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In construing a statutory exception to mediation confidentiality, the California Supreme Court held that a memorandum detailing the terms of a mediated settlement agreement did not fall within the exception because the inclusion of an arbitration provision did not satisfy the requirement that the settlement agreement include words of binding effect. As the Court explained, the exception requires a direct expression of binding intent.
In Fair v. Bakhtiari, No. S129220, 2006 WL 3630768 (Cal. Dec. 14, 2006), Fair sued Bakhtiari and several others, alleging that they cheated him in their business dealings.
The parties attended a two-day mediation session that culminated in a handwritten memorandum briefly detailing the terms of a settlement agreement. One of the settlement terms was a provision for arbitration stating: “Any and all disputes subject to JAMS arbitration rules.”
Following mediation, the parties advised the court that the case had been settled. However, the parties were unable to finalize the settlement, prompting Fair to file a motion to compel arbitration.
Fair’s motion to compel was based on the arbitration provision in the memorandum detailing the settlement agreement. In opposing the motion, Bakhtiari and his co-defendants argued that the memorandum was inadmissible under section 1119 of the California Evidence Code, which protects the confidentiality of communications made in the course of mediation.
Fair countered by arguing that the memorandum was admissible under section 1123(b), which exempts from mediation confidentiality a written settlement agreement “that provides that it is enforceable or binding or words to that effect.” According to Fair’s argument, the arbitration provision constituted “words to that effect.”
The trial court ruled that the memorandum did not satisfy the requirements of section 1123(b) and was therefore inadmissible. The court of appeals reversed, reasoning that the arbitration provision could only mean the parties intended the memorandum detailing the settlement agreement to be “enforceable or binding.”
The California Supreme Court (the Court) reviewed the matter and held that the memorandum was not admissible because it did not satisfy the requirements of section 1123(b). Specifically, the Court held that “to satisfy the ‘words to that effect’ provision of section 1123(b), a writing must directly express the parties’ agreement to be bound by the document they sign.” And the drafted language did not reflect that intent by the parties.
As the Court observed, the scope of the section 1123(b) exception is unique to California. Under section 6(a)(1) of the Uniform Mediation Act, mediation confidentiality does not apply to a settlement agreement signed by all parties. The memorandum would have been admissible under that standard since it was signed by all the parties.
Whether in California or any other state, it is critical to memorialize the full intent of the parties in a mediated settlement document. The extra effort that it takes to do so prevents prolonged litigation such as this.
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