|September 3, 2013|
Previously published on August 2013
If you've ever had a settlement achieved during a private mediation fall apart within days of the mediation, this case is for you.
Recently, the New Jersey Supreme Court pronounced that mediated settlement agreements cannot be enforced by a court unless the terms of the settlement agreement are memorialized into a writing and signed by the parties before the mediation ends. In the case of Willingboro Mall, LTD v. 240/242 Franklin Avenue, L.L.C., the New Jersey Supreme Court held that "going forward, parties that intend to enforce a settlement agreement reached at mediation must execute a signed written agreement."
The underlying dispute in the Willingboro Mall case arose from the sale of commercial property. Part of the deal was that the buyer, 240/242 Franklin Avenue, LLC., would pay existing fines and penalties imposed on the property by the Township and secure a mortgage. Months later, the seller, Willingboro Mall, brought a foreclosure action claiming default on the sales contract.
During a court-supervised mediation ordered by the Burlington County Superior Court, a $100,000.00 settlement was achieved with the aid of mediator the Hon. Barry Weinberg, J.S.C. (Retired). Mediator Weinberg reviewed the terms of the settlement achieved by the parties, but those terms were never put into a writing.
Three (3) days after the mediation, the buyer sent a confirming letter to the Mall and Mediator Weinberg stating that it had the $100,000.00 settlement money in escrow and would release it when the mortgage was discharged and the foreclosure case was dismissed.
Ten (10) days later, the Mall's lawyer informed the buyer that his client had rejected the settlement. Soon after, the buyer moved to enforce the settlement backed by written certifications from the buyer's lawyer who had attended the mediation as well as Mediator Weinberg which confirmed that the parties had settled on the terms described in the buyer's letter to the Mall.
The seller asked for discovery and a hearing on the enforcement of the settlement. In addition, the Mall filed its own certification from its property manager who had attended the mediation as the client representative of the Mall. The manager asserted that he took part in the mediation "reluctantly in the belief that it would be non-binding and that he went along with it when the mediator summarized the terms at the insistence of his lawyer." There was no written agreement and he would not have signed such an agreement, the manager wrote. Depositions were taken and both sides expressly waived the confidentiality of the mediation process for the purposes of the enforcement action. Mediator Weinberg refused to testify without an order from the trial judge and did so after a consent order was obtained. At a hearing before the Chancery Division, the mediator testified that the Mall manager accepted the $100,000.00 offer, but he balked at disclosing the mediator's conversations with the other lawyers. The Mall manager testified that he only assented to the $100,000.00 settlement under pressure by the mediator and his lawyer saying he would have agreed to anything given the situation and its circumstances. The Chancery Judge ruled the mediation resulted in a binding settlement (despite the lack of a written agreement signed by the parties). The judge explicitly rejected the Mall manager's denials of a settlement as "buyer's remorse." The New Jersey Appellate Division agreed. The Supreme Court affirmed, but differed on the need for a signed written settlement agreement.
New Jersey Supreme Court Justice Barry Albin recognized that confidentiality for the mediation process is essential for effective mediation, but said that two exceptions were relevant to the facts of the case: one allows the omission of a written settlement agreement to prove the validity of the agreement; and the other is a waiver of the mediation confidentiality privilege.
New Jersey Rule 1:40-4(i) requires mediation agreements to be written, but does not specifically require signatures. Training materials for court-appointed mediators and the state's Mediation Act allow the use of signed agreements to prove a mediated settlement. Justice Albin said an email exchange in which the parties agree to a particular provision or a tape recording in which they state the terms of their agreement would also be sufficient.
Mediation is supposed to be a simple, confidential, and straightforward method for the resolution of complex legal issues with risks to all litigants. Prior to the Willingboro Mall case, there were various holdings in different cases on the requirement that a signed written settlement agreement was necessary for enforcement of mediated settlement. This most recent pronouncement by the Supreme Court clears up the various holdings in different cases seeking to enforce settlements.
Going forward, mediators, parties, and claims professionals must be prepared to memorialize the essential terms of any settlement achieved at mediation before the mediation is concluded and the parties are permitted to leave the mediation. The document need not be formal, although preparing the terms to tailor one's case would probably be advisable. In order to comply with the most recent case outlined above, all litigant's attorneys and their representatives present at the mediation should sign the written agreement in order to create an airtight settlement agreement. Too often, after departing the mediation, unsophisticated litigants often discuss the terms of the settlement with family members and it is not uncommon for "buyer's remorse" to set in. If a signed agreement is executed at the mediation, then all parties are bound thereby.
We've all had the experience of achieving a conditional settlement at mediation which is dependent upon the existence of the amount of a Workers' Compensation or Medicare Lien. Conditions can be written into the document, the mediation settlement agreement, in order to preserve the progress that was made at the mediation with regard to the settlement amount.