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California Supreme Court Issues Key Mediation Decision: If you want a binding settlement in mediation, document it properly.

July 30, 2008

The California Supreme Court recently issued its latest opinion in a line of decisions dealing with mediation, squarely holding that if a party desires to have a binding mediation settlement, the matter must be properly documented, according to statutory procedures, or else it will not be enforced by court order.  Simmons v. Ghaderi, 08 CDOS 9154 (2008).

The Simmons case involved an underlying medical malpractice claim, but the ruling applies to mediation in all types of cases, including employment disputes.  During the litigation, the parties agreed to engage in mediation in an effort to resolve the case.  As part of the mediation, they signed the standard mediation confidentiality agreement.  In addition, the defendant doctor signed a document giving settlement authority to her insurance carrier, but also stating that the doctor could revoke the authority at any time, provided that the revocation was in writing.

During the mediation, the carrier offered to settle the case for $125,000.  The plaintiff agreed and the mediator wrote up the agreement.  The plaintiff signed it.  The doctor, however, orally revoked her settlement authority and left the mediation.  The doctor later sent a letter revoking the settlement authority.

The plaintiff filed a motion to enforce the settlement on the grounds that the parties had reached an oral agreement to resolve the dispute.  The motion was based on California Code of Civil Procedure § 664.6, which allows a court to enforce settlement agreements that are made “in a writing signed by the parties outside the presence of the court or orally before the court.”  The motion was supported by declarations recounting what occurred at the mediation and attaching a copy of the settlement agreement (signed by the plaintiff only). 

The defendant doctor did not dispute the facts but instead argued as a legal matter that the settlement did not meet the requirement of section 664.6.  The defendant doctor argued that there was no signed agreement; that she had revoked her authority; and that her carrier had no power to agree to the settlement without her consent.

The trial court denied the motion, but suggested that the plaintiff amend her underlying malpractice complaint to include a cause of action for breach of oral contract.  The plaintiff did so and that claim proceeded to trial.  In her trial brief, the defendant doctor, for the first time, some 15 months after the conclusion of the mediation, invoked mediation confidentiality as part of her defense.  That is, the doctor argued that information about what transpires during a mediation is confidential and is inadmissible in court proceedings.

In a bench trial, the court concluded that the defendant doctor’s agent, acting within his authority, had entered into a binding settlement prior to the doctor’s revocation of consent.  The court ordered specific performance of the settlement agreement.  The court of appeal affirmed in a 2-1 decision.

The California Supreme Court granted a hearing and reversed.  The Court ruled that the mediation confidentiality statutes (Cal. Evidence Code §§ 1119 et seq.) are supported by strong public policies favoring mediation and the confidentiality of what happens in mediation.  Statements made in mediation, and agreements reached in mediation, are not admissible in court unless the parties specifically agree in writing to that effect.

Moreover, the Court noted that the confidentiality statutes are to be interpreted broadly and exceptions to confidentiality narrowly construed.

One such exception considered by the Court was whether a party could impliedly waive confidentiality – the argument was that the defendant doctor had done precisely that by opposing the plaintiff’s motion to enforce the settlement without initially raising the mediation confidentiality privilege.  The Court rejected this approach.  In order for there to be a waiver of mediation confidentiality, the waiver must be part of an express agreement to that effect.  The Court made clear it will strictly enforce this rule.

The Court ultimately concluded, therefore, that it could not enforce the alleged settlement, and that the plaintiff remained free to pursue her malpractice claim.

The lesson for California employers is that if you want a mediated settlement to be binding, it must be properly documented and signed by both parties.  And, settlement agreements reached during mediation are not admissible in court unless the parties specifically stipulate to that effect in their mediation agreement, as required by the mediation confidentiality provisions of the California Evidence Code.