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Avoiding Enforceability Problems of Mediation Settlement Agreements

by Paul Fisher, Edited by Judith Stalk

A recent California Court of Appeal decision serves as a valuable refresher of several critical drafting, signing and execution concepts for settlement agreements reached at the conclusion of mediation. From the errors of counsel in the case, we can learn what might be best, or at least better, practices for counsel at mediation.

The issues addressed are:

Is a settlement agreement entered into during a mediation enforceable as to a party named for the first time in the settlement agreement? As counsel in mediation, have you looked across the conference room table during the settlement agreement drafting stage and said to opposing counsel, “Let’s add ‘E’ as a payor to this agreement” though E is not a party to the action? Likewise, during that drafting moment have you posed to opposing counsel “Let’s add ‘X’ as a releasee”, though X is not a party to the action? Are these last minute additions enforceable?

Is a settlement agreement reached during a mediation enforceable against defendants under Code of Civil Procedure, section 664.6 (CCP 664.6) if the plaintiffs have not yet signed?

When does time begin to run for the payment of agreed upon sums to be paid as set out in a settlement agreement reached during a mediation?

This case illustrates a common occurrence of a settlement reached during a mediation gone awry, giving rise to post-settlement litigation.

On August 4, 2006, the parties to the litigation and their counsel participated in a mediation with a retired judge. Representatives for each of the two plaintiffs, who were out of state, appeared by telephone. Defendants Vera, Stephen and Peggy were personally present. Counsel for both the plaintiffs and defendants were also present. At the end of the mediation, the parties reached an agreement and a written “mediation settlement agreement” was prepared. The agreement expressly stated that it was intended to be “valid, binding, and enforceable.” It also provided that “a more detailed settlement agreement” would follow and that the dispute was settled as to all defendants. “Defendants” was defined to include Vera, Stephen and Peggy and Enland. Enland had not yet been formally named as a defendant in the action and the agreement included no signature line for it.

The mediation settlement agreement called for defendants to pay plaintiffs in installments beginning 30 days “from the date of the execution of this agreement.”

At the conclusion of the mediation the agreement was signed by defendants Vera, Stephen and Peggy. The agreement was also signed by counsel for these defendants, counsel for plaintiffs, and the mediator. The agreement was not signed by the plaintiffs whose representatives had not been physically present though they had participated from out of state by telephone. The agreement was not signed by Enland.

Some time later plaintiffs’ counsel forwarded to defendants’ counsel a more detailed written release and settlement agreement. Subsequently, defendants’ counsel objected to plaintiffs’ counsel that the detailed written release and settlement agreement did not accurately reflect the agreement reached at the mediation. Defendants’ counsel also suggested further mediation in order to resolve the impasse.

Soon after, plaintiffs, through their counsel, notified defendants that defendants owed the first installment, due 30 days “after execution” of the agreement, one month after the date defendants signed the agreement drafted at the mediation. As of this point plaintiffs had not yet signed the agreement drafted at the mediation. Plaintiffs signed that agreement approximately three weeks later. Plaintiffs did not provide a copy of the signed document to defendants’ counsel until 20 days later with their motion to enforce its default provisions under CCP 664.6.

Section 664.6 provides in pertinent part that “[i]f 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.” This section permits the trial court to enter judgment on a settlement by summary procedure and without the need for a new lawsuit, (Levy v. Superior Court (1995) 10 Cal.4th 578, 584-585; Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 809-810 (Weddington)

Is a settlement agreement entered into during a mediation enforceable under CCP 664.6 as to a party named for the first time in the settlement agreement? Is a settlement agreement reached during a mediation enforceable against defendants under CCP 664.6 if the plaintiffs have not yet signed?

Enland was not a party to the litigation at the time of the mediation. Enland did not sign the mediation settlement agreement. There was no signature line on the agreement for that party. (See, e.g., Tokio Marine & Fire Ins. Corp. v. Western Pacific Roofing Corporation (1999) 75 Cal.App.4th 110, 123-124.) The Court of Appeal found the judgment entered against this party under CCP 664.6 was clear error.

By the terms of section 664.6, a settlement agreement cannot be enforced against one who is not a party to the litigation, or if a party, one who has neither signed a written settlement agreement nor orally agreed to the terms of a settlement before the court. A settlement agreement cannot be enforced at all under CCP 664.6 unless it is signed by all of the parties to the agreement, not just those against whom the agreement is sought to be enforced. (Levy v. Superior Court, supra, 10 Cal.4th at p. 584).

Is a settlement agreement reached during a mediation enforceable against defendants under CCP 664.6 if the plaintiffs have not yet signed?

The mediation settlement agreement called for payment by defendants “[t]hirty (30) days from the date of the execution of this agreement.” The agreement further stated that it was “[e]xecuted this 4th day of August, 2006,” by defendants Vera, Stephen and Peggy. But plaintiffs did not sign the agreement until September 20, 2006 and they did not provide a fully executed copy of the agreement to defendants until at least October 10, 2006, when it was included among plaintiffs’ moving papers.

When was the first installment payment due to be paid by defendants under the terms of the agreement – 30 days from defendants’ execution of the agreement, 30 days from the date that the agreement was fully executed by all signatory parties, or 30 days from the date that plaintiffs finally provided defendants with a fully executed copy of the agreement?

In construing the terms of the mediation settlement agreement, the Court of Appeal focused on the due date of the first installment payment which was “[t]hirty (30) days from the execution of this agreement.” The court concluded “the only reasonable construction of it in the context of this agreement is that the due date for the first installment payment was, at a minimum, 30 days after the contract was brought into its final, legally and mutually enforceable form by being fully executed by all signatory parties. Any other construction would not be reasonable because defendants could not justifiably have been put in the untenable position of having to pay on pain of breach when they themselves could not have enforced the contract according to its terms under CCP 664.6 for the lack of plaintiffs’ signatures, without which, the agreement was not enforceable by anyone under CCP 664.6. The court concluded that plaintiffs’ motion under CCP 664.6 was premature.

Better Practices

Have the settlement agreement signed by all parties at the mediation. If all parties are not physically present, complete the signing process by fax for those parties not physically present before any counsel or party leaves the mediation. I had a case that settled around midnight. Though the plaintiff stayed until the settlement agreement was drafted, the two defendants had left earlier. At 1 a.m. when the settlement agreement was ready for signature, defendants’ attorney objected when I insisted that the settlement agreement be faxed to his clients, defendants, for their signature. Fortunately, defendants’ attorney acquiesced and the settlement agreement was signed by all parties, some by fax, after 1 a.m.

Agreeing to agree to “a more complete” settlement agreement to be done some time after the mediation may lead to further conflict and an unenforceable agreement reached during the mediation. Though I always respect counsels’ request to end the mediation due to fatigue, counsel should also consider General George Patton’s warning: it is better to have a good plan today than a perfect plan tomorrow.

Additional articles on drafting, signing and execution of settlement agreements reached at the conclusion of a mediation:

Is magic language required in a memorandum signed at a mediation to make it enforceable?

When is a settlement agreement entered into at the conclusion of a mediation enforceable against the plaintiff even though the settlement agreement was not signed personally by the defendants?

At the conclusion of a successful mediation, how should the settlement be documented? Is a memorandum of understanding sufficient or is a complete settlement agreement preferred? More specifically, to what degree must either format reflect “the parties all agreed ‘upon the same thing in the same sense’” in order to be enforceable? Does reciting Code of Civil Procedure, Section 664.6 in a memorandum of understanding assure enforce ability?