The New Jersey Supreme Court ruled that a settlement that is reached at mediation but not reduced to a written agreement signed by the parties before the mediation ends will not be enforceable. Willingboro Mall v Franklin Ave LLC, Docket No. A-62-11 (N.J., August 15, 2013)

Willingboro Mall, LTD (Willingboro), the owner of the Willingboro Mall, sold the mall property to 240/242 Franklin Avenue, LLC (Franklin). To secure Franklin’s obligation, the parties executed a promissory note and mortgage on the property. Willingboro claimed that Franklin failed to pay in accordance with the mortgage, and filed a mortgage foreclosure action. Franklin denied that it had defaulted on its mortgage obligation. The trial judge directed the parties to participate in non-binding mediation.

The mediation was conducted by a retired Superior Court judge. Franklin offered $100,000 to Willingboro in exchange for settlement of all claims and discharge of the mortgage. Willingboro, through its attorney, orally accepted the offer in the presence of the mediator. The terms of the settlement, however, were not reduced to writing before the conclusion of the mediation session.

Three days later, Franklin forwarded a letter to the Court announcing that the case had been “successfully settled.” The letter also set forth the purported terms of the settlement. A few days thereafter, Franklin’s attorney sent a separate letter to Willingboro stating that he held $100,000 in his attorney trust account to fund the settlement, that Franklin had executed a release, and that the monies would be disbursed when Willingboro filed a stipulation of dismissal in the foreclosure action and delivered a mortgage discharge on the mall property. However, before the end of the month, Willingboro’s attorney told Franklin’s attorney that Willingboro rejected the settlement.

Franklin filed a motion to enforce the settlement agreement. Certifications from Franklin’s attorney and the mediator were submitted in support of the motion that revealed communications made between the parties during the mediation. Willingboro did not move to dismiss the motion, or strike the certifications. Instead, in opposition to the motion, Willingboro requested an evidentiary hearing and the taking of discovery. The trial court ordered the taking of discovery. During discovery, the parties consented to the entry of a court order compelling the mediator to testify. The mediator was deposed and divulged additional confidential mediation communications. The trial court scheduled a hearing to determine whether an enforceable agreement had been reached during mediation.

The trial court conducted a four day hearing. On the second day of the hearing, Willingboro moved for an order expunging “all confidential communications” disclosed, arguing that mediation communications are privileged under New Jersey law. The court ruled that Willingboro had waived the mediation-communication privilege and held that “a binding settlement agreement was reached as a result of [the] court-directed mediation.” The judge found that “[e]ven though the [settlement] terms were not reduced to a formal writing at the mediation session,” an agreement had been reached. The court granted Franklin’s motion to enforce the settlement.

Willingboro appealed. The appellate court affirmed the trial court’s enforcement of the settlement agreement. The appellate court found that Willingboro “waived the confidentiality normally afforded to” mediation sessions…” Additionally, the panel rejected Willingboro’s argument that the law “require[d] contemporaneous reduction of the terms to writing and obtaining signatures on the document at the mediation.”

The Supreme Court granted Willingboro’s petition for certification. The Supreme Court found, first, that the mediator in this case breached the mediation communication privilege by disclosing to the court much more than the mere fact that the parties had reached a settlement as permitted by law. However, the Court held that Willingboro waived the mediation privilege in failing to timely move to strike or suppress the disclosure of the confidential mediation communications, and by itself disclosing confidential mediation communication.

Second, the Court held that, if the parties reach an agreement to resolve their dispute in mediation, the terms of that settlement must be reduced to writing and signed before the mediation comes to a close. A settlement that is reached at mediation but not reduced to a signed, written agreement is not enforceable.

The case is annexed here – Willingboro Mall v Franklin Ave LLC