1. law, govt and politics

When is a Settlement Enforceable? – Court Challenges to Settlements
Harrie Samaras
ADR & Law Office of Harrie Samaras
1554 Paoli Pike #289
West Chester, PA 19380
I.
Introduction
Settling a dispute usually means bringing an end to litigation or avoiding it altogether. Like
litigation, settling a case is a process. That process has certain predictable characteristics such as
settlement discussions, terms, and documents. Each settlement, however, also has its unique
characteristics and, sometimes, unpredictable moments. A party may suddenly renounce the deal
or claim that the agreement is somehow unenforceable. Thus, although many settlements mark
the end of litigation, some may spawn new controversy.
The unpredictable moment when the threads of settlement begin to unravel may occur anytime:
after signing terms but before signing final settlement documents; after negotiating final
settlement documents but before signing them; or even after counsel have put the settlement
terms on the record in open court. And the real reason for the unraveling may never be known.
A party may renege on a deal because of second thoughts, or they may be looking for a way to
obtain leverage to renegotiate the deal. Perhaps wishful thinking leads a party astray, believing
that an enforceable agreement was reached when in fact the parties never agreed to all the
essential terms. In some cases a settlement may be disrupted where a party challenges his own
counsel’s authority to settle.
Additional issues may arise enforcing settlement agreements resulting from mediation.
Confidentiality is an important foundation of the mediation process. Maintaining confidentiality
can affect a mediator’s neutrality and it is essential to the public’s confidence in the process.
Thus when enforcing a mediated settlement agreement in court, the confidentiality of the process
(whether mediation communications are admissible) and the role of the mediator (whether a
mediator can be compelled to testify about confidential information) may be compromised.
The case law abounds addressing challenges to the enforceability of settlement agreements.
These cases have percolated through state and federal courts. Discussed here are some of
unifying principles of law that courts apply in enforcing settlement agreements arising both in
and outside of the mediation process. Further mentioned are state laws and court rules that have
evolved ostensibly to provide a basis for enforcing settlements, as well as efforts to create
uniformity in the mediation process in the United States.
II.
Teeing Up the Challenge
There is no uniform procedure for enforcing settlement agreements. As reflected in the case law,
parties seeking to enforce settlement agreements, and parties challenging them, have pursued
various court-related options.
A.
Enforcement
One of the most common means for enforcing an agreement, particularly when a case is pending,
is by filing a motion to enforce the agreement. See, e.g., Malave v. Carney Hosp., 170 F.3d 217,
219 (1st Cir. 1999) (“If, however, the settlement collapses before the original suit is dismissed,
the party who seeks to keep the settlement intact may file a motion for enforcement.”); see also
Beazer East, Inc. v. Mead Corp., 412 F.3d 429 (3d Cir. 2005) (deciding a motion to enforce an
alleged settlement agreement that resulted from an appellate mediation in parallel with the appeal
2
on the merits); S & T Mfg. Co. v. Hillsborough, 815 F.2d 676 (Fed. Cir. 1987) (moving to
enforce an alleged settlement agreement after plaintiffs moved to set the case back on the trial
docket); Caballero v. Wikse, 140 Idaho 329, 92 P.3d 1076 (2004) (moving for specific
enforcement of an alleged oral agreement). Enforcement may also be obtained by amending the
pleadings (i.e., raising the alleged
Although parties have used motions for summary judgment to enforce settlement agreements, the
fact intensive nature of the issues (e.g., contract formation, defenses) poses a challenge for
success. See, e.g., Wang Labs., Inc. v. Applied Computer Sciences, Inc., 958 F.2d 355 (Fed. Cir.
1992) (affirming the lack of any genuine issues of material fact, but reversing the determination
that an unexecuted draft settlement agreement constituted an enforceable agreement as a matter
of law); American Eagle Outfitters, Inc. v. Lyle & Scott Ltd., 644 F. Supp. 2d 624, 629 n.1 (W.D.
Pa. 2008) (On summary judgment the Magistrate Judge decided that an enforceable settlement
agreement existed, but she noted that “[t]he Court is acutely aware that some of the issues raised
in this case are rarely appropriate for disposition by the Court.”), aff’d in part, rev’d in part &
remanded, American Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575 (3d Cir. 2009). The
Magistrate Judge in American Eagle decided the case on summary judgment because she
believed “the critical facts are undisputed and resolution of this matter turns on basic contract
principles.” American Eagle Outfitters, 644 F. Supp. 2d at 637. She held that a memorandum
memorializing the parties’ settlement discussion and points of agreement was a binding contract
and that its terms were not ambiguous, holding that no reasonable jury could find otherwise.
American Eagle Outfitters, 584 F.3d at 577. On appeal, the Third Circuit agreed that the parties
entered into an enforceable contract, but it disagreed “that the terms agreed to by the parties are
sufficiently unambiguous to permit judicial interpretation of the contract.” Id. at 586. Thus, the
appellate court remanded the case to permit a jury to interpret the ambiguous terms. Id. at 587.
Where a case is not pending or a court has not retained jurisdiction, parties have filed a separate
action for breach of contract. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378
(1994) (holding, in a case where the district court did not reserve jurisdiction to enforce the
settlement agreement after a case was dismissed with prejudice, subsequent enforcement of a
settlement agreement whether through an award of damages or a decree of specific performance
“is more than just a continuation or renewal of the dismissed suit and hence requires its own
basis for jurisdiction"); Lipman v. Dye, 294 F.3d 17, 21 (1st Cir. 2002) (declining to reopen the
original case to enforce and implement the terms of a settlement agreement, for lack of
jurisdiction, noting that the enforcing party can bring an independent action for breach of
contract).
B.
Challenging Enforcement
On the opposite side of enforcement, parties seeking to avoid a settlement agreement may, for
example, file a declaratory judgment action to declare the agreement void or unenforceable (e.g.,
failure to agree to all material terms) 1 or an action to rescind (e.g., arguing that there was no
1
See, e.g., Asten, Inc. v. Wangner Sys. Corp., C.A. No. 15617-NC, 1999 LEXIS 195 (Del.Ch. September 23, 1999) (holding
settlement agreement enforceable and not subject to rescission, despite non-material terms that needed agreement).
3
consideration for the agreement or mutual mistake of fact) 2 or raise as affirmative defenses
issues such as fraud, lack of actual consent or mutual mistake. 3
C.
Legislative Response
An example of where a state legislature has endeavored to provide an expeditious means for
enforcing settlements is the enactment of California Code of Civil Procedure §664.6 in 1981.
Before the enactment of §664.6, “a party seeking to enforce a settlement agreement had to file a
new action alleging breach of contract and seeking either contract damages or specific
performance of the settlement terms, or alternatively had to supplement the pleadings in a
pending case.” Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793, 809 (1998). In addition,
summary judgment motions could be filed based on the newly pleaded contract or specific
performance claim, but “summary judgment could be granted only if the opposing party failed to
raise a triable issue of fact.” Id. “Section 664.6 was enacted to provide a summary procedure for
specifically enforcing a settlement contract without the need for a new lawsuit.” Id.
The statute sets forth an expedient means for enforcing settlement agreements and guidance to
counsel and the courts regarding when the summary enforcement procedure is appropriate.
Under §664.6, a court may enter judgment on a settlement, and retain jurisdiction to enforce,
when the parties "stipulate, in a writing signed by the parties outside the presence of the court or
orally before the court, for settlement of the case." For an effective settlement under §664.6, it is
important that counsel explicitly request that the court agree to retain jurisdiction to enforce the
settlement. In Wackeen v. Malis, 97 Cal. App. 4th 429 (2002), a motion to enforce a settlement
and obtain over $100,000 in attorney’s fees and costs was denied where the parties failed to
make a clear written request for continued jurisdiction in either their settlement agreement or in a
separate writing and they failed to make an oral request to the court.
III.
Proving the Existence of an Agreement
When seeking to enforce a settlement agreement, the burden is on the party seeking to enforce
the agreement to prove the existence of a contract by a preponderance of the evidence. Omega
Eng’g, Inc. v. Omega, S.A., 432 F.3d 437, 447 (2d Cir. 2005) (applying Connecticut law);
American Eagle Outfitters, 644 F. Supp. 2d at 635. It is generally accepted that settlement
agreements are governed by the same general principles of contract law as other agreements.
See, e.g., Omega Eng’g., 432 F.3d at 443; S & T Mfg., 815 F.2d at 678 (applying 11th Circuit
law); White v. Fleet Bank of Me., 875 A.2d 680, 683 (2005).
2
Id. The Chancery court held in Asten that there was no mutual mistake of fact justifying rescission of the settlement agreement
where one party claimed that it drastically altered its mediation strategy based on what it thought was an official notice from a
U.S. patent examiner that the other party received and shared before the mediation commenced. The relying party claimed it did
not learn until after the settlement agreement was signed that the U.S. PTO notice was not official and would not necessarily be
placed in the official PTO file. Id. at *14. The Vice Chancellor concluded from the evidence presented that the relying party
actually knew that the facsimile was unofficial and that its transmission was outside the practice of the PTO but, without waiting
to see whether the document would ever become a part of the patent’s official file, decided it was a wise business decision to
participate in the mediation and reach a binding agreement. Id. at *15. That is, neither party was mistaken as to any existing or
past material fact to warrant rescission. Id at *16.
3
Barton v. Snellson, 735 S.W.2d 160, 161 (Mo.App. 1987).
4
The burden of proving an enforceable agreement consists of three elements: (1) Did the parties
manifest an intent to be bound by its terms? (2) Are the terms sufficiently definite to be
enforced? (3) Did the parties exchange consideration? 4 American Eagle Outfitters, 644 F. Supp.
2d at 635. It is typically the case that a court will hold an evidentiary hearing to obtain evidence
from the parties on these and other fact intensive issues to determine the existence and/or terms
of an enforceable agreement. See, e.g., Bath Junkie Branson, LLC v. Bath Junkie, Inc., 528 F.3d
556, 561 (8th Cir. 2008). That, however, is not always the case. In some situations the district
court’s decision to forego an evidentiary hearing is validated on appeal, in other cases the
decision is overturned. The following two cases illustrate each situation.
In Bath Junkie Branson, LLC v. Bath Junkie, Inc., 528 F.3d 556 (8th Cir. 2008) the Eighth
Circuit held that the district court did not abuse its discretion in refusing to grant a motion for an
evidentiary hearing requested only after the district court announced that it was going to enforce
a settlement agreement between the parties. Id. at 560. The appellate court reasoned that
notwithstanding the lateness of the request, the movant was given the opportunity to present
affidavit evidence in response to the motion to enforce and the district court had no basis to
believe (before deciding the motion to enforce) that either party wanted a hearing or would find
it helpful or necessary to submit additional evidence. Id. at 560-61. The appellate court also
affirmed the district court’s decision not to hold an evidentiary hearing sua sponte because the
agreement that the parties put on the record in open court purportedly contained all material
terms and there was not substantial factual dispute over the terms of the settlement agreement.
Id. at 563.
In Eaton v. Mallinckrodt, Inc., 224 S.W.3d 596 (Mo. 2007) (en banc) the Supreme Court of
Missouri reversed a trial court order enforcing a mediated settlement agreement that was issued
without holding an evidentiary hearing because a factual dispute existed regarding whether the
Eatons’ attorney had the authority to make a specific monetary offer to settle the case.
The Eatons sued the defendants for property damage allegedly caused by groundwater made
toxic by waste discharged from a nuclear power plant operated by Mallinckrodt, Inc. Id. at 597.
They pursued mediation along with other parties who had claims against the defendants. The
other parties settled, but Eaton did not. Id. at 598. Through its former attorney, the Eatons
continued negotiations, culminating when their attorney made a settlement offer of $26,000
which Mallinckrodt accepted. Id. The Eatons refused to sign off on the agreement, alleging that
they had not authorized the attorney to make such an offer and had dismissed him. Id. at 597.
Mallinckrodt moved to enforce the agreement and the trial court granted the motion, based on
"oral arguments" alone. Id. at 598.
The sole and deciding factual determination before the district court was the authority of the
Eatons' attorney to settle. In reversing the district court’s decision enforcing the settlement
agreement, the appellate court held “[t]hat determination in this motion to enforce a settlement
agreement was attainable only by the reception of evidence and making a credibility
determination.” Id. at 601. The court reasoned that under those circumstances, proceedings such
as judgment on the pleadings and summary judgment would not have been available. Id. It
further noted that “without a default or specific waiver by the Eatons, the failure to request an
4
This paper discusses the first two elements.
5
evidentiary hearing would not elevate any disposition other than reception of evidence and a
resulting judgment based on facts as found.” Id. at 601- 602. The appellate court concluded that
because the parties were not provided the opportunity to present evidence there was no evidence
even to support the judgment for the defendants on their motion to enforce. Id. at 602.
In its en banc opinion, the Supreme Court of Missouri noted three possible judicial responses to
a motion to enforce a settlement agreement: (1) holding an evidentiary hearing; (2) making a
judgment on the pleadings; or (3) treating the motion as one for summary judgment. Id. at 599.
The court stated that an evidentiary hearing is "by far the most desirable approach" where the
moving party proves the agreement and the non-moving party can then present evidence of
defenses. Id. The court went on to explain that if a court does not hold an evidentiary, it may
hear argument and enter judgment on the pleadings. Id. The question then presented is whether
the moving party is entitled to judgment as a matter of law on the face of the pleadings (the facts
of the non-movant treated as admitted). Id. The appellate court noted that judgment on the
pleadings is allowed where there are no factual questions, but since the pleadings in this case
raised an issue of material fact regarding whether the Eatons’ attorney had authority to settle at
the time it made the offer, judgment on the pleadings (i.e., treating the question as one of law)
was not appropriate. Id. at 600. Furthermore, the court concluded that if the district court
entered judgment based solely on the pleadings, given the issue of material fact raised in the
pleadings, the judgment was not supported by sufficient competent evidence in the record. Id.
With regard to the option of summary judgment, the court recounted that the defendants attached
to their motion to enforce affidavits of the attorneys, which it appears the district court did not
exclude. Id. at 601. The court reasoned that if the district court considered the affidavits,
thereby treating the motion as one for summary judgment (considering matters outside the
pleadings), it would have been required to provide notice to the Eatons of its intent to proceed
this way. The court noted that the record did not reflect that the trial court provided the requisite
notice or afforded Eaton the opportunity to provide his own affidavits and exhibits. Id.
A.
Is a Formal Written Agreement Required?
Under traditional contract principles, a settlement agreement does not need to be in writing to be
enforceable. An oral settlement agreement or an informal writing that parties enter into can be
enforceable as long as the parties agree on the essential terms and intend them to be binding and
the agreement does not violate the statute of frauds. Thus, for example, settlement agreements
put on the record in open court may qualify as enforceable agreements where the requisites of
contract formation have been met. See, e.g., Bath Junkie Branson, LLC, 528 F.3d at 562
(holding that an enforceable agreement existed because the parties agreed to all “salient” terms
of a settlement agreement on the record before the court without qualification and with no
suggestion that additional terms were omitted or were subject to further negotiation); see also
Omega Eng’g., 432 F.3d at 444; Capek v. Mendelson, 821 F. Supp. 351, 357 (E.D. Pa. 1993).
Courts will also enforce oral settlement agreements even when the agreement was not put on the
record in open court, where there was evidence of mutual assent to the essential terms and
conditions of a settlement that were definite and certain. See, e.g., Standard Steel, LLC v.
Buckeye Energy, Inc., C.A. No. 04-538, 2005 LEXIS 22378 (W.D. Pa. September 29, 2005)
(“Oral settlement agreements are enforceable. The United States Court of Appeals for the Third
6
Circuit has made clear that an “`agreement to settle a lawsuit, voluntarily entered into, is binding
upon the parties, whether or not made in the presence of the court, and even in the absence of a
writing.’” (citing Green v. John H. Lewis & Co., 436 F.2d 389, 390 (3d Cir. 1970))).
There are many factors that courts may consider in determining whether parties to an alleged oral
agreement or informal written agreement intended to enter into a binding contract. American
Eagle Outfitters, 644 F. Supp. 2d at 636 (noting that scholars and other courts have considered as
many as sixteen factors in addition to the four typically considered). The following four nonexclusive factors often considered by courts in evaluating contractual intent are: (1) whether the
parties have expressly reserved the right not to be bound without a writing; (2) whether the
parties have partially performed the contract; (3) whether the parties agreed to all of the essential
terms of the contract; and (4) whether the agreement at issue is the type of contract that is usually
committed to writing. See, e.g., Catamount Slate Prods., Inc. v. Lorene Sheldon, 176 Vt. 158,
164, 845 A.2d 324, 329 (2003) (referred to as the Winston factors from the case Ciaramella and
Winston v. Mediafare Ent. Corp., 777 F.2d 78, 80 (2d Cir. 1985)); see also American Eagle
Outfitters, 644 F. Supp. 2d at 636 (citing the four factors as part of a substantial body of case law
applicable to both oral and informal agreements that has been developed by the Court of Appeals
for the Second Circuit).
The ability to enforce an oral agreement achieved in mediation may be affected where governing
law or court rules require a written agreement. For example, in Beazer East Inc. v. Mead Corp.,
412 F.3d 429 (3d Cir. 2005) the Third Circuit denied Beazer’s motion to specifically enforce an
alleged oral settlement reached at an appellate mediation. The court reasoned, “[b]oth Local
Appellate Rule (LAR) 33.5 and sound judicial policy compel the conclusion that parties to an
appellate mediation session are not bound by anything short of a written settlement. Any other
rule would seriously undermine the efficacy of the Appellate Mediation Program by
compromising the confidentiality of settlement negotiations.” Id. at 434; see also Barnett v. Sea
Land Serv., Inc., 875 F.2d 741, 743-44 (9th Cir. 1989) (interpreting Local Rule 39.1, a
confidentiality provision governing mediation proceedings in the Western District of
Washington, to mean that until a settlement is reduced to writing, it is not binding upon the
parties); Vernon v. Acton, 732 N.E.2d 805, 810 (Ind. Sup. Ct. 2000) (refusing to construe the
mediation confidentiality provisions of the court’s local A.D.R. Rules (A.D.R. 2.12 (1995) and
2.11 (1997)) to permit proof of an oral agreement, stating: “Requiring written agreements, signed
by the parties, is more likely to maintain mediation as a viable avenue for clear and enduring
dispute resolution rather than one leading to further uncertainty and conflict. Once the full assent
of the parties is memorialized in a signed written agreement, the important goal of enforceability
is achieved.”).
In addition to court rules, practitioners should be aware of governing state statutes such as Cal.
Civ. Proc. §664.6 which permits enforcement of oral settlement agreements under certain
conditions set forth in section 664.6 and expounded in case law interpreting that section.
Another law to be aware of in the mediation context is the Uniform Mediation Act (“UMA”).
Working committees from the National Conference of Commissioners on Uniform State Laws
(“NCCUSL”) and the American Bar Association’s Section of Dispute Resolution drafted the
UMA. The Act is an attempt to bring uniformity to mediation across the country. The NCCUSL
adopted the UMA in 2001 and it has been subsequently adopted by eleven states as of this
7
writing. The Act establishes an evidentiary privilege for mediators and participants in mediation
that applies in later legal proceedings. 5 It exempts signed written settlement agreements from
the privilege but it does not protect oral settlement agreements, making oral agreements
inadmissible in court. 6
B.
Intent to be bound
The first element that must be proved to demonstrate an enforceable settlement agreement is
whether both parties manifested an intention to be bound by the agreement. In assessing intent,
the inquiry is not focused on the inner, subjective intent of the parties, rather it is “the intent a
reasonable person would apprehend in considering the parties’ behavior.” American Eagle
Outfitters, 584 F.3d at 582; see also Rohm & Haas Elec. Materials, LLC v. Honeywell Int’l, Inc.,
No. 06-297 - GMS, Memo. at 10–11(D. Del. April 16, 2009) (holding that “[b]ased on the
undisputed facts, the parties’ objective manifestations of assent, including the representations
made to the court, and the surrounding circumstances” the parties entered into a final, complete
and enforceable agreement”). In the Rohm & Haas case the district court pointed to the
following objective facts and circumstances to support the parties intent to be bound to the
settlement agreement being enforced: (1) the parties’ counsel informed the court they had
reached an “agreement in principle”; (2) when e-mailing a revised version of the proposed
settlement agreement to defendant’s counsel, plaintiff’s counsel referred to it as the “final
version”; (3) in its reply to that email, defendant’s counsel (challenging enforcement) responded
“[i]t looks like we have got this finalized”; (4) defendant’s counsel e-mailed plaintiff’s counsel
requesting that they jointly call the district court judge to let him know that the parties have
reached a settlement; (5) counsel for the parties called the court notifying it about the settlement;
and (6) the parties sent a letter to the court confirming “they have reached a settlement.” Id.
1.
Agreement on material terms
An enforceable contract has not been formed until “all of the terms that the parties themselves
regard as important” have been resolved. Leeds v. First Allied Conn. Corp., 521 A.2d 1095,
1101 (Del. Ch. 1986); see also Leonard v. University of Del., 204 F. Supp. 2d 784, 787 (D.Del.
2002) (holding that under Delaware law, an enforceable contract exists if the parties have
reached a definite agreement on all essential terms); Superglass Windshield Repair, Inc. v.
Mitchell, 233 Ga. App. 200, 504 S.E.2d 38 (1998) (holding that the parties had reached
agreement on the 10 essential terms of a settlement based on an oral agreement followed by
unequivocal correspondence and a written settlement agreement despite subsequent
correspondence about other modifications to the agreement). Thus, courts will examine the facts
and circumstances surrounding settlement negotiations to determine what the parties deemed
were the material terms and whether the parties had a “meeting of the minds” regarding each of
them. Evidence to support what the parties deem to be material terms may be found in written
correspondence or oral communications exchanged by the parties during or outside of the
mediation process. Furthermore, what are material terms will differ from case to case depending
upon what the evidence shows. There are no set rules that, for example, releases are always, or
never, a material term in a settlement agreement. In the following case the court refused to
5
6
UNIF. MEDIATION ACT §4 (2003).
UNIF. MEDIATION ACT §6 (2003).
8
enforce a settlement where a release term was found to be a material term and the parties had no
agreement regarding its final scope.
(a)
The case of the material omitted “release” term
In 1999, Stacey Chappell filed an action against Anthony Roth (a/k/a Tony Rothe) and unnamed
defendant State Farm Mutual Automobile Liability Insurance Company seeking damages for
personal injuries sustained in an auto accident. That same year, the parties participated in a
court-ordered mediation during which the parties reached a settlement agreement with the
following terms and conditions: defendant will pay $20,000 within two weeks of the settlement
date in exchange for voluntary dismissal (with prejudice) and a full and complete release
mutually agreeable to both parties. Chappell v. Roth, 539 S.E.2d 666, 667 (N.C. 2000).
Following the mediation, defendants presented plaintiff with a proposed release, but the plaintiff
objected to a provision in the release because it imposed burdens on it which were not discussed
at the conference and which were greater than those required by North Carolina law. Id.
Plaintiff suggested alternatives to the release language and defendants responded by requesting
the return of the settlement draft. Plaintiff then filed a motion to enforce the settlement
agreement, the trial court denied it and the plaintiff appealed. Id.
A divided panel of the Court of Appeals reversed the trial court’s ruling. Id. at 669. On appeal
defendants argued that the release was a material term to which the parties had not agreed, thus
the trial court was correct in not enforcing the settlement agreement. The appeals court
expressed concern with that argument on the grounds that:
were we to accept such a perspective, our holding would permit, and might even
encourage, parties to renege on settlement agreements reached through courtordered mediation simply by proposing that potentially objectionable provisions,
not addressed during the mediation, be included in the release which is
necessarily drafted and exchanged subsequent to the mediation conference.
Id. at 667. In this same regard the court explained that defendants must overcome a “strong
presumption that a settlement agreement reached by the parties under the guidance of a mediator
is a valid contract that serves to minimize the expenditure of time and money by the parties, and
to bring the benefit of final resolution to our jurisprudence.” Id. at 668. The court remanded the
case to the trial court to conduct a hearing to determine, among other things, whether the
contested provision in the release was a material term of the agreement in light of all the
circumstances, and if the defendants failed to satisfy their burden, then the trial court should
enforce the settlement agreement. Id. The court added that even if the trial court were to find
that the contested provision was material, it should determine whether defendants, by failing to
address the contested provision during mediation, waived their right to argue that the provision is
material. Id. at 668-669. The dissent posited that because the parties neither agreed upon the
terms of the release, nor established a method to settle the terms, the settlement agreement was
not enforceable. Id. at 669. Defendants appealed to the Supreme Court of North Carolina based
upon the dissent. Chappell v. Roth, 548 S.E.2d 499, 500 (N.C. 2001).
9
On appeal the Supreme Court acknowledged that mediated settlements should be encouraged and
given deference but it stated, that “given the consensual nature of any settlement, a court cannot
compel compliance with terms not agreed upon or expressed by the parties in the settlement
agreement.” Id. The court reasoned that insofar as the mediated settlement to which the parties
agreed provided that defendants would pay $20,000 to plaintiff in exchange for a voluntary
dismissal with prejudice and a “mutually agreeable” release, the release was part of the
consideration and, therefore, a material term. Id. Thus the court held that because the parties
failed to agree to the terms of the release, and the settlement agreement did not establish a
method by which to settle the terms of the release, the settlement agreement did not constitute a
valid, enforceable agreement and the appeals court erred in reversing the trial court’s ruling
denying plaintiff’s motion to enforce the settlement agreement. Id. at 500 - 501.
(b)
The case of the non-material omitted terms
At issue in Asten, Inc. v. Wangner Sys. Corp., C.A. No. 15617-NC, 1999 LEXIS 195 (Del.Ch.
September 23, 1999) was whether a settlement agreement resulting from voluntary mediation
should be set aside or specifically enforced. One of the grounds upon which Asten sought to set
aside the agreement was because it allegedly lacked material terms essential to the formation of a
contract. Id. at *2. The underlying disputes between the parties involved a patent infringement
case as well as reexamination and interference proceedings before the U.S. Patent and
Trademark Office. To settle these disputes, the parties agreed to a cross-license and that Asten
would pay Wangner a designated monetary amount plus royalties that would be capped at an
agreed-upon figure. Id. at 4. During the final day scheduled for the mediation, late in the
afternoon, Asten’s attorney raised the issue of third-party licenses. Although the parties were
hurrying to depart, they reached agreement on this issue, which term the mediator added in
handwriting (Paragraph 6) to an informal agreement the parties generated from the mediated
discussions. The parties signed the agreement before leaving the mediation venue.
In seeking to set aside the settlement agreement Asten argued that the agreement omitted
material terms relating to its likely conveyance of patent rights to third parties in exchange for
payments in-kind. The Chancery court found that Paragraph 6 was “clear evidence of the
parties’ intent - 80% of the proceeds of third-party licensing are to go to Asten, and 20% are to
go to Wangner.” Id. at 8. The court characterized as “no difficulty” the allocation where a thirdparty licensee pays in cash and as a “minor difficulty” where a third-party licensee swaps
intellectual property and/or equipment in exchange for the license. Id. The parties had expressly
agreed in writing before hurrying off from the mediation “to work out a more detailed plan for
implementing such arrangement during the next two weeks.” Id. The court held that although
this matter remained open, it was not so essential to the bargain that enforcement of the
Agreement would be unfair. Id. It further reasoned that because the intent of the parties to split
the proceeds generally on an 80/20 basis was clear, an “unresolved administrative issue” as to
how to effect that split did not constitute omission of a material term. Id.
The Chancery court’s approach to the issue of whether the agreement was enforceable where the
parties left “in-kind” payments open for future negotiation was to determine the relative
importance and severability of that matter. That is, was the open matter so essential to the
bargain that to enforce the agreement would render enforcement of the rest of the agreement
10
unfair? Id. at 7 (citing 17 C.J.S. Contracts § 49 (1980), quoted in Jaffe v. Gibbons, S.C. Ct.
App., 290 S.C. 468, 351 S.E.2d 343, 347 n.1); see also James Dillard v. Starcon Int’l, Inc., 483
F.3d 502, 503 (7th Cir. 2007) (enforcing an oral settlement agreement despite new points of
contention arising during the preparation of the final agreement because the parties had achieved
a meeting of the minds on the material terms of the settlement).
2.
Does memorializing the agreement make it enforceable?
Often parties invest considerable work in settlement negotiations, resulting in a terms sheet for
the parties to sign memorializing the essential terms of a deal. What typically follows is the
effectuation of the deal with the preparation of formal settlement documents with some
continued discussions and negotiations about other terms in the documents. An issue often
litigated is, what did the parties intend by the informal writing? Evidence of preliminary
negotiations or an agreement to enter into a binding contract in the future does not constitute a
contract. See, e.g., Wang Labs., 958 F.2d at 359 (reversing the enforcement of an unexecuted
settlement agreement because the court held (a) Wang and ACS were sophisticated in contractual
matters and after engaging in extended negotiations over multi-page drafts of the settlement
agreement, with blank lines for the parties’ signatures, they would not have intended to be bound
until having authorized representatives execute the agreement; (b) the parties told the court on
various occasions during lengthy negotiations that scheduling conflicts prevented finalization
and execution of the agreement; and (3) a license agreement that would be superseded by the
settlement agreement provided that it could not be amended or modified without a written
agreement executed by authorized representatives of all parties).
Likewise, where despite the existence of a terms sheet, parties have agreed in an explicit writing
or statement not to be bound by the terms sheet until formal documentation is executed, courts
have found this statement objective evidence of the parties’ intent not to be bound to the
provisions on the terms sheet. Compare Collectors Editions, Inc. v. Peak, 848 So. 2d 473 (Fla.
2003) (reversing the enforcement of a letter outlining the terms of the agreement reached by the
parties because the letter stated “`all parties agree to draft and execute’” a “`mutually agreeable’”
document that was intended to include terms not included in the letter, and because of the
parties’ extreme disparity during the drafting of the settlement agreement regarding a material
settlement term), with Strategic Staff Mgmt., Inc. v. Michael Roseland, 260 Neb. 682, 689, 619
N.W.2d 230, 235-36 (2000) (affirming the enforcement of a written settlement agreement signed
by counsel for the parties in their presence and without conditions such as, that certain terms
would be agreed upon later or that the terms of the memorandum of agreement would not take
effect until the general release was executed); see also Restatement (Second) of Contracts § 27
(1981) (“Manifestations of assent that are in themselves sufficient to conclude a contract will not
be prevented from so operating by the fact that the parties also manifest an intention to prepare
and adopt a written memorial thereof; but the circumstances may show that the agreements are
preliminary negotiations.”).
The fact intensive nature of what parties intended by their settlement communications and
memorializations is exemplified in Catamount Slate Products, Inc. v. Sheldon, 176 Vt. 158, 164,
845 A.2d 324, 329 (2003), where the Supreme Court of Vermont reversed the district court’s
11
grant of a motion to enforce a settlement agreement holding that the parties did not intend to be
bound until they had a signed agreement.
The district court found an enforceable agreement existed because attorney notes taken at the end
of the mediation session and unsigned drafts of a lease and settlement agreement sufficiently
memorialized the parties’ agreement. Id., 176 Vt. at 162, 845 A.2d at 327. Also, although the
district court conceded that because the lease involved an interest in land the Statute of Frauds
applied, the court circumvented the statute’s voiding effect by invoking the judicial admission
exception. 7 Under that exception a court can enforce an otherwise unenforceable oral agreement
when the party against whom enforcement is sought admits the existence of the agreement.
Id., 176 Vt. at 162, 845 A.2d at 328. The district court believed that if the party who was
resisting settlement admits in open court that an agreement existed, the public policy in favor of
mediated settlements outweighed the policy considerations underlying the statute of frauds. Id.
The appellate court applied the four-factor test (see supra III(A)) to determine whether the
parties intended to be bound in the absence of a fully executed agreement. It determined that the
language of the parties’ correspondence and other documentary evidence revealed the parties’
intent not to be bound before the execution of a final document. Id., 176 Vt. at 164, 845 A.2d at
329. For example, the mediation agreement that the parties signed with the mediator provided
that statements made during the mediation would not “be binding upon either party unless
reduced to a final agreement of settlement” and that “any final agreement of settlement [would]
be in writing and signed by every party sought to be charged.” Id. Furthermore, the mediator
reminded the parties of these ground rules when the mediation began. Id., 176 Vt. at 164, 845
A.2d at 330. The party challenging enforcement (the Reeds) claimed to have relied on those
statements and assumed they would not be bound without a written agreement. Id. Also, a letter
sent by the Reeds’ attorney (Leary) to another court after the mediation occurred stated that the
parties “appear” to have reached a settlement but they are “in the process of working out the
details of the agreement and preparing the appropriate documents.” Id. The court interpreted
these statements as objective evidence that the Reeds believed the parties were in the process of
negotiating the final details of the settlement agreements, and did not consider themselves bound
and willing to dismiss claims until the appropriate documents were executed. As further
evidence of the Reeds’ lack of intent to be bound in the absence of a writing, the appellate court
pointed to a statement in the cover letter accompanying the Reeds’ payment to the Sheldon’s
attorney saying “This check is forwarded to you with the understanding that the funds will be
disbursed to your clients only after settlement agreement becomes final. Of course, if the
settlement agreement does not come to fruition, then the funds must be returned to my clients.”
Id., 176 Vt. at 165, 845 A.2d at 330.
Finding no evidence of partial performance, the appellate court considered the third factor –
whether there was anything left to negotiate. It concluded the correspondence makes clear that
during the drafting process several points of disagreement and ambiguity arose regarding the
term and width of the lease, acceptable decibel levels and certain notice provisions, a definition
7
The appellate court opinion noted that the district court acknowledged that the judicial admission exception had not been
recognized in Vermont, but found it applicable under the facts of this case. Catamount Slate Prods., Inc. v. Sheldon, 845 A.2d
324, 328 (2003).
12
and dismissal of the case, which issues the court deemed important enough to forestall final
execution of the settlement documents. Id., 176 Vt. at 165-166, 845 A.2d at 330-331.
With regard to the fourth factor, the appeals court determined that because the lease is a contract
for an interest in land and subject to the Statute of Frauds, it must be in writing. Id., 176 Vt. at
166, 845 A.2d at 331. Similarly, the court posited that because the settlement agreement
contained numerous and specific terms governing the detailed operation of the slate quarry and
included obligations lasting for several years it warranted the expectation of a writing. Id. Thus
the court reversed the order enforcing the settlement agreement and remanded the case.
C.
Definite Terms
To establish an enforceable agreement it is not enough that the parties intended to contract. The
nature and extent of the agreement’s obligations must be certain. That is, are the terms
sufficiently definite to be specifically enforced? Channel Home Ctrs. v. Grossman, 795 F.2d
291, 298-99 (3d Cir. 1986); Restatement (Second) of Contracts § 33 (1981) (“The terms of a
contract are reasonably certain if they provide a basis for determining the existence of a breach
and for giving an appropriate remedy.”).
A settlement agreement may fail because there are ambiguities and undetermined matters that
render it impossible to understand and enforce. Compare Lombardo v. Gasparini Excavating
Co., 385 Pa. 388, 123 A.2d 663 (1956) (holding that “there was no agreement or even discussion
as to any of the essential terms of the alleged bargain such as time or manner of performance,
price to be paid, or the like.”), with American Eagle Outfitters, 584 F.3d at 585 - 586 (holding
that the agreement reached by the parties “covered all the necessary bases – there are no
undetermined matters – and the agreement is not impossible to understand). Ambiguities
relating to the nature and extent of an agreement’s obligations (no accord over the necessary
components of a deal) must be contrasted with the situation where the parties have covered all of
the necessary bases (there are no undetermined matters) and any ambiguity consists of contract
interpretation. Disputes over the meaning of a given phrase (interpretive ambiguity) do not go to
whether a contract is enforceable, but, rather, who (judge/jury) must decide what the clause
means. American Eagle Outfitters, 584 F.3d at 585 (holding that if any ambiguity existed in the
meaning of certain clauses, “it is the more garden-variety type of ambiguity relating to
contractual interpretation”).
Joy Technologies, Inc. v. North American Rebuild Co., Inc., C.A. No. 05-1066, 2006 LEXIS
55286 (W.D. Pa August 9, 2006) exemplifies a case in which there was no accord over the
necessary components of the deal. The underlying dispute involved an action for trademark
infringement and unfair competition. Plaintiffs contended that defendant infringed their
trademarks. The parties attempted to settle their dispute through settlement discussions and
correspondence. Based on those, Defendant filed a motion to enforce the settlement.
Defendant contended that the trademark/unfair competition case was settled in accordance with
the terms of a May 18, 2006 letter sent by plaintiffs' counsel to its counsel, which actually
focused on another case in which plaintiffs and defendants were involved. That letter stated:
13
Joy is not prepared to settle the trademark action without (1) an acknowledgment
that NARCO built the shuttle car involved in the Troy New accident; (2) an
acknowledgment that any shuttle car falling within the scope of paragraphs 2 and
3 of your email constituted a NARCO-made vehicle; and (3) an indemnification
of Joy for fees and costs associated with the Troy New personal injury case . . .
[but] Joy is willing to waive its fees and costs associated with the Troy New case
if NARCO agrees to dismiss Joy on or before May 26, 2006.
Id. at *1 - *2. Defendant did not accept this offer by the May 26, 2006 deadline. What followed
were telephonic and electronic mail communications between the parties’ counsel regarding,
among other things, whether the terms of the May 18th letter were still available. An e-mail from
defendant's counsel indicated that his client was accepting the terms of the May 18th letter, which
he summarized as follows: "`that Joy will be dismissed from the New case and all cross claims in
that action dropped, that the Joy Trademark case against NARCO will be dismissed with each
side bearing their own costs and legal expenses and that the parties will move to secure an
agreement which reflects terms similar to those negotiated in Phillips.’" Id. at *3. When a
representative of plaintiffs finally became involved, he did not agree to any settlement, he noted
that the May 26th deadline had been missed, and he said that he would discuss the matter with
his outside counsel. Although the parties attempted to agree on a "general framework" to settle
the trademark case, they were unable to do so and settlement communications broke off.
On route to its finding that the terms of the alleged settlement agreement were indefinite, the
court initially focused on the fact that the terms of the May 18th offer letter from plaintiffs to
defendant did not match the terms defendant’s counsel accepted. By way of example the court
pointed out that defendant's counsel stated one of the settlement terms to be enforced (he claimed
to accept) is that "the Joy trademark case against NARCO will be dismissed with each side
bearing their own costs and legal expenses." This term, however, was not mentioned in the May
18th letter. Id. Additionally the May 18th letter did not discuss how costs and fees associated
with the trademark case would be handled. It only addressed costs associated with the Troy New
case. Id. The court went on to state that although the May 18th letter required that certain actions
be taken with regard to the Troy New case before plaintiff would settle the trademark action, it
failed to give any terms for settlement of the trademark case. Id. at *7. Thus, the court reasoned,
the trademark settlement could be virtually anything - dismissal, with no money exchanged;
dismissal, with money exchanged; dismissal, with restrictions on future use of plaintiffs'
trademarks; acceptance of a default judgment. Id. “Put simply, were one party to come to this
court accusing the other party of breaching the settlement agreement, we could not resolve the
dispute because we would not be able to determine what the agreement required.” Id.
Thus, where courts find that material terms in an alleged agreement are not sufficiently definite
to be specifically enforced, they have refused to enforce such an agreement. But the fact that
ancillary terms remain to be resolved will not defeat enforcement.
D.
Beware of Well-Meaning Statutes and Rules
In addition to the traditional principles of contract law that apply to determine the enforceability
of settlement agreements, states legislatures and courts have promulgated statutes and rules
14
generally intended to encourage enforceable settlements, but they also can be determinative of
the result achieved. Thus, if practitioners are not aware of them, or they are not correctly
followed, a settlement may be compromised. Two examples are mentioned here.
In Contractor Success Group, Inc. v. Service Thrust Organization, Inc., 681 So. 2d 212 (1996),
the issue before the Court of Civil Appeals of Alabama was whether certain statements made by
one of three plaintiffs during settlement negotiations, agreeing to a proposed settlement
agreement, were sufficient to bind all three plaintiffs where the settlement agreement was never
signed by plaintiffs or their attorneys. The court applied Alabama Code §34-3-21 (1975),
governing the enforcement and validity of settlement agreements at the trial level. Id. at 215.
That statute provided: “[a]n attorney has authority to bind his client, in any action or proceeding,
by any agreement in relation to such case, made in writing, or by an entry to be made on the
minutes of the court.” The court interpreted this to mean that an oral settlement agreement is
enforceable in Alabama only if it is made in open court or during a pretrial conference. Id. The
record was clear that the oral agreement at issue was neither made in open court or during a
pretrial conference. Id. Also, plaintiffs’ counsel did not sign the written copy of the settlement
agreement. Thus, although under traditional contract principles the oral agreement may have
been an enforceable agreement, because it did not comport with section 34-3-21, the court held
that the agreement was not enforceable. Id.
Another legislative initiative mentioned earlier is Cal. Civ. Proc. §664.6. This statute sets forth
an expedient means for enforcing settlement agreements, as well as providing direction to
counsel and the courts as to when the summary enforcement procedure is appropriate. Under
§664.6, a court may enter judgment on a settlement, and retain jurisdiction to enforce, when the
parties "stipulate, in a writing signed by the parties outside the presence of the court or orally
before the court, for settlement of the case." The statute requires affirmative participation by the
parties to avoid imprudent agreements, impress on the parties the seriousness and finality of the
decision to settle, and minimize conflicting interpretations of the settlement terms. As the cases
interpreting the statute have shown, the benefit to be gained by the statute is realized only by
closely adhering to it.
For example, it is clear that all parties have to either sign the settlement agreement or be in court
when it is put on the record. The term “party” has been interpreted literally. An attorney for a
party cannot sign the settlement agreement for the client-party. See Levy v. Superior Court, 10
Cal. 4th 578, 586 (1995). Nor, for example, can an agent of various defendant parties who had
agreed in writing and on the record to the settlement, bind its principals under §664.6. See Gauss
v. GAF Corp., 103 CA4th 1110 (2002). Similarly, where counsel or the court only obtain a
token statement of agreement or assume a party’s consent from a nod of the head, recent cases
suggest that such a settlement under §664.6 may be vulnerable because the nodding party did not
provide enough evidence that the other party sufficiently understood and/or agreed to the
material terms. The test is “whether (1) the material terms of the settlement were explicitly
defined, (2) the supervising judicial officer questioned the parties regarding their understanding
of those terms, and (3) the parties expressly acknowledged their understanding of and agreement
to be bound by those terms." See In re Marriage of Assemi, 7 Cal. 4th 896, 911 (1994).
15
IV.
Authority to Settle
Like other agreements, settlement agreements are vulnerable to attack on grounds such as lack of
agreement (discussed above), duress, coercion, fraud, misrepresentation and mistake. Discussed
briefly here is another potential defense – lack of authority. That is, a party may defend against a
motion to enforce a settlement agreement by arguing that his attorney did not have the authority
to settle on his behalf.
Insofar as the relationship between an attorney and a client is one of agency, in which the client
is the principal and the attorney is the agent, an agent may bind the principal if he has the
requisite authority from the principal. There are differences amongst jurisdictions regarding
what authority an attorney needs to bind a client in a settlement. In Pennsylvania for example,
the law is “clear that an attorney must have express authority to settle a cause of action for the
client." Rothman v. Fillette, 469 A.2d 543, 545 (Pa. 1983) (citing Local No. 2, Int'l Org. of
Masters v. International Org. of Masters, 318 A.2d 918 (Pa. 1974)); Senyshyn v. Karlak, 299
A.2d 294 (1973). Express authority empowers an attorney to settle a client's claim; it does not
arise merely from the fact of representation, but must be the result of explicit instructions
regarding settlement. E.g., Senyshyn, 299 A.2d at 297 (quoting Starling v. West Erie Ave. Bldg.
and Loan Ass'n, 3 A.2d 387, 388 (1939)); see also Bennett v. Juzelenos, 791 A.2d 403, 408 (Pa.
2002) (“The ordinary employment of an attorney to represent a client with respect to litigation
does not confer upon the attorney the implied or apparent authority to bind the client to a
settlement or compromise, and the attorney cannot do so in the absence of express authority.”).
In other jurisdictions, an attorney may bind his client to a settlement with actual authority, which
is that authority a principal expressly grants to, or impliedly confers on, an agent because it is
usual, necessary and proper to achieve the object of the express authority granted to the agent.
See Caballero, 92 P.3d at 1079; see also Rohm & Haas Electronic Materials, LLC, No. 06-297 GMS, Memo. at 12 (holding that defendant’s counsel entered into a binding settlement
agreement and stating that under Delaware law “`an attorney of record in a pending action who
agrees to a compromise of a case is presumed to have lawful authority to make such an
agreement’”); Superglass Windshield Repair, Inc., 233 Ga. App. 200 at 201, 504 S.E.2d at 40
(holding that defendants’ counsel entered into a binding settlement agreement and stating that
under Georgia law “`an attorney of record has apparent authority to enter into an agreement on
behalf of his client and the agreement is enforceable against the client by other settling parties’”).
The Caballero case mentioned above involved a suit seeking specific performance of an alleged
oral agreement that was made during the course of a mediation session. The respondents alleged
that the appellant’s attorney entered into a binding settlement agreement on appellant’s behalf.
The appellant contended his attorney lacked authority to enter into the agreement and asserted
that the agreement was thereby unenforceable. The district court found an enforceable
agreement existed and the Supreme Court of Idaho affirmed. The district court relied on two
main facts to show that appellant had express authority: (1) appellant left before the mediation
ended but he knew that the ground rules required someone with settlement authority to be
present throughout the mediation; and (2) while leaving appellant stated something to the effect
of, “I’m leaving, [Jones], you handle it.” Id. at 1080. The court concluded that the
representations of appellant’s attorney, alone would not have been sufficient to prove that
16
appellant expressly granted him actual authority, but his testimony, the mediator’s testimony that
he understood appellant’s attorney had authority to settle the case and inferences from the
surrounding circumstances were sufficient.
V.
Enforcing Mediated Settlements 8
As discussed above, a court’s inquiry into whether a settlement agreement constitutes an
enforceable agreement is generally fact intensive (e.g., Did the parties intend to be bound? What
are the terms of the agreement? What did the parties mean by a term?). Where a settlement is
derived from parties mediating their dispute, an evidentiary hearing may potentially include
testimony regarding communications and events from the mediation. Thus, enforcing a mediated
settlement agreement creates a tension between the need to develop facts as to what transpired at
the mediation and the need to preserve the confidentiality of the mediation proceedings. Should
information exchanged in a mediation session be permitted as evidence at evidentiary hearings
on motions to enforce and should mediators be compelled to testify at such hearings?
Courts have recognized the importance of maintaining mediation confidentiality for example, to
encourage participants to discuss matters in an uninhibited manner for purposes of settlement.
Likewise, the public’s confidence in using mediation is fostered if people have confidence that
the mediator will not take sides or disclose their statements in future legal proceedings. While
courts often acknowledge the importance of confidentiality to the mediation process, courts
differ regarding how they treat confidential mediation communications from the extremes of
freely admitting whatever evidence the parties want to present, to barring all evidence, and
places in between. The same is true for mediator testimony. Some courts freely admit it and
heavily rely on it, while other courts prohibit its use.
In prohibiting confidential mediation communications and mediator testimony courts often rely
on governing rules and statutes relating to their mediation programs or admissibility of evidence,
for example, to exclude both. In jurisdictions where the Uniform Mediation Act has been
adopted, the UMA provides a mechanism for protecting the confidentiality of mediation, and
specifies the limited exceptions based on overriding policy interests. For example, Section 4 of
the UMA protects mediation confidentiality by providing that a mediation communication is
privileged and is not subject to discovery or admissible in evidence in a proceeding unless
confidentiality is waived. Section 6 of the UMA provides the exceptions to the privilege
including a written agreement signed by all parties. Oral settlement agreements are not excepted.
The UMA also provides for an exception to the privilege that would operate to cover claims for
rescission or traditional contract defenses to the enforceability of settlement agreements (e.g.,
fraud, mistake, duress, coercion, and incompetence). Section 6(b)(2) of the UMA provides an
exception (allows evidence of the mediation proceeding to be presented) where it is necessary to
resolve contract law claims that put in issue whether the settlement should be enforced but only
8
See the following articles for more detailed treatment of the enforcement of mediated settlement agreements: Ellen E. Deason,
Enforcing Mediated Settlement Agreements: Contract Law Collides with Confidentiality, 35 U.C. Davis L. Rev. 33 (2001 –
2002); Edna Sussman, A Brief Survey of US Case Law on Enforcing Mediation Settlement Agreements Over Objections to the
Existence or Validity of Such Agreements and Implications for Mediation Confidentiality and Mediator Testimony, IBA Legal
Practice Division, Mediation Committee Newsletter 32, 34-35 (April 2006).
17
after a careful in-camera analysis. Pursuant to Section 6(c), a mediator cannot be compelled to
give evidence. Thus, while evidence by others can be obtained pursuant to this exception, the
mediator cannot be forced to testify.
VI.
Conclusion
In Gatto v. Verizon Penn., Inc., No. 08-858, 2009 U.S. Dist. LEXIS 86601 (W.D. Pa. September
22, 2009) the court had before it Verizon’s motion to enforce a settlement agreement and Gatto’s
motion to deny it. Settlement negotiations that began in a mediation session culminated when
Verizon accepted Gatto’s monetary counteroffer in exchange for Gatto agreeing to certain nonmonetary terms. Gatto was having second thoughts about the settlement. She claimed that
Verizon had made a counteroffer rather than accepting her offer. Gatto told her attorney that he
was to call Verizon’s attorney the next day to inform Verizon that she never authorized the last
monetary demand, and she never executed the settlement agreement Verizon prepared. With that
Gatto’s relationship with her attorney began to break down.
The court held an evidentiary hearing on the motions, namely whether Gatto’s attorney had
Gatto’s express authority to enter into a settlement agreement on the essential terms. In
attempting to deal with conflicting evidence from both parties (namely Gatto and her attorney)
on the issue of express authority, the court noted that “[t]here were substantial inconsistencies in
both witnesses’ testimony and neither witness was viewed as being especially credible with
respect to the issue of express authority.” Id. at 21. The court further commented: “At the very
least there was a breakdown in the clarity of the communications between attorney and client.”
Id. *21-*22. In conclusion, the court stated: “the scales of justice remain evenly balanced on the
issue of whether Gatto expressly authorized the settlement and Verizon failed to meet its burden
of proving that Gatto’s attorney had the express authority of his client when he settled the case
with Verizon for $50,000.” Id. at *24. The court denied Verizon’s motion to enforce.
The opinion ends with two lessons worth remembering: “This case is a good example of why
the final proposed terms of a mediation offer should be memorialized in writing and for
subsequent offers to be communicated in writing between counsel and between counsel and his
or her client. The difficulties encountered in this case would likely not have existed had the
terms been clearly communicated in writing.” Id. at 24-25.
18