Good-faith participation in compelled mediation

Driven by crowded dockets, a desire to avoid having to resolve difficult cases, or a desire to protect perceived vulnerable populations from likely adverse outcomes in courts of law, statutes, rules, court orders and judicial decisions that force disputing parties into mediation have caught hold.

The Alternative Dispute Resolution Act of 1998, 28 U.S.C. §652, authorizes the district courts of the United States to require participation in mediation. The Federal Rules of Civil Procedure and related local rules reflect this authority. See, e.g., Fed. R. Civ. P. 16(c)(2)(I) (authorizing district courts to use “special procedures to assist in resolving [cases] when authorized by statute or local rule”).

Local rules vary, but most if not all federal jurisdictions require “good-faith” participation in mediation when a court orders the parties to mediate. Similar authority exists in the statutes and court rules of many states.

While a requirement that parties mediate in good faith has conceptual merit — there would be little point in requiring parties to mediate in bad faith — it likewise presents challenges.

Chief among them are a great deal of uncertainty about what precisely constitutes good-faith participation, difficulty in determining whether a party has failed to participate in good faith, and lack of clarity about what remedy can effectively address a party’s failure to do so.

As a result, achieving compliance with the rules and statutes requiring good-faith participation is problematic for parties and courts alike.

It is therefore important that in-house counsel understand the jurisprudence in this area so that they can better ensure that their corporate clients avoid falling on the wrong side of their obligation to mediate in good faith when directed by a court to do so.

The definitional problem

The crux of the issue is that “good faith” is an intangible and abstract quality. It is a concept of each individual’s “own mind and inner spirit.” Doyle v. Gordon, 158 N.Y.S.2d 248, 260 (N.Y. Sup. Ct. 1954).

It is difficult to define beyond vague concepts such as “honesty of purpose.” Reflecting this difficulty, the rules and statutes compelling mediation typically do not attempt a definition. Rather, we are left with judicial guidance that, more often than not, tells us what is not necessary for good-faith participation, rather than what is.

The caselaw has established at least one principle worth remembering: Parties to mediation are not obligated to make or accept any particular offer. See G. Heileman Brewing Co. v. Joseph Oat Corp., 871 F.2d 648, 653 (7th Cir. 1989); Hess v. New Jersey Transit Operations, Inc., 846 F.2d 114, 116 (2d Cir. 1988); Kothe v. Smith, 771 F.2d 667, 669-70 (2d Cir. 1985).

In addition, at least one court has made an effort to provide objective standards for what constitutes good-faith participation. In reversing a Bankruptcy Court decision, the District Court in In re A.T. Reynolds & Sons, Inc., 452 B.R. 374 (S.D.N.Y. 2011), interpreted “good faith” narrowly to require compliance with orders to attend mediation, to provide pre-mediation statements, and to appear with authority to settle, but not more.

For those looking for greater comfort that their conduct will not lead to sanctions or bias against them, reference to the views of scholars may be helpful. As reported by Professor John Lande in an article entitled “Using Dispute System Design Methods to Promote Good-Faith Participation in Court-Connected Mediation Programs,” 50 UCLA L. Rev. 69, 77 & n.25 (2002), Professor Kimberlee Kovach proposed the following itemized list of behaviors that should protect against any negative consequences:

1. compliance with the terms and provisions of the state statute or other rule governing mediation;

1. compliance with any specific court order referring the matter to mediation;

1. compliance with the terms and provisions of all standing orders of the court and any local rules of the court;

1. personal attendance at the mediation by all parties who are fully authorized to settle the dispute, which shall not be construed to include anyone present by telephone;

1. preparation in the mediation by the parties and their representatives, which includes the exchange of any documents requested or as set forth in a rule, order or request of the mediator;

1. participation in meaningful discussions with the mediator and all other participants during the mediation;

1. compliance with all contractual terms regarding mediation that the parties may have agreed to;

1. following the rules set out by the mediator during the introductory phase of the process;

1. remaining at the mediation until the mediator determines that the process is at an end or excuses the parties;

1. engaging in direct communication and discussion between the parties to the dispute, as facilitated by the mediator;

1. making no affirmative misrepresentations or misleading statements to the other parties or the mediator during the mediation; and

1. in pending lawsuits, refraining from filing any new motions until the conclusion of the mediation.

We think conforming with these behaviors is prudent in light of the uncertainty about how any individual judge will determine whether a party has acted in good faith.

The confidentiality conundrum

In addition to the difficulties that arise from a lack of clarity about what good faith means, the ability of courts to remedy a lack of good-faith participation in mediation is limited by a concept that has long been recognized as essential to successful mediation: confidentiality.

Traditionally, voluntary mediation is confidential and the court does not know what transpires in it. But how can the courts enforce compelled good-faith participation in mediation without knowing what has taken place?

Unfortunately, supporters of the requirement of good-faith participation answer that question in a way that undermines the fundamentals of successful mediation by permitting disclosure of the parties’ conduct during mediation.

Although some courts have resisted this practice, others have not. Compare Anthony v. Andrews, 2009-Ohio-6378 (Court of Appeals of Ohio, 11th District, 2009) (maintaining the confidentiality of mediation), with Nick v. Morgan Foods, Inc., 99 F. Supp. 2d 1056, 1058-59 (E.D. Mo. 2000) (disregarding confidentiality and reviewing details about a party’s participation in mediation).

Notably, in a decision that has since been reversed, the Bankruptcy Court for the Southern District of New York held that “[t]o ensure good faith participation, the mediators are required to report failures to participate in good faith, and are relieved from the rules of confidentiality to the extent necessary to do so.” In re A.T. Reynolds & Sons, Inc., 424 B.R. 76, 87 (Bankr. S.D.N.Y. 2010), reversed by In re A.T. Reynolds & Sons, Inc., 452 B.R. 374, 381-85 (S.D.N.Y. 2011).

The reversal of that decision hopefully foreshadows increased recognition of litigant autonomy and the importance of confidentiality in mediation.

Comparably troubling is the fundamental unfairness of imposing sanctions on parties found, on the basis of subjective judgments, to have failed to participate in mediation with the requisite good faith. Fortunately, most such decisions are reversed, but only after the considerable expense of an appeal.

In-house counsel whose clients are involved in court-ordered mediation should be aware that the confidentiality that protects the proceeding might not be absolute and that their clients’ participation might be reviewed subjectively by a judge who did not participate in the mediation. This cautions in favor of adhering to the behaviors identified above.

The take away

Courts appear to be recognizing the limitations and dangers inherent in requiring unwilling parties not only to participate in mediation, but to do so in accordance with undefined, subjective standards of good faith.

Nevertheless, it is important to be aware that behavior ranging from passivity to well-founded stubbornness at a compelled mediation has been interpreted as bad faith and resulted in sanctions.

Even though such decisions may be overturned, it is at the expense of delay and additional cost in the resolution of a dispute.

In addition, even if a court determines that it is powerless to sanction what it considers a failure to mediate in good faith, the judge may nevertheless be subconsciously biased against the “offending” party in future proceedings.

Thus, the best advice one can give is to tread with caution and behave in a manner that demonstrates respect for court orders compelling mediation, honesty with the mediator and adversaries, and engagement in the mediation process — even when the prospects for settlement appear slim.

Thomas J. Sartory and Gary M. Ronan are members of the litigation and professional liability groups at Goulston & Storrs in Boston. They can be contacted at [email protected] and [email protected].