Scott S. Markus, Esq.

markus@agreement.com

SCOTT SLATER MARKUS IS WIDELY KNOWN AS THE LAST PERSON TO GIVE UP ON A SETTLEMENT.

HE MEDIATES SERIOUS PERSONAL INJURY, EMPLOYMENT, PROFESSIONAL LIABILITY, REAL PROPERTY AND CONSTRUCTION MATTERS.

Oral Surgery
The Practitioner, May 8, 1996
by Scott S. Markus

A deal is a deal. Or is it? In February, two California appellate courts revisited - with mixed results - the issue of enforceability of oral settlement agreements against a party who has seller's remorse.

In Regents of the University of California v. Sumner, 96 Daily Journal D.A.R. 2091 (Feb. 26, 1996), the parties, in a previous action, had participated in a mediation that resulted in an agreement to settle. The doctors' then-counsel dictated the terms into a tape recorder with clarifications by the mediator, the parties' attorneys and the doctors, who indicated they agreed to the terms. However, before the settlement document was prepared, the doctors attempted to "rescind" the agreement. The regents filed a new action to enforce the dictated agreement. The parties filed cross-motions for summary judgment and the court granted the regents' motion.

Based on the transcript of the dictated settlement, the 1st District California Court of Appeal affirmed: "[The doctors] entered into a final, binding and legally enforceable settlement agreement according to the terms dictated by the parties after the conclusion of their mediation and settlement conference."

The court distinguished Ryan v. Garcia, 27 Cal.4th 896 (1994), which reached the opposite conclusion based on similar facts. In Ryan, the mediator announced a resolution, someone stated the terms and defendant's counsel assumed the task of drafting a written settlement agreement. The oral agreement was not tape-recorded. Thereafter, the parties disagreed regarding the settlement terms and no written agreement was ever executed.

Plaintiff's counsel amended his complaint to state a cause of action for breach of an oral agreement, and a bench trial ensued. The trial court decided statements regarding the settlement terms were made after - not during - the mediation, since the mediation ended as soon as an agreement was reached. Therefore, the court admitted evidence of statements made at the end of the session and found the existence of an enforceable oral settlement agreement.

The 3rd District Court of Appeal disagreed. Observing that Evidence Code Section 1152.5 fails to define "mediation" or to delineate "the boundaries of the process," the court declined to engage in "[j]udicial sifting of statements made at a confidential mediation to select those which can be used as evidence of an agreement. ... [T]he purpose of section 1152.5 is to promote mediation as an alternative to judicial proceedings. To condone further judicial proceedings to enforce oral agreements during mediation directly undercuts the effect of the statute intended by the Legislature." Statements made "among the parties and the mediator, at the time and in the place set for mediation [are] well within 'the course of the mediation.'"

The Regents court decided, however, "that evidence of oral statements defining the scope of a settlement agreement reached after mediation is admissible to enforce the settlement, since the Legislature's enactment of section 1152.5 shields only statements made 'in the course of' mediation from admission in subsequent proceedings, and section 1152.5 does not affect the admissibility of evidence of an oral settlement which is reached after mediation has successfully concluded."

Meanwhile, in Murphy v. Padilla, 96 Daily Journal D.A.R. 1577 (Feb. 9, 1996), the parties reached a tentative settlement. The mediator wrote a document - intended as a draft of the final agreement - memorializing the terms, but no one signed it. When the appellant later refused to execute the agreement, the respondents brought, and the trial court granted, a motion to enforce the settlement, pursuant to Code of Civil Procedure Section 664.6, which provides: "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion may enter judgment pursuant to the terms of the settlement."

The 6th District Court of Appeal sidestepped the question of whether statements made in the mediation's context are inadmissible under Section 1152.5. Rather, the settlement was not enforceable under Section 664.6, because it was neither "before the court" nor "signed by the parties outside the presence of the court."

However, the court added: "Although oral or written settlement agreements reached as a result of mediation may be binding on the parties under contract principles, respondents cannot avoid the requirements of section 664.6 by asserting a contract claim. Such an action should be brought in a separate motion for summary judgment, a separate suit for equity, or an amendment to the pleadings." In other words, a deal might still be a deal.

Taken together, Regents, Ryan and Padilla suggest counsel can create an enforceable oral settlement agreement by complying with Section 664.6. Before leaving the mediation, the parties should sign a stipulation for entry of judgment pursuant to Section 664.6 setting forth the material terms. Ryan suggests that parties to a mediated settlement agreement waive in writing Section 1152.5(a)(2), which precludes the admissibility of any "document prepared ... in the course of, or pursuant to, the mediation unless the document otherwise provides."

A standard-form mediation agreement could provide: "Notwithstanding Section 1152.5(a)(2), this agreement and any written settlement agreement arising out of or otherwise resulting from the mediation will be admissible into evidence for the limited purpose of enforcing the terms of the settlement under California Code of Civil Procedure Section 664.6 or otherwise."

The stipulation for entry of judgment must be signed by the litigants personally. In Levy v. Superior Court, 10 Cal.4th 578 (1995), defendant's counsel sent a letter to plaintiff's counsel purporting to confirm a settlement, and plaintiff's counsel accepted the terms. Thereafter, the plaintiff refused to sign, and defendant's counsel moved for entry of judgment under Section 664.6.

Noting a division of authority among the appellate districts, the California Supreme Court considered whether the Section 664.6 term "parties" included the litigants' attorneys of record, and observed: "Unlike the steps an attorney may take on behalf of the client that are incidental to the management of a lawsuit, such as making or opposing motions, seeking continuances, or conducting discovery, the settlement of a lawsuit is not incidental to the management of the lawsuit; it ends the lawsuit. Accordingly, settlement is such a serious step that it requires the client's knowledge and express consent."

The court concluded: "[I]n providing for an enforcement mechanism for settlements by 'parties,' the Legislature intended the term to literally mean the litigants personally. ... The litigants' direct participation tends to ensure that the settlement is the result of their mature reflection and deliberate assent. This protects the parties against hasty and improvident settlement agreements by impressing upon them the seriousness and finality of the decision to settle, and minimizes the possibility of conflicting interpretations of the settlement. ... It also protects parties from impairment of their substantial rights without their knowledge and consent."

If the settlement terms are tape-recorded, the parties should stipulate that the recording is a "writing" under Evidence Code Section 250, and their verbal assent is equivalent to "a writing signed by the parties outside the presence of the court" under Section 664.6.

Alternatively, the parties may stipulate orally before the court. In re Marriage of Assemi, 7 Cal.4th 896 (1994), directed the entry of judgment pursuant to an oral stipulation made before a retired judge who was empowered to adjudicate and render a binding decision. According to the opinion, the stipulated order made the retired judge a hybrid of a temporary judge and an arbitrator. Nonetheless, over a vigorous dissent, the court found the retired judge's "quasi-judicial capacity" sufficient to effect a binding settlement. An adverse result "would impede the legislative policy of encouraging greater use of alternative dispute resolution techniques whenever the administration of justice will be improved."

But in Murphy, the Court of Appeal held that the retired judge who presided over the mediation "was not empowered by statute to make any binding decisions in the underlying dispute." Therefore, the oral settlement agreement not made "before the court" was unenforceable.

In Johnson v. Department of Corrections, 38 Cal.App.4th 1700 (1995), the court and the parties' counsel negotiated a settlement. At a subsequent hearing, the plaintiff indicated he did not agree with the settlement even though his counsel said that he was authorized to enter into the agreement on the court's terms. The trial court ruled that the plaintiff's attorney was authorized and granted the defendants' motion to enforce the settlement pursuant to Section 664.6 under the terms set forth on the record.

Relying on Levy, the 3rd District Court of Appeal reversed: "Settlement negotiations were handled by the parties' attorneys and the court. While the attorneys orally agreed to the settlement during judicially supervised negotiations, and thus orally stipulated to the agreement before the court, plaintiff never personally informed the court that he accepted the terms of this agreement. Absent this personal involvement, the agreement is not enforceable under section 664.6."

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Scott S. Markus, a San Diego-based mediator, facilitates settlements in both litigated and pre-litigation matters throughout Southern California.