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general / Alternative Dispute Resolution

Creating settlement agreements that you can enforce

In order to craft an enforceable settlement agreement at mediation, there are a few things to keep in mind. First, any agreement -- oral or written -- reached at mediation will be protected by mediation confidentiality unless you take certain steps to allow for disclosure. Second, you should include all material terms in your mediated settlement agreement. Otherwise, you risk either a finding there was no agreement, or alternatively, that there is an agreement and you cannot impose new terms you want included after the fact. Third, to reserve the option of utilizing expedited enforcement procedures, you should comply with the requirements of Code of Civil Procedure Section 664.6.

Mediation Confidentiality

In theory, the mechanics of entering a settlement agreement at mediation are no different than in any other context. "The principles of contract formation are the same in both the settlement and the non-settlement context." Terry v. Conlan, 131 Cal. App. 4th 1445, 1458 (2005) (citation omitted).

However, because communication in mediation is protected by confidentiality, the rules are different. You may have reached a valid agreement under traditional contract principles, but not have the ability to enforce the agreement.

For state court proceedings, mediation confidentiality is codified at Evidence Code Sections 1115 through 1128. Evidence Code Section 1119(a) makes inadmissible "anything said or any admission made" in the course of mediation. It also bars the compelled disclosure of such statements. Evidence Code Section 1119(b) excludes from evidence any writings prepared in the course of mediation. That includes a written settlement agreement. In other words, absent an exception, you cannot offer into evidence an agreement reached at mediation to enforce the agreement.

To create an admissible settlement agreement, you need to comply with Evidence Code Section 1123. That section permits the parties to agree to the admissibility of an agreement reached at mediation. First, the settlement agreement must be "written." Evid. Code Section 1123. Second, it must be "signed by the parties." Id. A signature by the attorney for the party is sufficient to waive confidentiality. Stewart v. Preston Pipeline Inc., 134 Cal. App. 4th 1565 (2005). Third, you'll need to satisfy at least one of the following conditions: "(a) The agreement provides that it is admissible or subject to disclosure, or words to that effect; (b) The agreement provides that it is enforceable or binding or words to that effect; (c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure; (d) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute." Evid. Code Section 1123.

The best way to ensure you can admit a settlement agreement at any future enforcement hearing is to include the following language in your memorandum of settlement or settlement agreement: "The parties agree that this agreement is binding, enforceable, subject to disclosure and admissible in order to enforce the agreement pursuant to Evidence Code Section 1123."

Post-Mediation Terms and Conditions

It is not uncommon for an agreement to be reached at mediation where the parties agree to reduce their agreement to a more detailed, written settlement and release agreement at a later date. It is also common for parties to reach agreement at mediation, and then have one or more parties request additional terms after the fact. These scenarios create two distinct problems.

First, where the agreement at mediation leaves important terms to be worked out in the future, you may not have an agreement at all. An agreement requires "mutual consent." Civil Code Section 1565. "Consent is not mutual, unless the parties all agree upon the same thing in the same sense." Civil Code Section 1580. "In order for acceptance of a proposal to result in the formation of a contract, the proposal must be sufficiently definite, or must call for such definite terms in the acceptance, that the performance promised is reasonably certain." Weddington Prod., Inc. v. Flick, 60 Cal. App. 4th 793, 811 (1998) (citation omitted). "In particular, a provision that some matter shall be settled by future agreement, has often caused a promise to be too indefinite for enforcement." Id. at 812 (citation and alteration omitted). "If an essential element is reserved for the future agreement of both parties, as a general rule the promise can give rise to no legal obligation until such future agreement. Since either party in such a case may, by the very terms of the promise, refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise." Id. (citation and alteration omitted).

In addition, the failure to reach agreement on all material terms may prevent the formation of a contract. Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199 (2006); Banner Entertainment, Inc. v. Superior Court, 62 Cal. App. 4th 348, 357-58 (1998) ("California law is clear that there is no contract until there has been a meeting of the minds on all material points.").

Second, where the parties do agree to the material terms (and thus have a binding contract) but intend to address certain issues after mediation in a more detailed written agreement, a party might not be able to impose new terms if a dispute arises. A court might enforce the agreement as is (i.e., without the proposed additional terms).

So, for example, if after mediation, a party decides to insert a confidentiality clause, or require a certain payment method, or request to structure settlement proceeds, or demand the other party release claims outside of the complaint (e.g., cross-claims, future claims, etc.), the party proposing these terms may be out of luck.

There are several cases that have addressed this situation. In Elyaoudayan v. Hoffman, 104 Cal. App. 4th 1421 (2003), the court found an oral agreement binding even though the parties contemplated signing a written agreement later on, and one party refused to sign it. Likewise, in American Aeronautics Corp. v. Grand Central Aircraft Co., 155 Cal. App. 2d 69, 82-83 (1957), the court found that an oral agreement was binding where the parties agreed to reduce their agreement to writing but the writing propose by one side contained new terms and was never signed. In Johnston v. Twentieth Century Fox Film Corp., 82 Cal. App. 2d 796, 820-21 (1947), the court held that the fact an oral agreement was to be reduced to writing did not render the oral agreement conditional since the oral agreement contained all the essential terms of the agreement.

The issue here is whether the parties' act of signing a subsequent written agreement with the terms proposed is considered a "condition precedent to" agreement. In other words, have the parties simply agreed to try to agree in the future? If so, you have no agreement and won't be able to impose an obligation on any party without that party's subsequent consent. On the other hand, if there is an agreement with a future obligation (condition subsequent), you still need a basis to impose your desired term on the other party. Without an express statement at mediation requiring the term to be included in the subsequent written agreement, on what basis can you argue the term is required? A party to a contract does have a duty to act in good faith to perform under the contract. Rest.2d Contracts Section 205 ("Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."). But, with no clear standard, who is to say the other party is required in good faith to agree to your proposed new term(s)? It's a crap shoot.

To avoid this problem, you could expressly state in your mediated settlement agreement that the agreement is conditioned on the parties reaching agreement on a full settlement and release agreement at a later date. But this is essentially stating you have no binding agreement. This is a recipe for disaster.

You might argue the proposed post-mediation term was implied in the mediated agreement. But this too will prove difficult. Mutual assent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of the parties' words and acts, not their unexpressed intentions or understandings. Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165 (2015).

To play it safe, you should always include important, material terms in any agreement reached at mediation. Do not assume you will be able to impose new terms on a party after the mediation is completed.

Enforcement

In essence, when you secure a settlement at mediation, you have two potential paths to enforcement -- the expedited enforcement procedures of Section 664.6 of the Code of Civil Procedure and the conventional methods of enforcement. For efficiency sake, the former is vastly preferable. To preserve this option, you should ensure the agreement is done correctly.

Code of Civil Procedure Section 664.6 provides: "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement."

Note that Section 664.6 does not dictate whether an agreement exists. It simply provides for an expedited enforcement procedure under certain conditions. In other words, you may have an enforceable agreement even if you cannot use 664.6. Note also that Section 664.6 applies only to "pending litigation." It is not available for "pre-lit" settlements.

There are a few specific procedural requirements to be aware of. As noted above, the agreement must either be reflected in a writing signed by the parties outside of court or made "orally before the court." The "before the court" option obviously is not available at mediation. Therefore, you'll need to comply with the written requirement.

Also, unlike settlement agreements in general, or agreements to waive mediation confidentiality, both of which can be signed by a lawyer representing a party, a 664.6 agreement must be "signed by the parties." This requirement has been strictly construed. See Levy v. Superior Court, 10 Cal. 4th 578 (1995); Robertson v. Chen, 44 Cal. App. 4th 1290 (1996); Murphy v. Padilla, 42 Cal. App. 4th 707 (1996); Johnson v. Department of Corrections, 38 Cal. App. 4th 1700 (1995). "The parties" literally means "the parties."

Further, the agreement must be signed by all parties to the settlement, not just the party against whom enforcement is sought. Harris v. Rudin, Richman & Appel, 74 Cal. App. 4th 299, 307, 87 (1999). If you want to be able to enforce an agreement under 664.6, your client must personally sign the agreement.

In terms of format, the agreement itself should include a stipulation that the agreement can be enforced pursuant to 664.6, and the parties will request the court retain jurisdiction to enforce compliance.

Lastly, keep in mind that, while less than ideal, even if you have not complied with the strict requirements of 664.6, you still have options to enforce a mediated settlement agreement. You can utilize one of the conventional enforcement procedures including: (a) amending the complaint to add a breach of contract cause of action; (b) filing a separate breach of contract action and join that action with the pending action; (c) filing a motion for summary judgment; or (d) amending your answer to the complaint to add an affirmative defense that the cause of action is barred by virtue of a binding settlement agreement. See Levy, 10 Cal. 4th at 586 n.5; Davidson v. Superior Court, 70 Cal. App. 4th 514, 537 (1999).

Conclusion

To create a binding, enforceable agreement at mediation, you need to follow a few important steps. First, to ensure you can admit the agreement in any future enforcement action, you need to properly waive mediation confidentiality in accordance with Evidence Code Section 1123. Second, you should be sure to include all material and important terms in the agreement. Otherwise, you risk a court finding you have no agreement, or that you do and cannot now impose additional terms on the other party. Third, you'll want to reserve the right to utilize 664.6 enforcement procedures. You need the agreement to be in writing, and signed by parties themselves. If you've done all that, you can walk out of mediation confident you have a binding, enforceable agreement in place, and that you've done everything necessary to protect your client.

#337

Ben Armistead


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