This is an interesting result, to say the least. The case, Ceats, Inc. v. Continental Airlines, Inc., is here. The opinion (KO-Auth; SP; RR) began three years before his case, in another unrelated matter. In the Karseng arbitration, a former magistrate, Faulkner, served as an arbitrator. He failed to disclose significant personal ties to a Fish & Richardson lawyer, Johnson, who appeared in that arbitration on behalf of a client, going so far as to act as if he had never met Johnson, though they had spent significant social time together.
Once the existence of some relationship was discovered, the party who had lost the arbitration sought discovery as to its extent. The state court denied that relief and affirmed the arbitral award. Various appeals ensued, and ultimately Fish lawyer Melsheimer argued for its client, the arbitration winner, on appeal in state court arguing that Faulkner had not violated any disclosure obligations by not disclosing his personal relationship with Fish lawyer Johnson.
Meanwhile, in this patent case, Faulkner had been appointed as a mediator (not arbitrator). After the first mediation session but before the second, the Texas appeals court held that Faulkner in fact had violated his disclosure obligations and so it vacated the arbitral award.
While all of that was happening, Fish was representing clients in the mediation. Neither it nor Faulkner disclosed the appeals of the arbitral award. Mediation did not succeed and the case was tried, with the jury finding infringement but invalidity. Then, the parties to the arbitration sued Fish and Faulkner for nondisclosure in Texas state court.
All of this came to light to Ceats after judgment had been entered in this case, and so it sought relief under Rule 60(b), asserting that the judgment should be set aside because of Faulkner (and Fish’s) failure to disclose the Karlseng arbitration controversy. The district court denied relief, holding that no obligation of disclosure was violated.
The Federal Circuit reversed that part of the holding, but held that even though the Karlseng matter should have been disclosed, relief from judgment was inappropriate. With respect to the first point the panel stated, “Because parties arguably have a more intimate relationship with mediators than with judges, it is critical that potential mediators not project any reasonable hint of bias or partiality.” In pertinent part, it reasoned:
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 deci- sions while he was mediating this case. Despite the absence of a formal attorney-client relationship, Fish’s on-going defense of Faulkner’s award reasonably could give rise to the appearance impropriety. After the Texas appellate court remanded the case for discovery regarding the Faulkner-Johnson relationship in Karlseng I, moreover, Faulkner was compelled to provide testimony. Though the record does not reveal any coordination between Fish and Faulkner, the mere fact that Faulkner testified in support of the arbitration award and was asked, not just about his relationship with Johnson, but with the Fish firm and its clients as well, further empha- sizes the need for disclosure on these facts.
Furthermore, the Texas appeals court’s decision holding that Faulkner breached his disclosure obligations in the Karlseng litigation was released on June 28, 2011— between the first two mediation sessions in this case, and well before the third. See Joint Appendix (“J.A.”) 1095 (explaining that the parties engaged in official mediations on June 21, 2011 and June 30, 2011). Thus, the state 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. ABA Standards for Mediators § III.C; see Karlseng II, 346 S.W. 3d at 87–94 (detailing the lengthy Faulkner-Johnson relationship, including lavish gifts and outings and discussing matters in which Fish retained Faulkner as a neutral, and the fact that Faulkner re- quested and was granted an opportunity to make a presentation to Fish attorneys, which the state court characterized as a business development pitch by Faulkner); see also Potashnick v. Port City Const. Co., 609 F.2d 1101, 1114 (5th Cir. 1980) (recognizing that a partner in a participating law firm will always have some interest in the outcome of a case handled by his firm).
However, the court denied relief, reasoning in part:
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 pre- sent 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 wrong- fully disclosed confidential information, and CEATS never sought discovery of Faulkner in an effort to determine if any such disclosure occurred. See Oral Argument at 6:54. Because of this, we find no risk of injustice in this case based on Faulkner’s failure to disclose.
Turning to the second Liljeberg factor—the risk of in- justice in other cases—CEATS argues that, by failing to provide a remedy for Faulkner’s non-disclosure of the Karlseng litigation, mediators in future cases will have less incentive to disclose potential conflicts of interest and parties will lose faith in the mediation process. Indeed, CEATS also contends that, if the district court’s ruling is allowed to stand, the mediator’s disclosure requirement would be meaningless. Continental responds that there is no risk of injustice in other cases because there was no duty for Faulkner to disclose in this case, an argument we have already rejected. Continental asserts, moreover, that far more injustice and disruption would result from allowing losing parties to throw out unfavorable judg- ments by challenging a mediator’s disclosure requirement.
We too have concerns about failing to provide a remedy for a mediator’s non-compliance with his or her disclosure obligations. We certainly do not want to encourage similar non-disclosures. On this record, however, 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. 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. Accord Liljeberg, 486 U.S. at 863–64 (holding that relief from judgment is not automat- ic even if the presiding judge violates § 455 by failing to recuse himself). Beyond his failure to disclose, moreover, there is no evidence that Faulkner acted inappropriately or ineffectively when mediating this case. See Oral Ar- gument at 6:54. We therefore find that the denial of relief in the circumstances of this case will not risk injustice in other cases.
Regarding the third Liljeberg factor—the risk of un- dermining public confidence—CEATS asserts that Faulk- ner’s non-disclosure undermines public confidence in the neutrality of court-appointed mediators. Again, Conti- nental’s only response is that, because Faulkner did not have a duty to disclose anything, there can be no danger of undermining public confidence.
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 obliga- tions, 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. As the Supreme Court explained, Rule 60(b)(6) “should only be applied in ‘extraordinary circumstances.’” Liljeberg, 486 U.S. at 864 (quoting Ackermann v. United States, 340 U.S. 193, 199 (1950)). CEATS is seeking relief from judgment by an impartial jury after litigating the matter before an unbiased judge; granting that relief is what would be most extraordinary. Because we find insufficient risk to public confidence in the justice process as a whole, we hold that the third Liljeberg factor does not weigh heavily in favor of relief under Rule 60(b)(6).
My comment: somebody needs to be disciplined by their state bar.
See, United Business Communications v. Racal-Milgo, Inc., 591 F. Supp. 1172 (D. Kan. 1984) link to scholar.google.com.
In defending the patent against invalidity, the patent owner argued that the patented invention had “narrow skirts.” The patent owner won, and was awarded damages.
However, in later litigation against a different defendant, the defendant showed that the patent owner’s marked products did not have narrow skirts, that the patent owner’s arguments in foreign prosecution were inconsistent, that the patent owner had not provided discovery tending to show the patented invention did not have narrow skirts, and that the patent trial counsel knew that its arguments about narrow skirts ware false.
The court then reopened judgment for fraud on the court.
As an aside, there may have been some tension between the patent and the commercial products. The products were argued to include the invention, and that it was the invention that lead to their successful marketing — thus showing commercial success.
This probably is the source of the problem for the patent owner who was seeking to enforce a patent that probably was invalid unless the claims were limited to the “narrow skirts.”
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