The Texas Court of Appeals, interpreting Texas’s ADR confidentiality statute, ruled that a third-party could not use oral statements made at mediation to prove the contents of a settlement. Hydroscience Tech., Inc. v. Hydroscience, Inc., 401 S.W.3d 783 (Tex. Ct. App. 2013).
Hyrdoscience Science, Inc. (HSI) sued Hyrdoscience Technologies (HTI) seeking a declaration that it owned 45% of HTI’s stock. HTI denied HSI’s ownership claim, asserting that it re-purchased all of its stock that HSI previously owned. To prove that HSI agreed to sell the stock back to HTI, HTI sought to introduce evidence of an oral agreement that HSI and HTI purportedly reached at a mediation of an underlying claim.
HSI argued that Texas’ confidentiality statute, Tex. Civ. Prac. & Rem. § 154.073, precluded evidence of its prior mediation statements. This statute provides that communications made at a mediation are “confidential, not subject to disclosure, and may not be used as evidence against the participant in any judicial or administrative proceeding.”
HTI, relying on In re Empire Pipeline Corp., 323 S.W.3d 308 (Tex. Ct. App. 2010), argued that the mediation privilege statute prevented only attempts to use mediation statements to avoid enforcement of a settlement agreement. But the appellate court refused “to construe the application of the mediation privilege so narrowly.” The court held that the mediation privilege, rather, also precludes mediation statements when a party seeks to change the settlement agreement.
In so ruling, the court made important policy statements about the mediation privilege. The court stated:
Parties must not be allowed to use evidence from mediation to dispute terms of a settlement agreement, particularly years later, as is the case here. To do so would chill the overall purpose of mediation, which is to allow parties to come to the table knowing they can speak freely about their dispute and have confidence what they say will be confidential.
Although interpreting Texas law, the Hydroscience decision should prove helpful to parties in all states trying to keep statements and comments made at mediations from discovery. You may access the opinion here.