X is sued by defendants. He loses at trial using target attorneys. He hires new attorneys, mediates, settles, and assigns his rights to a legal malpractice action against his former [target] attorneys to plaintiff, who now sues target attorneys in the place of X. Is there still any confidentiality to the mediation asks the target attorney?
Yes, there is, says Judge Bernstein of US Bankruptcy Court, SDNY in In re: TELIGENT, INC., Reorganized Debtor. SAVAGE & ASSOCIATES, P.C., as the Unsecured Claims Estate Representative for and on behalf of TELIGENT, INC., et al., Plaintiff, — against — ALEX MANDL, Defendant.
Chapter 11, Case No. 01-12974 (SMB), Adv. Proc. No. 03-2523; UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; 2009 Bankr. LEXIS 3037;
September 24, 2009
"Non-party K&L Gates LLP ("K&L") formerly represented the defendant Alex Mandl. The parties engaged in unsuccessful pre-trial mediation, and following trial, the Court entered a judgment in excess of $ 12 million against Mandl and in favor of the plaintiff, Savage & Associates, P.C. ("Savage"), the Unsecured Claims Representative for and on behalf of Teligent, Inc. ("Teligent"). After the entry of [*2] judgment, Mandl discharged K&L, participated in a second round of mediation with new counsel, and eventually settled with Savage. As part of the settlement, Mandl assigned to Savage a portion of the proceeds derived from his legal malpractice claim against K&L. As contemplated by the settlement, Mandl sued K&L for legal malpractice in the District of Columbia (the "DC Action").
K&L contends that it needs the documents and communications generated during the two mediations to defend itself in the DC Action. (Memorandum of Points and Authorities in Support of [K&L’s] Motion to Lift Mediation Confidentiality Restrictions, dated March 5, 2009 (the "Motion"))(ECF Doc. # 227.) 1 Toward that end, it has moved for relief from the confidentiality provisions contained in this Court’s General Order M-143, dated Jan. 17, 1995 ("General Mediation Order") and the specific mediation order entered in this case.
K&L offers several reasons why the Mediations communications and the mediator’s testimony "may be relevant." First, they may shed light on the issues of causation, mitigation, and damages, and in particular, why Mandl settled at the price he did rather than pursue his post-trial motions or an appeal. (See id., at 13-14.) K&L speculates that Mandl may have settled without regard to his actual exposure, which GT had estimated to be $ 3.19 million, (id., at 14-15), or because Savage threatened Mandl with criminal and tax-related liability. (Id., at 15.) Moreover, Savage discontinued the fraudulent conveyance action against Susan Mandl and ASM without extracting a separate payment from either defendant. The release of his wife and affiliate may have affected Mandl’s decision to settle at a higher number than his potential exposure. (Id., at 15-16.)
Second, the Mediations communications may be relevant to Mandl’s damages. The parties valued the Settlement at $ 16 million (i.e., the Agreed Valuation), but the amount of consideration that Mandl committed to pay, aside from half of the net proceeds of the DC Action, was far [*12] less. (Id., at 16-17.) The mediator’s report stated that he was "not aware of any reason why that amount is not a reasonable approximation of the value of the settlement," and Savage asserted at the time that she sought judicial approval of the Settlement that the Settlement would include a claim of $ 16 million against K&L. (Id., at 16-17.) Lastly, Mandl responded to an interrogatory that the Agreed Valuation was based on the probabilities assigned by each party to the outcome of the post-trial motions, and K&L’s failure to exercise due diligence in discovering important evidence that surfaced after the trial. (Id., at 17.)
Third, K&L contends that the Proceeds Assignment is invalid, and suggests that the Mediations communications may be relevant in establishing that the assignment was improper. (Id., at 18-19.)
K&L has plainly failed to meet its burden. Although the Mediations communications may be relevant to some of the issues in the DC Action, K&L has not explained satisfactorily why they are critically needed. Mandl has not charged K&L with committing malpractice in connection with the 2004 Mediation, and K&L did not participate in the 2008 Mediation. Hence, K&L’s conduct during the Mediations is not material to the malpractice [*21] claim."