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MEDIATION: Mediation Confidentiality Protection

Jack E. Urquhart© July 31, 2018

A California trial court disqualified the law firm of Pepper Hamilton as counsel for URS/AECOM in its lawsuit against Atkinson/Walsh Joint Venture. The trial court found Pepper Hamilton violated a mediation confidentiality agreement by misusing documents exchanged during the mediation. This disqualification was recently reversed by a California intermediate court of appeal. URS Corporation v. Atkinson/Walsh, GO55271 (Cal. App. 4th July 26, 2018)(Not for publication). The case highlights the challenges parties can encounter in protecting information disclosed during mediation. Importantly, the mediator appropriately played no role in drafting the parties’ written Confidentiality Agreement.

Atkinson/Walsh hired URS/AECOM for design services. A dispute arose. Their written contract provided for mediation. In preparation for the mediation, URS/AECOM requested Atkinson/Walsh documents. Prior to exchanging documents, the parties agreed to the following Confidentiality Agreement:

As part of the mediation process, the parties have created an information sharing and exchange website (the ‘Share Site’ or ‘Site’), for purposes of facilitating and preparing for the planned mediation. The Share Site web address is https://collaborate.sheppardmullin.com. The Share Site and all documents and information contained on the Site are for the sole purpose of settlement and mediation. Representatives from each party will be given access to the Share Site. By accessing the Site and the documents and information contained on the Site, each party and each party’s representative certifies that ALL DOCUMENTS AND INFORMATION ACCESSED THROUGH THE SHARE SITE SHALL BE KEPT CONFIDENTIAL IN ACCORDANCE WITH THIS AGREEMENT AND ALL SUCH CONFIDENTIAL INFORMATION SHALL NOT BE REPRODUCED, DISTRIBUTED, OR DISCLOSED UNLESS IT IS FOR THE LIMITED PURPOSE OF FACILITATING SETTLEMENT AND/OR MEDIATION; AND ALL SUCH CONFIDENTIAL INFORMATION SHALL BE PROTECTED TO THE FULLEST EXTENT POSSIBLE BY THE MEDIATION PRIVILEGE OUTLINED IN CALIFORNIA EVIDENCE CODE SECTIONS 1115-1128, THE LIMITATIONS ON DISCLOSURE OF SETTLEMENT DISCUSSIONS AS OUTLINED IN CALIFORNIA EVIDENCE CODE SECTION 1152 AND ANY OTHER APPLICABLE LAW. It is understood and agreed that parties may disclose the information and documents contained on the Site to outside counsel, insurers, experts, consultants or subcontractors subject to the limitations above.

Based on this Confidentiality Agreement, Atkinson/Walsh uploaded around 8,000 documents to the Site. The documents included attorney-client privileged documents and analyses prepared by its litigation consultants.

The parties scheduled 3 mediation sessions. However, the day after the second session concluded, URS/AECOM filed suit against Atkinson/Walsh. Pepper Hamilton filed the complaint for URS/AECOM. No attorney from Pepper Hamilton participated in either of the two mediation sessions, but they did download documents from the Site prior to drafting and filing the URS/AECOM complaint.

Atkinson/Walsh demanded Pepper Hamilton return any mediation documents and information accessed from the Site. Pepper Hamilton never returned this data. However, it represented to the appellate court that it had at some point either destroyed or quarantined documents downloaded from the site.

The Appeal Court held:

1. Receipt of confidential information during a mediation alone does not support disqualification.
2. Pepper Hamilton did not violate the Confidentiality Agreement. The agreement permitted “outside counsel” to access the documents. “Outside counsel” was not a defined term. The agreement did not require the parties to disclose the identity of any “outside counsel” who accessed the Site. Pepper Hamilton, therefore, did not “wrongfully possess the Share Site information and documents.”
3. The Confidentiality Agreement did not require destruction or return of Share Site documents. Pepper Hamilton, therefore, was under no obligation to either destroy or return accessed documents or information.
4. Pepper Hamilton’s use of Site documents or information to prepare the complaint might have been a violation of the Confidentiality Agreement. The trial court found Pepper Hamilton did use the data for that purpose. The Appeal Court, however, found the evidence did not support the trial court’s finding. Atkinson/Walsh, the Appeal Court held, did not present direct evidence that Pepper Hamilton used the Site documents in violation of the Confidentiality Agreement. Since the Confidentiality Agreement, as written, was not violated, Pepper Hamilton is not disqualified from representing its client in the litigation.

The Appeal Court added:

“Of course, it would have been better for all concerned if Pepper Hamilton had promptly agreed to return the document [sic] as requested, but that is not the situation we are dealing with.”

This unfortunate incident is a useful discussion tool. Parties to a mediation have an expectation of confidentiality even in the absence of a detailed confidentiality agreement. Stated differently, mediation thrives on good faith negotiation. On the other hand, an expectation of absolute confidentiality for all information exchanges during mediation is impractical.

Effective mediation in many matters surely benefit from an exchange among the parties of confidential information. A Confidentiality Agreement among the parties is the most obvious choice for promoting a fair exchange of sensitive information. A strong teaching from this case is the challenge for the parties to draft a Confidentiality Agreement with sufficient detail to meet the precise needs of their particular mediation strategies. The greater the parties’ willingness to share sensitive information to further the goal of a successful mediation, the greater the demand for care and craft in drafting protective contracts.

ARBITRATION: International Arbitration-Federal Jurisdiction & Provisional Remedies

Jack E. Urquhart© July 15, 2018

Stemcor USA Incorporated v. Cia Siderurgica Do Para Consipar, No. 16-30984 (5th Cir. July 11, 2018) addresses federal court jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and court enforcement of provisional remedies in aid of arbitration.

Federal Jurisdiction: Convention on Recognition and Enforcement of Foreign Arbitral Awards

Daewoo International Corp., a South Korean trading company, entered a series of contracts with  American Metals Trading. All the contracts had arbitration provisions. Daewoo paid American Metals for pig iron, but American Metals never delivered it. Daewoo filed suit in federal court, seeking an order to compel arbitration and an attachment of the pig iron still possessed by American Metals.

Another American Metals creditor, Thyssenkrupp Mannex GMBH of Germany, attached the same pig iron in a Louisiana state court action. Then, Thyssenkrupp intervened in the Daewoo federal case, seeking to vacate Daewoo’s attachment.

The first order of business for the Fifth Circuit was determining whether federal courts had subject matter jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The Fifth Circuit held that federal courts had subject matter jurisdiction. The two Convention jurisdictional requirements were met. First, there were arbitration agreements that fell under the Convention. Second, the dispute related to the arbitration agreements.

9 U.S.C. § 203 gives federal courts jurisdiction over all actions or proceedings falling under the Convention. And 9 U.S.C. § 202 provides: “An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention.”

The Daewoo arbitration “fell under the Convention” because the following four requirements were met: 1) a written arbitration agreement, 2) the written agreement must provide for arbitration in the territory of a Convention signatory, 3) the agreement to arbitrate must arise out of a commercial relationship, and 4) at least one party to the agreement must not be an American citizen.

The dispute “related to the arbitration agreements,” because Daewoo sought an attachment of the pig iron in aid of arbitration. The Fifth Circuit held that federal courts had subject matter jurisdiction to issue “provisional remedies in aid of arbitration. See E.A.S.T., Inc. of Stanford v. M/V Alaia, 876 F.2d 1165 (5th Cir. 1989).

Provisional Remedies in Aid of Arbitration

Granting subject matter jurisdiction, the Fifth Circuit turned to the issue of whether Daewoo’s provisional remedy of attachment was permitted under Louisiana state law.

Thyssenkrupp, the intervenor, argued that Louisiana’s non-resident attachment statute did not allow the Daewoo attachment in aid of arbitration. The Louisiana statute provides that “[a] writ of attachment may be obtained in any action for a money judgment whether it is against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” La. Code Civ. Proc. Art. 3542 (Emphasis added.)

The majority Fifth Circuit opinion held that Louisiana state law permitted attachments in actions seeking money damages. However, Daewoo’s suit to enforce arbitration was technically not pled as seeking money damages. “A motion to compel arbitration seeks an order requiring a party to take an action—namely, to arbitrate the dispute. Accordingly, a suit seeking to compel arbitration is not a ‘action for a money judgment.’” Daewoo’s attachment, therefore, was vacated.

The Dissent

A dissent by Judge Graves concluded that “the underlying action seeking to compel arbitration here is clearly an ‘action for a money judgment’ under Louisiana’s non-resident attachment statute.” He, therefore, would have permitted the Daewoo attachment.

Conclusions

The clear “take-aways” from this decision are (1) this precedent favors federal subject matter jurisdiction for Convention grounded arbitrations, (2) “provisional remedies in aid of arbitration” are available, and (3) pleadings seeking provisional remedies must be drafted with extreme care. Mention need be made that this litigation may well not be over. Stay tuned.

International Arbitration-Federal Jurisdiction & Provisional Remedies

Stemcor USA Incorporated v. Cia Siderurgica Do Para Consipar, No. 16-30984 (5th Cir. July 11, 2018) addresses federal court jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and court enforcement of provisional remedies in aid of arbitration.

Federal Jurisdiction: Convention on Recognition and Enforcement of Foreign Arbitral Awards

Daewoo International Corp., a South Korean trading company, entered a series of contracts with  American Metals Trading. All the contracts had arbitration provisions. Daewoo paid American Metals for pig iron, but American Metals never delivered it. Daewoo filed suit in federal court, seeking an order to compel arbitration and an attachment of the pig iron still possessed by American Metals.

Another American Metals creditor, Thyssenkrupp Mannex GMBH of Germany, attached the same pig iron in a Louisiana state court action. Then, Thyssenkrupp intervened in the Daewoo federal case, seeking to vacate Daewoo’s attachment.

The first order of business for the Fifth Circuit was determining whether federal courts had subject matter jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The Fifth Circuit held that federal courts had subject matter jurisdiction. The two Convention jurisdictional requirements were met. First, there were arbitration agreements that fell under the Convention. Second, the dispute related to the arbitration agreements.

9 U.S.C. § 203 gives federal courts jurisdiction over all actions or proceedings falling under the Convention. And 9 U.S.C. § 202 provides: “An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention.”

The Daewoo arbitration “fell under the Convention” because the following four requirements were met: 1) a written arbitration agreement, 2) the written agreement must provide for arbitration in the territory of a Convention signatory, 3) the agreement to arbitrate must arise out of a commercial relationship, and 4) at least one party to the agreement must not be an American citizen.

The dispute “related to the arbitration agreements” because Daewoo sought an attachment of the pig iron in aid of arbitration. The Fifth Circuit held that federal courts had subject matter jurisdiction to issue “provisional remedies in aid of arbitration. See E.A.S.T., Inc. of Stanford v. M/V Alaia, 876 F.2d 1165 (5th Cir. 1989).

Provisional Remedies in Aid of Arbitration

Granting subject matter jurisdiction, the Fifth Circuit turned to the issue of whether Daewoo’s provisional remedy of attachment was permitted under Louisiana state law.

Thyssenkrupp, the intervenor, argued that Louisiana’s non-resident attachment statute did not allow the Daewoo attachment in aid of arbitration. The Louisiana statute provides that “[a] writ of attachment may be obtained in any action for a money judgment whether it is against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount , and whether it is liquidated or unliquidated.” La. Code Civ. Proc. Art. 3542 (Emphasis added.)

The majority Fifth Circuit opinion held that Louisiana state law permitted attachments in actions seeking money damages. However, Daewoo’s suit to enforce arbitration was technically not pled as seeking money damages. “A motion to compel arbitration seeks an order requiring a party to take an action—namely, to arbitrate the dispute. Accordingly, a suit seeking to compel arbitration is not a ‘action for a money judgment.’” Daewoo’s attachment, therefore, was vacated.

The Dissent

A dissent by Judge Graves concluded that “the underlying action seeking to compel arbitration here is clearly an ‘action for a money Judgment’ under Louisiana’s non-resident attachment statute.” He, therefore, would have permitted the Daewoo attachment.

Conclusions

The clear “take-aways” from this decision are (1) this precedent favors federal subject matter jurisdiction for Convention grounded arbitrations, (2) “provisional remedies in aid of arbitration” are available, and (3) pleadings seeking provisional remedies must be drafted with extreme care. Mention need be made that this litigation may well not be over. Stay tuned.

ARBITRATION: Beware the Term “May”

Jack E. Urquhart© August 12, 2018

Southern Green Builders, LP v. Cleveland, No. 14-17-00483-CV (Tex. App.—Houston[14th Dist.] August 9, 2018) is close case, but it hammers home a crystal-clear contract drafting caution. “May” is a perilous term for those truly desiring mandatory arbitration of contractual disputes.

A builder and his customer executed a contract, providing that disputes “may be submitted to binding arbitration, but both parties shall also have the right to seek other legal remedies as they see fit and the law allows.” The trial court denied the builder’s motion to compel arbitration. The Fourteenth Court of Appeals reversed, but with a dissent. Regardless of the ultimate outcome of this matter, the opinions are strong reminders that drafting an arbitration provision requires care.

The builder apparently sent his customer a draft contract that contained a fairly detailed arbitration provision. The customer struck much of the language altogether, changed “shall” to “may” arbitrate, and added “but both parties shall also have the right to seek other legal remedies as they see fit and the law allows.” The builder agreed to all the customers changes.

The issue became whether the agreed upon language was permissive or binding. The majority opinion concluded the agreement called for mandatory arbitration. The dispute may well continue, and a sure winner is not apparent.

Stepping away from the case itself, I make the personal observation, which I feel others might share, that alternative dispute provisions often read as if the parties are not focused on them. One or all parties may have a notion that, if trouble comes, arbitration might be a good option, but no party is sufficiently committed to think through and carefully draft the ADR provisions.

When a contracting party unquestionably wants potential disputes resolved in arbitration, as all will benefit from a careful drafting. Avoiding the use of “may” is a good start.