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