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You have most likely walked out of a mediated settlement conference at which the shorthand version of the settlement put to paper by the lawyers and the mediator stated that there would be a later, more detailed agreement. And maybe, the next day, as work began on the "more formal agreement to be prepared later," you and your opposing counsel putting the more detailed pen to paper sank into disagreement on the words which should be used to finalize the settlement.
So, did you have a final and binding deal or not based on the document signed at the mediation? You most likely did, if you look at Judge McGuire's Order earlier this month in McCarthy v. Hampton, 2015 NCBC 67 [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. The parties in that case had engaged in a mediation which resulted in a signed document titled "Essential Terms of Mediated Settlement Agreement with Formal Agreement to be Prepared Later." That same day, the mediator notified the Business Court that the parties had reached a settlement and that an upcoming hearing in the case would not be necessary. Defendant's counsel followed up informing the Court via email that the "[p]arties successfully mediated and settled all claims" at the mediation and that the parties were finalizing settlement documents. Counsel for Plaintiff, copied on the email, did nothing to contradict opposing counsel's email.
Thereafter, the parties exchanged drafts of the "formal agreement" contemplated by the "Essential Terms Agreement" executed at the mediation (which the Court referred to as the "ETA"). Those discussions quickly broke down when issues not specifically addressed in the ETA arose and could not be resolved.
Plaintiff said that the Essential Terms Agreement was an unenforceable "agreement to agree," in his opposition to a motion to enforce the settlement. In response, Judge McGuire distinguished an NC Supreme Court decision which found an agreement to be insufficiently final to be binding:
nothing on the face of the ETA indicates that this document was simply intended to outline the desires of the parties. Whereas the language at issue in Boyce [v. McMahan, 285 N.C. 730 (1974) [lexis.com] [Lexis Advance]] provided that the parties to that document 'desire to enter into a preliminary agreement setting out the main features as to the desires of the both parties,' id, the ETA provides that '[t]his agreement is . . . to memorialize essential terms of the mediated settlement agreement' in this action.' Thus, that the ETA on its face purports to be an agreement as to the terms therein, without any qualification that it is merely a preliminary agreement or a recitation of the parties' desires, distinguishes this matter from the facts of Boyce.
The argument that the ETA was ineffective because it was subject to the condition subsequent of a more formal settlement document also fell on unreceptive ears. Judge McGuire said:
nothing in the ETA indicates that the agreement memorialized therein was conditioned on the execution of a final agreement. Aside from simply indicating that one would ultimately be prepared, [the] ETA makes no other reference to a more formal agreement, much less any reference that raises an issue of fact whether the parties intended that the ETA not be a binding agreement until confirmed in a future writing.
After that, Judge McGuire paced through seven terms which the Plaintiff said were "material" but had not been addressed by the ETA. Those ranged from how the intangible assets of the medical practice which was the subject of the lawsuit would be disposed of to what amount of Plaintiff's attorney's fees would be paid by the practice.
Some of the sticking points in the post-mediation negotiations reflected terms different than those contained in the ETA. As Judge McGuire put it, "[t]he fact that plaintiff later changed [his] mind does not render the settlement agreement unenforceable." Order ¶29 (quoting Smith v. Young Moving & Storage, Inc., 167 N.C. App. 487, 494 (2004)). Or, as he said later, "that Plaintiff now seems dissatisfied with the agreement reached does not render the ETA unenforceable." Order ¶30 (emphasis added).
The other terms which the Plaintiff (who was the party seeking to evade enforcement of the ETA) said were material, but not addressed at the mediation were found by the Court to be embraced by the terms of the ETA, or not material at all. The Court granted the Defendant's Motion to Enforce Mediated Settlement Agreement.
What should you do if you want to leave a mediation with the ability to avoid a settlement when you suspect that you won't be able to agree on the terms of a final settlement agreement because of an unreasonable and nitpicking opposing counsel? There's no good answer. You might try saying in the document prepared by the mediator that the settlement will not be binding until a written agreement to be negotiated later is signed by all parties. Good luck with getting a decent mediator to let you go home with such an open-ended agreement. And calling the mediation document an "Agreement as to Non-Essential Terms" would be silly, it would defeat the point of a mediation.
This is the second time in the last two months that the Business Court has refused to allow a party signing off on a settlement document at mediation to escape its terms. The first case was Judge Gale's decision in DeCristoforo v. Givens, 2015 NCBC 53 [lexis.com] [Lexis Advance], which I wrote about in June.
Read other articles on the North Carolina Business Litigation Report, a blog for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.
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