Publications

ENFORCEMENT OF A MEDIATED SETTLEMENT AGREEMENT
"Pitfalls and Practicalities"

By Matthew P. Guichard

HISTORICAL PERSPECTIVE

Although ADR has been with us for many years, the development of the legal process for resolution of legal disputes through settlements and the enforcement of those settlements, continues to develop. In California, AB 3300, "The Fast Track" statute caused litigation to move at a brisk pace, resulting in significant reliance on the ADR process. Many jurisdictions have adopted similar "Fast Track" rules. Initially that ADR process took the form of non-binding "Judicial Arbitration". Although that process still exists, it is flawed in a number of significant ways. Mediation has taken the place of that "Judicial Arbitration" process in many jurisdictions. While not without its own flaws, the mediation process has become the favored means of resolving disputes. Binding arbitration clauses are now written into many contracts and agreements. In many of those contracts, a prerequisite to the binding arbitration is an initial mediation process.


PITFALLS IN THE ENFORCEMENT OF MEDIATED SETTLEMENTS

This particular area is not meant to be an exhaustive examination of all potential problems and pitfalls in enforcing mediated settlements, but rather to provide specific examples which have arisen in the author's own experience, both as a mediator, and as counsel for parties to mediated settlements.

Many of the problems addressed would seem to be easily avoided and thus easily remedied. However a troubling trend points towards an escalation of the problems. Suffice it to say it is incumbent upon the mediator to ensure the potential problems are addressed at the actual mediation, in order to ease any subsequent enforcement requirements.

Although mediated settlements are almost universally accepted as enforceable agreements in most jurisdictions, problems do arise in several specific areas:

A. Were All Parties Actually In Agreement With The Settlement?

B. Was A Settlement Agreement Reached Within The Actual Mediation Session?

C. Was A Written Settlement Agreement Executed At the Mediation, Or Was The Settlement Agreement Placed "On The Record"?

D. Were All Substantive Terms Of The Settlement Agreement Mentioned In The Written Settlement Document?

E. Was A More Comprehensive Written Settlement Document Contemplated?

F. Did A Provision Of The Written Agreement Provide For Enforcement Terms, Including Jurisdiction And Attorneys Fees?

G. Was Confidentiality Of The Terms Of The Settlement Bargained For And Mentioned In The Written Settlement Agreement?


PARTIES IN AGREEMENT?

In a catastrophic plane crash case, all parties to the lawsuit agreed to mediate the dispute. Some of the parties were available for the mediation session by telephone. Those parties were represented at the mediation by counsel.

A settlement was reached. Those parties present executed a written settlement agreement. An insurance company representative was not present, but was available by telephone. An attorney for the Defendant insured by that carrier signed the settlement agreement on behalf of the insurance carrier.

An action was brought to enforce the mediated settlement, because one of the parties who was available by telephone denied an agreement had been reached, and the insurance carrier claimed it had not agreed to pay the settlement sum allocated to it.

In that action the issue of the authority or absence of authority on the part of the attorney who signed for the insurance company was chiefly addressed. The insurance carrier representative on telephone standby never spoke with the mediator during the mediation session. The attorney who signed for the carrier actually represented a defendant who was insured by that carrier.

In that action, no evidence was presented at trial to support any express authority by the attorney to bind the insurance carrier.

The Court did find that the party, who attended the mediation session by telephone, participated in the session and was bound by the settlement.

In another mediation session, agreement to settle was not reached during the convened session with all parties present. An offer to settle was made by the Defendant to Plaintiffs. That offer was made at 11 pm at night. The offer was specifically to remain open until 5 pm the following day.

The mediator did remain involved in discussions during that following day. However counsel for the parties also spoke directly to each other without going through the mediator. Counsel for the Defendant by faxed letter at approximately 4 pm informed the mediator that the matter had indeed settled for the offered amount.

The following day the mediator by faxed letter to all parties declared the mediation a success and concluded the mediation. In that letter the mediator did offer to assist the parties in preparing a written settlement agreement.

No written document was ever executed by the parties, and no oral agreement was evidenced by both parties.

One of the parties denied any agreement. An action was brought to enforce a settlement on the terms offered at 11 pm during the actual session.

Trial of that action to enforce the mediated settlement lasted approximately six Court days. The moving party called as witnesses the mediator, all counsel for the parties, as well as the actual parties.

At trial, The Court ruled that the mediation session was ongoing and into the next day. It then ruled pursuant to California Evidence Code Section 1119, that statements made in the course of and pursuant to, or arising from, the mediation proceedings were inadmissible to prove an agreement. The Court made a number of other findings in support of the notion that no enforceable agreement was made among the parties. The mediator did not appear at the trial, correctly claiming a mediator privilege.


WAS A WRITTEN AGREEMENT EXECUTED BY ALL PARTIES TO THE MEDIATED SETTLEMENT?

In many cases the mediator will require a written agreement stating the essential terms of the settlement and signed by all parties, before anyone is released from the session. That type of agreement is enforceable under California Code of Civil Procedure Section 664.6 (Entry of judgment pursuant to terms of stipulation for settlement).

In many cases a written settlement agreement is prepared and executed by the parties, however all of the substantive terms are not included in that written agreement.

An action was brought to enforce the mediated settlement, because one of the parties who was available by telephone denied an agreement had been reached, and the insurance carrier claimed it had not agreed to pay the settlement sum allocated to it.

As in the previous scenario, where no written agreement exists, it is difficult to enforce any alleged agreement for a number of legal reasons, not the least of which is the confidentiality nature of the mediation itself.

It was argued in one such action to enforce an alleged mediated settlement, that an implied in fact contract existed. Under California Law, an implied contract "Consists of obligations arising from a mutual agreement and intent to promise, where the agreement and promise have not been expressed in words." Silva v. Providence Hospital of Oakland (1939)14Cal.2d 762.

The Court held there was no implied in fact contract because there was no evidence of any conduct by Plaintiffs which reasonably could be construed to constitute mutual assent. Such conduct in that case, of necessity would have to have taken place after the alleged oral agreement to settle.


DID THE WRITTEN SETTLEMENT DOCUMENT CONTAIN ALL THE SUBSTANTIVE TERMS?

In many cases a written agreement is executed at the mediation by all parties, however in that written agreement it is specifically contemplated that a more comprehensive settlement agreement will be prepared and executed among the parties. Problems frequently arise as to what is a substantive term.

Issues of confidentiality of the actual terms of the settlement, issues as to payment terms and interest rates, issues as to jurisdiction and attorneys fees for enforcement, and other arguably substantive issues are often not in the initial written agreement. That often gives rise to litigation to enforce the settlement and to interpret the original agreement.

California Evidence Code Section 1123 Provides the terms by which written settlement agreements at mediation are admissible for purposes of enforcement of mediated settlements.


CONFIDENTIALITY OF THE MEDIATIOM NEGOTIATION AND CONFIDENTIALITY OF THE SETTLEMENT TERMS.

There are two confidentiality issues which arise in the enforcement of mediated settlements. The first is the almost universally accepted concept of protecting the actual negotiations themselves. That concept protects the give and take necessary to engage in the settlement process itself. It is often referred to as "Without prejudice settlement discussions".

The California Evidence Code, Sections 1115 through 1128, provides the law on mediations, admissibility of mediation evidence, and subsequent trials

In an action to enforce a mediated settlement, the party attempting to enforce the settlement brought a breach of contract action against the other party to the mediation. At trial the moving party attempted to introduce evidence of statements made at the actual mediation session. An interesting issue arose as to when the mediation session concluded, and thus what discussions were protected, and what were not protected by the mediation privilege.

California Evidence Code Section 1125 Defines "End of mediation; satisfaction of conditions"

The other confidentiality issue which frequently arises is that which addresses the actual terms of the settlement. Many parties will enter into an agreement to settle, provided that the actual terms of the settlement are deemed confidential.

In some cases such as with public entities, it is against public policy to make settlement terms confidential. In other cases, typically with product manufacturers, the terms of the settlement are confidential. That confidentiality term is typically bargained for during the mediation process. However in many cases that type of confidentiality clause is not mentioned at the mediation, but appears in the subsequent comprehensive settlement agreement. Again, that has become an area ripe for enforcement litigation.