Mediation privilege: State law? Federal law?

Sony and HannStar had a major price-fixing dispute, and they engaged a mediator to help resolve it. At one point the mediator emailed both parties with a proposal that the dispute be settled for $4.1 million. Both parties emailed to the mediator their acceptance of the proposal. But HannStar refused to abide by the mediated settlement agreement, and Sony sued to enforce the agreement.

Applying California statutory law, the district court denied Sony's motion for summary judgment on the ground that California Evidence Code section 1123(b) precluded admission of the email exchange (and the resulting contract) without some express statement to the effect that the settlement was intended to be enforceable or binding. Section 1123(b) says:

A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied: … (b) The agreement provides that it is enforceable or binding or words to that effect.

The 9th Circuit reversed. Sony Electronics v. HannStar Display Corp (9th Cir 09/01/2016) [Opinion full text]. In a 2-1 decision the 9th Circuit held that federal rather than state privilege law applied because this involved a suit to enforce a settlement of both federal and state claims.

The dissent would apply state law because at the time Sony sought to admit evidence of the email exchange only state law claims remained.