Good Faith and the Duty of Disclosure
| Publication year | 2015 |
| Pages | 41 |
| Citation | Vol. 43 No. 8 Pg. 41 |
Articles Alternative Dispute Resolution
Good Faith and the Duty of Disclosure
By Pete Michaelson.
Alternative Dispute Resolution articles are sponsored by the CBA Alternative Dispute Resolution Section. They describe recent developments in the evolving field of ADR, with a particular focus on issues affecting Colorado attorneys and ADR providers.
Coordinating Editor
Marshall A. Snider, Denver—(303) 885-6659, msniderarb@comcast.net
This article addresses the manner in which mediators need to approach representations by participants and the associated advantages and liabilities for the process and the neutral who confronts this issue.
Lawyers and litigants alike breathe a sigh of relief when mediation resolves their dispute. But what happens when, after the settlement statement has been signed and a motion resolving the case has been filed with the court, a party discovers it was deceived? Perhaps this issue is simply resolved by answering the question of whether the mediation was conducted in "good faith." The standard of good faith is often mentioned by mediators and other ADR professionals, but the Colorado Dispute Resolution Act (Act)[1] only explicitly mentions it once, and then only in the context of court referral to mediation.[2]
In the greater context of disputes unregulated by statute, how should mediators, other ADR professionals, and the courts handle such a dispute? Is there a mediator's duty to make sure all material facts were disclosed and fairly represented during the mediation? Is ensuring complete and truthful disclosure the responsibility of the parties and their lawyers? Does the deceived party have a remedy? Does the mediator bear any responsibility or have any liability for the affected outcome? Is there a greater duty to avoid this problem than simply expecting the court to resolve the dispute? Will the Chief Justice's Office of Dispute Resolution Advisory Committee address these issues? Should these concerns become a part of mediator credentialing? This article considers these questions.
What is Happening in Other Jurisdictions
Federal courts are guided by rules of procedure, which include the concept of good faith.[3] In at least one federal case, the failure of a party to disclose before the settlement conference that it never intended to settle the case was considered a lack of good faith.[4] In another case, a claim for violation of the warranty of good faith and fair dealing was recognized as a valid claim relating to mediations by the Federal Court of Claims.[5] In a different federal jurisdiction, a party's failure to disclose essential information to counsel before the pretrial conference may also constitute a failure to participate in a scheduling or pretrial conference in good faith.[6]
In general, commentators have recognized that breach of contract remedies are available after mediation.[7] In Minnesota, there is a specific and apparently unique agricultural foreclosure statute,[8] which requires that parties "engage in mediation in good faith." The statute defines what is not good faith for creditors as including a failure to attend and participate in mediation without cause; failure to provide full information; failure to designate a representative to participate and make binding commitments; lack of a proper written statement; and failure to release funds for necessary living and farm expenses.
The Minnesota statute places a burden on the mediator to determine whether a party is not participating in good faith and, if so, "the mediator shall file an affidavit." In some circumstances the mediator may require "court supervised mandatory mediation," which may result in sanctions imposed by the court, including attorney fees and costs. The court, however, may review the mediator's affidavit on an abuse of discretion standard, and may reinstate mediation, order court-supervised mediation, or allow creditors to proceed immediately with their remedies. In this type of review proceeding, the mediator may offer testimony.
Minnesota's neighbor, Wisconsin, does not share this deep engagement by mediators in the process. It does have an exception to the general rule applicable to all cases that mediation communications are inadmissible, by allowing, after an in camera hearing, evidence of those communications if the court "determines that admission is necessary to prevent a manifest injustice of sufficient magnitude to outweigh the importance of protecting the principle of confidentiality in mediation proceedings generally."[9]
Texas is on the other end of the spectrum, and by statute provides that a communication relating to the subject matter of any civil or criminal dispute made by a participant in an ADR procedure is confidential, is not subject to disclosure, and may not be used as evidence against the participant in any judicial or administrative proceeding.[10] The Texas statute does not include an exception for claims of fraud.[11] As further discussed below, this is not the law in Colorado.
Academic Polemics on the Subject
The debate about disclosure and good faith is often referred to in learned treatises and articles through the concept of "satellite litigation," meaning disputes revolving around other, more substantive disputes. One commentator, discussing this concept but focusing on custody and visitation mediations, argued that any type of good faith requirements encourage less disclosure, can be coercive, and are likely to "lengthen the time children's future remain in limbo and increase the acrimony between parents."[12] Other academics have different perspectives in differing contexts, arguing that "specific good faith guidelines and Yational sanctions'. . . will keep satellite litigation to a minimum."[13]
On a related tack are the commentators who view the failure of full disclosure to create personal responsibility for the mediator, even if the parties cannot obtain a remedy between themselves.[14] They argue that "certain mediator conduct may create the potential for liability under common law fraud."[15]
More likely, the mediator's liability will be based on a claim for negligent misrepresentation involving fiduciary duties.[16]This type of claim might arise if the mediator, while expressing an opinion that would otherwise not be actionable, assumes and expresses a position suggesting particular facts that do, or in the context of the mediation seem almost certain to, underlie the statement, especially facts material to a dispute.[17] In other words, is there liability when a mediator uses, often by implication, the possible existence of facts, which either do not exist or about which the mediator has no real knowledge, in an attempt to persuade the parties to more reasonably consider settlement. This type of liability is arguably inversely proportional to the relative sophistication of the parties.[18]
Colorado has no formal code of mediation ethical guidelines.[19] The ABA Model Standards of Conduct for Mediators state:
A mediator should promote honesty and candor between and among all participants, and a mediator shall not knowingly misrepresent any material fact or circumstance in the course of a mediation.[20]
Of course, a neutral may always include good faith and disclosure terms in his or her engagement letters.[21] But the analysis by some commentators delves deeper into the very persuasive process engaged in by many...
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