U.S. Seventh Circuit Court Of Appeals Interprets Wisconsin Mediation Statute And Privileges

In John Doe v. Archdiocese of Milwaukee, No. 13-3783 (2014), “John Doe” settled his sexual abuse claims against the Archdiocese of Milwaukee after participating in voluntary mediation. Doe signed a settlement agreement containing a confidentiality clause, another clause providing that the parties could not introduce as evidence in later proceedings matters including views expressed or admissions made during the mediation proceedings, and a provision stating that the settlement was entered into “to otherwise resolve and settle all disputes between them.” After the Diocese filed for bankruptcy relief, Doe filed a proof of claim.

The Archdiocese objected to Doe’s proof of claim on the basis that he participated in mediation and executed a settlement agreement with a complete release and moved for summary judgment. Doe opposed the motion on the basis that he was fraudulently induced into the settlement. Doe’s argument depended upon statements made during the mediation but Wisconsin law prohibits the admission in judicial proceedings of nearly all communications made during mediation. Doe maintained an exception applied, namely, that the later action was “distinct from the dispute whose settlement is attempted through mediation.” Wis. Stats. § 904.085(4)(e). The Court, however, concluded that Doe’s bankruptcy action was not distinct from the dispute settled in mediation. The Court stated that the issue in both proceedings, which involved the same parties, was the Archdiocese’s responsibility for the sexual abuse Doe suffered, with Doe seeking damages in both mediation and bankruptcy for the same sexual abuse and not seeking separate or additional damages for the alleged fraudulent inducement. The Court concluded the exception in Wis. Stats. § 904.085(4)(e) did not apply and affirmed the bankruptcy court’s granting of summary judgment to the Archdiocese.

Wisconsin’s law relating to alternative dispute resolution, Wis. Stats. § 802.12, was adopted via Supreme Court Rule No. 93-13 in 1993. Section 802.12 provided express statutory authority for judges to order that litigants attempt settlement through any of several defined processes. The parties are allowed to choose the type of process, the service provider, and the manner of compensating the service provider, but the judge may determine these issues if the parties do not agree.

Further, Wis. Stats. § 904.085, communications in mediation creates a rule of inadmissibility for communications in mediation, with the purpose of the rule being to encourage the parties to explore facilitated settlement of disputes without fear that their claims or defense will be compromised if mediation fails and the dispute is later litigated. There are, however, several exceptions to the general rule of inadmissibility with one of the exceptions allowing evidence otherwise barred “in an action or proceeding distinct from the dispute whose settlement is attempted through mediation” to be admitted if “necessary to prevent a manifest injustice.” Wis. Stats. § 904.085(4)(e)(e). Wisconsin does not allow the admission of mediation communications solely on the basis that manifest injustice would result were they not admitted. Rather, the disputes must be distinct.

The Court of Appeals noted that Wisconsin’s mediation law is unique; no other state having a “distinct from the dispute” threshold in its mediation privilege statute. However, the Court also noted there is little legal guidance addressing the “distinct from the dispute” requirement.

Turning to the language of the statute: “An action or proceeding distinct from the dispute whose settlement is attempted through mediation.” Wis. Stats. § 904.085(4)(e), the Court made reference to a typical American Heritage Dictionary definition defining “dispute” to mean a “verbal controversy; a debate or a disagreement or quarrel.” It also cited Black’s Law Dictionary’s definition of “dispute” as a “conflict or controversy, esp. one that has given rise to a particular lawsuit.” (9th ed. 2009). Even though the Court observed that dictionary definitions are not the end-all of statutory interpretation, the definitions did provide assistance in ascertaining the meaning of the statute.

In finding the disputes not to be distinct, the Court determined that such a holding was also consistent with the Wisconsin legislature’s express purpose in enacting its mediation privilege statute. The statute provides that “the purpose of this section is to encourage the candor and cooperation of disputing parties to the end that disputes may be quickly, fairly, and voluntarily settled. Wis. Stats. § 904.085(1). With the purpose of mediation being to resolve Doe’s claims against the Diocese, and with Doe signing a complete release stating that the settlement resolved all disputes with the Archdiocese, the Court noted that to allow an undoing of the settlement previously reached could discourage parties from quickly resolving their disputes through mediation. The Court concluded: “The Wisconsin legislature balanced competing interests to further the statute’s goal of ‘quickly, fairly, and voluntarily’ resolving disputes, Wis. Stats. § 904.085(1), when it crafted § 904.085, and we conclude the statute does not allow the admission of communications made during the mediation here because the disputes in mediation and Doe’s bankruptcy proof of claim are not distinct.”

If you should have any questions regarding this article or mediation in general, please contact Brad Matthiesen at bmatthiesen@mwl-law.com.

Bradley W. Matthiesen

Bradley W. Matthiesen is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. He is licensed to practice in Arizona and Wisconsin. He has been an insurance defense trial attorney for the past 44 years. He also serves as a mediator throughout the State of Wisconsin and Arizona.