A Challenge to Confidentiality in Mediation?

Confidentiality is a basic principle of mediation. But what is to be done when it is used as a weapon in a dispute? This is the question that judges in California will have to decide.

The case at issue is the high-profile divorce of Elon and Justine Musk. Mr Musk is one of the founders of PayPal, and a very wealthy man. The couple have five children, and the main point of disagreement yet to be resolved is the level of support to which Ms Musk is entitled. Their dispute hinges on a post-nuptial agreement that Ms Musk signed in the early days of the marriage, and which she describes as “very harsh.” The agreement was reached by mediation, and so the negotiations leading up to it are confidential. At the same time that the couple was negotiating their agreement, Elon Musk was also in talks regarding the merger of his company X.com, which eventually became PayPal. The merger raised the value of his stocks in X.com by millions of dollars more than was reported in the post-nuptial agreement. It is not clear whether this was an oversight or a deliberate omission.

The fact that the agreement was signed after the couple married is significant, as married couples have a “fiduciary duty” to one another to be honest in their financial dealings. Lawyers from Ms Musk have charged that Mr Musk violated this fiduciary duty. His lawyers have argued that, since the agreement was mediated, and therefore confidential, Ms Musk has no right to challenge it. In order to defend himself against the charge of fraud Mr Musk would have to discuss his actions during the negotiation, the very period which is subject to confidentiality. In July, when lawyers for both sides presented their arguments before the court, the judge praised them for “excellent lawyering,” declared a “non suit,” and certified the case for appeal. A verdict from the California Court of Appeal could take a year or two. The two underlying legal principles in the case – mediation confidentiality and marital fiduciary duty – have not before been set in opposition to one another.

Reading about this case, I was reminded of the old adage that, “hard cases make bad law.” Confidentiality is important to mediators and to many other professionals, for a variety of reasons. Some of the reasons for mediation confidentiality are instrumental; that is, the presumption of confidentiality helps mediators to get parties in a dispute to speak frankly, and this is turn helps to keep negotiations focused on the parties’ interests. In this way mediation confidentiality is similar to the confidentiality between lawyers and their clients. A full and frank disclosure helps lawyers to present the best possible defense. Yet there are also intrinsically moral reasons for the presumption of mediation confidentiality. Parties in a dispute are entitled to their privacy and the right not to have sensitive information disclosed by third parties. In this way, a mediator’s duty to respect confidentiality of parties in a dispute is similar to the duties of confidentiality observed by doctors and therapists.

Justine Musk has harsh words for mediation. She writes: “When someone hustles you into mediation, and you yourself are a loving trusting naif without any business or financial experience who has never heard the word ‘mediation’ before, they can basically rape and murder you (figuratively speaking, of course) and get away with it, because it’s all confidential.” Reading her account of these events (both in her blog postings and comments, and in the October 2010 issue of Marie Claire), I was left with many unanswered questions. The negotiations began before the couple were married, and Ms Musk gives the impression that the lawyer who mediated the agreement was engaged by Mr Musk. (The ADR Institute of Canada National Mediation Rules prohibit a mediator from acting for any of the parties individually, unless all of the parties consent after full disclosure. Mediators are supposed to be independent and impartial.) Neither is it clear whether the couple’s mediator advised Ms Musk to seek independent legal advice.

Whatever the outcome of this dispute, mediators in California and elsewhere will be eager to hear the judges’ decision and their reasoning.

Posted in Mediation.