One of the touted benefits of ADR is that it allows parties to design their own dispute resolution process specially suited to their needs. Problems can arise, however, if a court is subsequently called upon to try to figure out what to call the process the parties have invented. A court might need to do that to decide what rights and obligations the parties have assumed under their process. A recent Federal Circuit case, Kimberly-Clark v. First Quality Baby Products, provides a nice illustration of this problem. (Thanks to the Disputing blog for bringing it to my attention.) In a series of patent infringement disputes between two consumer products giants Kimberly-Clark and Proctor & Gamble, the parties crafted a series of dispute resolution agreements whereby they submitted issues for hearing before panels of arbitrators. Unlike an arbitration, however, the panels’ decisions were non-binding and were designed to facilitate settlement. Their decisions did have certain legal consequences, though, such as obligating the “losing” party to pay the arbitrators’ fees. Those ADR proceedings apparently worked, enabling Kimberly-Clark and Proctor & Gamble to settle.
The issue before the Federal Circuit was whether to allow discovery in a subsequent case involving a different party (First Quality), of these panel decisions and the underlying proceedings in the disputes between Kimberly-Clark and Proctor & Gamble. Kimberly-Clark attempted to rely on a “mediation privilege” to prevent disclosure, but the Court of Appeals held that these proceedings were arbitrations, not mediations. On that basis, the Court affirmed the order requiring disclosure, and did not need to decide whether there is a federal mediation privilege.
This case points up the need for the Federal Courts to define more clearly the confidentiality rules pertaining to mediation. In the Central District of California, for example, local rules have recently been revised to more closely resemble the confidentiality protections protecting mediation proceedings in California state courts. But a lot of uncertainty still remains.
This case also might serve as a cautionary tale for parties designing their own dispute resolution procedure. As a practical matter, parties who get as creative as Kimberly-Clark did about their dispute resolution needs still probably can’t think of every possible contingency. To do that might require them to re-invent their own complete code of civil procedure for every case. Parties should realize that if a court ever needs to interpret what they have done, the court is going to need to pigeon-hole their designer process into categories that a court can understand. In the Kimberly-Clark case the court had to consider proceedings that combined some aspects of arbitration and some aspects of mediation, and decide whether they were one or the other. It might have helped if the parties had better labeled their own process and had included provisions on the confidentiality rules and other rules that should apply if a court ever had to interpret their agreement.
(Liger photo from Listverse)