I had the opportunity this week to watch some of the Hewlett Packard v. Oracle Corporation trial in the California Superior Court, Santa Clara County, Case no. 1-11-CV-203163.

The case results from a failed settlement in Hewlett-Packard Company v. Hurd, SCCSCT Case No. 1-10-cv-181699. That case was dismissed with prejudice on September 22, 2010 following the execution of a written settlement agreement. The settlement negotiations in the Hurd employment case were handled directly by the parties and their attorneys. In dispute in this pending case is Oracle’s compliance with paragraph 1 of the Hurd settlement agreement.

The courtroom is filled with partners of major national law firms—with imaginably high hourly rates. Each side has a large team of attorneys and support personnel, in-house counsel and many witnesses. For three days, HP has been presenting its case for breach of this settlement agreement, methodically offering into evidence emails of the negotiations and testimony by the negotiators about how the terms evolved and what they mean. There are hundreds of exhibits. The most crucial documentary evidence to date interpreting the language of paragraph 1 is contained in an email from Oracle’s counsel, Dorian Daley to HP.

Had these negotiations occurred as part of a mediation, all of this evidence would be inadmissible. The hundreds of thousands of dollars spent in discovery and voluminous trial presentation could have been saved.

The California Evidence Code § 1119 provides the protection. It reads, in pertinent part:

(a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any…civil action…
(b) No writing…that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any … civil action….
(c) All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.

Perhaps it is still possible to reach peaceful resolution. Two of the most powerful women in Silicon Valley, Ann Livermore and Safra Katz, were seen chatting amicably during a break in the trial for a fire drill. At the conclusion of Thursday’s trial session, Judge Kleinfeld urged the parties to attempt settlement again. He relayed an offer from the prior settlement conference judge to meet with the parties at no charge to help them resolve the dispute.

Communications in a settlement conference do not fall under mediation’s statutory protection from disclosure and discovery. Evidence Code § 1117 specifically provides that mediation confidentiality does not apply to a settlement conference pursuant to Rule 3.1380 of the California Rules of Court. And a recent federal case, In re MSTG, Misc. No. 996 (Fed. Cir. 4/8/2012), holds that there is no settlement negotiation privilege that would make negotiation documents or discussions inadmissible.

When negotiating, you should have a written mediation agreement such as that used in The Facebook Inc. v. Pacific Northwest Software, Inc., 640 F3d 1034 (9th Cir. 2011). There the mediation agreement which everyone signed before commencing mediation provided that: “all statements made during the course of the mediation or in mediator follow up thereafter at any time prior to complete settlement of this matter are privileged settlement discussions…and are nondiscoverable and inadmissible for any purpose including in any legal proceeding…No aspect of the mediation shall be relied upon or introduced as evidence in any arbitral, judicial, or other proceeding.” Id. at 1041. The Ninth Circuit Court of Appeals held that this mediation confidentiality agreement precluded the Winkelvoss twins from introducing in support of their claims any evidence of what Facebook said, or did not say, during the mediation. Without such evidence, they had no case. Mediation confidentiality brought that litigation to an end.

Label your mediation agreements as confidential pursuant to Evidence Code § 1119. Enlist the services of the mediator to clarify any ambiguous terms and conditions. And hopefully you will avoid the morass that HP and Oracle find themselves in today.

The lesson to be learned from the HP v. Oracle case is for a timely and cost effective resolution to your dispute-to protect the confidentiality of your settlement negotiations, save money and ensure swift enforcement of your settlement-use mediation.

by Suzanne Nusbaum

Suzanne K. Nusbaum brings 25 years of dispute resolution experience to her fulltime neutral ADR practice. A Fellow of the Chartered Institute of Arbitrators and a former judge, she has specialized expertise in resolving employment, entertainment, health care, and intellectual property disputes. She also serves on various ADR panels and volunteers internationally to teach students basic dispute resolution skills.