One of the cardinal rules of mediation is that the person with settlement authority attends the mediation.  If not explicitly stated in most state and federal court rules, it is implicit. The reason is obvious: it is difficult to settle when the person with the authority to do so, is not there.

It seems though that this rule does not apply to the federal government. According to a recent decision of the Ninth Circuit Court of Appeals, it is not practical for the person with the ultimate settlement authority to attend mediation, and so the government is excused from this requirement.

In United States v. United States District Court for the Northern Mariana Islands (John K. Baldwin, real party in interest), ( Case No. 11-72940- September 12, 2012 ), (Baldwin) the issue was a tax  refund in excess of  $5 million dollars. The Internal Revenue Service disallowed certain deductions, so the taxpayer, John K. Baldwin, paid the deficiency and then sued to recover the excess taxes, penalties and interest.

Pursuant to its local rules, the United States District Court for the Northern Mariana Islands (“District Court”) issued an order scheduling a settlement conference in Coeur D’Alene, Idaho before a senior district judge. This was to be the first settlement conference in this case. The local rules, as is typical, provided in part, “Each party shall be required to attend the settlement conference, either personally or through a representative with full authority to participate in settlement negotiations and to effect a complete compromise of the case.” (D. N. Mar. I. Civ.R.16.2J (e) (5) (a).)

Soon after the court issued its order, the government moved for relief from the requirement to have someone with “full settlement authority” in attendance.  The government urged that this was impractical because given the amount in dispute - in excess of $5 million - the only person with such authority was the Assistant Attorney General in charge of the Tax Division at the Department of Justice. That is, it was a person very high up in the chain of command. Consequently, the government urged that the attendance by the trial attorney handling the matter should be sufficient.  That trial attorney could consult with the Section Chief of the Tax Division’s Office of Review (“Section Chief”) during the settlement conference as necessary. His authority is up to $1.5 million.  The government noted that ultimately, even the Assistant Attorney General has to gain approval from the Congressional Joint Committee on Taxation to settle matters of this size.        

The district court denied the government’s request, noting that in its twenty-nine years of conducting settlement conferences, the court has never been able to settle a matter in which a person with full authority to settle was not present.

After filing several unsuccessful emergency motions before the District Court, the government filed a petition with the Ninth Circuit requesting that it overturn the District Court’s order.

While the Ninth Circuit concluded that the District Court had the authority to compel participation in a settlement conference, it also concluded that the District Court had “abused its discretion” in requiring, in essence, that the Assistant Attorney General personally appear at the settlement conference: 

The most important reason for our conclusion is that the federal government, though not independent of the court’s authority, is also not like any other litigant. See, e.g., Mendoza, 464 U.S. at 159 (noting that the “ ‘Government is not in a position identical to that of a private litigant’ ” (quoting INS v. Hibi, 414 U.S. 5, 8 (1973))). The Department of Justice in general and its Tax Division in particular are responsible for a very large number of cases. The government reported to us that, as of January 9, 2012, the Tax Division had 549 civil cases pending in which the amount in controversy exceeded $2 million (exclusive of interest), the current case being just one of them. It further reported that the Tax Division receives a new civil case involving more than $2 million, on average, every third business day. The Assistant Attorney General is the lowest-ranking government official with authority to settle those claims under the Department’s regulations. For her to prepare for and appear at all settlement conferences for all of those cases would be highly impractical, if not physically  impossible.  

(Id. at 11160-1.)

Quoting from a Fifth Circuit decision, the Ninth Circuit noted that it is important for the government to centralize its decision making authority so that it can act consistently and, to effectively, pursue its policy goals. (Id. at 11161.). The Ninth Circuit also noted that this was a first settlement conference; obviously, later on in the case, it may require the personal participation of the Assistant Attorney General to resolve the matter. (Id. at 11162.)

Consequently, the Ninth Circuit issued an order directing the District Court to vacate its order requiring the presence of the Assistant Attorney General at the settlement conference.

I find this decision interesting because while it is crucial to have persons with “full settlement authority” at mediations if there is to be any hope of settling, realistically, it is not always possible with large corporations.  An officer who is high up the chain of command cannot realistically attend every settlement conference throughout the country. But, at the same, where does one draw the line? I have had many mediations where even the claims adjuster or other person actually handling the claim for the corporation attends by telephone. Where that person is out of town, it is understandable, but, there have been occasions where the person has been local and still attended by telephone due to too many cases and not enough time.  The employee is simply spread too thin to attend in person the many settlement conferences/mediations represented by the number of files she handles. And, unlike the District Court in the case above, I have been able to settle the matter where the attendance has been by telephone!

I do not know what the answer is or where the line should be drawn. I just know that while in theory it is great to have the person with “full settlement authority” attend the mediation in person, more often than not, it does not work out this way. To quote the District Court, it is “…highly impractical, if not physically impossible.” (Id.)  

by Phyllis G. Pollack

http://www.pgpmediation.com/2012/09/28/where-is-the-settlement-authority/

Phyllis G. Pollack is a full time neutral in Los Angeles where, as President of PGP Mediation, she focuses on business, real estate, contract and “lemon law” disputes. She may be reached at Phone: 213-630-8810 / phyllis@pgpmediation.com / Website: www.pgpmediation.com