May an Oral Settlement Agreement Reached Through Mediation Be Enforced by the Court?

In a recent case, the Appellate Division of the Superior Court of New Jersey held that an oral settlement agreement reached during a mediation session could be enforced. However, the party seeking to enforce the mediator’s decision would need to waive his right to confidentiality of the mediation proceedings.  N.J. Ct. Rule 1:40-4(d).  Willingboro Mall, Ltd. v. 240/242 Franklin Avenue, L.L.C.  421 N.J. Super. 445 (N.J. Super. 2011).

On Feb. 2, 2005, plaintiff agreed to sell a Willingboro Township property to defendants. Id. at 449.  In a separately executed indemnification agreement, the defendants also agreed to pay the fines and penalties imposed on the property by the township. Id. On Aug. 22, 2005, plaintiff filed a foreclosure complaint alleging that the defendants defaulted on their obligation to pay the fines and penalties.  Id.  Defendants responded by asserting that foreclosure should not be granted because no such default had occurred. Id.

The General Equity Judge referred the parties to mediation. Id.  On November 6, 2007, the parties and their attorneys attended a mediation session at which the parties reached a settlement. Id. Three days after the mediation session, the defendant’s attorney sent a letter memorializing the terms of the settlement.  Id. Two weeks later, the defendants’ attorney sent another letter to the court and the plaintiff informing them that he had placed $100.000 in the escrow as settlement funds. Id. at 450.

Plaintiff claimed that no final, binding settlement agreement was reached at the mediation session. Id. Defendants’ responded by filing a motion to enforce the mediation settlement. Id.  Following discovery, five witnesses including the mediator testified at a hearing.  Id. at 451. The lower court held that the parties had reached a final, binding settlement at the mediation session. Id.  Plaintiff appealed, arguing that under Rule 1:40-4(i), the oral settlement was not enforceable because it did not meet the following criteria:

1)      It was not reduced to writing at the mediation session.

2)      A copy of the settlement was not given to each party.

3)      The parties did not sign the writing at the mediation session.

The Court considered the express terms of the rule governing mediation which states:

            R. 1:40-4(i)

The Court held that the rule does not require the parties to reduce the settlement agreement to writing at the mediation session, nor does it provide that all parties should receive a copy of the writing before leaving the mediation session. Id. at 453. “A delay of three days to memorialize a settlement reached through mediation does not vitiate the settlement.” Id. at 454. Thus, the Court rejected the plaintiff’s argument that the rule requires “contemporaneous reduction of the terms to writing and obtaining signatures on the document at the mediation” session.  Willingboro Mall, Ltd. v. 240/242 Franklin Avenue, L.L.C.,  421 N.J. Super.  445, 453 (N.J. Super. 2011).

Accordingly, the oral agreement was enforceable.