators failure to disclose.

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13. Hand v. Walnut Valley Sailing Club, 475 Fed. Appx. 277, 2012 WL 1111137 (10th Cir.) 14. E.g., Mojzisik v. Estrada, 983 So.2d 699 (Fla. Dist. Ct. App. 2008). 15. 710 ILCS 35/9. 16. E.g., Cir. Ct. of Cook County Rs. 20.05 and 21.05 (completion of mediation in Law and Chancery Divisions, respectively). 17. See, e.g., Donahoe v. Arpaio, 872 F. Supp. 2d 900, 911 (D. Ariz. 2012) (Subsequent negotiations between the parties, however, are not protected even if they include information initially disclosed in the mediation. To protect additional communications, the parties are required to return to mediation).

Reprinted with permission of the Illinois Bar Journal, Vol. 101 #8, August 2013. Copyright by the Illinois State Bar Association. www.isba.org