Mediation: N.J. Appeals Court Reverses Settlement Agreement Enforcement, Finding (Web)

In JM Agency Inc. v. NAS Financial Services Inc., et al., No. A-5898-05T5 (N.J. Super. A.D. Aug. 3, 2007) (available at: http://www.judiciary.state.nj.us/opinions/a5898-05.pdf), New Jersey’s Appellate Division reversed a trial court order, concluding that a trial judge had mistakenly granted a defense motion to enforce a settlement by finding that a dispute about the terms was immaterial.

The opinion has not yet been approved for publication.

The plaintiff in the case had insisted that defendants admit liability, which was the unsettled point the trial judge had declared immaterial

The plaintiff sought recovery of a monetary judgment based upon commissions it was not paid; the opinion says that the plaintiff “produced a client” for the defendants.

After the defendants' motion to dismiss certain aspects of plaintiff's complaint was granted, the parties mediated to settle the recovery amount.

During the mediation, the plaintiff demanded $5,000. In the alternative, the plaintiff's counsel advised the defense that the plaintiff would accept a lower amount–about $2,300 to cover the commissions due–if the defendants admitted their liability.

The defendants’ first proposed settlement agreement provided that the payment was “not an admission of liability, but is made for the purpose of terminating all disputes and litigation between the parties.”

The plaintiff's counsel objected, and advised that plaintiff refused to negotiate further the agreement terms. The plaintiff’s lawyer “asserted that the matter ought to be returned to the active trial calendar.”

The defense revised the proposed settlement agreement. Instead of the language that the payment was not an admission of liability, it stated: “upon review of the coverage file . . . it was determined that $45,942.94 was received in premium payments, but no commissions were paid.”

The plaintiff refused to sign the agreement because, the per curiam Appellate Division opinion notes, it found that the statement and other references in the agreement were insufficient to convey the admission of liability that the plaintiff had bargained for.

Nevertheless, the defendants moved for enforcement of “the alleged settlement,” according to the opinion..

In granting the defense motion, the trial judge concluded that plaintiff had not “adequately explained . . . why it requires a stipulation of liability by the defendants rather than the language offered by the defendants.”

The judge also held that the disputed term “was not material to the settlement agreement,” according to the appeals panel’s opinion.. The judge entered a June 9, 2006, order enforcing the settlement agreement, and mandated that the plaintiff execute a stipulation of dismissal, the written settlement agreement, and a release in favor of the defendants.

The appellate court’s primary issue was whether there was a settlement agreement between the plaintiff and the defendant--specifically, whether the attorneys’ negotiations generated an enforceable settlement agreement, and whether defendant's admission of liability is a material or essential term.

As a general matter, the common law rules governing when a binding contract has been formed apply to this case: “A settlement agreement between parties to a lawsuit is a contract.” Nolan v. Lee Ho, 120 N...J. 465, 472 (1990)

The opinion goes on to note that “a binding settlement agreement is formed only when the parties agree on all essential terms and manifest an intention to be bound.” Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992).

The panel applied these rules, and concluded that “the trial judge mistakenly (a) placed the burden of persuasion on plaintiff, (b) failed to recognize that plaintiff had never agreed on the point in dispute, and (c) held the disputed term to be immaterial to the parties' undertaking.”

The trial judge’s finding that a binding agreement was formed, the opinion points out, “emphasized the well-established fact that ‘[s]ettlement ranks high in our public policy.’”

But the appellate panel found that invoking the public policy was erroneous because the question for the “trial court was not whether an existing settlement agreement should be enforced but whether a settlement agreement was ever formed.”

If a settlement agreement had been formed, the opinion says, it would have been appropriate to hold the plaintiff to the burden of demonstrating why it should not be enforced. “But, the opinion continues, “this approach applies only when a settlement agreement actually exists.”

The panel ruled that public policy favors enforcing a settlement agreement where the parties agree, and in a dispute whether they agreed on all of the alleged agreement's essential terns, the burden is on the defendants to demonstrate that a settlement agreement had been formed.

The trial judge also mistakenly held that the attorney's negotiations generated an enforceable settlement agreement. The panel warned that “careful consideration” of negotiations is needed when settlement talks are conducted by an attorney without the client’s direct participation.

“In such circumstances,” the opinion states, “a litigant will not be bound by an attorney's statements during negotiations unless the client has ‘specifically authorized’ the attorney to bind him or her.

The attorneys in the case discussed the terms and content of a settlement agreement at the mediation, and assumed they could agree on a agreement that would satisfy their clients. But the plaintiff balked at a draft because it omitted the defendants’ admission of liability. When subsequent drafts also failed to satisfy the plaintiffs, the parties' discussions ended.

Based on these facts, the court found that plaintiff never agreed to settle the suit on the terms imposed under the judge's order.

The appeals panel strongly rejected the trial judge's oral decision that the admission of liability is not material or essential: “What is material or essential ‘depends on the agreement and its context and also on the subsequent conduct of the parties. . . .”

Noting that the right to pursue relief in a trial court is fundamental, the panel noted that waiving the terms were sought by the plaintiff as consideration for its waiver.

Moreover, the panel noted, “the parties' actions during and subsequent to the settlement negotiations demonstrate their shared belief that whether defendants would admit liability was a material aspect of their nascent settlement agreement.”

The appellate court concluded that the record demonstrates that plaintiff “never evinced an intention to be bound to an agreement that did not include defendant's admission of liability and that the parties' failure to agree on that essential term precluded a finding that they had entered into a binding settlement agreement.”

–By Amrita Chadha & Esther SeonMin Lee, CPR Interns