Massachusetts Federal Court Finds Mediation Privilege Waivable, Applies "Manifest Disregard" Standard In Med-Arb Case

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Last month, one defendant's application to vacate a med-arb award brought about two important developments in ADR case law in Massachusetts.

In Spruce Environmental Technologies, Inc. v. Festa Radon Technologies, Co., 2019 WL 1437826 (March 30, 2019) ("Spruce v. Festa"), the U.S. District Court for the District of Massachusetts ultimately denied the defendant's motion to vacate an arbitral award that was rendered by an arbitrator who had also mediated the dispute. The case should be viewed as a "win" for the mediator-turned-arbitrator -- or med-arb -- dispute resolution method. The primary issues in Spruce v. Festa were (1) whether the mediation privilege was waivable under federal law and, if so, whether Festa had waived it, and (2) whether the mediator-turned-arbitrator manifestly disregarded the law. The first issue strikes at the heart of the med-arb process (i.e., a dispute resolution process where the same neutral serves as both the mediator and the arbitrator on the same case). Naturally, while wearing the mediator hat, the neutral hears information subject to the mediation privilege and often has ex parte communications with parties during mediation caucuses. In Spruce v. Festa, the defendant argued that the arbitration was invalid because Festa could not, and in any event, had not waived the mediation privilege. The court disagreed, holding that the mediation privilege was waivable and that Festa had knowingly waived it by entering into a med-arb stipulation prior to arbitration.

The second issue goes to a longstanding issue in federal arbitration law -- i.e., whether an arbitral award may be vacated if the arbitrator manifestly disregarded the law. The "manifest disregard" standard has been hanging on by a thread for several years after the Supreme Court decided Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), which held that the grounds for vacating an arbitration award enumerated in the Federal Arbitration Act may not be expanded. "Manifest disregard of the law" is nowhere to be found in the Federal Arbitration Act. Nonetheless, in Spruce v. Festa, the court held, "the First Circuit has not explicitly disavowed the [manifest disregard] doctrine and the Court will consider it." Ultimately, however, the court found that the arbitrator had not manifestly disregarded the law, and the arbitration award was confirmed.

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