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Can Confidential Mediation Materials Start the 30-Day Clock Ticking for Removability Under the Class Action Fairness Act?

alarm clockThe Class Action Fairness Act (“CAFA”) provides expanded original diversity jurisdiction in federal courts for class actions meeting certain requirements, including an amount in controversy that exceeds $5,000,000. If the class representative commences a class action in state court that meets the requirements for removal, a defendant may seek to remove the action to federal court under CAFA.

If the initial complaint itself does not disclose grounds for removal, 28 U.S.C § 1446(b)(3) provides that a case may still become removable upon disclosure “through service or otherwise” of grounds for removal in a subsequent pleading, motion or “other paper from which it may first be ascertained that the case is one which is or has become removable.” Upon disclosure of grounds for removal, a defendant has thirty days to seek removal; after the 30-day window closes, a request to remove will be denied as untimely.

The question thus arises — if the plaintiff and defendant engage in mediation after commencement of the class action, and plaintiff provides confidential materials to defendant during the mediation that indicate the case meets the requirements for removal, does the 30-day clock start ticking? That is, can confidential mediation materials be used to establish removability under federal law?

In a recent case, Ali v. Setton Pistachio of Terra Bella, Inc., 2019 WL 6112772 (E.D. Cal. Nov. 18, 2019), the plaintiff commenced a class action against the defendant in California state court on April 27, 2016, alleging wage violations under California state law. On July 12, 2019, defendant filed a notice of removal to California federal court under CAFA. Plaintiff alleged the notice was untimely because a damages model revealing that the amount in controversy exceeded $5 million was disclosed to the defendant during a mediation on June 28, 2017. Defendant denied having ever received the damages model.

The court noted that the term “other paper” in 28 U.S.C § 1446(b)(3) had been defined broadly to include, among other forms of written disclosure, a settlement letter sent in advance of a mediation. Therefore, assuming a written damages model alleging damages in excess of $5 million had been provided to the defendant during the mediation, it would have constituted notice of grounds for removal (the court later found, however, that there was a dispute as to whether the plaintiff had ever actually provided the damages model to the defendant).

But wait a second. Aren’t documents disclosed during mediation supposed to remain strictly confidential and protected against disclosure in a litigation? This argument was apparently not raised in Ali, but was raised in an earlier 2015 California federal court decision, Tetravue, Inc. v. St. Paul Fire & Marine Ins. Co., 2015 WL 13828630 (S.D. Cal. Apr. 8, 2015).

Tetravue was not a class action, but filed as a state lawsuit seeking to enforce an insurer’s defense obligation. The insurer sought removal based on a confidential mediation brief demonstrating that the amount in controversy requirement ($75,000 in diversity cases) was satisfied. Plaintiffs sought remand on the ground that defendant could not rely on a confidential mediation brief to establish removability because doing so violated Section 1119 of the California Evidence Code (which protects written mediation-related documents from disclosure in civil litigation).

The court ruled that the permissibility of using the confidential mediation brief to establish the amount in controversy was governed by federal law (which establishes the requirements for removal), and not state law privileges (which only apply with respect to elements of substantive claims and defenses governed by state law). Since the confidential mediation brief was admissible under federal law, it could be used to establish the amount in controversy for purposes of seeking removal.

The ruling in Tetravue relied in part on the Ninth Circuit’s decision in Babasa v. LensCrafters, Inc., 498 F.3d 972 (9th Cir. 2007), which held that the plaintiff’s pre-mediation settlement letter constituted disclosure of grounds for removal.

In Babasa, however, the Ninth Circuit noted that the defendant had failed to argue that the letter was protected by a federal mediation privilege, or that the Ninth Circuit should incorporate the California mediation privilege into the federal common law of privileges. Therefore, it did not consider whether a federal mediation privilege exists to bar use of confidential mediation materials for purposes of demonstrating removability, or whether it may be appropriate in some cases to defer to state law evidentiary privileges out of comity and respect for state policies.

In a later case involving enforcement of a settlement reached during mediation, the Ninth Circuit held that the federal law of privilege applies to federal claims, but did not address the existence or scope of a federal mediation privilege. See In re TFT-LCD (Flat Panel) Antitrust Litig., 835 F.3d 1155 (9th Cir. 2016). But in Circuits like the Second Circuit that have recognized a federal mediation privilege (see In re Teligent, Inc., 640 F.3d 53 (2d Cir. 2011)), a strong argument can be made that confidential mediation materials may not be used to establish grounds for removability, and thus (in a class action) do not start the 30-day clock ticking under CAFA.

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