Daily Blast September 2, 2016

Yesterday, the Ninth Circuit applied federal privilege law to the admission of evidence where only state law claims were at issue. In Sony Electronics, Inc. v. HannStar Display Corporation, __ F.3d __ (9th Cir., Sept. 1, 2016, 14-15916), evidence of a mediated settlement agreement was admitted under federal privilege law because the mediation itself dealt with both federal and state law claims.

Sony threatened to sue HannStar for antitrust damages arising from a major LCD panel price-fixing scheme. Slip opn., 4. HannStar having already admitted liability in previous litigation, the parties agreed to mediate the dispute. Id. The mediator sent both parties an email containing a $4.1 million settlement proposal, giving both parties the opportunity to accept the settlement by responding privately to his email. Id. at 5. Both parties accepted by email. Id. at 5-6. Due to the settlement, Sony did not file an antitrust suit against HannStar, but HannStar reneged on the settlement agreement. Id. at 6. Sony then filed a state law breach of contract claim which the federal district court heard in diversity jurisdiction. Id. at 6-7. Sony moved for summary judgment, but the district court denied the motion, ruling that California privilege law rendered the email exchange regarding settlement inadmissible. Id. at 7. Sony appealed. Id. 

The Ninth Circuit reversed, holding that because the settlement negotiations concerned both federal and state law claims, federal privilege law applied, and the emails were admissible. Slip opn., 8-9. It is the general rule that where federal claims are present, federal privilege law applies, but where only state law supplies the rule of decision, state privilege law applies. Id. at 7. In this case, although federal claims were not at issue in the lawsuit, the evidence itself related to mediation that considered federal claims. Id. at 8. Relying on Wilcox v. Arpaio, 753 F.3d 872 (9th Cir. 2014), the court reasoned that since the evidence related to federal law, federal privilege law applied. Id. at 8-9.

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