Nov. 7, 2014 – A “John Doe” plaintiff who was sexually abused by catholic priest in 1974 settled his claims with the Archdiocese of Milwaukee for $80,000. Recently, a federal appeals court said the plaintiff cannot resurrect the claim in bankruptcy court.
The Archdiocese of Milwaukee filed for Chapter 11 bankruptcy protection in 2011 amidst civil fraud lawsuits that stemmed from sex abuse by priests, including Father Lawrence Murphy, who was accused of molesting some 200 deaf boys.
The plaintiff, who had settled his fraud, negligence, and sexual battery claims in 2007 through the Archdiocese of Milwaukee’s voluntary mediation program, filed a claim in the bankruptcy proceeding. He argued that the settlement was fraudulently induced.
But in John Doe v. Archdiocese of Milwaukee, No. 13-3783 (Nov. 5, 2014), a three-judge panel ruled the plaintiff’s fraudulent inducement claim hinges on communications made during mediation, and those communications are barred under Wisconsin law.
Under Wis. Stat. section 904.085(3), oral and written communications made in mediation is not admissible as evidence in any administrative or judicial proceedings. Under section 904.085(4)(e), an exception to those rule applies for actions are disputes “distinct from the dispute whose settlement is attempted through mediation.”
But the panel ruled that the plaintiff’s bankruptcy action was not distinct from the dispute the parties settled in mediation. Thus, the communications were barred.
John Doe, who was abused as a 17-year-old, said the Archdiocese told him $80,000 was the maximum that could be paid to settle the claims, and other victims were receiving that same amount. But others received up to $200,000, he claimed.
The bankruptcy court allowed John Doe’s claim to proceed, ruling that communications made during mediation must be admitted to prevent a manifest injustice. Before the communications came to light, however, the bankruptcy court reversed course.
It granted the Archdiocese’s motion for summary judgment on the fraudulent inducement claim. The district court affirmed, and John Doe appealed.
First, the Seventh Circuit Appeals Court panel ruled that Wisconsin’s mediation privilege statute applies, despite John Doe’s argument that it doesn’t in federal bankruptcy court.
The panel noted that under the Federal Rules of Evidence, “state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.”
“Wisconsin law provides the rule of decision governing Doe’s fraudulent inducement contention, and because it does, Wisconsin mediation privilege law applies,” wrote Judge Ann Claire Williams, noting it would not apply in federal question suits.
Second, the panel rejected Doe’s claim that a manifest injustice would result if his claim was barred because of the disparity of power during mediation. He noted that he is deaf, did not have legal counsel. But the panel ruled that exception doesn’t apply.
“Wisconsin does not allow the admission of mediation communications solely on the basis that manifest injustice would result were they not admitted,” Judge Williams wrote. “Rather, the disputes must be distinct.”
The panel noted “little guidance” on what is “distinct from the dispute.” It also noted that Wisconsin’s law is unique: “no other state has a ‘distinct from the dispute’ threshold in its mediation privilege statute,” Judge Williams explained.
Doe argued that the dispute in bankruptcy is whether he was fraudulently induced, which has different elements than the underlying claims resolved in mediation.
But the panel noted that Doe’s proof of claim was for sexual abuse and did not mention fraudulent inducement. “Doe’s counsel also made clear that at oral argument that Doe is not seeking independent damages for the alleged fraudulent inducement; the damages he seeks are only for the sexual abuse by Murphy,” Judge Williams wrote.
Unlike the Uniform Mediation Act, the panel noted, Wisconsin mediation privilege statute does not contain an exception allowing parties to admit mediation communications to rescind or reform contracts that arise out of mediations.
“Although one might contend it is unjust that a person like Doe cannot recover if he was in fact fraudulently induced into signing a settlement agreement, our task is to apply the Wisconsin statute as it is written,” wrote Judge Williams.