By Abby Tolchinsky and Ellie Wertheim
May 09, 2008
Is a mediated agreement as viable and enforceable as a settled litigation agreement? Because mediation is a process without procedural safeguards, there may be an added layer of concern as to whether the resulting agreements will hold up over time.
Ironically, it is the personal input from the parties to mediation that increases the likelihood that the decisions they make together will stand the test of time.
Still, when the parties to mediation subsequently litigate the enforceability of the agreement, how do courts view the underlying agreement?
Parties may view mediation as an opportunity to craft individualized settlement agreements, tailor-made to the needs and interests of the parties. Motivations to mediate certainly vary. If the law is ambiguous, or perhaps clearly favors one side, the party at a disadvantage may look to mediation for the flexibility it offers and may also attempt to exploit mediation as a discovery tool.
Parties may also be drawn to mediation for precisely the reason that they wish to work out a settlement which diverges significantly from a likely lawyer-negotiated or court-ordered result. When a client is determined to participate in such a mediation and then wants to sign off on what you regard as an idiosyncratic result, should you be advising that client that the agreement is enforceable, long-lasting and viable?
Contract Law Governs
For those who see the benefits of mediation – cost and time savings, potential preservation of relationships and, in particular, the creative decision-making that can result – breathe easy. In general, mediated agreements are regarded in the same legal light as other lawfully executed contracts or settlements. That is, it is the contract law, not the mediation process itself, that governs when a subsequent conflict arises.
For example, in Carney v. Carozza, 16 AD3d 867 (3rd Dept. 2005 ), the court upheld a mediated agreement distributing a dental practice. Plaintiff dentist, who was a partner in a practice, alleged wrongful termination of an interest in said practice, in violation of the governing partnership agreement.
During mediated negotiations, the parties agreed to an increased settlement for the terminated partner in order to reflect any potential negative tax impact resulting from the sale of plaintiff’s share.
Subsequent to the mediation, which resulted in a signed agreement, plaintiff consulted with his accountant, only to learn the precise (and onerous) tax consequences. He then informed the defendants that he did not intend to comply with the terms of the negotiated mediation agreement.
Plaintiff contended that the agreement should be set aside based upon a mutual mistake of fact, to wit, the actual amount of taxes due. The Third Department held that the signed agreement was, in fact, a “true meeting of the parties’ minds” and that if any mistake of fact indeed existed, it had been unilateral on the part of the plaintiff.
How does the conduct of the mediation process impact the subsequent review of the mediated agreement? The court holds in Carney that a meeting of the minds took place in the mediation despite the mistake of fact.
The court focuses on the unilateral nature of the mistake of fact.
Thus, the outcome in Carney holds that a unilateral mistake of fact is insufficient to set aside a signed, settled agreement. Ironically, the court’s result appears, on its face, to obviate the essence of a mediated result. That is, the integrity of mediation requires that all the parties are fully informed and understand all the relevant information prior to resolution of the mediated conflict. While the ultimate result in Carney reflects accurately the state of contract law as applied by the courts, it similarly reflects the possible imbalance in the mediation process should there be a mistake or misinterpretation of fact by one of the parties.
Rather, the mediation process is meant to enforce a balance of information and understanding among the parties, as well as the opportunity to negotiate each of their best alternatives.
With 20:20 hindsight, perhaps the mediator (and plaintiff’s counsel) should have ensured that all relevant information, i.e., the exact tax burden of the proposed settlement, was analyzed and understood prior to entering into a final agreement.
Four Corners of the Document
Absent fraud or duress,1 a court will not look beyond the four corners of the document to examine the process by which the parties arrived at the agreement.
In Williamson Cent. School Dist v. E&L Piping Inc., 261 AD2d 937 (4th Dept. 1999 ), the parties settled their financial dispute in mediation and signed a mutual general release from future litigation of the dispute. Several years later, the plaintiff discovered a mistaken overpayment in the agreement. The court held that, as in contract law, where the plaintiff failed to demonstrate fraud or intentional misrepresentations, the general release is enforceable.
It has become somewhat routine for agreements reached in mediation to include a “mediation of future disputes” clause, in which the parties agree to return to mediation prior to seeking redress of the court, should the underlying conflicts re-emerge. This seems precisely the sort of clause that might be struck down on the grounds that access to court is being restricted. Quite the contrary, these clauses have routinely been upheld.2
Once again, relying on basic contract law principles, the court in Laeyt v. Laeyt, 268 AD2d 815 (3rd Dept. 2000), stated that “these agreements will not be lightly set aside absent a cause sufficient to invalidate a contract …. We do not find this voluntary agreement to mediate prior to the filing of further petitions to be either an affront to public policy or a preclusion from seeking judicial intervention.”
Even so-called bad bargains are enforceable. For example, in, Storer v. Kreiter, 37 AD3d 354 (1st Dept. 2007), the parties agreed “to mediate the issue of equitable property settlement” as well as any disputes arising out of their separation agreement. In a separation agreement parties agreed to defer distribution of the wife’s portion of the marital residence until such a time as the property converted to a condominium and, upon conversion, to mediate the property settlement. Such conversion never took place and the wife brought subsequent action seeking to set aside the separation agreement.
The court held that the wife had reason to expect the conversion may never occur and, therefore, the separation agreement requiring mediation would not be set aside. Thus, even a contract to mediate predicated on a contingency was enforceable; the parties were required to endeavor to mediate at a future date. Once again, a court-ordered result runs contrary to the essence of the mediation process: that is, that mediation is voluntary.
Standards of Review
Finally, it is worth noting that different standards of review may apply to different contracts. In the area of matrimonial law, separation agreements are afforded a heightened scrutiny. See Christian v. Christian, 42 NY2d 63 (1977), in which the Court of Appeals held: “Agreements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith. There is a strict surveillance of all transactions between married persons, especially separation agreements.
Equity is so zealous in this respect that a separation agreement may be set aside on grounds that would be insufficient to vitiate an ordinary contract.”
Several months ago, we wrote a column about the Hauzinger case.3 We challenged the Third Department’s decision eviscerating mediator confidentiality.4 While the Hauzinger case is on appeal, it is worth a brief mention in this column. Unlike the many cases with mediated agreements in which the court applies contract law and enforces the agreement based on what is contained within the “four corners” of the document, the Hauzinger court was seeking to review the mediation process itself. In order to determine whether the separation agreement in question was “fair and reasonable” pursuant to DRL 236[B], the court upheld the defendant/wife’s subpoena seeking testimony from the mediator.
Apart from what appears to be an aberrant result in Hauzinger, courts uniformly uphold mediated settlement agreements, enforcing the public policy interest of maintaining the integrity of negotiated contracts.
Abby Tolchinsky and Ellie Wertheim are partners at Family Mediation.
1. See, e.g., Graham v. New York City Housing Authority, 260 AD2d 541 (2nd Dept. 1999 ), stating that the lower court “erred in setting aside the mediated settlement of this action reached by the parties, which was memorialized in a ‘postmediation agreement’
signed by the parties’ respective attorneys … only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake, or accident, will a party be relieved ….” (at 542).
2. In Edwards v. Poulmentis, 307 AD2d 1051 (2nd Dept.
2003), the court granted specific performance of an unambiguous settlement agreement requiring the parties to mediate future disputes concerning a child’s high school education. “Where the provisions of a contract are clear and unambiguous and the intent of the parties can be gleaned from the four corners of the document, a court should interpret the contract in accordance with its plain and ordinary meaning.” (at 1052).
3. Hauzinger v. Hauzinger, 43 AD3d 1289 (4th Dept.
2007), rearg. denied, 49 AD3d 1320 (4th Dept. 2008 ).
4. Abby Tolchinsky and Ellie Wertheim, “Hauzinger Calls Into Doubt Confidentiality Agreements,” NYLJ 3 ( Col 1), Nov. 13, 2007.