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By Tony Dutra
June 24 — A mediator in a patent infringement litigation had a duty to disclose his relationship with the law firm representing one of the parties, the U.S. Court of Appeals for the Federal Circuit ruled on June 24.
The court held that mediators' disclosure obligations are similar to the requirements for judges when there is a possibility of recusal in a case.
Nevertheless, the court determined that the failure to disclose here did not warrant relieving the patent owner of a judgment that the asserted claims were invalid.
Ceats Inc. holds four related patents (U.S. Patent Nos. 7,454,361; 7,548,866; 7,660,728; and 7,548,869) claiming “electronic means by which people can select the exact seat or seats they want” from a picture of an airplane or other seating chart on a computer screen.
Ceats filed a patent infringement lawsuit against 26 airline and eight online ticket reservation companies in April 2010. In a nonprecedential opinion, the Federal Circuit affirmed judgment of the U.S. District Court for the Eastern District of Texas that all asserted claims were invalid for anticipation and obviousness. 526 F. App'x 966, 2013 BL 111203, 107 U.S.P.Q.2d 1606 (Fed. Cir. Apr. 26, 2013).
During litigation, Ceats and Continental Airlines Inc. participated in a mediation conducted by Robert Faulkner. Continental was represented by Fish & Richardson P.C.
Faulkner had a personal relationship with Fish partner Brett Johnson that became the subject of a nondisclosure charge in another case in Texas state court known as Karlseng. Thomas Melsheimer, the Fish partner serving as lead trial counsel in the Ceats litigation and later mediation sessions, had argued in Karlseng that the result favorable to Fish's client should not be overturned because of the Faulkner-Johnson relationship.
Ceats now appealed the district court's denial of Ceats' motion that it should be relieved of the judgment under Fed. R. Civ. P. 60(b) because Fish and Faulkner failed to disclose the Karlseng developments.
Rule 60(b) allows relief from a final judgment in two relevant subparagraphs.
The Federal Circuit, in an opinion written by Judge Kathleen M. O'Malley, quickly rejected Ceats' appeal under Rule 60(b)(3), which provides relief in case of misconduct “by an opposing party.”
Independent of whether any act could be attributed to Continental or Fish, Fifth Circuit law requires a showing that the opposing party's misconduct “prevented the moving party from fully and fairly presenting his case.” Ceats conceded that nothing in the record showed it was so constrained.
“Mediators are required to disclose not only financial interests, but all potential conflicts of interests as well.”Judge Kathleen M. O'Malley
Rule 60(b)(6) is a catchall allowing for “any other reason that justifies relief.” Ceats here relied on a Supreme Court decision granting relief for a judge's nondisclosure. Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847 (1988), held that a district court judge violated 28 U.S.C. §455(a)—disqualification of justice, judge, or magistrate judge—by failing to recuse himself based on a conflict.
The appeals court said, “we agree with CEATS that mediators are bound by disclosure requirements similar to the recusal requirements of judges.” It came to that conclusion largely by comparing 28 U.S.C. §455(a) to the wording of the American Bar Association's Model Standards of Conduct for Mediators, §III.C (2005), and the International Mediation Rule 6 (2011) of the Judicial Arbitration and Mediation Service.
“While mediators do not have the power to issue judgments or awards, because parties are encouraged to share confidential information with mediators, those parties must have absolute trust that their confidential disclosures will be preserved,” the court said.
Under Liljeberg, a court first assesses whether there was a duty to disclose under the circumstances of the instant case. On this point, the court criticized the analysis of the district court, which focused on Faulkner's lack of a fiduciary interest in Karlseng.
“Mediators are required to disclose not only financial interests, but all potential conflicts of interests as well,” the court said.
The state appellate court found that Faulkner breached his duty to disclose in Karlseng prior to at least one mediation session in Ceats. That judgment “could reasonably be seen as raising a question about the mediator's impartiality” in the instant case, the court said, quoting the ABA standard.44
The court did not, though, cite any one fact here as compelling disclosure, instead saying that the duty arose from “the totality of the facts and circumstances surrounding the Karlseng litigation.”
The second part of the Liljeberg test requires assessment of three factors: (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.”
Again, because Ceats had the chance to present its case against patent claim invalidity, the first factor was not met, the court said. And to the second, the court said its decision that Faulkner had the duty to disclose “serves to reinforce the broad disclosure rules for mediators.”
Finally, the court said, “While 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.”
Perhaps most importantly, the court distinguished what happened before “an impartial jury” and “an unbiased judge” from what happened in mediation. It “would be most extraordinary,” the court said, to grant relief from the decisions of the former based on the nondisclosure in the latter, the court said.
Chief Judge Sharon Prost and Judge Randall R. Rader joined the opinion.
Dean A. Dickie of Miller, Canfield, Paddock, & Stone PLC, Chicago, represented Ceats. Mark A. Lemley of Durie Tangri LLP, San Francisco, represented the defendants-appellees.
To contact the reporter on this story: Tony Dutra in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Naresh Sritharan at email@example.com
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