A New Jersey appellate court held that intentionally withholding information in mediation does not invalidate the resulting settlement agreement. Matter of the Estate of Lillian L. Fischer, Deceased (N.J. Super. Ct., App. Div., No. A-0091-10T2, June 14, 2011)(unpublished).

This matter involved a probate dispute between Catherine S. Richards, the 91 year old domestic partner of the decedent, Lillian Fischer (who was 86 years old when she passed away), and Emma Hinman, the decedent’s 90 year old sister. Following Fischer’s death, Richards was appointed administratrix of her estate. Approximately one month later, Hinman filed a complaint and order to show cause seeking to remove Richards as administratrix. The matter was referred to mediation, and the parties reached agreement soon thereafter. A settlement agreement was signed by the parties, and the Court entered an Order dismissing the complaint with prejudice. The parties’ settlement agreement stated that the  domestic partner would receive all securities set forth on Schedule A in the agreement, while, in return, the decedent’s sister received a parcel of real estate plus “all other” estate assets.

Sometime thereafter, Hinman claimed that she was entitled to certain “additional assets” – stock certificates of publicly-traded companies – not identified in Schedule A of the parties’ agreement. The domestic partner objected, and the matter went back to Court. During pre-trial discovery, the sister admitted that she knew about the additional assets in the decedent’s estate before the settlement agreement was signed, but intentionally withheld the information concerning the additional assets from the domestic partner during mediation.  A one-day trial was held, and the trial court ruled in favor of the sister.

The domestic partner appealed, seeking the recovery of the undisclosed assets, and alleging that the sister’s failure to disclose the additional assets breached  the implied covenant of good faith and fair dealing in the settlement agreement, and constituted fraud. Thereafter, the New Jersey Superior Court, Appellate Division, affirmed the trial court ruling. The appeals court held, first, that, “[T]he implied covenant of good faith and fair dealing does not require either side in negotiations to reveal any and all information that might help the adversary and hurt his or her own client.” Second, the Court ruled that no fraud occurred because “silence may constitute fraud [only] where there is a duty to disclose … [P]arties have no duty to disclose “unless a fiduciary relationship exists between them … [but here] no fiduciary relationship existed between [the parties] … .”

Further, the Court noted that both sides were represented by legal counsel, and the sister did not thwart or obstruct litigational discovery. As a result, the decedent’s sister, who intentionally withheld material information during mediation, ending up owning the assets she intentionally failed to disclose to the domestic partner during the mediation.

The case is annexed here – Matter of the Estate of Lillian L. Fischer, Deceased

Discussion of case: – In my opinion, the appeals court decision is not a just result, and would tend to encourage deception in mediation. However, not everyone agrees with that analysis. For example, one participant in a mediation listserv discussion explained the result as follows:

Key to the trial court’s and Appellate Division’s conclusions that the sister, not the domestic partner, should get the undisclosed shares, is the wording of the settlement agreement, which stated that in consideration for the domestic partner receiving Schedule A stocks, sister would get a piece of real estate plus “all other” estate assets. Domestic partner had the ability to undertake due diligence. She had the ability to get a representation from the sister as to the sister’s knowledge of any other estate assets. She did neither.

It’s a close call and an interesting decision. I am not outraged by the result.

As a result of the above, I must add a “Note to Self: Always add protective language in a settlement agreement stating that both sides represent that they’ve disclosed everything to the other party.”