Tuesday, January 10, 2017

Mediation privilege bars testimony about what was said or happened in mediation


Section 154.053(c) of the Texas Civil Practice and Remedies Code provides that "Unless the parties agree otherwise, all matters . . . during the settlement process are confidential and may never be disclosed to anyone, including the appointing court." TEX. CIV. PRAC. & REM. CODE ANN. § 154.053(c) (West 2011); see also § 154.073(a)-(b) (West 2011) (explaining communications and any records made during mediation are confidential and may not be used as evidence in a judicial proceeding). 

"A cloak of confidentiality surrounds mediation, and the cloak should be breached only sparingly." Allison v. Fire Ins. Exch., 98 S.W.3d 227, 260 (Tex. App.-Austin 2002, pet. granted, judgm't vacated w.r.m.). 

SOURCE: DALLAS COURT OF APPEALS - No. 05-11-01536-CV. - 5/7/2013

We begin by determining whether HSI was required to obtain a written ruling on its objection asserting the mediation privilege. Generally, a summary judgment ruling on evidence must be reduced to writing, signed by the trial court, and entered of record. S & I Mgmt., Inc. v. Sungju Choi, 331 S.W.3d 849, 855 (Tex. App.-Dallas 2011, no pet.). However, there is a distinction between summary judgment evidence that is a defect in form and a defect in substance. A defect is substantive if the evidence is incompetent, and it is formal if the evidence is competent but inadmissible. Coleman v. Woolf, 129 S.W.3d 744, 748 (Tex. App.-Fort Worth 2004, no pet.)Mathis v. Bocell, 982 S.W.2d 52, 60 (Tex. App.-Houston [1st Dist.] 1998, no pet.). Formal defects may be waived by failure to object, and if waived, the evidence is considered. Mathis, 982 S.W.2d at 52. Substantive defects are never waived because the evidence is incompetent and cannot be considered under any circumstances. Id.

The parties have not cited to any case law holding that the failure to obtain a ruling on an objection pertaining to the mediation privilege is a substantive defect. However, section 154.053(c) of the Texas Civil Practice and Remedies Code provides that "Unless the parties agree otherwise, all matters . . . during the settlement process are confidential and may never be disclosed to anyone, including the appointing court." TEX. CIV. PRAC. & REM. CODE ANN. § 154.053(c) (West 2011); see also § 154.073(a)-(b) (West 2011) (explaining communications and any records made during mediation are confidential and may not be used as evidence in a judicial proceeding). Because these statutes indicate such privileged information cannot be disclosed or considered, it therefore follows it is a substantive defect that cannot be waived by failing to obtain a ruling from the trial court. See, e.g., St. Luke's Episcopal Hosp. v. Garcia, 928 S.W.2d 307, 310 (Tex. App.-Houston [14th Dist.] 1996, orig. proceeding) (noting relator's primary objections to discovery "are substantive objections relating to privilege"). Accordingly, we shall address HSI's argument that the mediation privilege bars consideration of the evidence submitted by HTI to raise a fact issue as to ownership.

Section 154.073 of the Texas Civil Practice and Remedies Code provides the following regarding "Confidentiality of Certain Records and Communications" involved in alternative dispute resolution:
(a) Except as provided by Subsections (c), (d), (e), and (f), a communication relating to the subject matter of any civil or criminal dispute made by a participant in an alternative dispute resolution procedure, whether before or after the institution of formal judicial proceedings, is confidential, is not subject to disclosure, and may not be used as evidence against the participant in any judicial or administrative proceeding.
(b) Any record made at an alternative dispute resolution procedure is confidential, and the participants or the third party facilitating the procedure may not be required to testify in any proceedings relating to or arising out of the matter in dispute or be subject to process requiring disclosure of confidential information or data relating to or arising out of the matter in dispute.
(c) An oral communication or written material used in or made a part of an alternative dispute resolution procedure is admissible or discoverable if it is admissible or discoverable independent of the procedure.
TEX. CIV. PRAC. & REM. CODE ANN. § 154.073(a)-(c) (West 2011).
Further, "[u]nless the parties agree otherwise, all matters, including the conduct and demeanor of the parties and their counsel during the settlement process, are confidential and may never be disclosed to anyone, including the appointing court." Id. § 154.053(c).

Both parties cite to two different cases from this Court to support their position as to why the mediation privilege should or should not apply to these facts. HTI relies on Avary v. Bank of America, N.A., 72 S.W.3d 779 (Tex. App.-Dallas 2002, pet. denied) and HSI relies on In re Empire Pipeline Corporation, 323 S.W.3d 308 (Tex. App.-Dallas 2010, orig. proceeding).

We begin our discussion with Avary. In that case, Avary, as guardian of the estates of minors, brought suit against the fiduciary bank based on the bank's actions during the mediation of an underlying wrongful death suit. Avary, 72 S.W.3d at 785. Specifically, Avary alleged the bank's rejection of a $450,000 settlement offer and the acceptance of a much smaller allocation was a breach of the bank's fiduciary duty as executor of the estate. Id. As part of discovery, Avary sought to obtain information from the mediation, most of which the trial court denied. The trial court granted the bank's summary judgment because Avary presented no evidence of breach of fiduciary duty, negligence, or conspiracy to defraud, as each cause of action arose "out of confidential and inadmissible statements purportedly made at Mediation." Id. at 786.

We noted "[t]here is no question that confidentiality of communications is an important part of the statutory scheme of alternative dispute resolution" and that "proponents of mediation stress that confidentiality is critical to the success of the process." Id. at 798. We concluded the mediation privilege did not apply because Avary sought to prove a "new and independent tort" that allegedly occurred between her and her fiduciary during mediation. Id. at 798. She was not trying to discover evidence to obtain additional funds or establish any further liability against the parties that had peaceably resolved the underlying dispute. Thus, the information she sought through discovery would not disturb the underlying settlement agreement. Id. at 800. "It is one thing to order discovery from a party alleged to have committed a tort during the mediation process; it is another to reach across the mediation table to parties who have settled the claims against them." Id. at 801. We ultimately held that
[O]n "the facts before us, . . . [w]e conclude only that where a claim is based upon a new and independent tort committed in the course of the mediation proceedings, and that tort encompasses a duty to disclose, section 154.073 does not bar discovery of the claim where the trial judge finds in light of the "facts, circumstances, and context," disclosure is warranted.
Id. at 803.

HSI relies on In re Empire Pipeline Corporation to support its position that HTI's attempts to use evidence from the mediation is barred. In Empire Pipeline, the underlying cause of action involved a breach of contract relating to oil and gas exploration, which the parties settled through mediation. Id. at 309. Two months after the agreement, Gunter sought to vacate the agreement; however, the trial court entered the settlement agreement and dismissed his claims. Id. Gunter later filed a declaratory judgment action asserting Empire Pipeline was not complying with the settlement agreement. Id.
As part of the declaratory judgment action, Gunter sought discovery of documents related to the prior mediation. Id. at 310. Gunter described the scope of his discovery in a motion to compel. "Plaintiff is not seeking the work product of counsel, nor his trial strategy, but rather information going to the very heart of the issue: was an agreement actually reached at the mediation, and if so, what were its terms?" Id. The trial court granted, in part, and denied, in part, the motion to compel. Id.
Empire Pipeline sought mandamus relief arguing the documents and testimony ordered by the trial court were, among other things, protected by the ADR privilege. Gunter responded the mediation privilege was not absolute and did not apply to his circumstances. Id. at 311. He further contended that "Avary provides a roadmap for resolution of the issues presented."

We disagreed and distinguished the facts from Avary. We noted the discovery in that case involved information to support a new and independent tort, "the pursuit of which would not disturb the settlement reached at the mediation proceeding." Id. at 313 (citing Avary, 72 S.W.3d at 800)). Gunter's attempt to discover evidence from mediation went to the heart of his lawsuit, which was seeking a declaration regarding the terms of the mediated settlement agreement. He was not seeking evidence to support a new and independent tort that occurred outside of mediation discussions, but rather, wanted to reach across the mediation table and potentially disturb the prior settlement reached between the parties. We concluded all such discovery was barred by Texas Civil Practice & Remedies Code sections 154.073(a) and (b).

Based on the present facts, we conclude the Empire Pipeline reasoning applies. In attempting to use evidence from the mediation, HTI is trying to determine what the parties agreed to in regards to the preferred stock. This is exactly what we have previously held is not allowed. See Empire Pipeline Corp., 323 S.W.3d at 314. While HTI argues Empire Pipeline "only addresses the narrow issue of whether a party can discover another party's communications in mediation in order to avoid enforcement of the settlement agreement in a suit between the same parties to enforce the settlement," we do not interpret its holding so narrowly.

This is not a situation similar to Avary where HTI is trying to use evidence from mediation to support a new and independent tort. Rather, HTI is trying to obtain evidence to potentially change the settlement agreement. We agree with HTI that the word "change" does not appear in reference to the settlement agreement in Empire Pipeline. Rather, the holding discusses a party's attempt to avoid enforcement of a settlement agreement but as previously stated, we refuse to construe the application of the mediation privilege so narrowly.

"A cloak of confidentiality surrounds mediation, and the cloak should be breached only sparingly." Allison v. Fire Ins. Exch., 98 S.W.3d 227, 260 (Tex. App.-Austin 2002, pet. granted, judgm't vacated w.r.m.). Under these facts, to allow HTI to use alleged discussions from the mediation regarding the stock would undermine the very purpose of confidentiality in the mediation process. Parties must not be allowed to use evidence from mediation to dispute terms of a settlement agreement, particularly years later, as is the case here. To do so would chill the overall purpose of mediation, which is to allow parties to come to the table knowing they can speak freely about their dispute and have confidence what they say will be confidential. To conclude otherwise defeats section 154.073 and section 154.053(c) of the Texas Civil Practice and Remedies Code. Accordingly, HTI may not rely on evidence from the 2001 mediation to create a fact issue as to ownership of the stock because such information is protected by the mediation privilege.

In addition to the mediation privilege, HSI also asserts the parol evidence rule bars use of any evidence presented by HTI to contradict the consent judgment and Memorandum of Settlement. HTI responds the Memorandum of Settlement is an ambiguous, incomplete document; therefore, the parol evidence rule does not apply. However, HSI responds HTI cannot collaterally attack the consent judgment. We agree with HSI.

We begin by discussing the law as applied to consent or agreed judgments. An agreed judgment must be interpreted as if it were a contract between the parties, and the interpretation of the judgment is governed by the laws relating to contracts. Miller v. Miller, 700 S.W.2d 941, 951 (Tex. App.-Dallas 1985, writ ref'd n.r.e.) (on rehearing). In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument. Id. If the intention expressed on the face of the contract is doubtful, resort may be had to parol evidence of the situation and the surroundings of the parties to resolve the doubt. Id.

The parol evidence rule functions to make the instrument sued on the sole repository of the legal transaction. Lawrence Gen. Corp. v. Anchor Post Prod. of Tex., Inc., No. 05-95-01771-CV, 1997 WL 78913 at *2 (Tex. App.-Dallas Feb. 26, 1997, no writ) (not designated for publication). In other words, the terms of the transaction must be derived from the writing alone. Where the instrument sued on is a professedly partial or incomplete agreement, however, the rule excluding parol evidence does not apply. Id.; see also Garner v. Redeaux, 678 S.W.2d 124, 128 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.). An instrument is incomplete when it refers to terms or understandings not embraced in its provisions. Lawrence Gen. Corp., 1997 WL 78913 at *2.

It is undisputed the Memorandum of Settlement entered into between HTI and Whitehall after the 2001 mediation makes no mention of HSI's 818,182 shares of preferred stock, much less any agreement to transfer the stock back to HTI. However, part of the Memorandum of Settlement attached to the consent judgment states "The parties will more fully memorialize the provisions of their agreement in further instruments to be prepared by counsel." Thus, on its face, the document is incomplete because it refers to potential terms and conditions not embraced within its four corners. See id. (finding a letter of intent incomplete when it specifically stated terms and conditions of the transaction were undetermined). Accordingly, HTI's parol evidence that is not protected by the mediation privilege could be admissible to create a fact issue.[3] However, under these facts, we conclude it is not.

To establish a fact issue as to the underlying settlement agreement, we would have to allow HTI to attack the final consent judgment. This we cannot allow. A collateral attack is "an attempt to avoid the binding force of a judgment in a proceeding not instituted for the purpose of correcting, modifying, or vacating the judgment, but in order to obtain some specific relief which the judgment currently stands as a bar." Browning v. Prostok, 165 S.W.3d 336, 346 (Tex. 2005). While HTI vehemently argues it is not trying to avoid the force of the underlying judgment against Whitehall and it is not asserting any new, subsequent claims against Whitehall that would affect the underlying judgment, we do not agree. If this court were to conclude a fact issue existed and remanded the issue of stock ownership back to the trial court, the end result would be HTI offering evidence to change the underlying 2001 settlement agreement, which has already been entered as a final judgment of the court and representing the final agreement between the parties. See Liberty Mut. Fire Ins. Co. v. Crane, 898 S.W.2d 944, 948 (Tex. App.-Beaumont 1995, no writ) (noting a settlement agreement incorporated into an agreed judgment "has the same degree of finality and binding force as one rendered by a court at the conclusion of adversary proceedings").

The proper vehicle for challenging the consent judgment was through a bill of review. "[A] bill of review is the exclusive remedy since the time for an appeal from the consent judgment has expired." Middleton v. Murff, 689 S.W.2d 212, 213 (Tex. 1985)In re A.L.H.C., 49 S.W.3d 911, 917 (Tex. App.-Dallas 2001, pet. denied). HTI has never filed a bill of review and any such pleading would now be untimely, as the residual four-year statute of limitations applies. See Caldwell v. Barnes, 975 S.W.2d 535, 538 (Tex. 1998)(citing TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West 2008)).

SOURCE: DALLAS COURT OF APPEALS - No. 05-11-01536-CV. - 5/7/2013

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