Court Finds Good Faith Requirement Even In Mandatory Settlement Conference (PA)

While it is axiomatic that good faith is the polestar of the transactional world, it is often times less evident whether the same obligation extends to adverse parties involved in litigation.  In particular, the question can arise where adverse parties submit to some form of alternative dispute resolution – mediation, settlement conference or otherwise – that depends heavily on good faith negotiations to resolve the dispute.  For at least one court in Pennsylvania, however, it appears that the good faith is an immutable requirement in ADR even where the parties are, by their very nature, adverse to one another.

In Grigoryants v. Safety-Kleen, United States Magistrate Judge Maureen Kelly entertained sanctions against a defendant whose corporate policy was to entertain settlement only after the close of discovery.  Specifically, the Grigoryants litigation involved husband-and-wife plaintiffs who sued Safety Kleen after the husband was exposed to one of that company’s chemicals, and later contracted myelofibrosis.  Following initial discovery, the United States District Court for the Western District of Pennsylvania ordered the parties to appear for mediation and instructed both sides to produce representatives with full and unqualified settlement authority.  In anticipation of the mediation, both parties engaged in pre-mediation conference calls with the mediating judge to discuss their respective positions on liability and damages, and also submitted pre-mediation memorandum outlining the same.  Despite this preparation, however, the mediation was ultimately unsuccessful and prompted the plaintiffs to move for sanctions against Safety-Kleen after learning that the corporation had an internal policy of not discussing potential settlement before the filing of dispositive motions.

In ultimately imposing sanctions against Safety-Kleen, Judge Kelly noted that good faith is a necessary element of court-mandated mediation.  Further, Judge Kelly found that certain of Safety-Kleen’s actions constituted bad faith insofar as they undermined the opportunity to alternatively resolve the litigation.  Chief among Safety-Kleen’s bad faith actions was the fact that it knew of its unwillingness to engage in settlement negotiations prior to the close of discovery, but neglected to make that fact known to the Court.  In fact, Judge Kelly explained that the concealment of Safety-Kleen’s position with respect to settlement, not the failure to settle, itself, was the core of its sanctionable conduct.  Consequently, Judge Kelly ordered Safety-Kleen to restore the plaintiff to their pre-mediation condition by paying costs, expenses and attorneys-fees incurred.

To our mind, the decision in Grigoryants is both cautionary and encouraging.  On the one hand, there is no doubt that Pennsylvania’s state and federal courts consider alternative dispute resolution an indispensable cog in the litigation process, and, as a result, require transparency with the mediator in respect of settlement positions.  On the other, however, it appears that Pennsylvania courts do recognize the thin line between requiring good-faith and simply fruitless settlement negotiations.   Simply put, candor with the court and adversaries is the preferable – and safer- way to proceed   

Thanks to Adam Gomez for his contribution to this post.   If you have any questions, please email Paul at pclark@wcmlaw.com.