BY ROBERT JACOBS
The posturing, negotiations, drama and stress are over. The mediation was successful. You’ve settled the case.
Now what?
Nobody wants to settle a case only to have the settlement fall apart later on. Everybody wants a settlement that sticks. But no settlement is bulletproof.
We all know what happens. Parties settle their case – and then (assuming no confidentiality agreement) they go home and talk about it with their their parents, their children, their siblings or their friends. Sometimes these are happy conversations. Other times not so much. Buyer’s remorse (and settler’s remorse) can be a real thing.
What happens when someone regrets settling a case because after talking it over they think they paid too much – or accepted too little? What do they do then?
Lawyers are paid (in part) to dissect documents and look for loopholes and imperfections. We are paid to fight, and if our client wants to back out of a settlement, then we may end up placing a magnifying glass over the written settlement agreement in an effort to break it up. After all, a settlement agreement is – well – an agreement, which means it’s a contract. And as we all know, any contract is subject to possibly being broken.
So how do you wrap up your settlement agreement in “armored legalese” so that if it’s attacked, any stones or arrows just bounce off of it instead of making a major headache for you and your clients?
Know and follow key rules that govern the admissibility and the enforceability of settlement agreements that are signed at mediation. Read on.
Make it Admissible. In the event of a dispute, the world’s most bulletproof settlement agreement is useless if it’s not admissible in court. Do attorneys or their clients ever regret signing a settlement agreement and then seek to thwart its enforcement based on inadmissibility? The answer is a clear “YES.” [1] Evidence Code §1119(a) provides that nothing said in the course of a mediation is admissible, so an oral settlement agreement at mediation isn’t worth the paper it’s not written on. Evidence Code §1119(b) provides that any “writing” prepared in the course of a mediation is inadmissible. A settlement agreement is unquestionably a “writing” and is therefore made inadmissible by this section unless an exception applies; Evidence Code §1123 provides that exception. Section 1123 provides that a “written settlement agreement” prepared “in the course of, or pursuant to, a mediation” isn’t made inadmissible by the mediation sections of the Evidence Code if the following requirements are met:
First, the settlement agreement must be signed “by the parties.”[2]
Second, the written settlement agreement must satisfy any of the following three criteria[3]:
(a) The settlement agreement provides that it is admissible or subject to disclosure (or words to that effect)[4]; or
(b) The settlement agreement provides that it is “enforceable” or “binding” (or words to that effect); or
(c) All parties to the settlement agreement expressly agree in writing, or orally, to its disclosure. However, such an oral agreement must satisfy each of the following four requirements:
- The oral settlement terms must be recorded by a court reporter or by other “reliable” means of audio recording, and
- The terms of the oral agreement must be recited on the record in the presence of the parties and the mediator, and the parties must express on the record that they agree to the terms, and
- The parties expressly state on the record that the agreement is enforceable or binding, or words to the effect, and
- The recording must be reduced to writing and the writing must be signed by the parties within 72 hours after it is recorded[5].
Wow! Those are a lot of requirements for enforcing an oral settlement agreement. Miss any one of them and you’re out. Parties might orally settle a case on the record if they are at the courthouse for a settlement conference, but virtually all mediated cases are settled by written settlement agreement.
Are these real considerations? Will a court really refuse to admit a hard-fought signed and written settlement agreement if the other side backs out and refuses to perform?
The answer is unquestionably yes. The legislature and the courts mean business about these admissibility requirements. See Fair v. Bakhtiari (2006) 40 Cal. 4th 189, 197 where the Supreme Court declined to enforce a written settlement memorandum because it failed to incorporate all of the elements which Evidence Code §1123 requires in order to create an exception to the nearly absolute ban on admissibility of documents prepared at mediation which is established by Evidence Code 1119. Not only was the settlement agreement in Fair signed by the parties and the mediator, it also included an arbitration provision. In holding the settlement agreement inadmissible, the Supreme Court held that such an arbitration provision by itself is insufficient to show that the parties intended to be bound by the settlement agreement. Instead, “a writing must directly express the parties’ agreement to be bound by the document they sign” and “words to that effect” may be insufficient if they don’t clearly show this express intent to be bound.
The upshot? Either include one of the above-described elements of 1123(b) in your settlement agreement or risk having it deemed inadmissible in subsequent court proceedings (and it’s clear that an inadmissible settlement agreement is unenforceable).
Are there other considerations to enforceability of settlement agreements?
Yes. “A settlement agreement is a contract, and the legal principles [that] apply to contracts generally apply to settlement contracts.” Stewart v. Preston Pipeline Inc., (2005) 134 Cal. App. 4th 1565, 1585. A settlement agreement’s “validity is thus ‘judged by the same legal principles applicable to contracts generally.’” Id. The required elements of a valid, binding contract include consideration and mutual assent, but a full discussion of the elements and enforceability of contracts is outside the scope of this article. Instead, this article will focus on only one issue in the enforceability of written settlement agreements: mutual assent as manifested by signatures.
Mutual assent to most written contracts is most frequently expressed by having the contracting parties sign the contract. But mutual assent can be manifested in other ways so that parties can in some situations agree to and be bound by a contract through behavior other than affixing their signature to the contract document itself. In Stewart v. Preston Pipeline Inc. (2005) 134 Cal. App. 4th 1565, 1584 a mediation concluded with a written settlement agreement that was signed by the plaintiff, plaintiff’s counsel and defense counsel (but not by defendant). The defendant thereafter repudiated the settlement agreement by claiming 1) it was inadmissible under Evidence Code 1119 as a written document prepared in the course of mediation and 2) it was signed only by his attorney and not by himself. Litigation was filed and an appeal was taken. The court of appeal held the signature of defendant’s counsel was sufficient to qualify the settlement agreement for the mediation confidentiality exclusion provided by Evidence Code 1123 so that it was admissible. Stewart v. Preston Pipeline Inc. supra, 134 Cal. App. 4th at 1583-1584. The Stewart court noted that in order to be enforceable under C.C.P. §664.6, a settlement agreement must be signed by each of the parties personally (and not by their attorney). Id. at 1584 citing Levy v. Superior Court (1995) 10 Cal. 4th 578, 584. The Stewart court then further cited Levy for the proposition that settlement agreements which do not qualify for enforcement pursuant to C.C.P. §664.6 because they are not signed by the litigants personally may nevertheless qualify for enforcement by alternative methods such as by motion for summary judgment, a separate suit in equity or an amendment of the pleadings. Stewart v. Preston Pipeline Inc., supra at 1584. By so holding, the Stewart court expressly confirmed that impediments to enforceability under C.C.P. §664.6 (such as a lack of the litigants’ personal signatures) may be purely procedural in nature such that some settlement agreements that may not satisfy the necessary elements for enforcement pursuant to C.C.P. §664.6 may nevertheless still be enforceable (via an alternative method).
Following a successful mediation many attorneys will include in the written settlement agreement a provision that the agreement may be enforced pursuant to motion under C.C.P. §664.6. The language of C.C.P. §664.6 provides that “If parties to pending litigation stipulate, in writing . . . for settlement of the case, the court . . . may enter judgment pursuant to the terms of the settlement.” In Levy v. Superior Court (1995) 10 Cal. 4th 578, the Supreme Court held that the word “parties” as used in C.C.P. §664.6 means the litigants themselves and not their attorneys. The Levy opinion thereby foreclosed enforceability of written settlement agreements through a §664.6 motion if the written settlement agreement was signed by anyone other than by the parties themselves. However, pursuant to Stewart a settlement agreement signed by an attorney (or by another authorized representative) may still be enforceable through court procedures other than a C.C.P. §664.6 motion[6].
The California Legislature recently amended C.C.P. §664.6 by broadening the definition of “parties” to include an attorney who represents a party. C.C.P. §664.6(b)(2). This amendment became effective January 1, 2021. By making this change the Legislature brought the enforcement procedures available through §664.6 more in line with effect of the Stewart decision (which expressly recognized the potential enforceability of a settlement agreement through means other than §664.6 when the agreement was signed by a party’s counsel instead of by a party). Now settlement agreements at mediation can be enforced pursuant to §664.6 if for whatever reason one of the parties is not personally present at the mediation (or is otherwise available to sign the settlement agreement) and the settlement agreement is signed by their attorney.
This new arrangement provides an opportunity for abuse. Sometimes the interests of a client and their attorney may differ; for several different reasons an attorney may be more interested in settlement than a client is. The possibility of such abuse is specifically addressed in the 2021 amendment to §664.6 by providing that an attorney who signs a settlement agreement without the client’s “express authorization” is subject to professional discipline. By including this provision the Legislatures strongly disincentivized California attorneys from making any rogue signatures on settlement agreements that they may otherwise be tempted to make.
This “hammer” of potential professional discipline may create a trap for the unwary practitioner. Attorneys won’t have a professional discipline problem with clients who never dispute their attorney’s signature on a settlement agreement at mediation. But what about a client who experiences “buyer’s remorse” and alleges they never authorized their attorney to sign a settlement agreement at mediation?
If an attorney signs a settlement agreement at mediation on behalf of a client, and if that client becomes unhappy and complains to the State Bar by claiming that the attorney signed the settlement agreement without express authority, what happens? Since C.C.P. §664.6(d) now expressly provides for attorney discipline, there’s a real chance the State Bar would investigate such a claim. If the settlement agreement signed by the attorney states that it’s intended to be binding (or otherwise qualifies for the confidentiality exceptions provided by Evidence Code §1123) then such a settlement agreement could properly be admitted into evidence by the State Bar court since it would qualify for an exception to the confidentiality provisions of Evidence Code §1119. Arguably the client’s statement to the State Bar would not be subject to the confidentiality provisions of §1119 because the client would be asserting a negative: i.e. “I never authorized the attorney to sign the settlement agreement” and Evidence Code §1119 only bars evidence of anything said at mediation. The client wouldn’t be relying on nor communicating anything said at mediation, but would instead be relying on a lack of something being said; therefore the client’s complaint may not be subject to mediation confidentiality under §1119. However, once the client has made an allegation against the attorney that the attorney was never authorized to sign the agreement, the burden of proof would naturally shift to the attorney, who would need show that the client expressly authorized the attorney to sign. But Evidence Code §1119(a) makes inadmissible anything that was said at mediation, even in an administrative adjudication (which would undoubtedly include State Bar proceedings). Evidence Code §1119(b) makes inadmissible any writing prepared in the course of a mediation. Evidence Code §1123 only provides exceptions for settlement agreements, so a written instruction from the client authorizing the attorney to sign the settlement agreement may also be inadmissible unless such a written instruction can be construed as a “settlement agreement.” It’s a conundrum. A State Bar court may construe §1119 differently, but under current case and statutory law there’s a real possibility that the attorney would be prevented in a State Bar court proceeding from introducing into evidence any client statement made at mediation authorizing the attorney to sign the settlement agreement. This mediation “statutory scheme . . . unqualifiedly bars disclosure of communications made during mediation absent an express statutory exception.” Provost v. Regents of University of California (2011) 201 Cal. App. 4th 1289, 1302 citing Foxgate Homeowners’ Association v. Bramalea California, Inc. (2001) 26 Cal. 4th 1, 15. “The Legislature decided that the encouragement of mediation to resolve disputes requires broad protection for the confidentiality of communications exchanged in relation to that process, even where this protection may sometimes result in the unavailability of valuable civil evidence.” Provost v. Regents of University of California (2011) supra at 1302-1303 (citing Cassel v. Superior Court (2011) 51 Cal. 4th 113, 136).
Attorneys who proceed to sign settlement agreements on behalf of their clients at mediation may want to give careful consideration as to whether or not their client is likely to claim that they didn’t authorize their attorney to sign the agreement. It’s not presently clear exactly how such attorneys may be able to defend themselves in State Bar proceedings should the client lodge a complaint with the State Bar.
After litigating for more than 30 years, Robert Jacobs now mediates challenging real estate, business, construction, personal injury, trust and probate cases. In 2020 he served as Chair of the Contra Costa County Bar Association ADR section and Co-Chair of the Alameda County Bar Association ADR section. Since 2017 he has served as one of the update authors for the CEB treatise Real Property Remedies and Damages and is a co-author of CEB Practitioner (Real Property). He holds an AV rating from Martindale-Hubbell and is a designated SuperLawyer. Mr. Jacobs received his mediator training from Northwestern University in Chicago, Illinois.
[1] See Fair v. Bakhtiari (2006) 40 Cal. 4th 189 for a reported case where counsel moved to block (and succeeded in blocking) enforcement of a settlement agreement on the basis of inadmissibility where the agreement was signed not only by the parties but also by the mediator. See also Stewart v. Preston Pipeline Inc. (2005) 134 Cal. Alp. 4th 1565 where a mediated settlement agreement was signed only by the plaintiff, the plaintiff’s attorney and the defendant’s attorney; the defendant didn’t sign it. After execution of the agreement the defendant tendered a settlement check which plaintiff refused on the basis that no settlement had been reached.
[2] Note that notwithstanding the language in Evidence Code §1123 the court in Stewart v. Preston Pipeline Inc. (2005) 134 Cal. Alp. 4th 1565 held a mediated settlement admissible under the facts of that case notwithstanding that it was signed only by plaintiff, plaintiff’s attorney and defendant’s attorney and was not signed by defendant. In Preston the court granted defendant’s motion to amend the answer to assert the settlement agreement and then granted defendant’s motion for summary judgment; the moving party had filed alternative motions to enforce the settlement agreement under C.C.P. §664.6 or by way of summary judgement; the court granted the defendant’s motion for summary judgment.
[3] A fourth grounds of admissibility is found at Evidence Code §1123(d) which allows a settlement agreement to be admitted for the purpose of showing fraud, duress or illegality that is relevant to an issue in dispute. However, this fourth grounds of admissibility does not provide that the settlement agreement may be admitted solely for purposes of enforceability, thereby leaving in question whether or not a settlement agreement could be admitted into evidence for purposes of enforcement if admitted solely under this fourth exception.
[4] The phrase “words to that effect” in Evidence Code §1123 have been judicially construed to mean that “a writing must directly express the parties’ agreement to be bound by the document they sign.” Fair v. Bakhtiari (2006) 40 Cal. 4th 189, 197.
[5] Evidence Code §1124.
[6] See Provost v. Regents of University of California (2011) 201 Cal. App. 4th 1289, 1295-1296 where the court held that a signature of a corporate officer isn’t necessarily required for enforcement of a settlement agreement under CCP §664.6 but that the signature of a duly authorized corporate employee may be sufficient. The court noted it would be unreasonable to expect a corporate officer of Ford Motor Company or Wal-Mart Stores, Inc. to sign every settlement agreement on behalf of those entities in order for such entities to avail themselves of the expedited enforcement procedures afforded by CCP §664.6. Stewart v. Preston Pipeline Inc. supra, at 1297.