Oral Settlement Agreements Reached In Mediation Are Valid And Enforceable

An appellate court in New Jersey recently enforced an oral settlement agreement reached during non-binding, confidential mediation even though the agreement was not reduced to writing immediately. Willingboro Mall Ltd. v. 240/242 Franklin Avenue Associates LLC

In this case, the plaintiff and defendants were commercial real estate entities and persons involved in management of the entities. Plaintiff filed a foreclosure complaint based on the alleged default by defendants. In their answer, defendants asserted the alleged default had not occurred and, therefore, plaintiff was not entitled to foreclosure.

The parties were referred to mediation by the trial judge. After several hours in the mediation, the parties agreed to a settlement. Soon thereafter, counsel for defendants wrote a letter to the trial judge informing him that the parties had settled the lawsuit and summarizing the terms of the settlement. Unfortunately, plaintiff refused to consummate the settlement, claiming that a final, binding settlement agreement had not been reached at the mediation. Defendants then filed a motion to enforce the mediated settlement agreement, and supported the motion with a certification of their attorney and the mediator. A plenary hearing on the motion was conducted over four days. Five witnesses testified at the hearing, including the mediator and plaintiff’s attorney. At the conclusion of the hearing, the trial judge issued a written opinion in which he found that “the parties did in fact arrive at a settlement of the underlying case and that their settlement is binding upon them.” The judge denied defendant’s application for counsel fees.

Plaintiff appealed. Plaintiff argued that New Jersey Court Rule 1:40-4(i) prevents enforcement of any oral settlement because the terms of the settlement were not reduced to writing at the mediation session, a copy of the writing was not provided to each party, and the parties did not affix their signatures to the writing at the mediation session. R. 1:40-4(i) provides as follows:

If the mediation results in the parties’ total or partial agreement, it shall be reduced to writing and a copy thereof furnished to each party. The agreement need not be filed with the court, but if formal proceedings have been stayed pending mediation, the mediator shall report to the court whether agreement has been reached. If an agreement is not reached, the matter shall be referred back to court for formal disposition.

In addition, plaintiff argued that enforcement of a settlement reached at a mediation session is contrary to the non-binding nature of the process. In response, defendants argued that there are no impediments to enforcement of the settlement and that the court should have found defendants were entitled to counsel fees.

The Superior Court of New Jersey, Appellate Division, affirmed, finding the oral settlement agreement enforceable and binding on the parties. The appeals court held that

[T]he language of the rule does not prohibit the mediator or one of the parties to reduce the terms of the agreement to writing shortly after conclusion of the mediation session as occurred in this case. We reject the gloss advanced by plaintiff that would require contemporaneous reduction of the terms to writing and obtaining signatures on the document at the mediation.  … To be sure, preparation of a writing memorializing the agreement at the mediation session may be the preferable and advisable course. We must recognize, however, that some disputes may be complicated and the writing to memorialize the agreement may require some time to produce.

The appeals court also found that both parties waived the confidentiality afforded to mediation by disclosing the terms of the settlement. In that regard, the court found that the defendant had breached confidentiality first by submitting a certification from the mediator in support of the motion to enforce the settlement agreement. In addition, the mediator also testified at a pre-trial deposition and at trial. The court also denied defendants claim for an award of counsel fees.

The case is annexed here – Willingboro Mall Ltd. v. 240/242 Franklin Avenue Associates LLC