Cal Supremes: Expressly Provide that Mediated Settlement "Term Sheet" is Enforceable
The California Supreme Court held in Fair v. Bahktiari last week that parties to a mediated settlement agreement must include an express provision that they intend to be bound by any written term sheet memorializing their settlement.
If you do not, the trial court will not enforce your settlement agreement even when, as here, you've prepared a relatively detailed deal memo including an arbitration clause.
As we've recommended before, you should prepare your term sheets in advance (or better yet, bring a laptop with your form settlement agreement on it -- many of my clients do, along with a portable printer or a jump drive to plug into a local PC).
Being prepared to draw up the settlement agreement at the mediation is not only "a stitch in time" but shows admirable optimism. Optimism that does, believe it or not, have a real and substantial effect on the settlement proceedings.
For tips on ways to insure that your mediated settlement agreements are enforceable (or to resist the enforcement of an "agreement" that you don't concede was actually reached) see Deborah Rothman's and my Daily Journal article on the topic here.
Details, Details, Details
The Court's holding and rationale are pretty straight forward.
In order to preserve the confidentiality required to protect the mediation process and provide clear drafting guidelines, we hold that . . . . a writing must directly express the parties’ agreement to be bound by the document they sign. (emphasis added).
In strictly construing section 1123(b) permitting the enforcement of written agreements reached during a mediation, the Supreme Court cautioned that
[d]urable settlements are more likely to result if the statute is applied to require language directly reflecting the parties’ awareness that they are executing an “enforceable or binding” agreement.
Commenting upon Plaintiff's characterization of defendants' post-mediation conduct as an aid to interpretation, the Supreme Court cautioned that the Legislature did not intend the courts to "examine extrinsic evidence to resolve competing claims over the parties’ intent."
Rather, held the Court, the detailed requirements of section 1123
are designed to produce documents that clearly reflect the parties’ agreement that the settlement terms are 'enforceable or binding.'” Thus, concludes the Court, "to satisfy section 1123(b), a settlement agreement must include a statement that it is “enforceable” or “binding,” or a declaration in other terms with the same meaning. The statute leaves room for various formulations. However, arbitration clauses, forum selection clauses, choice of law provisions, terms contemplating remedies for breach, and similar commonly employed enforcement provisions typically negotiated in settlement discussions do not qualify an agreement for admission under section 1123(b).