09/29/2014

CEATS, Inc. v. Continental Airlines, Inc.: Mediator's Relationship to Party Should Have Been Disclosed, but Does Not Warrant Relief from Jury Verdict


Category: Civil Procedure 
 
 
 
 By: Samuel Dillon, Contributor
 
TitleCEATS, Inc. v. Continental Airlines, Inc., No. 2013-1529 (Fed. Cir. June 24, 2014).
Issues[Whether the district court abused its discretion in] finding that [(1)] the mediator had no duty to disclose his dealings with one of the firms involved in the litigation [such that (2)] relief from judgment under Rule 60(b) was not warranted.
CEATS at *3 (text added).
Holdings
[1] We find that the district court erred in finding that a reasonably objective person would not have wanted to consider circumstances surrounding the Karlseng litigation when deciding whether to object to Faulkner’s appointment as mediator in this case. . . . In this case, at the same time Faulkner served as the court-appointed mediator, the Faulkner-Johnson-Fish relationship was directly at issue in a state appellate court. Importantly, this meant that Fish, as a firm, was actively defending Faulkner’s personal disclosure decisions while he was mediating this case. . . . Furthermore, the Texas appeals court’s decision . . . found that the Faulkner-Johnson-Fish relationship was a disqualifying, social and business relationship, which “could reasonably be seen as raising a question about the mediator’s impartiality” while this case was ongoing.
Id. at *14-15.
[2] We agree with Continental that CEATS has failed to show a meaningful risk of injustice in this case . . . , we do not believe there is a sufficient threat of injustice in other cases to justify the extraordinary step of setting aside a jury verdict . . . , [and] we do not believe that refusing to grant the relief CEATS seeks will undermine public confidence in the judicial process as a whole. . . . [W]e hold that the district court correctly denied CEATS relief from judgment under Rule 60(b)(6), despite what we deem to be a failure of the mediator’s disclosure obligations.
Id. at *18-20.
 
 
 
 
 
Procedural HistoryCEATS, Inc. (“CEATS”) brought this patent infringement suit against Continental Airlines, Inc. . . . (collectively, “Continental”) in the United States District Court for the Eastern District of Texas. After the parties failed to reach a settlement during court ordered mediation, the case went to trial where a jury found that CEATS’s patents were infringed, but invalid. We affirmed the jury’s finding of invalidity in a prior appeal [(“CEATS I”)]. While its first appeal was pending, CEATS filed a motion for relief from the judgment pursuant to Federal Rule of Civil Procedure 60(b) (2012) (“Rule 60(b)”) based on an alleged relationship between the court-appointed mediator and the law firm representing most of the accused infringers. This alleged relationship was brought to light in an unrelated case (“the Karlseng litigation”). After we affirmed the invalidity of CEATS’s patents in CEATS I, the district court denied CEATS’s Rule 60(b) motion. This appeal followed.
CEATS at 2-3 (citation omitted).
 
 
 
Legal Reasoning (Prost, Rader, O'MALLEY)
Background
CEATS I Mediation[In the CEATS I litigation, t]he district court ordered the parties to participate in mediation and appointed former Magistrate Judge Robert Faulkner as the mediator on September 28, 2010. The parties conducted two mediation sessions before Faulkner—one on June 21, 2011 and another on June 30, 2011. Because the parties failed to reach a settlement during mediation, the matter proceeded to trial. Thomas Melsheimer, a partner at Fish & Richardson P.C. (“Fish”), served as lead trial counsel. Fish represented some, but not all, of the accused infringers before the trial court. During the 8-day jury trial, the parties conducted further mediation sessions, but again failed to reach a settlement. On March 21, 2012, the jury found CEATS’s patents infringed, but invalid.
CEATS at *3-4 (footnote omitted).
The Karlseng litigationIn an unrelated case that began three years before CEATS filed its complaint in this case, Fish represented a party in a partnership dispute before a Texas state court. After the parties agreed to arbitration, the state court appointed Faulkner to serve as the Judicial Arbitration and Mediation Service (“JAMS”) arbitrator. . . . Faulkner issued a ruling in favor of Fish’s client for $22 million, including $6 million in attorney’s fees. After learning that Faulkner and Johnson were, in fact, previously acquainted, opposing counsel asked to conduct discovery regarding the nature of their relationship. The state court denied that request and confirmed the award on February 22, 2008. . . . [Thomas] Melsheimer defended Faulkner’s decision not to disclose his relationship with Johnson. On June 28, 2011—between the first two mediation sessions in this case—the Texas court of appeals issued [a] decision vacating the arbitration award, finding that Faulkner’s failure to disclose his relationship with Johnson violated his obligations as an arbitrator and tainted the arbitration award. In its opinion, the appeals court detailed both an enduring social relationship between Faulkner and Johnson, which it said included expensive outings and gifts, and an active business relationship between Faulkner and the Fish firm.
Id. at *4-5.
Legal StandardRule 60(b)Rule 60(b) states in relevant part that:

On a motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
...
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
...
(6) any other reason that justifies relief.

Id. at *7 (citing Fed. R. Civ. Proc. 60(b)).
Analysis
Rule 60(b)(3): “fraud . . . by an opposing party”CEATS Argument conceded at Oral ArgumentCEATS contends that Fish’s failure to disclose the facts surrounding the Karlseng litigation was improper and amounts to “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.” Fed. R. Civ. Proc. 60(b)(3) (emphasis added). . . . In the Fifth Circuit, the party seeking relief under Rule 60(b)(3) must prove by clear and convincing evidence “(1) that the adverse party engaged in fraud or other misconduct, and (2) that this misconduct prevented the moving party from fully and fairly presenting his case.” CEATS conceded at oral argument, however, that there is nothing in the record that shows it was not given a full and fair opportunity to present its case. Because we are constrained to the record, we affirm the district court’s finding that CEATS is not entitled to relief under Rule 60(b)(3).
CEATS at *7-8 (citations omitted).
Rule 60(b)(6): “any other reason that justifies relief”
Mediator’s Duty To Disclose
CEATS ArgumentCEATS argues that it is Faulkner’s—not Fish’s—failure to disclose the facts surrounding the Karlseng litigation that entitles it to relief under Rule 60(b)(6). . . . CEATS argues that, as a neutral mediator, Faulkner had a duty to disclose the facts surrounding the Karlseng litigation because they gave “the appearance of affecting the mediator’s neutrality.”
Id. at *8, *14.
Judicial DisqualificationIn Liljeberg, the Supreme Court first held that [a] district court judge violated 28 U.S.C. § 455(a) by failing to recuse himself. . . . “Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.”
Id. at *9 (citing 28 U.S.C. § 455(a)).
Liljeberg factors for relief under Rule 60(b)(6) for failure to disqualifyA movant is entitled to relief under Rule 60(b)(6)—the “catch-all” provision—if “such action is appropriate to accomplish justice” and only in “extraordinary circumstances.” The Supreme Court set forth three factors to consider “in determining whether a judgment should be vacated for a violation of §455(a)”: (1) “the risk of injustice to the parties in the particular case;” (2) “the risk that the denial of relief will produce injustice in other cases;” and (3) “the risk of undermining the public’s confidence in the judicial process.”
Id. at *9 (citations omitted).
Mediator’s disclosure requirements are analogous to judicial recusal requirementsJust as a judge is required to recuse himself under § 455(a) whenever “his impartiality might reasonably be questioned,” mediators are required to disclose a potential conflict whenever there are facts and circumstances that “could reasonably be seen as raising a question about the mediator’s impartiality.” ABA Standards for Mediators § III.C (emphasis added). Because mediators have disclosure obligations which are similar to the recusal requirement imposed on judges, we find it appropriate to examine Faulkner’s disclosure obligation under Liljeberg.
Id. at *13 (footnote omitted).
Faulkner’s duty to disclose
Faulkner violated his disclosure requirementWe find that the district court erred in finding that a reasonably objective person would not have wanted to consider circumstances surrounding the Karlseng litigation when deciding whether to object to Faulkner’s appointment as mediator in this case. . . . Mediators are required to disclose not only financial interests, but all potential conflicts of interests as well. . . . In this case, at the same time Faulkner served as the court-appointed mediator, the Faulkner-Johnson-Fish relationship was directly at issue in a state appellate court. Importantly, this meant that Fish, as a firm, was actively defending Faulkner’s personal disclosure decisions while he was mediating this case. Despite the absence of a formal attorney-client relationship, Fish’s ongoing defense of Faulkner’s award reasonably could give rise to the appearance [of] impropriety. . . . Furthermore, the Texas appeals court [] found that the Faulkner-Johnson-Fish relationship was a disqualifying, social and business relationship, which “could reasonably be seen as raising a question about the mediator’s impartiality” while this case was ongoing.
Id. at *14-15.
Liljeberg factor 1: no “risk of injustice to the parties in the particular case”We agree with Continental that CEATS has failed to show a meaningful risk of injustice in this case. Although we conclude that Faulkner should have disclosed the circumstances surrounding the Karlseng litigation and his relationship with the Fish firm relating thereto, we find that CEATS ultimately was able to fully and fairly present its case before an impartial judge and jury. As CEATS admitted at oral argument, moreover, there is no evidence in the record that suggests that Faulkner wrongfully disclosed confidential information, and CEATS never sought discovery of Faulkner in an effort to determine if any such disclosure occurred.
Id. at *18.
Liljeberg factor 2: no “risk that the denial of relief will produce injustice in other cases”[W]e do not believe there is a sufficient threat of injustice in other cases to justify the extraordinary step of setting aside a jury verdict. We find it unlikely that mediators will simply ignore their disclosure obligations if we deny relief here. To the contrary, our decision serves to reinforce the broad disclosure rules for mediators by holding that Faulkner had a duty to disclose in this case. The mere fact that the final judgment after a full jury trial will not be overturned every time a mediator fails to disclose a potential conflict is not likely to affect the disclosure decisions of other mediators.
Id. at *19.
Liljeberg factor 3: “risk of undermining the public’s confidence in the judicial process” does not warrant the requested extraordinary reliefWhile we find that public confidence in the mediation process will be undermined to some extent by our failure to put greater teeth in the mediators’ disclosure obligations, we do not find that fact justifies the extraordinary relief CEATS seeks. Because CEATS had the opportunity to present its case to a neutral judge and jury, we do not believe that refusing to grant the relief CEATS seeks will undermine public confidence in the judicial process as a whole.
Id. at *19-20.
Conclusion
Because, on balance, we find that the Liljeberg factors do not justify relief in this case, we hold that the district court correctly denied CEATS relief from judgment under Rule 60(b)(6), despite what we deem to be a failure of the mediator’s disclosure obligations.
CEATS at *20.
 
 
 
 
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