Wednesday, January 11, 2017

A Mediation Statement is Privileged(*1)

By Steve Stapleton

Lake Lotawanna Community Improvement District (the “District”) engaged in mediation  with its bondholders attempting to negotiate the terms of repayment of matured bonds owed by the District.  The mediator requested that each party provide the mediator with a confidential mediation statement to educate the mediator about the case and the parties’ respective positions. When the mediation was unsuccessful, the District filed for bankruptcy protection under chapter 9 of the Bankruptcy Code.(*2)  Because chapter 9 eligibility requires that a chapter 9 debtor negotiate in good faith with its creditor constituencies prior to filing bankruptcy, the bondholders sought production of the District’s mediation statement to determine whether the District was eligible under chapter 9.  The District opposed the production and the bankruptcy court ultimately held that the mediation statement was privileged and thus not discoverable.

In so holding, the court first noted that although the mediation statement was confidential, confidential information may nevertheless be discoverable.  The court further noted that the District’s claim of privilege under Rule 501 of the Federal Rules of Evidence were  governed by federal common law.  At issue under the common law therefore was the attorneys’ work product and a claimed mediation privilege.  

The court found that the mediation statement was privileged under the attorneys’ ordinary work product privilege.  As such, the bondholders were required to demonstrate substantial need and undue hardship that would exist without the production.  The court found the bondholders had not carried their burden.
The court also found that the mediation statement was privileged as opinion work product.  Thus, the bondholders had to show that rare and extraordinary circumstances nevertheless mandated the disclosure.  Again, the court found the bondholders failed to show such circumstances.

The Bondholders claimed that production of the mediation statement was the only means by which the District could show compliance with the good faith requirement, which the court found was not the case.  Although the bondholders further argued that the District had waived the privilege by their disclosure of the statement to the mediator, the court said such waiver had not occurred because the parties had agreed that the mediator could not be compelled to disclose anything about the mediation in subsequent litigation.

Finally, although the court did not find a “mediation privilege” under Rule 501, which allows the establishment of new privileges based on “reason and experience,”(*3) the court nevertheless denied the bondholders’ motion to compel production of the mediation statement without prejudice.  In the event the District were to later seek to use the mediation statement to demonstrate good faith or for any other purpose, the court allowed the bondholders an opportunity to renew their motion to compel.


1. On December 15, 2016, this author successfully completed mediation training under the aegis of the American Bankruptcy Institute and St. John’s University School of Law.

2. In re Lake Lotawanna Community Improvement District, Case No. 16-42357 (Bankr.W.D. Mo., Dec. 19, 2016).

3. The court noted that while the Eighth Circuit has to date neither ruled for or against a mediation privilege, the Sixth Circuit has adopted such a privilege while both the Seventh and the Federal Circuits “have declined to adopt the [mediation] privilege.”

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