FACEBOOK AND FEDERAL MEDIATION CONFIDENTIALITY
If you saw “The Social Network,” skip this introduction; if not, and you’ve been hiding in a cave for the last few years, be advised that the Winklevoss twins and a third party sued Mark Zuckerberg, the Facebook founder, for allegedly stealing the concept from them. In turn, Facebook sued the Winklevosses. A California Northern District Court judge ordered everyone into mediation, during which the participants signed a confidentiality agreement stipulating that all statements made during the process were privileged, non-discoverable and inadmissible “in any arbitral, judicial, or other proceeding.” During that mediation, the parties entered into a settlement with the Winklevosses agreeing to give up their competing company for cash and a piece of Facebook. Facebook filed a motion seeking to enforce the settlement after negotiations over the form of the final deal documents fell apart. The Winklevosses argued that the settlement agreement was unenforceable because it lacked certain material terms and had been procured by fraud.
The district court found the settlement agreement enforceable, in part, because what was said and not said during the mediation was excluded under the Northern District Court’s Alternative Dispute Resolution local rule 6-11, which it read to create a “privilege” for “evidence regarding the details of the parties’ negotiations in their mediation.” The resulting appeal in Facebook v. Winklevoss (9th Cir. 2011) nos. 08-16745, 08-16873, 09-15021, 2011 U.S. App. LEXIS 7430 provides an opportunity to compare the status of mediation confidentiality in California’s state courts and the Ninth Circuit.
Chief Judge Alex Kozinski, writing for the unanimous court in Facebook, affirmed the exclusion of the alleged mediation misrepresentations but with reasoning that differs from the California Supreme Court’s approach to the situation. Because there are no federal rules or statutes concerning mediation confidentiality, each of California’s four district courts have adopted their own approaches to the matter. Facebook undercuts the effectiveness of those rules by finding “It’s doubtful that a district court can augment the list of (federally created) privileges by local rule.” Having created this ambiguity, the Court then sidestepped the issue it had just created and held, in any event, that the local rules did not apply because a private mediator had been used.
Facebook then found that the district court had been right to exclude the proffered evidence because the parties’ confidentiality agreement provided that all statements made during the course of the mediation were privileged settlement discussions and inadmissible for any purpose, including in any legal proceeding. Accordingly, Facebook affirmed that the Winklevosses had been properly prohibited from introducing evidence of any alleged mediation misrepresentations.
Facebook unambiguously holds that parties in federal proceedings, when involved in private mediations, can negotiate for the total confidentiality of mediation communications. Less clear is the status of confidentiality where the mediation has been conducted by a court-appointed person. Added to this confusion is that each of California’s four district courts has its own approach to confidentiality. (For example, in commentary 6-12 to its local rules, the Northern federal district court notes that absolute confidentiality, regardless of the circumstances, may be excused in “limited circumstances in which the need for disclosure outweighs the confidentiality of a mediation,” such as threats of death or substantial bodily injury; use of the mediation to commit a felony and the right to cross-examination in a quasi-criminal proceeding.) In contrast, the mediation communications in Facebook would be absolutely confidential in a California state court whether the mediator had been privately retained or court appointed and whether or not the parties had agreed in writing to apply confidentiality to all court proceedings. For the moment, therefore, the California courts are well ahead of their federal counterparts.
Judge Michael D. Marcus (Ret.)
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Copyright Michael D. Marcus, April 2011
Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.