Tuesday, November 15, 2011

Kimberly-Clark loses discovery issue in First Quality case

The CAFC tackled an issue of privilege in the Kimberly-Clark ["K-C"] case:

Under Federal Rule of Civil Procedure 26(b)(1), a party may obtain discovery regarding “any nonprivileged matter that is relevant to any party’s claim or defense.” K-C does not question that First Quality has requested relevant information. Rather, K-C argues that informa- tion created under the Dispute Resolution Agreements is privileged. K-C presents a two-step argument. First, K-C argues that federal courts should recognize a mediation privilege under the authority provided by Federal Rule of Evidence 501. Second, K-C argues that the proceedings under the Agreements were mediations. Thus, concludes K-C, the district court erred in compelling production of information that is covered by a federal mediation privilege.

We disagree. The Dispute Resolution Agreements set up an arbitration proceeding, not mediation. The Agree- ments set up an adversarial proceeding in which a panel specifically denoted as “arbitrators” issued formal find- ings of fact and conclusions of law. As part of the proceed- ing, the parties would serve briefs and claim charts and undertake discovery, including depositions. The parties then, at a formal hearing, would present argument, documentary evidence, and testimony, including testi- mony on cross-examination. At all times, ex parte com- munication with the arbitrators was prohibited. The arbitrators were to render a “clear and concise decision.”


In any event, arbitration does not necessarily become a mediative process simply because an arbitration panel’s decision is “non-binding.” In addition, under the Dispute Resolution Agreements, there was no framework to allow a party and a neutral to openly and freely discuss a party’s case. In fact, the Agreements discouraged a party from freely discussing the weak points in its case—the Agreements barred ex parte communications with the arbitrators and contain “loser pays” fee-shifting provi- sions. Thus, even if K-C has correctly characterized the decisions as “non-binding,” that distinction is not suffi- cient in this case to rebrand the adversarial arbitration proceedings as mediations.

Finally, while the designation of the panel as “arbitra- tors” is not conclusive on the issue before us, the parties in the prior cases had the opportunity to choose the lan- guage of their agreement, and that language certainly carries some weight as it applies to K-C here.


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