ADR Case Updates
Settlement Agreement Reached in Mediation Must Directly Express Parties' Agreement To Be Bound, 12/17/06
In another example of the California Supreme Court's emphasis on mediation confidentiality that is "essential to effective mediation," attached is the recent case of Fair v. Bakhtiari, filed December 14, 2006 (Case No. S129220). The parties concluded a mediation session by signing a handwritten, single-page memorandum entitled "Settlement Terms," the final provision of which provided: "Any and all disputes subject to JAMS arbitration rules."
Documents prepared for or in mediation are generally inadmissible in civil proceedings. However, a signed settlement agreement reached in mediation is admissible under Evidence Code § 1123(b) if it "provides that it is enforceable or binding or words to that effect". The trial court found the "term sheet" inadmissible, and denied a motion to compel arbitration. The Court of Appeal reversed, holding that the memorandum was admissible because the arbitration provision constituted "words to [the] effect" that the settlement terms were "enforceable or binding."
In reversing the judgment of the Court of Appeal and affirming the trial court's denial of the motion to compel, the Supreme Court concluded that the terms of a settlement agreement reached at mediation must make clear that it is an agreement that the parties intend as binding, and not simply a memorandum of terms for inclusion in a future agreement. The agreement must be signed by the parties, and include a direct statement to the effect that it is enforceable or binding. The memorandum used here failed to satisfy that standard. Reference to arbitration clauses, forum selection clauses, choice of law provisions, and the like that are commonly negotiated in settlement discussions do not meet the requirements of § 1123(b).
To avoid any question regarding this issue, consider using the following clause in any settlement agreement drafted at mediation:
"Notwithstanding Evidence Code §§ 1119 and 1123, this Agreement will be binding and admissible into evidence for the limited purpose of enforcing the terms of the settlement under Code of Civil Procedure § 664.6."
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