“One
of the main purposes of mediation is the expeditious resolution of disputes.
Mediation will not always be successful, but it should not spawn more
litigation . . . .”
So
said the New Jersey Supreme Court in the case of WillingboroMall LTD v. 240/242 Franklin Avenue, LLC, 71 A.3d 888 (2013), as it considered a
mediation which itself became the controversy. Five depositions, a four-day
evidentiary hearing, and two appeals later, the high court set forth a new rule
in New Jersey requiring that, to be enforceable, an agreement reached at
mediation must be in writing.
The
controversy began when a commercial case, arising out of the sale of a mall,
was sent to mediation by the trial court. At mediation, the parties reached an
agreement. The mediator reviewed the terms of the settlement with the parties,
but the settlement terms were not put in writing at the conclusion of the
mediation.
Several
weeks later, in what may have simply been a bout of buyer’s remorse,
Willingboro’s manager balked at the settlement. He complained that his attorney
and the mediator had unduly pressured him to settle. In his words, he would
have confessed to the Lindbergh kidnapping and the Kennedy assassination if it
meant he could have extricated himself from an “incredible uncomfortable, high
pressure situation.”
With
Willingboro refusing to honor the deal struck at mediation, Franklin brought a
motion to enforce the terms of the settlement that included certifications from
its own attorney and the mediator disclosing communications made during the
mediation. Rather than oppose the motion invoking the mediation communication
privilege, Willingboro opposed the motion with its own disclosures of confidential
communications.
During
the evidentiary hearing conducted by the trial court, Willingboro changed
course and moved to strike the confidential communications already disclosed.
But the trial court found that Willingboro had waived the privilege and that a
binding agreement had been reached between the parties. On appeal, the
appellate division affirmed.
Willingboro
next appealed to the New Jersey Supreme Court and two issues were certified:
(1) whether New Jersey law required that a settlement agreement reached at
mediation be reduced to writing at the time of the mediation to be enforceable,
and (2) whether Willingboro had waived the privilege that protects
communications made during mediation from disclosure.
The
New Jersey Supreme Court noted that there is a mediation communication
privilege with only two exceptions: (1) the signed writing exception, which
allows a written settlement agreement to be admitted into evidence to prove a
settlement; and (2) when there is a waiver of the privilege.
The
court stated that “[i]n the absence of a signed settlement agreement or waiver,
it is difficult to imagine any scenario in which a party would be able to prove
a settlement was reached during the mediation without running afoul of the
mediation-communication privilege.” The court upheld the ruling that
Willingboro had waived the privilege and that the settlement was binding.
Recognizing
that the court system favors the settlement of disputes by mediation, the court
observed that the success of mediation depends on confidentiality. To protect
this confidentiality while encouraging the use of mediation to reach binding
settlement agreements, the court announced a new rule: “[G]oing forward, a
settlement that is reached at mediation but not reduced to a signed written
agreement will not be enforced.”
As
the courts continue to encourage mediation as a more economical and expeditious
means to resolve cases, this new rule in New Jersey will no doubt be adopted in
other jurisdictions that have yet to address the issue. A signed writing (or
video or audio recording, which the high court suggested as an alternative) may
ensure the enforceability of settlements reached at mediations.
A
Mediator’s Takeaway
Mediators
may wish to provide a standard form that attorneys can utilize to memorialize the
key terms of a settlement. In the event the parties are not able to complete a
memorandum of understanding before the close of the mediation proceedings, the
mediator may want to suggest that the mediation remain open until the
settlement is reduced to writing.
Parties
choose mediation for expedience and economy. Willingboro should serve as
a cautionary tale to mediators: Parties are entitled to rely on the guarantee
of confidentiality at mediations. If a dispute arises, a mediator may not
divulge privileged communications in order to assist a party in enforcing a
settlement reached during mediation. The result in Willingboro speaks volumes
about the consequences of disclosing confidential communications.
Hon. Nancy Holtz is a mediator and arbitrator based in Boston,
Massachusetts providing neutral services nationwide.
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©
2014 by the American Bar Association. Reproduced with permission. All rights
reserved. This information or any portion thereof may not be copied or
disseminated in any form or by any means or stored in an electronic database or
retrieval system without the express written consent of the American Bar
Association.
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