New Jersey has an important new case that mediators and advocates in mediation should be aware of: Willingboro Mall Ltd. v. 240/242 Franklin Avenue Associates LLC , A-4589-09. The headlines in the news focus on the fact that it held an oral settlement reached in mediation may be enforceable if subsequently memorialized by a writing :”We hesitate to interpret the writing requirement of Rule 1:40-4(i) so rigidly that it becomes an impediment to resolution of a matter through mediation.”

I would like to focus on a different point in the case — the mediator’s privilege not to testify.

New Jersey has adopted a mediation privilege in its rules of evidence:
New Jersey Rule of Evidence 519 entitled “Mediation Privilege” provides that a mediation communication is privileged and shall not be subject to discovery or admissible in evidence in a proceeding unless waived or precluded under limited circumstances. However, the parties to a mediation may expressly waive the privilege, and in the case of the privilege of a mediator, it may be expressly waived by the mediator.

The evidence rule expands New Jersey Court Rule 1:40-4 “Mediation – General Rules” which include a “confidentiality” provision. It mirrors several provisions within the New Jersey Uniform Mediation Act, N.J.S.A. 2A:23C-1 to 13.

In Willingboro the defendant’s counsel sent an email with a draft memorandum of understanding subsequent to the mediation and also undertook to put moneys in escrow — There was no signed writing. But there was a 4-day hearing on a 1-day mediation that resulted in the enforcement of the oral agreement commemorated by an unsigned writing. The court held that all parties and the mediator waived the privilege:

“Here, defendants first breached the confidentiality of the

proceeding by supporting their motion to enforce the settlement

with a certification from the mediator. Thereafter, the

mediator was deposed and testified at trial. The extent of the

waiver was the subject of rulings by Judge Bookbinder during the

deposition of the mediator and at trial by Judge Hogan. We do

not understand any argument advanced by plaintiff to contest

those rulings.”

This is not a good outcome for a mediation or for confidentiality. The clear lesson for mediators is make sure there is a signed writing at the close of the successful mediation, consider asking the parties to draft an agreement or key terms in advance (without monetary terms), and enter into a confidentiality agreement with the parties before the mediation providing that they will not call the mediator as a witness.

“Social Network” has come to life with lessons on how to prepare for mediation.

The storyline for this blockbuster movie, in case you missed it is that on “a fall night in 2003, Harvard undergrad and computer programming genius Mark Zuckerberg sits down at his computer and heatedly begins working on a new idea. In a fury of blogging and programming, what begins in his dorm room soon becomes a global social network and a revolution in communication. A mere six years and 500 million friends later, Mark Zuckerberg is the youngest billionaire in history… but for this entrepreneur, success leads to both personal and legal complications.” http://www.imdb.com/title/tt1285016/.

Those legal complications resulted in a recent Ninth Circuit decision that is of value even beyond the curiosity factor. The Facebook, Inc.; Mark ü Zuckerberg v. ConnectU, Inc., Slip Op. No. 09-15021 (9th Cir. April 11, 2011). The law suit was initiated by the twin brothers Winkelvoss, who claimed that Zuckerberg stole the idea for Facebook from them. Zuckerberg countersued and the district court in California ordered the parties to mediate. Facebook, the competing website ConnectU, and the Winklevoss twins were all party to the mediation. Before the mediation began, the participants entered into a confidentiality agreement that provided that all statements made during mediation were privileged, non-discoverable and inadmissible “in any arbitral, judicial, or other proceeding.” A full day of negotiations resulted in a signed, handwritten, one-and-a-third page “Term Sheet & Settlement Agreement.” In return for cash and a Facebook shares, the Winklevosses gave up ConnectU. The parties stipulated that the Settlement Agreement was “confidential,” “binding” and “may be submitted into evidence to enforce [it].” Slip Op. at 4902.

But, before the ink was dry, the parties were at arms. Facebook sought to enforce the settlement term sheet. The Winklevosses claimed material terms were omitted from the term sheet and that they had been defrauded (in violation of Section 10(b)-5) in the mediation, in particular focusing on a difference in their understanding of the value of the shares of Facebook that they had agreed to accept. The Court found the terms sufficiently definite, including the delegation of the drafting of the deal papers to Facebook. It further held that the dispute over the valuation of the shares was not particularly persuasive given the extensive prior discovery in the litigation and the presence of six lawyers and Winkelvoss pere who was a former accounting professor at the Wharton school. The release language agreed to in the term sheet was to be the broadest possible and to terminate all claims between the parties. The Court read this to include any claims, including unknown claims, arising out of the mediation itself: “An agreement meant to end a dispute between sophisticated parties cannot reasonably be interpreted as leaving open the door to litigation about the settlement negotiation process.” Id. at 4908.

Moreover, properly excluded proffered testimony about representations made during the mediation in light of the confidentiality agreement between the parties. Finally,the Court noted that the current valuation of Facebook appears to be three times what the Winklevosses were claiming they were entitled to, demonstrating that their advisors had made a perfectly good deal for them and all good fights must come to an end. Id. at 4912. The current value of the settlement appears to be $160 million, and was a mere $65 million at the time of the settlement. http://latimesblogs.latimes.com/technology/2011/04/winklevoss-twins-file-a-petition-for-another-hearing-in-their-fight-with-facebook.html. The twins have already petitioned for rehearing en banc. Id.

Most of us wish we could have the Winklevoss problem. But we may look beyond the story to the questions it raises. How could parties, and more importantly the advocates, come to such a significant mediation without having actually drafted key language? Without having key terms at hand? Why was a handwritten document required? The answer may be that despite the fact that that over 98% of cases settle, lawyers still prepare for settlement discussions and mediation far less carefully and assiduously than they do for trial. We have a system of checklists and protocols for trial preparation and no comparable system of preparation for settlement and mediation. Dealmakers do usually have a list of key terms but often resort to references to the “usual language” which does not really exist in most cases and leads to confusion or recrimination. Do yourselves and your clients a favor and suggest to the mediator that release language and key non-monetary terms be exchanged even in advance of the mediation, or certainly that the parties bring draft clauses to discuss at the mediation itself. If you have “standard” release language and a preferred confidentiality clause, bring them along. In fact, create a checklist of items and provisions that will have to be covered and your preferred terms for each of them. These terms may be agreeable to your opposing counsel and may even form the basis for small agreements that can lead to better resolutions. In any case, don’t let key assumptions go unstated and undocumented. Let the movies speak to you

 

The Restoring American Financial Stability Act of 2010 (the “Dodd-Frank Wall Street Reform and Consumer Protection Act”) was recently signed into law. The Act has a number of provisions that can potentially impact consumer arbitration. The Supreme Court continues to deal with a number of critical arbitration issues but with respect to consumer arbitration, it seems to be on a collision course with Congress. The new Act gives the SEC the power to ban or limit mandatory arbitration in certain agreements. Here are some provisions related to arbitration:
SEC. 748. COMMODITY WHISTLEBLOWER INCENTIVES AND PROTECTION. The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by adding at the end the following:
…..
‘‘(n) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.—
‘‘(1) WAIVER OF RIGHTS AND REMEDIES.—The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment including by a predispute arbitration agreement.
‘‘(2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.’’.
SEC. 919B. STUDY ON IMPROVED INVESTOR ACCESS TO INFORMATION ON INVESTMENT ADVISERS AND BROKER-DEALERS.
(a) STUDY.—
(1) IN GENERAL.—Not later than 6 months after the date of enactment of this Act, the Commission shall complete a study, including recommendations, of ways to improve the access of investors to registration information (including disciplinary actions, regulatory, judicial, and arbitration proceedings, and other information) about registered and previously registered investment advisers, associated persons of investment advisers, brokers and dealers and their associated persons on the existing Central Registration Depository and Investment Adviser Registration Depository systems, as well as identify additional information that should be made publicly available.
SEC. 921. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) AMENDMENT TO SECURITIES EXCHANGE ACT OF 1934.—Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o), as amended by this title, is further amended by adding at the end the following new subsection:
‘‘(o) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.—
The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.’’.
(b) AMENDMENT TO INVESTMENT ADVISERS ACT OF 1940.—Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–5) is amended by adding at the end the following new subsection:
‘‘(f) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.—
The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any investment adviser to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.’’.
SEC. 922. WHISTLEBLOWER PROTECTION.
(a) IN GENERAL.—The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 21E the following:
….
‘‘(e) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.—
‘‘(1) WAIVER OF RIGHTS AND REMEDIES.—The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.
‘‘(2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.’’.
SEC. 1028. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.
(a) STUDY AND REPORT.—The Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.
(b) FURTHER AUTHORITY.—The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a).
(c) LIMITATION.—The authority described in subsection (b) may not be construed to prohibit or restrict a consumer from entering into a voluntary arbitration agreement with a covered person after a dispute has arisen.
(d) EFFECTIVE DATE.—Notwithstanding any other provision of law, any regulation prescribed by the Bureau under subsection (b) shall apply, consistent with the terms of the regulation, to any agreement between a consumer and a covered person entered into after the end of the 180-day period beginning on the effective date of the regulation, as established by the Bureau.
SEC. 1414. ADDITIONAL STANDARDS AND REQUIREMENTS.
(a) IN GENERAL.—Section 129C of the Truth in Lending Act is amended by inserting after subsection (b) (as added by this title) the following new subsections:
…
‘‘(e) ARBITRATION.—
‘‘(1) IN GENERAL.—No residential mortgage loan and no extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.