When a Settlement Unhinges: Failure to Document a Mediated Agreement

Mediation is intended to facilitate the expeditious resolution of disputes.  Often, mediation offers the ideal setting to promote productive conversation and settlement discussions.  Skilled mediators know the right buttons to press, highlight strengths and weaknesses, and allow the parties an opportunity to “be heard,” all of which can go a long way toward settling a dispute. But, mediation does not always go as intended particularly when the terms of a proposed agreement are not documented.

In Willingboro Mall v. Franklin Avenue, available here, the Supreme Court of New Jersey considered the fallout of a mediation gone wrong.  In the underlying dispute, the seller of a mall claimed that the buyer failed to distribute funds due under a promissory note.  The case proceeded to mediation where the parties reached an oral settlement agreement purportedly disposing of all claims.  However, the parties neglected to reduce the agreement to writing. 

Three weeks after the mediation, the seller had a change of heart, rejected the settlement, and refused to release any claims. The buyer responded by filing a motion to enforce the settlement, but the seller claimed that the agreement was unenforceable because it had not been reduced to writing at the mediation. 

On appeal, the Supreme Court of New Jersey noted that public policy favors settlement of litigation.  With this principle in mind, the Court proceeded to determine whether it could consider evidence in support of the oral agreement.  The Court determined that mediation communications are generally privileged, but found that the seller had waived the privilege by appending certain privileged statements regarding the mediation to its motion papers. The court held that the oral agreement was enforceable.  

Let’s hear from the experts…

Attorney Philip Hof is a mediator with ADR Options, Inc. Hof is mindful of mediations that fall apart: “The lawyers and I work very hard to reach a settlement. The last thing we want to see is a settlement agreement that unhinges the next day.”  Hof said that an important step to ensure that the settlement agreement is enforceable is to memorialize the agreement. “After congratulating the parties and their lawyers for reaching a settlement, I pull out my handheld recorder and dictate a letter by fax to all counsel that confirms that all parties and their lawyers are seated in front of me and each of them consents with full authority to terms of settlement as follows.” Hof then lists the most material terms of the agreement, such as payment amount, timing, confidentiality, and the execution of a general global release. Hof makes sure that the letter is faxed to all of the lawyers within the hour. 

Attorney Michael Brophy of Goldberg Segalla LLP maintains an active mediation practice and has settled personal injury cases filed in both state and federal courts.  “The ability of the parties to control their own destiny through mediation, and to achieve settlement through a confidential process of deliberations guided by an experienced, neutral mediator,” are two of the most significant elements of the mediation process, says Brophy.  Brophy never ends a successful mediation without documenting the terms of the agreement.  Fortunately, Brophy has “never had a settlement fall apart after the parties left my office.” 

Willingboro serves as an important reminder of the potential consequences of entering into a settlement agreement that is not reduced to writing.  Although the New Jersey Supreme Court determined that evidence of the oral agreement was admissible, the result came after significant litigation costs.  Therefore, when negotiating a settlement, lawyers should be sure to reduce the final terms to a written agreement to ensure the terms and scope of the settlement are clear and enforceable.