It’s been a long mediation day, to say the least. You’ve been trying to negotiate a settlement of this matter for months. You and your client have dedicated the time and expense to mediation, but it seems like it’s “more of the same” from the other side.
There have been ups and downs, breaks and break-downs. You feel like you are trying to advance the ball, just to be blocked short of any forward progress. The day goes on and on, and it’s down to the end of the fourth quarter and there is still no agreement. You want to give up, but the mediator tells you to hold on, to trust the process and to keep working. You can’t imagine why she remains optimistic.
Then it starts to happen. The ball starts moving. You feel just a hint of hope again and slowly you start to feel the momentum shift toward resolution. At the final hour, the key terms of a deal are reached.
Everyone is exhausted and ready to call it a day. Opposing counsel jots down the following:
“Plaintiff agrees to resolve the matter for $210,000 and Defendant agrees to pay such amount plus the mediator fees.”
You and opposing counsel agree that you will exchange final, draft settlement agreements within the week, and you and your client sign the document.
Was this a touchdown? Or, was it a fumble at the goal line? Is the above writing a final, binding settlement agreement?
Jill Hamill Sopha , U.W. 1996, of Sopha Mediation LLC, is an employment attorney who uses her experience in both legal and human resources – most recently, as chief counsel, Human Resources, for Harley-Davidson – to help parties efficiently and effectively resolve workplace disputes and litigation through mediation.
The Seventh Circuit provides some guidance in Beverly v. Abbott Laboratories, 7th Cir., No.15-1098 (March 16, 2016). In Beverly, the Seventh Circuit held that a handwritten term sheet drafted at the end of a mediation session contained sufficient terms to create a binding settlement agreement.
Martina Beverly sued her employer Abbott Laboratories for employment discrimination and retaliation. After a 14-hour private mediation session, the parties signed a handwritten agreement stating as follows:
I, Jon Klinghoffer will commit that my client will communicate to its internal business client the fact that Abbott/AbbVie has offered $200,000 + Abbot/Abbvie cost of mediation to resolve this matter and that Martina Beverly has demanded $210,000 + Abbot/Abbvie cost of mediation to resolve this matter. Both parties committ [sic] that their offer and demand will remain open until Tuesday, July 22, 2014, 3:00 PM central.
On the following day, Abbott Labs offered the $210,000 demanded plus mediation costs, and sent a written settlement agreement to Beverly’s counsel. The written settlement agreement closely mirrored a template settlement agreement that had been provided to Beverly’s counsel a day before the mediation.
Beverly declined to sign the settlement agreement, and argued that the handwritten mediation term sheet was merely a non-binding agreement to execute a binding settlement agreement at a future date. Abbott filed a motion to enforce the handwritten term sheet.
The district court upheld Abbott’s motion, and found that the parties had entered into a binding settlement agreement that included all materials terms – specifically, the dismissal of the case in exchange for $210,000 and mediation costs. Beverly appealed.
The Seventh Circuit upheld the District Court’s decision. The Seventh Circuit held that the question of whether a settlement agreement exists is a question of law that it will review de novo, and that state contract law governs issues concerning the formation, construction, and enforcement of settlement agreements.
Although the Beverly case was analyzed under Illinois state law, in addition to understanding the basics of your state’s contract laws, there is valuable guidance in the decision for all litigators who mediate cases. Specifically:
- Know Your Intent. Be deliberate and thoughtful about what kind of agreement you are seeking. For example, are you seeking a final, binding agreement executed at the mediation session? Are you seeking a final, binding agreement on key terms, but wish to handle other non-material terms at a later date? Are you only intending an “agreement to agree,” i.e., agreeing to continue discussions to see if a final, binding agreement can be reached? Are you seeking some other type of agreement or non-agreement?
- Consider Whether to Document Such Agreement. Although it seems self-evident that parties and their counsel would want to document an agreement reached at mediation, there are times when a decision is made not to document an agreement. Of course, if a binding agreement is intended, not documenting it could be a risky approach vulnerable to a challenge to enforceability – but ultimately, it is the parties’ and their counsels’ call whether and when to document an agreement.
- Be Clear in the Writing. If you do decide to draft a term sheet, be sure that it is carefully drafted. For example, if you believe that you’ve reached a final, binding decision, document it in the term sheet. If you don’t want all or part of the term sheet to be binding until a more detailed or final writing is finalized, put it in the term sheet. In Beverly, the 7th Circuit found that it doesn’t take full blown settlement agreement to create a binding agreement. In fact, the above language – basically only that Beverly offered to “resolve this matter” if Abbot paid a certain sum – was found to be sufficient.
- Consider Exchanging or Bringing a Draft Term Sheet or Settlement Agreement. The more clearly that the writing accurately and properly reflects any agreement, agreement to agree, or non-binding agreement, the less likely there will be any dispute. Counsel should consider whether to exchange draft language of a term sheet or a final settlement agreement prior to the mediation session to decrease the chance of a mistake or miscommunication at the eleventh hour.
- Be Careful Signing Documents. If you or your client are unclear or unsure with respect to a written term sheet or final written agreement, consider modifying the writing or do not sign it. Of course, if you and your client approve of the terms agreed to at the mediation and want to best ensure enforceability, you should consider insisting on a signed agreement before leaving the mediation.