The New Mediation Statutes

by Steven H. Kruis, Esq.

Confidentiality and the Enforcement of Settlement Agreements

It is not surprising that the use of mediation as an alternative dispute resolution technique has grown steadily in recent years. Both attorneys and their clients recognize that mediation has a key benefit beyond the obvious of avoiding the delay and expense associated with litigation: confidentiality. Recently enacted statutes provide near-absolute protection for communications during private mediations.

The new statutes expressly provide for mediation confidentiality by making all oral and written communications, including settlement agreements, during mediation inadmissible in any legal proceeding. See California Evidence Code §§ 1115-1128 (effective 1/1/98)  ¹ . Ironically, for those unfamiliar with the new statutes, these same protections may impede a party's ability to enforce a settlement agreement when the mediation has been successful. A conflict exists between the need to ensure confidentiality during the process with the desire to prove a settlement was ultimately reached.

To insure enforceability of a settlement agreement obtained during mediation, counsel must meet the statutory requirements that override its confidential nature. Because of the way the statutes are written, oral settlement agreements provide a far greater risk that one of the parties will suffer from "buyer's remorse" and back out of the agreement leaving its confidential nature intact.

Section 1124, governing oral agreements, refers to § 1118, which defines oral agreements. Under § 1118, the oral agreement (1) must be recorded; (2) the terms of the oral agreement must be recited on the record in the presence of the parties and the mediator and the parties must express on the record that they agree to the terms recited; (3) the parties must expressly state on the record that the agreement is enforceable or binding; and (4) the agreement must be reduced to writing and signed by the parties within 72 hours after it is recorded (emphasis added)  ² .

The three-day period gives either one of the parties ample time to reevaluate the settlement. If the oral agreement is not reduced to writing within that time period, its confidentiality will remain intact and § 1124 will be inapplicable. Thereafter, no evidence may be introduced to enforce the settlement by way of summary judgment or a motion to enforce settlement agreement under California Code of Civil Procedure § 664.6.

When one examines the statutes carefully, the admissibility of an oral settlement agreement under § 1124 is illusory. Section 1124 refers to § 1118, requiring that all oral agreements be reduced to writing within 72 hours after their recordation. Once the oral agreement is reduced to writing, its admissibility is governed by § 1123. Under § 1123, the written agreement must provide (1) that it is admissible or subject to disclosure; (2) that it is enforceable or binding; and (3) that the parties agree to its disclosure.

Given the statutory scheme, those concerned with the admissibility and enforceability of a settlement agreement obtained during mediation should insist on a written agreement that conforms to the requirements set forth in § 1123. This can be done in a mediation agreement signed at the outset of the mediation, governing how the mediation is conducted, or in the settlement agreement itself. In either case, counsel may avoid this trap for the unwary by insisting upon a clause that authorizes the admissibility of the settlement agreement for the limited purpose of proving the settlement. Such a provision reconciles the conflict between two public policies -- ensuring confidentiality during the mediation so parties will be candid with each other, thus enhancing the chance of settlement, with the equally important concept that settlement agreements reached at the conclusion of the process should be honored and enforced if necessary.