Are Mediation and Settlement Discussions Confidential?

Three different protections, often confused

People say "confidential" and mean three different things. The first is a statute that protects what happens inside a formal mediation. The second is an evidence rule that keeps settlement offers out of trial, whether or not a mediator was involved. The third is a contract term in the settlement agreement that binds the parties to silence afterward. Each covers something the others do not.

What the Texas ADR statute protects

Section 154.073(a) provides that a communication relating to the subject matter of a civil or criminal dispute, made by a participant in an alternative dispute resolution procedure, is confidential, is not subject to disclosure, and may not be used as evidence against the participant in any judicial or administrative proceeding. The protection applies whether the procedure takes place before or after a lawsuit is filed. Subsection (b) adds that any record made at the procedure is confidential, and that the participants and the mediator may not be required to testify in any proceedings relating to the dispute or to disclose confidential information through legal process.

That is broad. The number you floated in the caucus room, the admission your partner made to the mediator, the mediator's own impressions: none of it can be used against you in the case, and the mediator cannot be subpoenaed to say what you said. The statute is one reason mediation works; parties can speak about weakness without arming the other side.

What the statute does not protect

• Documents that exist anyway. Section 154.073(c) says that an oral communication or written material used in or made part of an ADR procedure is admissible or discoverable if it is admissible or discoverable independent of the procedure. Handing your financial statements to the mediator does not make them privileged. They were discoverable before and remain so.
• Conflicts with other disclosure duties. Under subsection (e), where the statute conflicts with another legal requirement to disclose, the question goes to the court with jurisdiction, which reviews the material in camera and decides whether a protective order is warranted or disclosure is required.
• Abuse reporting. Subsection (f) preserves the duties to report child abuse or neglect and abuse of elderly or disabled persons.
• Government parties. Subsection (d) makes a final written settlement agreement signed by a governmental body subject to the Public Information Act.
• The deal itself. The statute protects communications in the procedure. The written agreement that comes out of it is a contract. Section 154.071 makes it enforceable like any other written contract, and enforcing a contract means putting it before a judge.

Settlement offers outside mediation

Direct negotiations between lawyers, without a mediator, are not an alternative dispute resolution procedure under Chapter 154, so § 154.073 does not reach them. What protects them is the compromise rule. Texas Rule of Evidence 408 provides that evidence of furnishing, promising or offering valuable consideration to compromise a claim, or accepting or offering to accept it, and evidence of conduct or statements made during compromise negotiations about the claim, is not admissible to prove or disprove the validity or amount of a disputed claim. Federal Rule of Evidence 408 says the same for cases in federal court, and adds that such evidence may not be used to impeach by prior inconsistent statement.

The compromise rule is narrower than the statute in two ways. It is a rule about admissibility at trial, not about discovery or disclosure, so the other side can still learn what was said. And it has a built-in exception: both the Texas and the federal rule permit the court to admit the evidence for another purpose, such as proving a witness's bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation. A settlement letter can also be admissible to prove the settlement itself when a party later sues to enforce it.

State court or federal court

In a Texas state court both layers apply: § 154.073 to mediation communications and Rule 408 to offers generally. In federal court Federal Rule of Evidence 408 governs admissibility. Whether the Texas confidentiality statute also applies there depends on the nature of the case and the federal court's approach to state privilege rules, and federal courts in Texas have their own local rules and mediation orders that impose confidentiality on court-annexed mediations. If your dispute is or may be in federal court, ask before the mediation what protection the order gives, and consider a written confidentiality agreement signed by every participant, which many mediators require anyway.

Keeping the settlement itself confidential

Confidentiality after the deal is a matter of contract. If the agreement says nothing, either party can tell anyone the terms. A confidentiality clause typically covers the amount and terms, sometimes the existence of the settlement, and carves out disclosures to accountants, lawyers, lenders, insurers, and as required by law or court order. It should say what happens on breach, because actual damages from a leaked number are hard to prove; a liquidated damages figure is common.

Two court-related limits apply. First, anything filed with the court is a court record, and under Tex. R. Civ. P. 76a court records are presumed open and may be sealed only on a showing of a specific, serious and substantial interest that clearly outweighs the presumption of openness and any adverse effect on public health or safety, with no less restrictive means available. Rule 76a also treats unfiled settlement agreements as court records, excluding the monetary terms, where they seek to restrict disclosure of matters affecting public health or safety, public office or the operation of government. Ordinary business settlements rarely trigger that, but it means a confidential settlement should not be filed if it can be avoided; the parties file a notice of settlement and an agreed dismissal instead. Second, a settlement incorporated into a judgment under § 154.071(b) becomes part of a public court order, and Rule 76a flatly forbids sealing court orders. If confidentiality matters, do not ask the court to incorporate the terms. The broader subject is covered in keeping a business dispute confidential.

Example

Suppose two Dallas companies mediate a dispute over a canceled supply contract. In a private caucus the buyer's owner tells the mediator that his company would have struggled to pay for the goods anyway. The mediation fails. At trial the seller cannot call the mediator, cannot ask the owner what he told the mediator, and cannot offer the seller's own mediation statement as an admission; § 154.073 bars all of it. The seller can, however, obtain the buyer's bank statements in discovery, because they existed independent of the mediation. After a verdict the parties settle while the appeal is pending, with a confidentiality clause. They file a joint motion to dismiss the appeal that says the matter has been resolved, and they do not file the agreement. Six months later the buyer's CFO describes the number at an industry dinner. The seller's remedy is a breach of contract claim under the liquidated damages clause, not anything in Chapter 154.

What to say, and not say, at the table

The statute and the evidence rules are strong enough that you can negotiate candidly about risk, money and priorities. They do not change what the other side already knows or can obtain, so do not treat mediation as a place to disclose a document you would otherwise withhold. Bring the people with authority, let counsel speak to the merits, and keep your own remarks to business terms. What to prepare, and how to think about your number before you arrive, is in how to prepare for mediation in a business dispute. The terms a finished agreement should contain, including the confidentiality clause and its exceptions, are in structuring a business settlement.

Tina Wysk represents businesses in mediation and in the litigation and arbitration around it, in Dallas state and federal courts. See her arbitration and mediation practice page.