Enforcing Mediation Agreements

8/6/2019 Enforcing Mediation Agreements

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WHAT CAN BE DONE TO ENFORCEMEDIATION AGREEMENTS?Most states have legislation dealing with enforcement of mediation, butthere still are some gray areas that require counsel's ingenuityBy BRUCE R. PARKERAS LITIGA nON delays and costs increase,defense counsel will receive more requests fromclients to consider mediation as an alternative.In order to give clients competent advice, coun-sel must appreciate the potential disadvantages,as well as advantages, of mediation. One po-tential disadvantage is the uncertainty overwhether a mediation agreement-that is, a writ-ten or oral agreement reached following me-diation-is legally enforceable.Although most states have enacted legisla-tion requiring mediation in specific areas ofthe law, few have mediation legislation on con-struction disputes,' leaving mediation agree-ments resolving construction disputes to be de-tennined by common law contract principles.Although there may be situations in whichthe enforceability of a mediation agreementwould not be important to a client, one couldassume that most clients would prefer not todeplete their resources to achieve an agree-ment that is not enforceable. Some commenta-tors argue, however, that the primary attributesof mediation are incompatible with enforcingmediation agreements by either statute or com-mon law.! To the extent that this argument

1. ABA Standing Comm. on Dispute Resolution. Legis-lation on Dispute Resolution 7-71 (1990) [hereinafter ABA,Legislation] contains a complete listing of state alternativedispute resolution statutes.2. See Steven Weller, Court Enforcement of MediatedAgreements: Should Contract Law Be Applied? JuOOES' J.13 (Winter 1992). .3. But see the discussion, infra, of Verne R. HoughtonIns. Agency v. Orr Drywall Co., 470 N.W.2d 39 (Iowa1991).See alsoWright v. Brockett . 571 N.Y.S.2d 660 (N.Y.Sup.Ct, Bronx Cty. 1991), as an example of statutory en-forcement of mediation agreements.4. Cathleen Cover Payne, Enforceability of MediatedAgreements, I OHIO ST. J. ON DISP. RESOL. 385, 387 n.13(1986) [hereinafter Payne].5. RESTATEMENTSECOND)OF CON'rnACJ'S 279 emt. a(1981) [hereinafter RESTATEMENT].See also 6 CORBINONCONTRACJ'S 1269 (1962) [hereinafter CORBIN]; Payne,supra note 4, at 386-87 n.13.

Bruce R. Parker is a partner at Goodell.Devries, Leech & Gray in Baltimore. He waseducated at Johns Hopkins University (B.A.1975) and Catholic University of America (J.D.1978). The author expresses his appreciationto Richard Ames-Ledbetter and MitchNeuhauser for their assistance in the prepara-tion of this article.

serves as a defense to an effort to enforce amediation agreement, it is briefly discussedlater. It is beyond the scope of this article toanalyze whether mediation agreements oughtto be enforceable as a matter of public policy.

ENFORCING MEDIA nON AGREEMENTSIN ABSENCE OF LEGISLA nON

A. Written Mediation Agreements1. Substituted Contract or Executory Accord?In the absence of legislation, one must lookto common law contract principles as authorityto enforce a mediation agreement. While nocase has been found in which a court has en-forced a mediation agreement in the absenceof legislation,' there is a substantial body oflaw with respect to the enforceability of settle-ment agreements. In most respects, a media-

tion agreement is similar to a settlement agree-ment resolving an adversarial proceeding, andan analysis of the law regarding the enforce-ment of settlement agreements will offer someinsights.Distinguishing a substituted contract from anexecutory accord is important because each af-fords different enforcement rights. A substi-tuted contract is also referred to as a novation,"and is "accepted by the obligee in satisfactionof the original duty and thereby discharges it. 'osIn contrast, an executory accord is an "agree-

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What Can Be Done to Enforce Mediation Agreements?ment that an existing claim shall be dischargedin the future by the rendition of a substitutedperformance. ''6 Unlike a substituted contract, itdoes not discharge the underlying claim imme-diately. Instead, the underlying claim is dis-charged when the parties complete the perfor-mances promised in the mediation agreement.'This distinction becomes important if oneparty breaches the mediation agreement. If theagreement is a substituted contract, the breachdoes not revive the discharged claim, and allthe non-breaching party's rights are controlledby the new agreement. If the agreement is anexecutory accord, the original claim is sus-pended until performance of the agreement iscompleted. If one party breaches the agree-ment, the non-breaching party is permitted toenforce either the original contract or any rightsunder the settlement agreement. 8 Section 281of the Restatement (Second) of Contracts states,"Breach of the accord by the obligee does notdischarge the original duty, but the obligor maymaintain a suit for specific performance of theaccord, in addition to any claim for damagesfor partial breach."Before beginning mediation, a party shouldconsider whether its interests are best servedby negotiating a substituted contract or anexecutory accord. If this issue is not consid-ered until after the mediation is "completed,"a party may find it impossible, as a practicalmatter, to re-open the mediation to push for aspecific type of agreement it would have pre-ferred. Construction-related disputes present avariety of situations, some of which are moresuited for one type of settlement agreementthan the other. For example, a party that be-lieves its adversary committed wrongs justify-ing punitive damages may want to keep thatspecter alive as an additional incentive for theopposing party to perform an executory agree-ment fully.Some counsel suggest that, at least in thosesituations in which the parties have an ongoingrelationship, a substituted contract is more con-sistent with the goals of mediation, which ar-

guably works best when parties are interdepen-dent and the self-interests of both are promotedby restructuring the interdependent relationship.Ifa dispute arises in the early stages of what isexpected to be a long construction project, theparties are arguably better served by havingtheir relationship restructured entirely through

Page 323the use of a substituted contract. With a substi-tuted contract, parties can get relief from badbusiness decisions or unanticipated economicfactors, while at the same time forging a stron-ger relationship with each other.Unless the parties' intent is clearly articu-lated in the agreement, courts often have diffi-culty distinguishing a substituted contract froman executory accord." In Elliott v. WhitneyIOthe parties acknowledged their previous con-tractual arrangements in their settlement agree-ment and stated, "Each of the parties herebyreleases and absolves the other from any andall liability arising out of any business associa-tion or agreement heretofore made between theparties." The Kansas Supreme Court concludedthat this language clearly reflected the parties'intent to extinguish the old contract on execu-tion of the settlement agreement.Generally, if the agreement-does not releaseall prior claims expressly and immediately,courts are unlikely to construe it as a substi-tuted contract. For example, in Johnson v.Utile" the Nevada Supreme Court found anexecutory accord where the nonbreaching partyexpressly released its prior claims for damagesresulting from the defendant's failure to de-liver a functioning well, on the condition thatthe defendant drill a second well. The promiseof future performance rendered the agreementan executory accord.In Savelieh Logging Co. v. Preston Mill CO.12a logging company inadvertently cut timber onland owned by Oregon, thereby incurring li-ability for timber trespass. The parties executedan agreement pursuant to which the loggingcompany was to cut timber on state land andpay the state double the value of the timber.

6. CORBIN 1269.7. REsTAlEMENT 281. See, e.g., Clark v. Elza, 406A.2d922 (Md. 1979).8. Clark. 406 A.2d at 925-26.9. Payne, supra note 4, at 385, 387 n.13; Clark, 406A.2d at 926; Winkleman v. Oregon-Washington PlywoodCo., 399 P.2d 402 (Or. 1965) (language "canceling" prioragreement and applying payments as "settlement" sufficientto create substituted contract); Bradshaw v. Burningham,671 P.2d 196 (Utah 1983) (specific language modifyingexisting contract constituted substituted.contract); FidelityDeposit Co. of Maryland Inc. v. Olney Assoc., 530 A.2d I(Md.App. 1987) (substituted contract found where settle-ment agreement had language specifically releasing and ac-quitting all prior claims anddebts).10. 524 P.2d 699 (Kan. 1974).II. 472 P.2d 335 (Nev. 1970).12. 509 P.2d 1179(Or. 1973).


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Page 324When the company failed to pay, the state suedfor damages based on the original trespassclaim. The court rejected the company's argu-ment that the settlement agreement was a sub-stituted contract that extinguished rights or li-abilities that existed for the trespass claim, not-ing that the settlement agreement failed to con-tain an express provision as to when the timbertrespass claim was to be released. 13One claiming under a substituted contracthas the burden of proving the parties intendedan immediate release of prior claims." In theabsence of evidence demonstrating that the newagreement was intended to serve as a substi-tuted contract, courts presume that the partiesintended to release their existing claims andliability only on the performance of the newagreement. 15Another issue counsel should consider be-fore deciding on which type of agreement toexecute is the effect of the statute of limita-tions. When parties enter into an executoryagreement, the original duty is suspended untilthe parties perform, thereby discharging theoriginal duty, or one party breaches the ac-cord, thereby lifting the suspension. Suspen-sion acts to toll the statute of limitations on theoriginal claim. Only on a breach of theexecutory accord will the statute of limitationsresume running for the original claim.If a party believes that its claim may bebarred by a limitations defense, it probably

13. See alsoBeechwood CommonsCondominiumAss'nv. Beechwood Commons Assocs. Ltd. 580 A.2d 1 (Pa.Super. 1990); Worldwide Lease Inc. v. Woodworth. 728P.2d 769 (Idaho 1986) (executory accord found where fu-ture performance formed basis for compromise agreement);Clark. 406 A.2d 922 (executory accord where release ofclaims conditional on future performance).14. See Washington v. Reed, 504 P.2d 745. 747 (Or.1972).15. Clark, 406 A.2d at 926 (unless there is clear evi-dence to contrary. agreement to discharge pre-existingclaimwill be regarded as executory accord).16. See Spaulding v. Cahill. 505 A.2d 1186. 1187 (VI.1985): Dowsett v. Cashman. 625 P.2d 1064. 1068(Haw.App. 1981); Munna v. Mangano, 404 So.2d 1008.1010 (La.App. 1981); Don L. Tullis & Assoc. v. Benge.473 So.2d 1384. 1386 (F1a.App.1985);Heese Produce Co.v. Lueders. 443 N.W.2d 278. 282 (Neb. 1989).17. See. e.g.Cross v. District Court. 643 P.2d 39. 41(Colo. 1982);Munna, 404 So.2d at 1010.18. Rosenberg v. Townsend. Rosenberg & Young. 376N.W.2d 434 (Minn.App. 1985).19. Robert P. Bums. The Enforceability of MediatedAgreements: An Essay on Legitimation and Process Integ-rity. 2 OHIOST . 1.ONDISP.RESOL.93. 112 (1986) [herein-after Bums].

DEFENSE COUNSEL JOURNAL-July 1992

should attempt to negotiate a substituted con-tract. Limitations will not begin to run on thesubstituted contract until there has been abreach. Conversely, if the limitations periodon the underlying claim is longer than the pe-riod would be for a substituted contract, a partymight be better off with an executory agree-ment.2. Facts To Be ProvedA settlement agreement is enforceable if itsatisfies the requirements of contract forma-tion." Similarly, if a party seeks to enforce amediation agreement, it must prove that all el-ements of an enforceable contract exist, in-cluding proof of the parties' mutual assent toall material terms, consideration and legal ca-pacity of the parties to bind themselves.As to mutual assent, the plaintiff must provethat the parties voluntarily agreed to be boundto all material terms of the proposed contract. 17To varying degrees, moral and economic pres-sures exist in most situations and, consequently,courts will not void a contract for lack of con-sent unless the pressure constitutes legal du-ress or undue influence. Courts apply an ob-jective standard in determining whether therewas mutual acceptance of terms, and evidenceof acceptance includes verbal expression, con-duct and even silence when there is a dutyotherwise to speak."Some commentators argue that participation

in mediation and execution of a mediationagreement are sufficient evidence of their mu-tual intent to be bound, even in the absence ofspecific language of intent in the agreement."A countervailing argument is that without leg-islative enforcement, parties are free to arguethat the mediation agreement was never in-tended to have legal effect but rather was in-tended only to reflect their good faith effortsto restructure their relationship.A p ar ty that con te nds it par ticip ate d in m e-diation because it was voluntary and that itnever intended the mediation agreement to belegally enforceable can find support for thatposition from those who argue that mediationagreements ought not to be enforceable. Oneargument opposing enforcement is that requir-ing parties to negotiate whether an agreementwill be enforceable distracts them from resolv-ing the primary issues in dispute. On a more

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WlllII Call Be Don 10Ell/il/n' Mediation Agre(,fII(,IlI.


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Page 326equate consideration, most courts will enforcean oral agreement.In the absence of a statute or court rule re-quiring that they be in writmg," oral settle-ment agreements are enforceable. Courts haveenforced the oral contract by applying the ra-tionale of Section 27 of the Restatement:

Manifestations of assent that are in themselvessufficient to conclude a contract will not beprevented from so operating by the fact that theparties also manifest an intention to prepare andadopt a written memorial thereof; but thecircumstances may show that the agreements arepreliminary negotiations.For example, in Pascarella v. Bruc127 theparties to a medical malpractice action reachedan oral settlement for $25,000, which defensecounsel promised to reduce to writing. Prior toreceiving the written settlement agreement, theplaintiff rejected the oral settlement, deciding

that she was confused at the time it wasreached. The New Jersey Supreme Court foundthe oral agreement enforceable, stating thatwhere parties have orally agreed to the essen-tial terms of a contract and intend to be boundby those tenus, the fact that they contemplatethe later execution of a formal document tomemorialize their agreement has no effect onthe validity or enforceability of the oral agree-ment.A decision inconsistent with the rationale ofSection 27 is Verne R. Houghton InsuranceAgency Inc. v. Orr Drywall CO.,28 in which aninsured disputed its insurer's assessment of thevalue of damage it had sustained to one of itstrucks. The parties submitted their dispute to"arbitration-mediation" and were successful inreaching an agreement that was reduced to writ-ing. The insured agreed to release all claims ithad against the insurer resulting from the acci-dent, and the insurer acknowledged it did nothave any claims against the insured. The agree-ment was executed by the mediator and in-26. ~ee Conlin v. Concord PoolsLtd., 565 N.Y.S.2d 860(App.Div, 3d Dep't 199J); Stone v. First City Bank of Plano,794 S.W.2d 537 (Tex.App. 1990); Am. Casualty Co. v.Western Casualty and Sur. Co., 120 N.W.2d 86 (Wis.App.1963). See Gojcaj v.Moser, 366 N.W.2d 54, 58 (Mich.App.19.85~ (oral settlement agreements not enforceable under

Michigan statute); Omaha Nat'l Bank v. Mullenax, 320N.W.2d 755, 758 (Neb. 1982).27. 462 A.2d 186 (N.J.Super. 1983).28. 470 N.W.2d 39 (Iowa 1991).29. Fisher, 698 P2d at 1372; RESTAlEMENT 130.

rDEFENSE COUNSEL JOURI\AL--July 1992sured, but not by the insurer. Pursuant to theagreement, however, the insurer issued a settle-ment check to the insured, in return for whichthe insured executed a "policyholder's release"acknowledging that the payment was in settle-ment of all amounts due under the policy.Later the insurer's agent filed a claim againstthe insured for unpaid premiums, and the in-sur~d count:rclaimed for breach of fiduciary

duties, alleging delays in presenting its prop-erty damage claim to the insurer. The insuredalso filed a third-party claim against the in-surer that alleged bad faith in processing theclaim.The trial court dismissed the insured's claimson the ground that the mediation agreementand the policyholder's release barred all claimsexcept the agent's claim for additional premi-ums.The Iowa Supreme Court reversed and heldthat the "policyholder's release," which hadbeen executed by all parties, did not includethe insured's bad faith claim against the in-surer. The court appears to have assumed thatthe mediation agreement was unenforceable be-cause it had not been executed by the insurer.The court did not address why the agreementwas unenforceable against the insured, who hadsigned it. Neither did the court address whythe oral mediation agreement memorialized bythe written agreement was unenforceable. Therewas no evidence that the parties disputed anyof the terms of the unexecuted mediation agree-ment.The statute of frauds may render an oralsettlement agreement unenforceable. Among thefive types of contracts generally subject to thestatute, the two most relevant to constructiondisputes are contracts that cannot be performedwithin one year and contracts conveying realproperty.If an oral contract, by its express terms, isincapable of being performed within one year,it is unenforceable. If an owner and prime con-tractor create a substituted contract for a projectexpected to last more than one year, the con-tract is not within the statute of frauds ifcompletion within one year is not impossible."Conversely, if the oral contract expressly re-

quires a party to perform an act mote than oneyear from the date the agreement is reached,the oral contract is subject to the statute offrauds and unenforceable.


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What Can Be Done to Enforce Mediation Agreements?Even if an oral settlement agreement is sub-

ject to the statute of frauds, however, courtswill enforce the contract if there has been fullperformance by the party seeking to enforcethe agreement. Although contract damages gen-erally will not be awarded to a party that hasonly partly performed, courts will allow recov-ery based on restitution"

2. Authority of AttorneyA client's execution of a settlement agree-ment negotiated by the attorney eliminates anyquestion regarding the attorney's authority. Ab-sent that execution, a party seeking to enforcethe agreement must prove that opposing coun-sel had the express authority to bind the clientto the oral agreement."In Mitchell Properties Inc. v. Real EstateTitle C O . , 3 2 the Maryland Court of Special Ap-peals noted there is a prima facie presumptionthat an attorney has authority to bind clientsby actions regarding the litigation, but this pre-sumption is not applicable to settling the claim.In order to enforce the settlement agreement,the moving party must show that the opposingparty's counsel acted with authority of the cli-ent and that the attorney's authority expresslyextended to settling the claim.In Ducey v. Corey" the New Hampshire Su-preme Court refused to enforce an oral agree-ment after finding that a party's attorney lackedauthority to enter into the oral settlement agree-ment. The agreement had been negotiated bycounsel for both parties, and the court was ad-vised of the agreement. But the plaintiff re-fused to accept the agreement, and the defen-dant moved to enforce it. The plaintiff testifiedthat she had not authorized her lawyer to settleher claims and had not been told that a spe-

I,30. Fotinos v. Baker, 793 P.2d 1114 (Ariz.App. 1990)(equitable estoppel will avoid statute of frauds bar to en-forcement of oral sett lement agreements); Sims v, Purcell.257 P.2d 242 (Idaho 1953). Some courts define par tial per-formance narrowly. See. e.g. Jackson v. Shain, 619 S.W.2d860 (Mo.App. 1981).31. Rosenberg, 376 N.W.2d 434 (attorney has no im-plied right to compromise client's claim); Cross. 643 P.2dat41 (attorney had no implied authority).32. 490 A.2d 271 (Md.App. 1985).33. 355 A.2d 426 (N.H. 1976).34. But see Sheffield Poly-Glaze. 356 N.E.2d 837 (re-fusal to invalidate oral settlement agreement where partyopposing enforcement testified his attorney misinformed himas to terms of agreement).35. See, e.g . Lawrence R. Freedman & Michael L.

Page 327cific amount had been offered. In addition. theplaintiff testified that she had to leave the ju-risdiction and had instructed her attorney tokeep her advised of developments. which hehad not done. The court concluded that theattorney had neither express nor implied au-thority to agree to the settlement."3. Effect of ConfidentialityA detailed discussion of whether mediationproceedings ought to be confidential and theextent to which mediations are confidential un-der existing law are beyond the scope of thisarticle. Since a rule of confidentiality signifi-cantly affects the enforcement of oral media-tion agreements. however. some observationsare appropriate. Most commentators seem to

agree that a broad rule of confidentiality isneeded if mediation is to be effective."Although a broad rule of confidentiality alsoaffects the enforceability of written mediationagreements. its predominate effect is felt whenparties seek to prove the terms of an oral agree-ment. In fallen v. Agre36 the Minnesota Su-preme Court refused to enforce an oral settle-ment agreement because the moving partycould not prove that the parties had actuallyreached an agreement. The parties had norecords of oral negotiations, nor could theyagree as to what took place during the negotia-tions. The court noted that this situation illus-trated the importance of "making a record ofsettlement negotiations and of any agreementreached."Sworn testimony generally is required toprove the terms of an oral agreement. InDavidv. Warwelp7 the trial court concluded that theparties orally settled their dispute regarding thepurchase of real property, but the MarylandPrigoff, Confidential ity in Mediation: The Need for Protec-tion. 2 OHIO ST. J. ON DISP. REsOL 37 (1986) [hereinafterFreedman & Prigoff]; Michael L. Prigoff, Toward Candoror Chaos: The Case of Confidentiality in Mediation, 12SETONHALLLEGISJ. I (1980); Wayne D. Brazil, Protectingthe Confidentiality of Settlement Negotiations. 39 HASTINGSL.J. 955 (1988) [hereinafter Brazi l]; Comment, ProtectingConfidentiality in Mediation, 98 HARv. L. REV. 441 (1984)[hereinafter Protecting Confidentiality]; Lawrence R. Freed-man. Confidentiality: A Closer Look, in ABA Special Comm.on Dispute Resolution, Alternative Disputes Resolution: Me-diation and the Law: Will Reason Prevail? 68 (1983). Seealso Special Supplemens=-Corfidentiality and AlternativeDipute Resolution, 2 ALTS.TOHIGHCOSTOFLmG. 5 (1984).36. 119 N.W.2d 739 (Minn. 1963).37. 586 A.2d 775 (Md.App. 1991).


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Page 328Court of Special Appeals reversed. The courtheld that in the absence of a written contractcontaining finalized terms, there was insuffi-cient evidence to conclude that the dispute hadbeen resolved. A particularly important factorwas that the trial court had not received anysworn testimony as to the terms of the agree-ment. The court held that the terms of the oralsettlement agreement had to be proved at a fullplenary hearing.Proving the terms of an oral settlement agree-ment in a state with a broad rule of confidenti-ality is difficult. Those rules often preclude aparty from eliciting testimony from the media-tor regarding the existence of an agreement."Some go further and preclude testimony fromthe parties." Some statutes recognize an ex-ception to the rule of confidentiality when aparty seeks to enforce the terms of a mediationagreement. 40 Since most states do not havebroad mediation statutes applicable to construc-tion disputes, statutory rules of confidentialitygenerally will not be a problem," but commonlaw evidentiary principles, as well as the Fed-eral Rules of Evidence, provide confidentialityin some situations.Under common law evidentiary principles,the admissibility of settlement negotiations de-pends on whether the statement sought to beintroduced constituted a settlement offer or astatement of fact regarding the case." Follow-ing this distinction, courts exclude offers tocompromise but admit factual statements madeduring negotiations by a party, unless the38. See, e.g., TEx. CIv. PRAC. & REM. CODE. ANN. 154.073.39. Virginia Confidential ity in Mediation Act, VA.CODEANN. 8.01-581.22, which provides that unless parties oth-erwise agree, confidentia l materials and communicationsduring the mediation are not subject to disclosure in anyjudicial administrative proceeding.40. WYO. STAT. 1-43-103.41. As of 1990, 13 states were listed by the ABA ashaving broad ADR confidentiality statutes that could beapplicable to construction disputes. See ABA, Legislation,supra note I,at 113-14.42. EDWARDW. CLEARY, McCORMICK ON EVIDENCE

274 (3d ed. 1984). See Cole v. Harvey, 198 P.2d 199(Okla. 1948) (in suit for work done, no error in receivingevidence of statements of amount due during negotiat ionsfor compromise).43. Freedman & Prigoff, supra note 35, at 40.44. Brazil, supra note 35. at 981; Protecting Confidenti-ality, supra note 35. at 449. See also Moving Picture Ma-chine Operators Union Local No. 162 v, Glasgow TheatresInc., 86 Cal.Rptr. 33. 37 (Cal.App. 1970) (evidence of ac-cord and satisfaction not excluded by state rule similar toRule 408).

DEFENSE COU:"/SEL JOURNAL---July 1992speaker explicitly made the statement hypo-thetically or accompanied the statement withthe words "without prejudice."To bolster protection for statements madeduring settlement negotiations, a number ofstates have adopted Rule 408 of the FederalRules of Evidence, which makes offers to com-promise and conduct or statements made insettlement discussions inadmissible." WhileRule 408 appears to be broad, it has severelimitations. Most important is the exception thatstatements made during settlement negotiationsare admissible when offered to prove the exist-ence or terms of an agreement." Therefore,the rule should not preclude a party from call-ing the mediator as a witness regarding theexistence of the oral agreement and its terms.If applicable, a rule of confidentiality willmake it very difficult for a party to meet itsburden of proving the terms of an oral media-tion agreement. Unless the credibility of a partycan be challenged, if two equally credible wit-nesses have conflicting views on whether therewas mutual assent to all material terms, theparty with the burden of proof should not pre-vail.C. Defenses to EnforcementJust as contract law can be applied to a me-diation agreement to determine if there wasintent, consideration and performance, generalprinciples of contract law also provide theframework for evaluating defenses to the en-

forcement of a mediated agreement. The me-chanics and dynamics of the mediation rela-tionship will affect the availability of these de-fenses. The presence of a neutral third partyduring negotiations adds a factor not present inthe typical contract situation and can operateto make some defenses less viable when a partyseeks to enforce a mediation agreement. Fi-nally, confidentiality, to the extent it is made apart of the mediation process, may operate tohinder the efforts of the plaintiff and defendantto prove the terms of the contract and establishrelevant contract defenses.1. Mutual Mistake ./

,Section 151 of the Restatement (Second) ofContracts states, "A mistake is a belief that isnot in accordance with the facts." Under Sec-


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rWhat Can Be Done to Enforc Mediation Agreements?tion 152, a mutual mistake provides a defenseto the enforcement of a contract "lwJhere amistake of both parties at the time a contractwas made has a material effect on the agreedexchange of performance, the contract is void-able by the adversely affected party unless hebears the risk of the mistake." The availabilityof this defense is limited, as the "mistake mustbe of an existing or past fact which is material:it must be as to a fact which enters into andforms the basis of the contract. In other words,it must be the essence of the agreement, thesine qua non ... it must be such that it ani-mates and controls the conduct of the parties.':"Reformation is available only to revise a con-tract in order to reflect the true agreement ofthe parties. The purpose of reformation is notto make a new contract for the parties but ratherto express the contract which the parties hadmade for themselves."The mediation process makes it less likelythat a party could succeed in voiding a media-tion agreement by arguing mutual mistake. Theprocess implies deliberate and concentrated ne-gotiations. Good mediation is designed to as-sist the parties in thoroughly discerning andcarefully articulating their interests.There are valid policy reasons for makingthe defense of mutual mistake less available tothe participants in a mediation. One commen-tator has stated:In mediation, negotiations frequently revolvearound uncertain facts and issues. Courts should

be less receptive to legal claims based on mistake,since parties to a mediation are aware of theinherent possibility of errors in judgment. Manysettlements are upheld in spite of mistakes as tolaw or fact, since, by settling, the parties havedemonstrated a preference for reaching a finalresolution over clarifying inaccuracies."In jurisdictions with a broad rule of confi-dentiality, it may be impossible for a party toprove the existence of a mutual mistake if it isnot able to introduce evidence of positions taken

and statements made by the mediator and theparties during the mediation.2. AmbiguityClosely related to the defense of mistake is

the concept of ambiguity. Often what wasthought to be clear to the parties when the oralagreement was reduced to writing later becomes

Page 329ambiguous to the party resisting enforcement.A broad rule of confidentiality may make itimpossible for a party, when faced with thedefense of ambiguity, to prove the parties' in-tent. Parole evidence could be unavailable un-der a broad rule of confidentiality. The inabil-ity to introduce parole evidence underminesthe parties' legitimate interest in realizing thefruits of mediation. Preventing a party fromintroducing parole evidence of intent to refutea claim of ambiguity because of a desire tocloak the mediation process in confidentialitysubjects that process to abuse.In Bartros v. Farm Credit Bank of SaintPaul" the bank sought to foreclose on a mort-gage pledged to secure the payment of a note.Pursuant to a Minnesota mandatory mediationstatute, the parties successfully mediated theirdispute. The executed written agreement in-cluded a provision that the borrower could pur-chase a portion of the mortgaged land from thebank at an agreed price. When the borrowersought to enforce this provision, the bank as-serted that it had not intended to sell that por-tion of land for the stipulated price without adeed back for the remainder of the unencum-bered land. Although both parties admitted thata deed back provision had been discussed inthe mediation, it was not included in the writ-ten agreement.The Minnesota Court of Appeals held thatthe agreement was ambiguous, which raised anissue of fact and permitted it to look to extrin-sic evidence to ascertain the parties' intent.Because the confidentiality provision of thestate's mediation statute did not apply to ac-tions to reform or set aside mediation agree-ments, the court was able to hear testimonyregarding what had occurred in the mediation.It concluded by enforcing the agreement aswritten because the evidence showed that theparties had not intended to include the deedback clause.3. Fraud and MisrepresentationA misrepresentation is an assertion that is

contrary to the facts, according to Section 16445. 17A AM. JUR. 2d Contracts '113 (1991).46. REsTAlllMENT 155.47. Payne, supra note 4, at 395. See also DAN B. DoBBS,

LAW OF REMEDIES 11.10, at 773 (1973).48. 1990 Minn.App. Lexis 272 (unpublished opinion)(1990).


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Page .DOof the Restatement. In order to void a contracton the basis of a misrepresentation, a partymust show the misrepresentation was eithermaterial or fraudulent. A misrepresentation ismaterial if it is likely that a reasonable personwould be induced to manifest assent to thecontract because of the misrepresentation, andit is fraudulent if made with the intent to in-duce the other party to rely on it and withknowledge of its falsity. If a statement is fraudu-lent, the other party only needs to show thatreliance on the statement, not that reliance wasreasonable. It should be noted that under Sec-tion 161 of the Restatement, an omission canbe a misrepresentation in situations in whichthere is a duty to disclose.Although misrepresentation may be a defenseto the enforcement of a mediation agreement,its effectiveness depends largely on the scopeof a rule of confidentiality. If the party seekingto enforce the agreement denies making therepresentations, the defendant may be hardpressed to prove the statement without themediator's testimony. Conversely, the partyseeking to enforce the agreement could be dis-advantaged without the mediator's testimonyif that testimony would establish that the op-posing party was not misled by the representa-tion.4. Impossibility and ImpracticabilityUnder Section 261 of the Restatement, when

an unforeseen event occurs that makes it im-possible or impracticable for one party to per-form its contractual duties, courts often excusethat party from performance, provided the eventwas not due to that party's fault."A thing is impossible in legal contemplationwhen it is not practicable; and a thing isimpracticeable when it can only be done atexcessive and unreasonable cost." ... The doctrineultimately represents the ever-shifting line, drawnby courts hopefully responsive to commercialpractices and mores, at which the community'sinterest in having contracts enforced according totheir terms is outweighed by the commercialsenselessness of requiring performance."

49. Transatlantic Finance Corp. v. United States, 363F.2d 312, 315 (D.C. Cir. 1966), quoting from Mineral ParkLand Co. v. Howard, 156P. 458, 460 (Cal. 1916).50. REsTATEMENT 208; U.C.C. 2-302.51. 17A AM. JUR. 2d Contracts 234 (1991).

DEFENSE COUNSEL JOt:RNAL----July 1992

The Restatement lists several events that cangive rise to the defense of impracticability: (I)the destruction or unavailability of the subjectmatter of the contract or a specific thing nec-essary for performance of the contract; (2) thedeath or incapacity of a person necessary forthe performance of the contract; or (3) a changein the law rendering performance of the con-tract impossible without violating the new stateof the law.The defense of impossibility and impractica-bility usually is predicated on events or factsthat develop after the agreement is reached.Since the facts giving rise to the defense donot occur during the mediation, proof of thefacts should not be affected by a rule of confi-dentiality.5. UnconscionabilityIf a court, as a matter of-law, finds a con-tract or a clause in a contract to be unconscio-nable at the time it was made, the court mayrefuse to enforce the contract, modify the con-tract, delete the unconscionable term, or limitthe application of the unconscionable clause toavoid an unconscionable result." Uncon-scionability basically is a question of fairness.It is doubtful whether a party could crediblyraise this defense to an agreement reachedthrough mediation. To the extent mediation pro-duced an excessively unfair agreement, themore appropriate defense would be duress and

undue influence.6. Duress and Undue InfluenceFor an agreement to be binding, it must bethe result of the parties exercising their freewill. Conversely, "an agreement obtained byduress, coercion, or intimidation is invalid, sincethe party coerced is not exercising his freewill."! To show duress, a party must prove athreat of sufficient gravity to induce the otherparty to enter into the contract. What the threatis has changed drastically since the early com-mon law.Historically, duress as a defense to the en-forcement of a contract was actual imprison-ment or fear of loss of lifeor limb. Modemcourts recognize a broader spectrum, most no-tably, threats to economic concerns. Threatsconsidered "improper" and thus the basis forthe defense of duress include: a threat of a


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rWhat Call Be DOlle to Enforc Mediation Agreements? Page 331criminal or tortious act that will injure the per-son, family or property of the other party; athreat to institute criminal prosecution or a badfaith threat to institute civil proceedings; or athreat to breach the duty of good faith and fairdealing under a contract with the other party."Under the Restatement, any threat is improperif "the resulting exchange is not on fair terms,and (a) the threatened act would harm the re-cipient and would not significantly benefit theparty making the threat, (b) the effectivenessof the threat in inducing the manifestation ofassent is significantly increased by prior unfairdealing by the party making the threat, or (c)what is threatened is otherwise a use of powerfor illegitimate ends."Closely related to the concept of duress, andperhaps more relevant to the mediation con-text, is the defense of undue influence. Section236 of the Restatement defines undue influ-

ence as the "unfair persuasion of a party whois under the domination of the person exercis-ing the persuasion or who, by virtue of therelationship between them, is justified in as-suming that that person will not act in a man-ner inconsistent with his welfare." Like duress,the essence of the defense is that a party'sassent to the contract was not the result of freewill but of the other party's unfair use of adominant psychological or economic position.The presence of a mediator should curtailthe possibility of overt threats in the mediationprocess, but in several other respects, media-tion may be susceptible to claims of undueinfluence. Mediation is often chosen over liti-gation because the parties have a significantongoing relationship they want to protect. Therelationship, however, may be characterized byunequal power-for examples, landlord and ten-ant, labor and management, contractor and sub-contractor. Contending that mediation ampli-fies inequality, some commentators argueagainst using mediation between parties withdisparate social or economic positions."D ur es s o r u ndu e in flu en ce e xe rcis ed b y athird party, such as a mediator, can be the ba-sis to set aside a mediation agreement. 54 Theproper role of the mediator in bringing about aresolution to a dispute is subject to debate. Inmany cases the line between encouragementand undue influence may be difficult to draw,particularly with parties of unequal economicpower. Private mediation organizations employ

' . .

mediators whose compensation may be in partdependent on the success of the mediation. Eco-nomic incentives of this type create an envi-ronment in which undue influence can occur.The law of fiduciary duties has been sug-gested as an appropriate means of defining theobligations owed by mediators. Ifmediation isto be effective, it is essential that clients de-velop a trusting relationship with the mediator.A critical factor in determining whether a fidu-ciary relationship exists is whether the injuredparty "justifiably trusted" the mediator. If"justificable trust" exists, courts often find thata fiduciary relationship exists."Issues also may arise with respect to the duty,if any, of a mediator-lawyer to provide legaladvice to an unrepresented party who may besacrificing significant legal rights. 56 Failure ofa mediator to advise an unrepresented party ofrights it is releasing, combined with sugges-tions to enter into an agreement, provide fer-tile grounds for a party to argue later that therewas misrepresentation, undue influence andbreach of fiduciary duties.Although mediation generally is consideredvoluntary, there are occasions when litigantsfind themselves ordered by a court to mediate"voluntarily." In certain circumstances, suchas labor negotiations, it is the function of themediator to "pressure" the parties to settle. Inthose cases, courts are reluctant to examine theconduct of the mediator.In Local 808 v. National Mediation BoarJ57the D.C. Circuit held that it would not inter-fere with efforts by the National MediationBoard to settle a railroad dispute unless the"board continues mediation on a basis that iscompletely and patently arbitrary and for a pe-riod of time that is completely and patentlyunreasonable, notwithstanding the lack of anygenuine hope or expectation that the parties52. RESTA' lEMENT 176(1).53. S ee C om me nt (O we n M. Fis s ) , Against Settlement,93 YALELJ. 1073 (1984); R ob er t P . B um s, The Appropn-ateness of Mediation: A Case Study and Reflection on Fullernil Fiss, 4 OHIO ST . 1.Disp . RESOL. 129 (1989).54. Bums , supra note 19, at 99.55. See Arthur A. Chaykin, Mediator Liability: A NewRole for Fiduciary Duties? 53 U. C1NN. L. REV. 744-48

(1984).56. See, e.g., NANCY H. ROGERS'& RICHARD A. SALEM,A STIJDENT"S GUIDE TO MEDIATION AND TIlE LAW 122-35(1987) [hereinafter ROOERS & SALEM];Chaykin, supra note55, at 756-57.57. 888 F.2d 1428 (D.C. Cir. 1989).


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Page 332will arrive at an agreement." The court notedthat the "unique role of mediators requires sucha deferential judicial posture."Although a few decisions have been reportedin which mediators of domestic disputes havebeen sued for conflicts of interest," no caseshave been found involving a commercial dis-pute in which a mediation agreement was setaside or the mediator sued for wrongful onduct.One problem faced by the plaintiff is provingproximate cause.In Lange v. Marshalt" the defendant was anattorney who attempted to mediate a divorcesettlement between the plaintiff-wife and herhusband. During the discussions, the wife be-gan suffering from depression and entered apsychiatric hospital for treatment. The attor-ney continued to conduct conferences in aneffort to reach a settlement. Eventually the par-ties agreed to a settlement that was submittedto the court for review. Pending the review,the wife obtained separate counsel and objectedto the settlement before it received approval.A substituted agreement was then negotiatedand approved by the court.The wife sued the mediator-attorney for mal-practice. A jury verdict for the plaintiff wasreversed by the Missouri Court of Appeals. Thecourt held that there was no evidence that thehusband would have agreed to a settlementmore favorable for the wife had the mediatornot acted wrongfully by negotiating the agree-ment when the wife was mentally and emo-tionally disabled. The court did not analyzewhether the mediator may have breached a fi-

58. See In re Wehringer's Case, 547 A.2d 252 (N.H.1988) appeal dismissed, 489 U.S. 1001 (1989); Horak v.Biris, 474 N.E.2d 13 (IIJ.App. 1985); Martino v. FamilyService Agency of Adams County, 445 N.E.2d 6 (I1I.App.1982).59. 662 S.W.2d 237 (Mo.App. 1981), cert. denied, 466U.S. 973 (1984).60. See. e.g., Easton Environmental Endeavor Inc. v. In-dustrial Park of Calvert County, 413 A.2d 1355 (Md.App.1980).61. ROGERS& SALEM,supra note 56, at 159.62. RESTAlEMENT 359(1). However, specif ic perfor-mance of a contractua l duty can be obtained notwithstand-ing a l iquidated damage clause in the contract. See RESTAlE-MENT 361.63. RESTATEMENT 358(3), cmt, c.64. See. e.g; Dickey v. Thirty-Three Venturers, 550S.W.2d 926 (Mo.App. 1977) (specific performance recog-nized as remedy for breach of settlement agreement);Winkleman, 399 P.2d 402; Elliott v. Whitney, 524 P.2d 699(Kan. 1974).65. Elliott v. Johnston, 673 S.W.2d 807 (Mo.App. 1984).


duciary duty which, if found, might have af-fected the causation analysis.If a plaintiff can establish that a mediatorexercised undue influence or that the media-tion agreement was executed under duress cre-ated by the mediator, an argument can be madethat the plaintiff should be entitled to recoverfrom the mediator at least the expenses incurredin having the mediation agreement voided.D. Remedies for BreachAssuming that a mediation agreement satis-fies the elements of a formal contract and isnot subject to any defenses, a party seeking toenforce it can recover damages if it is breached.

If the mediation is conducted while there ispending litigation, a party may seek an expe-dited enforcement of the agreement and anaward of damages from the court with jurisdic-tion over the underlying Iitigation/" If the me-diation agreement was breached after theunderlying litigation was dismissed, many courtswill refuse expedited enforcement of the agree-ment and will require the party to institute aseparate action to enforce the mediation agree-ment."In some instances, an award of damages maynot fully compensate the injured party. If dam-ages are unavailable or inadequate, a party mayseek equitable relief. Equitable relief is un-available if there is an adequate remedy at law,"but a party can recover damages and equitableremedies for the components of the claim forwhich there is no adequate legal remedy."Among the equitable remedies a plaintiff maywish to pursue are specific performance," in-junctions, or a declaratory judgment of the par-ties' rights under the contract."According to Section 357 of the Restatement,specific performance generally is availableagainst a party who has committed or is threat-ening to commit a breach of a contractual duty.It is granted in order to produce, to the extentpossible, the same effect as if the party hadfully performed its contractual duties. Underthe same section, a party also may seek injunc-tive relief against a party who has threatenedor has committed a breach of - a contractualduty. Although the ultimate effect may be thesame, the primary difference between specificperformance and an injunction is that specificperformance seeks to enforce a contractual

r


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rWhat Call Be Done to 1:'/1/111"("('Mcdiat io): Agrccmcfl t. ()

duty, while an injunction directs a party to re-frain from doing an act that would constitute abreach of a contractual duty.Because of the equitable nature of specificperformance and injunctive relief, they are notavailable if the relief would cause unreason-able hardship or if the terms of the contract aregrossly inadequate or otherwise unfair, accord-ing to Section 364 of the Restatement. Section369 states that specific performance and in-junctive relief are available despite a breachby the party seeking relief, unless the breachwas sufficiently material to discharge the otherparty's duty to perform.Since settlement agreements are construedin accordance with contract law principles, thedoctrine of promissory estoppel should be ap-plicable to enforce a settlement agreement oth-erwise unenforceable as a contract. Under thepromissory estoppel doctrine, a promise thatthe promisor should have reasonably expectedwould induce action or forbearance by thepromisee is enforceable if injustice would re-sult were the promise not enforced." Mostcourts which have permitted recovery underthe doctrine utilize it when consideration islacking under traditional contract analysis.fAs an alternative to seeking enforcement ofa mediation agreement, counsel may wish toconsider incorporating the mediation agreementinto a consent judgment. The benefit of thisapproach is that a separate action need not beinstituted to seek recovery for a breach of theagreement. Instead, recovery can be obtainedmore expediously, and therefore less expen-sively, by requesting post-judgment proceed-ings." One disadvantage of this approach isthat the consent judgment will become a pub-lic document, thereby eliminating privacy."

ENFORCEMENT OF MEDIATIONAGREEMENTS UNDER STATUTES

As of 1990, 46 states plus the District ofColumbia had statutes that either require orencourage mediation. The vast majority of themediation programs are limited to specific sub-ject matter areas, such as labor and employ-ment disputes, divorce settlements, child cus-tody disputes, consumer complaints, civil rightsviolations, environmental and natural resourceconcerns, neighborhood disputes; debtor-credi-tor relationships, and even minor criminal com-plaints.

Page 333No programs have been found that are lim-ited to the construction field. Only five states-Colorado, Florida, Minnesota, Oregon andTexas-have legislatively created mediationprograms whose scope would encompass con-

struction-related disputes." The enforcementprovisions of the statutes vary, reflecting thedifferent contexts within which the mediationis to occur.A. Statutory Enforcement OptionsThe ABA Special Committee on DisputeResolution offered alternative enforcement pro-visions in its Model State Legislation on Me-

diation:"Option A: Agreements unenforceable unless soprovided. A written resolution agreement shallnot be enforceable in court nor shall it beadmissible as evidence in any judicial oradministrative proceeding unless such agreementincludes a provision which clearly sets forth theintent of the parties that such agreement shall beenforceable in court or admissible as evidence.Option B: Agreements enforceable. If theparties involved in a dispute reach an agreement,the agreement shall be reduced to writing andapproved by the parties (and their attorneys) andshall be presented to the court as a stipulationand, if approved by the court, shall be enforceableas an order of the court.

One commentator has suggested additionaloptions, including (l) mediated agreements areenforceable to the extent permitted by com-mon law contract principles; (2) mediated agree-ments are enforceable only when the agree-ment contains an express clause stating that

66. RESTATEMENT 90(1). Dulany Foods Inc. v. C.M.Ayers. 260 S.E.2d 196. 204 (Va. 1979); Smith v. Lef rakOrganization Inc., 531 N.Y.S.2d 305 (App.Div. 2d Dep't1988); LaMarque v. North Shore University Hosp., 502N.Y.S.2d 219 (App.Div. 2d Dep'tI986).67. See CALAMARI& PERILLO,CON'ffiACI'S 105(1970).68. United States v. Armour & Co., 402 U.S. 673, 681(1970); ROGERS& SALEM, supra note 56, at 159; Payne,supra note 47, at 402-04.69. ROGERS& SALEM, supra note 56, at 162, and casescited therein.70. COLO. REV. STAT. 13-22-301 et seq.; FLA. STAT. 44.1011 et seq.; MINN. STAT. 572.3yet seq.; OR. REv.STAT. 36.100 et seq.; TEx. C1v. PRAC.& REM.CODEANN. 152.001 et seq. In addition, there are local court rules thatallow trial judges to refer construction disputes to media-tion.71. LAWRENCER. FREEDMAN,LEGISLATIONON DISPlJfERESOLUTION87 (1984).


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Page 334the mediation will be enforceable in a court oflaw; (3) mediated agreements will be gener-ally enforceable unless the parties expresslyagree that it is unenforceable; and (4) medi-ated agreements are never enforceable, even ifthe parties expressly agree to their enforceabil-ity."B. Enforcement StatutesAmong the five states with statutes broadenough to include construction contracts, two--Florida and Oregon-are silent on enforcement.

Texas provides that if parties to a mediationreach and execute a written agreement resolv-ing the dispute, the agreement is enforceablein the same manner as any other written con-tract. Minnesota includes additional precondi-tions to the enforcement of an agreement toensure that the parties fully intended to enterinto an agreement that would bind their inter-ests. Minnesota also departs from common lawcontract principles by providing that a courtmay set aside or reform a mediated agreementif appropriate under principles of contract lawor if there was "evident partiality, corruptionor misconduct by a mediator prejudicing therights of a party." The statute adds, "That therelief could not or would not be granted by acourt of law or equity is not grounds for set-ting aside or reforming the mediated settle-ment agreement unless it violates publicpolicy."Mediation statutes often include provisionsrequiring the review and acceptance of the me-diation agreement by a court or governmentalagency before the agreement becomes enforce-able. These requirements reflect a concern thateven in private mediation, there are public in-terests that must be protected. The nature ofthe subject area covered by the statute wiII

72. Burns. supra note 19. at 95.73. See, e.g., MINN. STAT. 518.619(7) (child custodyagreement not enforceable unless adopted by court) .74. See, e.g.,MINN. STAT. 583.26(9)(a) (writ ten me-diation agreement submitted to rural f inance authori ty forapproval of debt restructuring).75. COLO. REV. STAT. 38-12-216(2) (in mobile homepark landlord situation. agreement submitted as stipulationfor approval of court).76. OKLA . STAT.tit. 12. 1801-1813.77. WASH. REV.CODE 7.75.040.78. 875 F.2d 741 (9th Cir. 1989).79. 810 S.W.2d 318 (Tex.App. 1991).


determine the degree of interest that societyhas and will retain in the outcome of media-tions.An example is Colorado's statute, which re-quires the court that originally referred the dis-pute to mediation to approve the result reachedby the parties. Similar review and approval re-quirements are required universally in domes-tic relations mediation," and also are found insuch areas as farm mediation 74 and landlord-tenant disputes."Mediation statutes also address the circum-stances under which the statute of limitationswill be tolled. For example, Oklahoma pro-vides that during the mediation process all ap-plicable statutes of limitations are tolled as tothe participants." Similarly, Washington pro-vides that any applicable statute of limitationsis tolled from the signing of the pre-mediationagreement until the execution of the final me-diation agreement."C. Case Law Interpreting MediationLegislationAn example of an unsuccessful attempt toenforce a mediation agreement resulting froma mandatory mediation is Barnett v. Sea LandService Inc.78 Barnett involved the mediationof a longshoreman's claims against a vesselowner under a local rule of the U.S. DistrictCourt for the Western District of Washingtonrequiring mediation agreements to be in writ-ing to be enforceable. The owner believed thata settlement had been reached, although it wasnot put in writing. The longshoreman arguedthat there was no agreement because there hadbeen a mutual mistake regarding the terms ofthe settlement.The trial court refused to allow the mediatorto testify regarding the existence of an agree-

ment because it was undisputed that no agree-ment had been executed. The Ninth Circuitaffirmed. It did not address whether' there hadbeen a mistake, because "until the settlementis reduced to writing, it is not binding on theparties." The effect of the rule was to renderunenforceable what might bave been an en-forceable oral settlement agreement.In Rizk v. Millard,79 a Texas case, an inven-tor and his investor agreed, after suit was filedby the investor, to mediate their dispute. Theparties successfully reached an oral agreement


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What Can Be Done to Enforce Mediation Agreements?in the mediation and prepared a written agree-ment, but they failed to sign it. The defendant-investor later told the plaintiff he could notmeet the financial obligations he had agreed toin the mediation agreement and suggested thecase be rescheduled for trial. The plaintiffmoved for sanctions alleging that the defen-dant's actions violated the mediation agreement.The trial court considered mediation to be a"discovery tool" and found that the defendanthad abused discovery by disavowing the agree-ment. It granted the plaintiff's motion for abuseof discovery, struck the defendant's pleadingsand entered a default judgment for the plain-tiff. The Texas Court of Appeals reversed, re-lying on a Texas procedural rule requiring allsettlement agreements to be in writing. Untilthe agreement was signed, the court said, thedefendant had a right to revoke his consent.In Bennett v. Bennett." a Maine case, a hus-band appealed from a judgment granting hiswife a divorce. The husband argued that thetrial court erred by denying his motion to com-pel his wife to sign a mediation agreement al-legedly reached between the parties. The hus-band relied on a Maine statute that authorizedthe court to submit disputes to mediation andprovided that any agreement reached by par-ties through mediation was to be reduced towriting, signed by the parties and submitted tothe court as a court order." The husband ar-gued that because his wife failed to sign theagreement to which she had assented, the stat-ute mandated that the court order the wife tosign the agreement and submit it to the courtfor an order.The Maine Supreme Judicial Court disagreed,stating that if a court were required to do that,it would have to engage in the "time-consum-

ing process of exploring what transpired be-tween the parties during the course of the me-diation in order to determine if they had reachedany agreement and, if so, the actual terms ofthat agreement." This was "contrary to andwould undermine the basic policy of the me-diation process that parties be encouraged toarrive at a settlement of disputed issues with-out the intervention of the court."ENFORCEABILITY OF PRE-MEDIATION AGREEMENTS

Before a mediation begins, an agreement usu-ally is signed by the parties and the mediator,

Page 335which, among other things, addresses the de-gree to which the mediation will be confiden-tial and the mediator's duties. If the agreementmeets the criteria for a contract, it will be en-forceable subject to the contractual defensesdiscussed above.Among the issues that can arise concerninga pre-mediation agreement are whether thepromises to mediate and to keep the mediationconfidential are enforceable and whether lan-guage limiting the mediator's duties can beused as a defense by the mediator if sued byone of the participants.A. Enforcement of a Promise toMediate1. Voluntary MediationVoluntary mediation can result in one of twoways. First, parties who do not have a pre-existing contractual relationship or whose con-tract does not contain a mediation clause mayagree to mediate their dispute. Second, a con-tract may require that the parties mediate theirdispute before they can initiate litigation.Since parties cannot be compelled to reachan agreement through mediation, at first blushit might seem that it would accomplish little toorder a party to participate in "voluntary" me-diation, but several courts that have consideredthis issue have ordered parties to mediate be-- fore they are permitted access to the courts.In AMF Inc. v. Brunswick" the parties re-solved an earlier dispute with a consent decreeproviding they would submit future disputes toa third party for a non-binding, advisory opin-ion. The subject suit was brought by AMF tocompel Brunswick to release data supportingits advertising claims regarding a new product

to a third party for an advisory opinion. AMFargued that the Federal Arbitration ActH3 wasapplicable and that it required the parties par-ticipate in the non-binding process to whichthey had agreed. Brunswick countered that sincebinding arbitration was not required by the con-sent decree, the act was not applicable.The federal district court held that the non-binding process required by the consent decree

80. 587 A.2d 463 (Me. 1991).81. 19ME.REv. STAT. 665.82. 621 F.Supp 456 (E.D. N.Y. 1985).83. 9 U.S.C. 1et. seq.


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Page 336was a viable means, like arbitration, to settledisputes. Requiring that the parties attempt toresolve their dispute through the non-bindingprocess was consistent with the goals of theact, it continued, and therefore the act was ap-plicable. It ordered Brunswick to participate inthe process.The court stated that it would have enforcedthe clause under contract law principles if theact were not applicable. Specific performanceof the clause would have been an appropriateremedy, it said, because a remedy at law wouldbe inadequate since it could only "approximatethe skilled, speedy and inexpensive efforts avail-able by way of specific performance.?"The AMF holding is significant because itprovides a basis to argue that if mediation canbe compelled under the Federal Arbitration Act,a mediation agreement also should be enforce-able under the act's enforcement provisions.There are fundamental differences, however,between a contested arbitration proceeding un-der the act and a voluntary mediation. No casehas been found in which a court has consid-ered whether a mediation agreement is enforce-able under the actEnforcement of a promise to mediate onlybegs the question whether there is an effectivemeans by which parties can be forced to medi-ate ''voluntarily'' in good faith. Contracts andpre-mediation agreements often contain an ex-press promise that the parties will mediate ingood faith. Even if a good faith clause is notincluded, most courts will read an implied cov-enant of good faith and fair dealing into theagreements."One can easily imagine situations in which afailure to mediate in good faith could supporta claim for damages. For example, assume A,not wishing to mediate, makes an unreason-

84. See also Devalk Lincoln Mercury Inc. v. Ford Mo-tor Co.. 811 F.2d 326 (7th Cir. 1987) (affirming dismissalbecause plaintiff failed to comply with mediation clauseprior to suing); Yaw v. Walla Walla School Dist. No. 140,722 P.2d 803 (Wash. 1986) (referring to agreement to me-diate disputes between employer and employee, court noted,"Washington courts have long required parties to followdispute resolving methods they have contracted to beforethey may resort to the courts").85. See Steven J. Burton, Breach of Contract and theCommon Law Duty to Bargain in Good Faith, 94 HARV. L.REv. 369, 404 (1980), for a list of jurisdictions recognizingthe general obligation of good faith.86. 530 F.Supp. 1330(S.D. N.Y. 1982).

DEFENSE COUNSEL JOURNAL---July 1992able demand known to be unacceptable to Band otherwise refuses to participate in the me-diation. A, following the termination of themediation, sues B. A's suit is ultimately de-feated by a motion for summary judgment. Inthis situation, B could argue that it is entitledto damages for A's breach of the implied cov-enant of good faith and fair dealing in the pre-mediation agreement. B would argue that thecourt's finding that there were neither factsnor law to support A's allegations is circum-stantial evidence that had A mediated in goodfaith, A would have reached an agreement be-cause of the weakness of its position.Case law in this area is difficult to reconcile.Several decisions hold that damages cannot besought for a breach of a promise to negotiatein good faith because the promise is nothingmore than an "agreement to agree," which isunenforceable.In Candid Productions Inc. v. InternationalSkating Union'" Candid was in the business ofpurchasing television rights to ice skating com-petitions. The union, which was the governingbody for amateur competitive skating, had hada contract with Candid for a number of years.Included in the contract was a clause that re-quired the union to negotiate in good faith withCandid over the broadcasting rights to its skat-ing championships. The contract also gave Can-did the right to match an offer by a third partyif an agreement was not reached in the parties'initial negotiations. The parties were unable toreach an agreement, and the defendant signeda contract with CBS.Candid alleged in its action that the unionhad breached its promise to negotiate in goodfaith by having contract discussions with CBSbefore it had begun negotiations with the plain-tiff. The union conceded, for purposes of itsmotion for summary judgment, that it did notnegotiate in good faith, but it argued that thegood faith negotiation clause was unenforce-able because of vagueness.The U.S. District COUu for the Southern Dis-trict of New York stated that when a duty toperform is definite and the contract provides areference by which a defendant 's performancecan be evaluated, courts will enforce a duty ofgood faith negotiations in order to prevent aparty escaping from the obligation it contractedto perform. But here, the court held, the clausein dispute was unenforceable because the par-


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Whar Can Be Don to Enforce Mediation Agrcemenss?

ties had not agreed to do anything other thanto try to reach an agreement."A different result was reached by the ThirdCircuit interpreting similar language in Chan-

nel Home Centers v. Grossman= Channel wasa prospective tenant in a mall owned by thedefendant. The defendant had executed a de-tailed letter of intent acknowledging that as aninducement for Channel to enter into a lease,the defendant agreed to withdraw the store fromthe rental market and to negotiate with Chan-nel for a mutually agreeable lease. After pro-posed lease terms had been exchanged and dis-cussions were still in progress, the defendantleased the space to one of Channel's competi-tors. Channel's motion for a preliminary in-junction was denied, and the trial court enteredjudgment on the merits for the defendant, find-ing the letter of intent was unenforceable forlack of consideration.On appeal, the defendant argued that a prom-ise to negotiate in good faith is enforceableonly if the parties have otherwise reached anagreement of the underlying transaction. TheThird Circuit reversed, acknowledging that anagreement to enter into a future contract isunenforceable but concluding that the letter ofintent contained an unequivocal promise by thedefendant to withdraw the store from the mar-ket and to negotiate the proposed leasing trans-action in good faith. The court found that therewas compelling evidence from which to con-clude that the parties intended their promisesto be binding. The court held that the letter ofintent had sufficient specificity to render it anenforceable contract for which Channel couldrecover damages if it was able to prove thatthe defendant failed to negotiate in good faith."Even if a claim for breach of an express orimplied duty to mediate can be asserted, theparty making the claim will have considerabled if fic ulty p ro vin g th e cla im if c on fr on te d w itha broad rule of confidentiality. Without evi-dence of the positions taken by the parties inthe mediation, it would be difficult to provethat the defendant failed to mediate in goodfaith.Despite the difficulties in proving a claim ofbad faith, it nevertheless may be tactically ad-visable to seek an order compelling mediationbefore litigation. That might make sense if onefeels that bad legal advice or a misunderstand-ing of the facts is precluding the parties from

Page 337reaching an agreement. Mediation would offeran environment in which the principals couldtalk to each other without their attorneys ob-structing the dialogue. The suggestions andopinions of an unbiased mediator might causethe parties to rethink what had been dogmaticpositions.2. Mandatory MediationUnlike arbitration, which resolves a disputeregardless of whether a party actively partici-pates, mediation cannot succeed unless anagreement is desired by both parties. In an ef-fort to put "teeth" into legislatively mandatedmediation, some statutes try to define good faithin order to give a court standards to evaluateclaims of bad faith mediation. For example,Minnesota attempts to define "good faith" in

its Farmer-Lender Mediation Act,90but the caselaw suggests that even with objective standards,it is difficult to show that a party mediated inbad faith.In Obermoller v. Federal Land Bank of SaintPaut" the bank participated in a mediation un-der the terms of the Minnesota act, despite itscontention that the act did not apply to thedispute. Following an unsuccessful mediation,the farmer sought an injunction against the bankto halt foreclosure on his farm, arguing thatthe bank had mediated in bad faith. To supporthis claim, the farmer pointed to the fact thatthroughout the mediation, the bank continuedto assert that the law did not require it to medi-ate the dispute. The bank argued that it did nothave to attend the mediation sessions and that

87. See also Alaska Creamery Prod. Inc. v. Wells, 373P.2d 505, 510 (Alaska 1962); First Nat'! Bank of Marylandv. Burton, Parsons & Co., 470 A.2d 822 (Md.App. 1984)( commerci al a g re ement s 10 n eg otiate o n te rm s an d co nd i-tions to be decided unenforceable).An analogous line of cases holds that specific perfor-mance wi ll not be ordered for personal service contract s.See, e.g., In re Taylor, 91 B.R. 302 (D. N.J. Bankr. 1988);In re Noonan, 17 B.R. 793 (S.D. N.Y. Bankr, 1982);Podlesnick v. Airborne Express Inc., 627 F.Supp. 1113 (S.D.Ohio 1986), aff'd, 836 F.2d 550 (6th Cir. 1987).88. 795 F.2d 291 (3d Cir. 1986).89. See also Thompson v. Liquichimica of Am. Inc.,481 F.Supp 365,366 (S.D. N.Y. 197 '1)("agreement to agree"is not closed proposition, in contrast to agreement to usebest efforts to conclude agreement, which is "closed propo-sition, discreet and actionable").90. MINN. STAT.583.27.91. 409 N.W.2d 229 (Minn.App. 1987).


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Page 33S"by being present it had gone beyond whatwas required."The trial court denied the request for an in-junction, and the Minnesota Court of Appealsaffirmed. The court noted that the farmer hadnot submitted an affidavit of the mediator andthat without such evidence it would be verydifficult to conclude whether a party had me-diated in bad faith. The court also held that thebank's refusal to abandon its claim as to theapplicability of the act did not constitute badfaith.Similarly, in Rizk v. Millard" the Texas Courtof Appeals held that the defendant's decisionto repudiate a mediation agreement to which ithad assented but had not signed was not abreach of the duty to mediate in good faith.B. Enforceability of Confidentiality ClausesMost pre-mediation agreements include aprovision that the mediation sessions will beconfidential and that the mediator will not be

called on to testify in court as to what tran-spired during the mediation. Since an agree-ment of confidentiality involves, of necessity,a waiver of the constitutional right of subpoena,it can be subject to close scrutiny.Even if a pre-mediation agreement passesthe constitutional test, some courts may stillnot enforce a confidentiality clause for publicpolicy reasons." Simrin v. Simrin" illustratesthe conflicting policies examined by courts inenforcing confidentiality agreements.Simrin was an action to modify a divorce

92. 810 S.W.2d 318 (Tex.App. 1991).93. See Protecting Confidentiality, supra note 35, at 450(validity of contracts restr ict ing use of evidence in judicialproceedings is subject to "some doubt"); JAY FOLBERG&ALLISONTAYLOR,MEDIATION:A COMPREHENSIVEUIDETORESOLVINGCONFLICTSWITHOUT LITIGATION271 (1986)(court would not necessarily be bound to honor private con-tract, although it may be persuaded by public policy con-siderations to do so).94. 43 Cal.Rptr. 376 (CaI.App. 1965).95. 618F.2d51 (9thCir.1980).96. See T ru ste es of L eale and W atts O rphan H ou se inCity of New York v. Hoyle, 139 N.Y.S. 1098, 1099 (Sup.Ct.Westchester Cty, 1913) (court will not be ousted of right toconsider evidence by provision in lease that lease not beput into evidence); Cronk v. New York, 420 N.Y.S.2d 113,118 (N.Y. Ct.CI. 1979) (citing Boyle, court concluded pro-vision that attempted to prevent court from considering le-gally competent evidence void as against public policy).But see Note, Contracts to Alter the Rules of Evidence, 46HARV.L. REV. 138, 142-43 (1932) (contract to deprive courtof relevant testimony is impediment to ascertaining facts).

DEFENSE COUNSEL JOURNAL--July 1992

decree. The divorced wife called as a witnessthe rabbi who had mediated the divorce settle-ment. He declined to testify, asserting that theparties had agreed expressly that their conver-sations would be confidential and that neitherwould call him as a witness in any subsequentlegal action.On appeal from the order modifying the cus-tody decree, the wife argued that the trial courthad erred by not ordering the rabbi to testify.The California District Court of Appeal af-firmed, although it acknowledged that honor-ing the agreement sanctioned a contract to sup-press evidence, contrary to the public policy ofpromoting the admissibili ty of all relevant evi-dence. A countervailing public policy favorsprocedures designed to protect marriages, andwithout confidentiality, the process of marriagecounseling would be frustrated.Similarly, the NinthCircuit in National La-bor Relations Board v. Macaluso" concludedthat encouraging effective mediation is a suffi-ciently important public interest to overcomethe court's desire to hear all relevant evidence.The parties to a labor dispute gave two verydifferent views of whether they had reached anagreement in the mediation, and the mediator'stestimony was the key to resolving theonflicting testimony. Noting that eliminatingthe mediator's testimony "conflicts with thefundamental principle of Anglo-American lawthat the public is entitled to every person'sevidence," the court nonetheless revoked the

subpoena served on the mediator.Other courts and commentators have reachedthe opposite conclusion, arguing that confiden-tiality provisions should be unenforceable as amatter of public policy."Before a party agrees to include a broad con-fidentiality clause in a pre-mediation agreement,it should consider whether it may b e tacticallydisadvantaged by the clause during the media-tion by not being able to discuss publicly in-formation revealed in the mediation. For ex-ample, if a contractor bidding on several largejobs believes it may soon be defaulted on aproject in progress and wants to prevent ru-mors of the possible default from adverselyaffecting its chances of ting awarded a con-tract, it might suggest to its surety and theowner that they mediate their dispute. Undersuch circumstances, absent a confidentialityclause, the owner would enjoy some leverage

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What Can Be DOlle to Enforce Mediation Agreements?over the contractor. A broad confidentialityclause in a pre-mediation agreement, however,would prevent the owner from publicly dis-closing the contractor's problems, therebyeliminating some of its settlement leverage.Moreover, if the owner revealed informationduring the mediation and shortly thereafter thecontractor's bids on the other projects wererejected, the contractor could argue that it wasinjured by the breach of the confidentialityclause and entit led to damages.C. Enforcement of Pre-Mediation Clauses

Intended to Immunize MediatorsPre-mediation agreements typically containone or more of the following propositions towhich the participants are asked to agree: (1)the mediator is not a judge; (2) the mediator

has no authority to compel parties to reach anagreement; (3) the participants acknowledge theimpartiality of the mediator; (4) the parties ac-knowledge the integrity of the mediation pro-cess; (5) the parties acknowledge that the me-diator does not stand in a fiduciary capacity orserve as an advocate or counsel for any party;and (6) the parties agree that the mediator hasno coercive authority to make a binding deci-sion and is not under a duty to provide legaladvice.The intent of these clauses is to limit bycontract the legal liability of mediators by at-tempting to narrowly define their duties. If amediator functions as a fiduciary notwithstand-ing the pre-mediation agreement, it is unclearwhether a mediator could "enforce" the pre-mediation agreement as a defense to a claimthat he breached his fiduciary duty.Compelling arguments can be made that me-diators, despite contractual denials, do func-tion as fiduciaries. One test is whether the in-jured party "justifiably trusted" the mediator.Virtually all courts and commentators acknowl-edge the need for trust and confidentiality inthe mediation process. It would be difficult formost mediators to argue that the participantswere not justified in trusting them.No cases have been found that addresswhether a pre-mediation agreement that deniesthe existence of a fiduciary relationship can beused to defeat a claim that a fiduciary relation-ship existed and that a breach of the fiduciary

Page 339duties injured one of the participants. If partiesare told by a mediator that, in order to facili-tate the mediation process, they should be hon-est, candid and open with the mediator, courtsmay not be receptive to arguments that a fidu-ciary relationship cannot be found. It remainsto be seen how willing courts will be to en-force mediators' efforts to curtail their legalresponsi bili ties. 97

CONCLUSIONMost jurisdictions have mediation legislationor court rules requiring mediation in specificsubject matter areas. Relatively few states haveenacted mediation legislation sufficiently broad

to encompass construction disputes. States thathave mediation legislation applicable to con-struction disputes differ in the degree to whichthey enforce a mediation agreement.Absent legislation, a mediation agreement,whether written or oral, is enforceable subjectto common law contract principles. With re-spect to an oral agreement, proving its termsmay be difficult, depending on the degree ofconfidentiality imposed on the mediation pro-cess. Counsel should reduce an oral mediationagreement to writing promptly and include inthe written agreement an acknowledgement ofthe parties' intent to be legally bound by theagreement.One way to enforce a mediation agreementwithout instituting a separate enforcement ac-tion is to incorporate the mediation agreementinto a consent decree. However, a consent de-cree will deprive the parties of the privacy pro-vided by the mediation.Finally, despite the voluntary nature of me-diation, it may make sense to seek a court or-der compelling a party to fulfill its contractualpromise to mediate, particularly if the partyexpressly promised to mediate in good faith.Although the law in this area is not clear, au-thority exists to provide a basis to seek legal orequitable remedies in these circumstances.

97. For a discussion of attempts to lW'oidthe "fiduciaryrelationship," see Chaykin, supra note 55, at 736-44.Chaykin refers to the concept of "justifiable trust" as the"essential consideration" in determining whether a fiduciaryrelationship exists.

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Enforcing Mediation Agreements

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