How to Make Sure Your Mediation Agreement Is Enforceable

Mediation can be a quick and cost-effective means to resolve legal disputes. However, if your settlement agreement isn’t enforceable, all of these benefits will be lost…

Mediation can be a quick and cost-effective means to resolve legal disputes. However, if your settlement agreement isn’t enforceable, all of these benefits will be lost.

In New Jersey, a signed writing is essential for an enforceable mediation agreement. That means that if you reach a “handshake” deal during mediation, but don’t subsequently reduce the terms to writing and sign the written agreement, you can’t compel the other party to abide by its terms .

Bright-line Rule Requires Written Mediation Agreement

In Willingboro Mall, LTD. v. 240/242 Franklin Avenue, L.L.C., the New Jersey Supreme Court established a “bright-line rule” that parties to mediation in New Jersey must reduce their settlement agreement to writing in order for it to be enforceable. “[I]f the parties to mediation reach an agreement to resolve their dispute, the terms of that settlement must be reduced to writing and signed by the parties before the mediation comes to a close,” the court wrote.

The New Jersey Supreme Court further advised that in those cases in which the complexity of the settlement terms can’t be drafted by the time the mediation session was expected to have ended, the mediation session should be continued for a brief but reasonable period of time to allow for the signing of the settlement. The court also stated that it saw no reason why an audio- or video-recorded agreement would not meet the test of an agreement evidenced by a record signed by all parties to the agreement.

The New Jersey Supreme Court further held in Willingboro that mediation discussions can’t be used to prove an agreement was reached unless the parties waive the mediation privilege. “A settlement in mediation should not be the prelude to a new round of litigation over whether the parties reached a settlement,” the court wrote. “The signed, written agreement requirement — we expect – will greatly minimize the potential for litigation.”

Failure to Follow Bright Line Rule Renders Mediation Agreement Unenforceable

A recent Appellate Division decision highlights what can go wrong if both parties don’t sign the agreement in the wake of Willingboro. The court ruled that the sellers of two New Jersey nail salons were not bound by a draft settlement agreement that they later refused to sign.

The suit involved a dispute over the sale of two nail salons — Sharon Nails and Ceci Nails. The defendants made a $550,000 down payment and acquired possession of the salons, but the sales were not finalized after negotiations deteriorated. The plaintiffs filed suit, principally alleging breach of contract and breach of an agreement to purchase the nail salons. The defendants answered and filed a third-party complaint against Soon Wea Son, the manager of Ceci Nails, who resigned during the negotiations, and the new salon she opened, Graceful Nails of Brielle LLC, alleging contractual and tortious harm.

The parties voluntarily agreed to mediation. As a result of the mediation session, the mediator created a draft settlement agreement. Among other terms, the draft settlement provided that the plaintiffs would retain the $550,000 down payment and the defendants would retain possession of Sharon Nails but return possession of Ceci Nails, contingent upon Ceci Nails’ landlord consenting to assign its lease to plaintiffs by February 1, 2022.

 A few hours after the mediation ended, one of the plaintiffs informed her attorney she did not want to settle and did not sign the agreement, which was communicated to the defendants and the trial court. While the defendants took steps to move forward with the settlement, such as securing the lease assignment, the parties did not finalize the agreement by February 1, 2022, as required by the draft settlement. The defendants nonetheless sought to enforce the agreement, which both the trial court and the Appellate Division denied.

“The parties did not sign the draft settlement agreement and, therefore, it is unenforceable under Willingboro’s broad, bright-line rule,” the court wrote. The Appellate Division further held that Willingboro applies equally to all forms of mediation, rejecting the defendants’ argument that the decision did not apply to voluntary mediation. “In deciding this appeal, whether mediation is court-ordered or voluntary is a distinction without a difference,” the court wrote.

Key Elements of a Mediation Settlement Agreement

Signatures are not all you need for a binding settlement agreement. While mediation is less formal than traditional court proceedings, any settlement reached by the parties must meet the requirements of a binding legal contract.

The parties must also have a reached an agreement on the key terms in dispute. Accordingly, the agreement should set forth the responsibilities and obligations of the parties, and any compensation or payments must be paid pursuant to the settlement. The agreement must also state that each party is receiving something of value in exchange for the promises made in the agreement, which is known as “consideration.”

While not essential to a binding agreement, below are several other key components of a mediation settlement agreement:

• Dispute Summary: A brief summary of the nature of the dispute.
• Payment Provisions: A description of the payments that must be made by one party to the other.
• Termination/Modification Provisions: The circumstances under which the agreement may be terminated or modified.
• Confidentiality Provisions: Restrictions on the parties from disclosing the contents of the agreement to third parties.
• Governing Law: A clause identifying the jurisdiction that will govern the interpretation and enforcement of the agreement.

Key Takeaway

Mediation can be an effective way to resolve complex and sensitive business disputes. However, in order to get the most out of it, it is important to understand how the process works and what steps must be taken to enforce any settlement.

At Scarinci Hollenbeck, we work closely with our clients to carefully evaluate whether mediation, arbitration, and other forms of alternative dispute resolution (ADR) can serve as a viable alternative to traditional court proceedings. When ADR is used, the attorneys of our Alternative Dispute Resolution Practice Group leverage their exceptional negotiation skills and decades of dispute resolution experience to resolve the matter. If you have any questions or if you would like to discuss the matter further, please contact me, Ronald Lee Reisner, J.S.C. (Ret.), or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.