This legal malpractice case arose from a mediated settlement of an underlying dispute between the plaintiff homeowner ("the client") and a roofing contractor. That settlement reached during mediation settled all claims except for the issue of attorney's fees and costs which was to be submitted to the court. When the court did not award attorneys fees and costs to the homeowner, she sued her attorney ("the attorney") claiming that the attorney had failed to properly disclose the risk of non-recovery of attorney's fees and costs to her during the mediation.

At the trial of the legal malpractice case the client and attorney gave conflicting testimony on the issue of whether the risk of non-recovery of attorney's fees had been discussed by the attorney at mediation. The attorney called the mediator (without objection from the mediator) to testify regarding the substance of the discussion at mediation. The trial court refused to let the mediator testify, relying on § 154.053 of the ADR Act which provides that "all matters, including the conduct and demeanor of the parties and their counsel during the settlement process, are confidential and may never be disclosed to anyone, including the appointing court." The Dallas Court of Appeals, in a June 16, 2004 opinion, held that the trial court erred in excluding the testimony.

The Dallas Court of Appeals had previously allowed the testimony of a mediation participant in Avary v. Bank of Am., N.A., 72 S. W. 3d 779 (Tex. App. - Dallas, 2002, pet. denied) (discussed in Mediation News, Nov. 2002). That case involved a mediation in a wrongful death suit which resulted in a settlement between the survivors and the tort feasor. Following the mediation, the widow brought suit against Bank of America, as executor of her children's estate, alleging that the bank, (who participated in the mediation) had breached it's fiduciary duty in declining a settlement which would have resulted in a greater recovery for the children. The court held that because the bank had a fiduciary duty of full disclosure, testimony from the bank could be elicited under the exception in ADR Act § 154.073 (e) which permits a court to override the ADR confidentiality requirement when other legal requirements compel disclosure.

The court in Alford discussed its opinion in Avary but ultimately grounded its decision on the "offensive use" doctrine of waiver: by bringing suit against her attorney, the client waived the right to assert confidentiality because to do so would deny her attorney the benefit of evidence that would weaken or defeat the client's claims. The court held that the three elements of the "offensive use" doctrine had been met: (1) the party asserting the privilege is seeking affirmative relief; (2) the privileged information sought is such that, if believed, would in all probability be outcome determinative of the cause of action asserted; and (3) disclosure of the confidential information is the only means by which the aggrieved party may obtain the evidence.

While the "offensive use" doctrine was the mechanism used by the court to allow the testimony, the opinion's philosophical basis is similar to the one in Avary: the underlying dispute that was being mediated had settled and the evidence sought would not be used in that action but rather in a new independent claim that arose from a tort committed during the mediation and which did not exist before. Where this opinion departs from Avary, however, is the evidence sought was not from the party accused of committing the tort but rather from a third party witness, i.e. the mediator.

Putting aside the question of whether the third element of the "offensive use" doctrine was actually met, the question left unanswered by this opinion is whether the court would have ruled the same way if the mediator had objected. In other words, can the mediator assert the privilege, at least to his or her testimony?

It is important that courts limit Alford v. Bryant to the narrow facts of the case: a discussion between lawyer and client. If the holding is extended to permit testimony by the mediator about the negotiations between the parties, the mediation process will suffer very serious, if not irreparable, damage.

"In situations of great ambiguity and uncertainty, first offers have a strong anchoring effect - - they exert a strong pull throughout the rest of the negotiation." Why? "High anchors selectively direct our attention toward an item's positive attributes; low anchors direct our attention to its flaws." In the view of the author, making the first offer yields a bargaining advantage.

The author states that an exception to the first offer rule is when the other side has much more information about the value of the item being negotiated or the relevant market. In that situation, making the first offer does not confer an advantage.

The studies discussed in the article seemed to deal with negotiations (or simulated negotiations) involving the purchase of cars, homes etc. Whether the same principle is transferrable to the type of negotiations we typically see in mediation is unclear. Nevertheless, it is food for thought.

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