Seventh Circuit Interprets Wisconsin's Mediation Privilege

08 December 2014 Wisconsin Appellate Law Blog

When Wisconsin’s legislature enacted the state’s so-called “mediation privilege” in Wis. Stat. § 904.085, it expressly sought, in subsection (1) of that provision, “to encourage the candor and cooperation of disputing parties, to the end that disputes may be quickly, fairly, and voluntarily settled.” The privilege itself provides that “no oral or written communication relating to a dispute in mediation” is admissible in evidence or discoverable in any judicial or administrative proceeding. Wis. Stat. § 904.085(3)(a).

Exceptions to the privilege exist, but they are few in number and relatively narrow—a point driven home in the Seventh Circuit’s recent decision in Doe v. Archdiocese of Milwaukee, No. 13-3783 (7th Cir. Nov. 5, 2014), authored by Judge Ann Claire Williams. 

Doe was a victim of sexual abuse in 1974 while he attended St. John’s School for the Deaf in Milwaukee, and in 2007 he participated in the Archdiocese’s voluntary mediation program, reaching a settlement with the Church for $80,000 to resolve his claims of fraud, negligence, and sexual battery.

That’s where the story begins. Four years later, the Archdiocese filed for bankruptcy under Chapter 11, and Doe returned, filing a proof of claim based on the same allegations of sexual abuse that were at issue in the 2007 mediation. Only now he alleged that his settlement had been fraudulently induced. Had he known that the Archdiocese knew more about his perpetrator’s past history, and had he known that the Church was settling claims similar to his for $100,000 to $200,000, he would not have settled for the amount that he did. Or so his story went.

All that might or might not have made out a claim for fraudulent inducement under Wisconsin law, but the deeper problem with Doe’s case was that he could not prove that his claim in bankruptcy was “‘distinct from the dispute’ whose settlement was attempted through mediation.” Slip op. 7. Doe needed to prove that distinction so that he could put into evidence what transpired during his mediation; § 904.085(4)(e), the mediation privilege’s exception for a “manifest injustice,” allows for the use of otherwise privileged information only in “an action or proceeding distinct from the dispute whose settlement is attempted through mediation.” The court turned to the dictionary and to Wisconsin’s case law to define “dispute” as a “‘verbal controversy; a debate’ or a ‘disagreement or quarrel’” and as a “‘conflict or controversy, esp. one that has given rise to a particular lawsuit.’” Slip op. 7-8.

But, both in the bankruptcy and in the mediation, the subject matter of Doe’s dispute was “the Archdiocese’s responsibility for Doe’s abuse.” Id. The Seventh Circuit declined to adopt Doe’s reading of the exception, which treated “claim” as a synonym for “dispute” and thus would have required the court to analyze the elements of fraudulent inducement vis-à-vis the elements of fraud, negligence, and sexual battery—a kinder standard for Doe, but one that was not the law. A further issue for Doe was that he did not seek independent damages in his proof of claim for fraudulent inducement. He sought damages only for the sexual abuse.

The Seventh Circuit affirmed Judge Randa’s earlier dismissal of the case in the Eastern District of Wisconsin. It noted that this result might be a harsh one, but it was one that it thought justified by the policy behind the mediation privilege.

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