Aside from the attorney-client privilege, one of the most important and often used privileges afforded by the Evidence Code is the mediation privilege. The mediation privilege allows parties to attempt to resolve their disputes by allowing them to fully and frankly discuss the details of their cases with the knowledge that the discussions can’t be introduced as evidence in future procedings.  Unfortunately, the scope of the privilege can sometimes cause a few headaches, especially in the context of enforcing a settlement agreement. 

The “mediator’s proposal” is a settlement technique gaining popularity these days in cases that reach a stalemate in negotiations.  The mediator proposes a settlement amount which each party confidentially accepts or rejects. This process oftentimes includes an extra day or two to allow insurance adjusters or other decision makers to obtain settlement authority. Even in mediations without a mediator’s proposal, tentative settlement agreements are often reached pending final authority from an insurer or governmental agency; in other cases, mediators continue negoations over the phone after the conclusion of the mediation. In each of these situations, the final acceptance of the offer is usually in the form of an oral agreement between the attorneys and, even when confirmed in writing, the writing is rarely signed by the actual parties.

If a party later revokes a settlement agreed to by the attorneys that was not reduced to a writing actually signed by the parties, Evidence Code §1118 would preclude admission of an oral agreement and Evidence Code §1123 would preclude admission of any writings in a subsequent action to enforce the settlement. Consequently, agreements among the attorneys, even when confirmed in writing, are simply not enforceable.

While it might seem paranoid to expect the worst, a brief review of case law on the issue suggest that revocations of settlement agreements are more common than we might think. For example, in Simmons v. Ghaderi (2006) 44 Cal.4th 570, a doctor gave written consent to her insurer to settle a malpractice case against her for $125,000.  While the mediator was busy preparing a settlement agreement, the claims adjuster told the doctor that the plaintiff had accepted $125,000 to settle the case. The good doctor responded by saying, “Good, because I am revoking my consent.” Cases like Simmons and others (see, e.g., Regents of University of California v. Sumner (1996) 42 Cal.App.4th 1209 and Ryan v. Garcia (1994) 27 Cal.App.4th 1006) reaffirm the importance of reducing a settlement into an admissible and enforceable agreement as soon as possible after striking an agreement.

Exceptions to the Mediation Privilege

While there are a variety of exceptions to the mediation privilege (see Evidence Code §§1117 - 1124), this article will focus on Evidence Code §1123 and recent case law that may prove very helpful to parties intending to create enforceable settlement agreements reached after the conclusion of the formal mediation.

Evidence Code §1123 provides:

A written settlement agreement prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or protected from disclosure, by provisions of this chapter if the agreement is signed by the settling parties and any of the following conditions are satisfied:

(a) The agreement provides that it is admissible or subject to disclosure, or words to that effect.
(b) The agreement provides that it is enforceable or binding or words to that effect.
(c) All parties to the agreement expressly agree in writing, or orally in accordance with Section 1118, to its disclosure.
(d) The agreement is used to show fraud, duress, or illegality that is relevant to an issue in dispute.

Based on the plain language of Evidence Code §1123, written agreements between the attorneys without the signatures of the parties are simply inadmissible for the purpose of proving the existence of a settlement.  However, recent case law suggests that there may be a way of satisfying Section 1123 when parties are not immediately available to sign a settlement agreement upon reaching a resolution of a case.

Estate of Thottam

In Estate of Thottam,  B196933 (Cal. App. 8/13/08), three siblings were involved in a dispute over the distribution of their mother’s estate.  Before the mediation, they each signed an agreement stating that all discussions in the mediation “...shall not be used in any current or future litigation between us (except as may be necessary to enforce any agreements resulting from the Meeting)...” During the mediation, they created a chart that distributed various assets among them and each sibling signed and dated the chart and also initialed each item in their respective columns.

After mediation, attempts to formalize the mediated agreement proved unsuccesful and two of the siblings eventually denied an agreement was ever reached. A breach of contract action was then filed based on the signed chart.

During trial on the breach of contract action, the judge sustained objections to the admission of the signed chart based on the trial judge’s opinion that the chart did not satisfy Evidence Code §1123. As a result of excluding the chart, the judge ruled there was no breach of contract.

On appeal, the court observed that nothing in Evidence Code §1123(c) requires that a written agreement signed by the parties actually had to be contained in the settlement agreement itself. The court further found that Section 1123 doesn’t require that the agreement concerning disclosure needs  to be made at or after the time of the settlement. Based on these findings, the court concluded that the agreement between the parties concerning the admissibility of agreements reached during the mediation was effective. Although the court did not rule as a matter of law that the chart constituted an enforceable settlement agreement, it did find that the chart established the preliminary fact that the chart was a settlement agreement and should have been admissible as evidence of the agreement. The court concluded that the exclusion of the chart resulted in prejudice requiring reversal.

Ensuring Your Settlement Agreements are Enforceable

Estate of Thottam does not stand for the proposition that parties can effectively waive Evidence Code §1123. Rather, the court expanded the scope and application of Section 1123 to include any written agreements made concerning the admissibility of a signed settlement agreement. Consequently, if you intend to reach an enforceable agreement after a mediation, you must ensure that you obtain your client’s written consent to the agreement itself and to the enforceability and admissibility of the agreement.

When you are able to reach an agreement at mediation and the parties are all present, there should be little in the way of drafting an enforceable and admissible agreement. Most professional mediators use preprinted forms which include specific terms that satisfy Section 1123 in order to allow them to be admissible and enforceable.  Even so, it is prudent to review preprinted form language to ensure that it actually does contain the required terms. If it doesn’t, make sure you add that language to the form.

If the case you are resolving is too complicated to fit onto a preprinted form and the parties and mediator draft an agreement from scratch, make sure to include enforceability and admissibility language in the settlement agreement.

Now comes the issue of settlements reached after mediation.  In situations in which a mediator’s proposal is made or the mediator agrees to continue negotiations after the end of the formal mediation, consider creating a writing before leaving the mediation. A brief statement for a mediator’s proposal which satisfies Evidence Code §1123 might read: “The parties agree that if both parties accept the mediator’s proposal, signed acceptance of the proposal will be admissible evidence of an agreement.” Alternatively, if the mediator agrees to continue telephonic negotiations, consider something like: “The parties agree that if continued negotiations result in a settlement, signed acceptance of the settlement will be admissible evidence of an agreement.”  In order to simplify the terms of any subsequent writing, you may also want to include other material terms, such as an agreement to reduce any future agreement into a formal release, the inclusion of a Civil Code §1542 waiver and that both parties are responsible for their own fees and costs. If you are able to draft a more complete “pre-agreement” agreement, then the only thing left for the parties to do is to acknowledge acceptance of a dollar amount in a signed writing.

Confer with the opposing attorney and explain the importance of having the clients themselves acknowledge acceptance of the settlement in a signed writing. If the proposal is then accepted, make sure your client and the opposing party both sign some form of a writing stating that they are accepting the material terms of the settlement.  Ideally, both parties should sign the same acknowledgment of acceptance (even if in counterparts). However, if you were able to complete the “pre-agreement,” then you might only need to get your client to drive to a copy center to scrawl out and sign a fax cover sheet stating: “I agree to settle my entire case against Mr. Tortfeasor for $50,000.” If both parties sign acknowledgments, then these writings, combined with the earlier pre-agreement, should form an enforceable and admissible settlement agreement.

More andmore cases are being resolved through continued mediation efforts after the conclusion of formal mediation sessions.  In light of this development, it is important to recognize the obstacles that must be overcome to obtain an enforceable and admissible agreement. Hopefully, you will never be faced with the need to enforce an agreement.  However, by consistently following the steps outlined above, if you do need to enforce an agreement, you should be able to resolve the issue in an expedited manner.

Thorsnes Bartolotta McGuire
2550 Fifth Ave., 11th Floor, San Diego, CA 92103, 619-236-9363