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Authored - NJ Contract Law Update - Fusaro and Rutigliano: (1) A Contract Can Arise in a Non-Contract Setting; and (2) How Do You Enforce A Mediated Settlement?
OCTOBER 18, 2012 | Windels Marx - Commercial Litigation

Fusaro

Fusaro v. Fusaro, ___ N.J.Super. __, 2012 WL 4475440 (N.J.App.Div. 2012), illustrates how a contract can arise in a non-contract setting. Specifically, when a matrimonial or other case proceeds to an ostensible settlement, the issue becomes one of contract terms as to the settlement, and the underlying issues become less signifcant.

Fusaro also highlights some of the issues relating to enforcing a mediated settlement agreement. Where (as in Fusaro) an ostensible settlement is (1) reached and memorialized by the mediator (who would obviously be the main witness, in the normal course), but (2) not signed by the parties, New Jersey Court Rule 1:40-4(c) burdens a party's ability to enforce the settlement. By his/her memorialization (as in Fusaro), the mediator essentially represents that a settlement was reached; but then the mediator cannot testify, under prevailing law1, absent an express or implied waiver. See, Rutigliano v. Rutigliano, 2012 WL 4855864 (N.J.App.Div. Oct.15, 2012); Willingboro Mall, Ltd. v. 240/242 Franklin Ave., LLC, 421 N.J.Super. 445 (App.Div. 2011), certif. granted, 209 N.J. 97 (2012).

The proponent of the settlement is thus at a handicap.2 However, (as in Fusaro), "the substance of the mediation communication"--such as a settlement agreement, presumably--can be "establish[ed]...in any such proceeding by independent evidence." R. 1:40-4(c). Fusaro does not cite this Rule, but that is effectively what happened.

Rutigliano and Willingboro

The courts in Rutigliano and Willingboro went further, although with the simplifying assistance of the parties' conduct effecting a waiver in each instance. The question still left open is how to deal with a potential injustice absent a waiver--in terms of a valid settlement becoming unenforceable as a practical matter, when the parties do not 'help' the court come to an easy decision with their 'waiving' conduct.

In Willingboro, the parties agreed to a settlement at a mediation session ordered by the Court. Thereupon, "counsel for defendants wrote a letter to the [court]...to inform him that the parties had reached a settlement", reciting the terms thereof. Thereafter, "plaintiff refused to consummate the settlement. It asserted that a final, binding settlement agreement had not been reached at...mediation..." This resulted in a "plenary hearing", at which the mediator testified, in addition to one of the attorneys and certain party representatives.

The trial court then enforced the settlement. The "mediator's testimony" obviously carried the day.

On appeal, plaintiff argued that the R. 1:40-4(i) "writing" requirement mandated party signatures, in order to have a mediation agreement be enforceable. The Court disagreed; holding that the unilateral letter reciting the terms was a sufficient "reduc[tion] to writing" so as to satisfy the Rule, particularly when a complex mediation renders it impractical to draft a document 'on the spot'.

The Court also noted that as to the confidentiality provisions of the Rule, such confidentiality was waived or "breached": first, by the party seeking to enforce the settlement (defendant), through its letter--which should have been of little moment to the Court, where the putative breacher wanted to enforce; but then also by (1) the deposition of the mediator and (2) court rulings on the merits, all being (a) unobjected to and (b) not appealed from.

In Rutigliano, "after the mediation session was completed, the mediator [himself] advised the court that a settlement had been reached.", apparently with both parties' acquiescence. The Court then marked its docket accordingly.

Plaintiff's attorney then sent a letter disagreeing that a binding settlement had been reached. As in Willingboro, the plaintiff (opposing the settlement) said that the absence of a written settlement agreement--and the issue of confidentiality as to the mediation discussions--should carry the day in plaintiff's favor.

A plenary hearing followed, in which the trial court "determined not to consider testimony or certifications from either party's attorney or from the mediator." Notwithstanding the plaintiff's consistent 'anti-settlement' positions after the mediation, a waiver was found because (1) plaintiff (as well as defendant) "authorized the mediator to contact the court to advise that the matter had been concluded with a settlement" (or, at least, plaintiff did not contemporaneously oppose such a step despite knowing it was going to happen), and (2) the court thereupon marked the case settled.

The Rutigliano Court recognized (as it had in Willingboro) that the law does "present obstacles to enforcement of an oral agreement reached through mediation when the parties do not waive the confidentiality conferred on the proceeding". However, even though there may be no writing in the record embodying the settlement at all3, nonetheless, "[d]espite the lack of a written agreement, both parties knew the settlement terms and they agreed to all of them"; so that a "writing was not required to finalize the parties' settlement and ... the parties' oral agreement should be enforced".

Implicitly, the writing requirement in the Rule was being waived by the Rutigliano Court. Alternatively, the Court may have been saying that the parties' overall agreement--including the instruction to the mediator to advise the court of the settlement--somehow superseded the writing requirement.

Conclusion

When a mediator actually effectuates a settlement, he/she changes 'hats' conceptually--and is/no longer revealing truly 'confidential mediation material' when he/she supports the fact that a settlement was reached. (Indeed, the confidentiality concept was aimed at statements made by parties to effectuate a settlement, or even confidential assessments by the mediator--but not any resultant settlement itself.) However, the Rules and case-law do not fully recognize that distinction.

Therefore, if you achieve a mediation settlement of any matter (of any type--even a non-litigated matter), you are best advised to ask the Mediator to have counsel and parties sign a binding document4 (even a handwritten one if necessary) before leaving the mediator's presence5. Reciting the essential provisions, even in shorthand terms6, may do the trick. Another alternative is to sign something 'on the spot' appointing the mediator as the arbitrator of (a) the issue of whether a settlement was reached, and if so (b) its terms.7

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.


1 Lehr v. Afflitto, 382 N.J.Super 376, 395 (App.Div. 2006).

2 And the court system is thereby depriving itself of its best witness.

3 No document from the Rutigliano mediator was produced to the Appellate Division, even though one may have been sent; certainly there was not enough proof on the point.

4 The document can make clear that is binding even if collateral terms still need to be finalized. The court can imply those collateral terms.

5 Another possibility, if there is time (rare), is to summon a shorthand reporter to record the settlement and each party's assent. Or sometimes a sound-recording device is used. These procedures still leave open the "writing" requirement.

6 In a signed document expressly declaring the intent to be bound.

7 If the Arbitrator is thus, in a sense, a 'witness', presumably some sort of arguable 'bias' claim can be made if not expressly waived (or perhaps even then). But it is hard to conceive why the arbitrator would have any more of a bias (or lack of 'disinterestedness'), in that context, than a judge enforcing a settlement reached in court; though the frequent availability of a transcript in the latter case mitigates the issue.




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