Beware in Mediation as to Whether California or Federal Law Governs Potential Claims of Privilege.

On Behalf of | Nov 28, 2016 | Uncategorized |

The Ninth Circuit recently held that Federal Rule of Evidence (FRE) 501, rather than California’s mediation confidentiality statute (Evidence Code § 1123(b)), governs the admissibility of mediation exchanges when a settlement relates to federal claims and is sought to be enforced in federal court. In re TFT-LCD (Flat-Panel) Antitrust Litigation, 835 F.3d 1155 (9th Cir. 2016).

There, the parties engaged a mediatory to resolve a price-fixing dispute. The mediator proposed settlement in an email exchange. Both parties accepted by email; however, the defendant refused to comply and plaintiff sued to enforce the agreement. Plaintiff alleged federal and state antitrust claims and breach of contract for defendant’s alleged reneging on the settlement agreement. Subsequently, plaintiff dismissed its antitrust claims against defendant. Plaintiff continued to litigate its state-law breach of contract claim for defendant’s failure to abide by the settlement. Federal diversity jurisdiction allowed the case to remain in federal court. Defendant moved for summary judgment on its contract claim. The district court denied the motion, ruling California Evidence Code § 1123(b) precluded admission of the email exchange (and the resulting contract) without some express statement to the effect that the settlement was intended to be enforceable or binding. Plaintiff appealed the ruling arguing that pursuant to FRE 501, federal common law generally governs claims of privilege. The Ninth Circuit agreed. Although state contract law governed whether the parties had reached a settlement, the underlying action that was alleged settled contained both federal and state claims. The Court held that at the time of mediation, both parties would have expected to litigate both federal and state law issues. Because at the time the parties engaged in mediation, their negotiations concerned (and the mediated settlement settled) both federal and state law claims, the federal lay of privilege applies. Thus, the Ninth Circuit held that federal common law generally governs claims of privilege and remanded the case directing the lower court to resolve the dispute accordingly.

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