After several go-rounds the matter of Prospect Capital Corp. v Morgan Lewis & Bockius LLP 2024 NY Slip Op 33322(U) September 19, 2024 Supreme Court, New York County Docket Number: Index No. 653941/2022 Judge: Margaret A. Chan is moving forward. Initially dismissed, then re-argued, the case turns on “the real harm “flowing from defendants’ alleged negligence was Prospect’s loss of [the Turnover Claim] cause of action and its distinct remedies, rather than its ability to obtain a more favorable economic result in the SVB Litigation after losing the turnover remedy” (NYSCEF # 90, Reargument Decision, at 6).”

More to the point of this blog post, plaintiff has been required to turn over its mediation statements and documents from the underlying US District Court case.

“The parties are now in discovery. Several months ago, Morgan Lewis filed a Rule 14 letter arguing that Prospect should produce its “mediation statements and other communications submitted in connection with Prospect’s efforts to resolve” the SVB Litigation (see NYSCEF # 113, Morgan Lewis R 14 Ltr, at 1). Prospect responded that it should not be made to produce the mediation statement because (a) doing so would violate Magistrate Judge Wang’s individual rules regarding confidentiality of communications during settlement, and (b) the court should adopt a “mediation privilege” that no court in New York has yet to accept (see NYSCEF # 114, Prospect R 14 Ltr). The court held a Rule 14 conference on May 8, 2024, at which it agreed with Morgan Lewis’s position that the mediation statements should be produced. However, Prospect asked for the right to appeal, hence, the parties were granted leave to bring this motion and were advised by this court that the decision would be consistent with the conference order (NYSCEF # 115, May 8 Conference Order). Morgan Lewis then filed an OSC and attached both parties’ Rule 14 letters as exhibits (NYSCEF #s 111-114) but did not file a brief in support.”

“Prospect’s mediation statement is relevant to the second prong because it is likely to either verify or challenge the assertion that Prospect could not prove causation or damages for the Section 1 Claim. The mediation statement likely sets out Prospect’s position and proposed proof for all elements of the Section 1 Claim. If Prospect was in fact able to prove causation and damages for that claim, then Prospect and SVB may have had other reasons for settling that were unrelated to the loss of the Turnover Claim, potentially cutting off the causal chain between negligence and damages.2 Moreover, as Morgan Lewis argues in its brief, the mediation statement likely contain facts about what other steps Prospect believed it could have taken in the Loan Workout Process, which also goes towards both causation (if Prospect was not actually relying on Morgan Lewis’s advice) and mitigation of damages (see NYSCEF # 128 at 6-7). In other words, Morgan Lewis does not seek the mediation statements merely for a simple monetary “set-off’ defense or “impeachment” purposes. It seeks to challenge essential elements of Prospect’s case: causation and damages-that Prospect was forced to settle the SVB Litigation because it could not prove causation or damages for the Section 1 Claim but would have won if the Turnover Claim was available. Indeed, the court has already referenced the necessity of this argument (see NYSCEF # 90 at 7 [“even if Prospect’s settlement is considered in the court’s causation analysis, the complaint’s allegations … support a reasonable inference that the eventual settlement of the SVB Litigation was effectively compelled by defendants’ mistakes”] [emphasis added]).”

“Finally, Prospect asks this court to create a so-called “mediation privilege” to protect documents and statements made during the parties’ mediation. Relying on federal case law, Prospect argues that the court should allow disclosure of mediation materials “only upon a showing of “(1) a special need for the confidential material, (2) resulting unfairness from a lack of discovery, and (3) that the need for the evidence outweighs the interest in maintaining confidentiality” (NYSCEF # 117 at 9, quoting In re Teligent, Inc., 640 F3d 53, 58 [2d Cir 2011]).

However, New York courts have not recognized a mediation privilege, and there is no reason to do so here. As recently as last year, courts in this state rejected such a privilege because “New York has not adopted the Uniform Mediation Act, and the New York Court of Appeals has not recognized a mediation privilege in New York” ( liXI Lux Holdco S.A R.L. v SIC Holdings, LLC, 79 Misc 3d 1223(A) [Sup Ct 2023]; see also Time Warner Cable Enterprises LLC v Nokia of Am. Corp., 83 Misc 3d 1254(A) [Sup Ct 2024] [rejecting argument that CPLR 454 7 creates a mediation privilege]). Those words remain as true today as they were a year ago; nothing has changed at the statutory or Court of Appeals levels. Prospect’s request to create a mediation privilege is denied. Morgan Lewis’s request for Prospect’s mediation statement is granted.”