Friday, March 19, 2010

Settlement Agreement Enforceability

Parties to a mediation that results in settlement should have a clear understanding of whether their settlement agreement is enforceable.  Oral agreements generally will not suffice, and scrawled out term sheets also may not qualify as settlement agreements if they do not include language indicating that they are binding.  (For more information on the legal requirements for enforceability in California, check out this post on Vickie Pynchon's blog.  The requirements for enforceability vary greatly from jurisdiction to jurisdiction.  Obviously it behooves people to be aware of them.)

Is it worth the trouble to make sure that nobody goes home until the parties have set down in detailed, comprehensive, unambiguous, enforceable form, exactly what they have agreed to, so as to avoid future misunderstandings later?  I am of two minds on this issue, so I generally leave this decision to the parties, but I will try to advise them on the consequences of various approaches to documenting (or not documenting) any agreement reached at a mediation session.  On the one hand, it often saves time to put the full agreement down on paper while it is fresh in people's minds.  The alternative may be weeks of wrangling over the minor details of a settlement. It is also generally considered advisable to get wavering parties to commit clearly at the time of the mediation at least to the main terms of the settlement, in binding and enforceable form, so as to dissuade them from even thinking about trying to back out later from a deal that really serves everyone's best interests.  On the other hand, while parties may have reached an agreement in principle at the mediation, they may genuinely need more time to consider all the details, and all the bells and whistles they want included in a final settlement agreement, before they finally commit to it.  They also may genuinely need time to reflect on whether, in the cold light of the following morning, after recovering from the stress of the mediation session, they still want to do the deal in the first place.

What happens when people sign an incomplete or ambiguous document at the mediation, and then later think of some point they want included or thought was included?  The possibility of more conflict, of course.  That is the source of the burgeoning case law on the enforceability of various kinds of agreements made in the course of settlement negotiations.  What those cases reveal is that the parties have not fully embraced the state of enlightenment that mediators try to teach them.   Instead of resolving disputes by negotiation and agreement, instead of attempting to satisfy all parties' interests to the extent possible, instead of trying to reach reconciliation and peace, the parties find themselves back in the old-fashioned framework of trying to take advantage of the other side's weaknesses, trying to win and make the other side lose, trying to persuade the decision-maker of the merits of one position and the flaws of the other; in short, of all the characteristics of litigated conflict that the mediation process was supposed to leave behind. 

If parties end up back in court in a dispute over the terms of their supposed agreement, or over whether they even made an agreement, most likely one of the parties later had buyer's remorse over the agreement and really didn't want to settle on those terms, or the parties never really reached an agreement at all at the mediation. More broadly speaking, I would say that anytime the parties find themselves arguing to a judge about what happened in a mediation, the mediation has failed.  It has failed in the sense that mediation failed to teach the parties a better way to resolve their disagreements.  To avoid that result, the solution is not so much making sure that the document signed at the mediation is airtight, but should be taking the time to make sure that everyone is comfortable with what they have agreed to before they sign anything.  The mediator should also strive to coach the parties on how to resolve future disputes diplomatically instead of litigiously.  Otherwise parties may return to using the courts to enforce a deal that somebody else thinks was unfair, or they may try to escape from obligations that they never really wanted to agree to, or they may just feel unhappy about being pressured to settle. Any of those results can give the whole mediation process a bad name.

(photo from conquerfood.com)

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