The Rule of 3 Ns: Written Settlement Agreement Reached During Mediation Held Not Admissible and Not Enforceable When Not Signed By All Parties
Edited by Judith Stalk
California Court of Appeal, Rael v. Davis, 166 Cal. App. 4th 1608; 83 Cal. Rptr. 3rd 745; 2008 Cal. App. Lexis 1457. Plaintiff Cruz Rael brought an action for breach of contract against Davis as the executor of the estate of her deceased husband, Tony Rael, Jr., and as the successor trustee of the family trust. The complaint alleged that prior to his death, Tony, Tony’s adult children from a prior marriage, and Cruz participated in a mediation as part of an underlying conservatorship proceeding. Cruz alleged a written settlement was reached at the conclusion of the four day mediation. Cruz alleged Tony agreed to provide her with one-third of his approximately $6,000,000 estate instead of lesser specific gifts as he had originally planned. Tony’s son Mark, who had petitioned for the conservatorship, was not present during the last day of mediation. During the conservatorship proceeding Tony had objected to Mark’s petition and had successfully sought to have Cruz appointed Conservator of the person and estate. Mark did not sign the written agreement prepared at the conclusion of the mediation.
For this brief discussion the issues presented for mediation counsel are (1) Was the settlement agreement which Tony signed enforceable against the executor of his estate and successor trustee of his trust? (2) Was the settlement agreement admissible in court? (3) Should Davis’s motion for attorney fees incurred in the defense of Cruz’ petition be granted?
“The admissibility of the mediation agreement must precede the issue of enforceability.” (Cruz at 1619) The settlement agreement was prepared during a mediation, a confidential proceeding. “A settlement agreement drafted during mediation must be admissible before a court can reach the issue of enforceability.” (Fair v. Bakhtiari (2006) 40 Cal.4th 189)” However, a settlement agreement reached through mediation and signed by the settling parties is exempt from this general rule, if it satisfies a requirement of Evid. C. section 1123.
Section 1123 provides: “A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied. . . . (c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure.”
The Court of Appeal concluded that though the settlement agreement contained a waiver of mediation confidentiality so that the document could be admitted in court to allow its enforcement, thus meeting the Section 1123 requirement, the Court also found that all of the parties who had signed the agreement, with the exception of Cruz, had signed with the understanding that they not be bound unless Mark also signed it. The court concluded that the term waiving confidentiality never took effect because Mark did not sign the agreement. “The agreement was thus inadmissible.” The agreement was therefore not enforceable.
Davis’ motion for attorney fees is a question of first impression, viz, whether attorney fees are recoverable under Civil Code section 1717 where the contract providing for such fees has been excluded as inadmissible under Evid Code, sec 1115 et seq. “We conclude they are not recoverable. . . . Here the mediation agreement was not simply unenforceable; it was inadmissible. (Fair at p. 199; Evid Code 1119 (b). Section 1123 contains no admissibility exception to permit the application of Civil Code section 1717″. (Rael at 1622)
When I first read this case after it’s publication I believed it contained nothing new with the exception of the attorney fee issue. However, at the end of one of last month’s mediations this case came to mine. The attorneys were completing a written settlement agreement. They were about to add the place for signature of a party who was not present at the mediation, and who would be asked to sign later. Because of the Rael v. Davis case I asked the attorneys, both of whom are very savvy and terrific negotiators, if they intended their present clients to be bound even if the additional non-present party did not sign. I then realized that having non-present parties sign a settlement agreement is a common occurrence and attorneys need to be aware of this very important decision.