In September, the court of appeals decided Paul R. Ponfils Trust v Charmoli Holdings, LLC.1 It’s a cautionary tale about mediation agreements.
What Happened in Ponfils
The action arose out of a 40-acre property in Ozaukee County that Charmoli Holdings and the Ponfils Trust jointly owned, and on which a quarry was previously operated by an affiliated entity.
At the end of a mediation, the parties drafted a handwritten mediation agreement that stated “this case is settled in full,” and set forth five paragraphs, providing that:
Charmoli Holdings would pay Ponfils Trust $500,000;
Ponfils Trust would quitclaim its interest in the 40-acre quarry to Charmoli Holdings;
Charmoli Revocable Trust – a nonparty – would quitclaim its interest in a separate 40-acre property in Marinette County to Ponfils Trust; and
the lawsuit will be dismissed on its merits.
The fifth paragraph indicated that “The parties agree to sign a separate substantive agreement covering such things as liability and indemnity in usual form.”
This final, fifth paragraph became the problem.
The remaining issues were not minor. The quarry had apparently accepted fill over the course of its operation and the possibility of environmental contamination and potential ongoing liability or cleanup existed. The parties could not reach agreement, and Ponfils Trust moved to enforce the mediation agreement. The circuit court granted the motion, but declined to identify the terms referenced in paragraph five, suggesting that the parties mediate that issue (no kidding).
The court of appeals disagreed, finding that paragraph five, which specifically identified a separate “substantive” agreement that did not specify the material terms to be included therein, rendered the entire agreement unenforceable for lack of definiteness.
So, what does Ponfils Trust mean for your mediation practice? Here are a few things to think about.
Accord the Written Agreement Its Importance
After a long, contentious mediation, the most difficult thing can be holding the parties when they think they have finally settled their case and want nothing more than to leave, because it’s finally over. It’s not. While the parties or their attorneys may think that the mediation agreement is largely a formality, you cannot.
If the agreement doesn’t accurately convey the agreement to a third party – such as the judge – then there’s a risk that it can’t be enforced if one of the parties has buyer’s (or seller’s) remorse. Taking the extra time can be vital.
The point is that, at the end of mediation, the agreement that memorializes it can’t be an afterthought – and I’m not suggesting that it was in Ponfils Trust. Indeed, I suspect that everyone likely understood what the fifth paragraph meant at the time. The difficulty is that after the fact, parole evidence from a mediation or testimony from a mediator simply isn’t going to be available.
Planning Ahead Is Helpful
Before the mediation, think about how it might resolve. The mediation submissions typically provide a decent roadmap for possible outcomes. Draft a preliminary settlement agreement that can be modified once the specific settlement comes together – but don’t be wedded to your draft. Every case has the potential to be different, even from similar cases. Make sure the agreement fits the case.
You can also consider soliciting settlement agreements from the parties. If they’re approaching mediation seriously, they will also have to think about how the case may settle, and if it does, what the settlement agreement will look like. If they have provisions that they know they or their clients will require, having those provisions at your fingertips to include in the mediation agreement will be helpful.
In a complicated case, don’t be afraid to craft the final agreement so that the parties can execute it right there. That’s where the preliminary agreement comes in handy. If you’re mediating at your office with access to a computer, this is easy. If you’re on the road, you can still do that from a tablet or laptop. Just email the final version to the hosting party to print out and sign.
In one of my cases several years ago, I spent the final two hours of a 12-hour construction defect mediation mediating the language of the final agreement. It proved to be especially important when the parties quarreled about some work that had been spelled out in the agreement. By then however, only those few items were left and could be more easily resolved, rather than having the entire agreement blow up, which otherwise might have happened.
Subsequent Agreements Are Not Forbidden
Ponfils Trust doesn’t mean that your mediation agreement should never anticipate that another agreement will be signed.
The key is that the mediation agreement needs to include all the materials terms. Agreements to agree are not necessarily unenforceable – it’s only when the subsequent agreement will include material terms that aren’t agreed to in the mediation agreement. As the Ponfils Trust court noted, “It must be possible to determine the terms of the agreement to agree … either by virtue of the agreement itself or by commercial practice or other usage or custom.”
In personal injury mediations, it’s common that the insurer will require execution of a standard release. However, the mediation agreement should specify the material terms that will vary from that standard agreement: What’s the settlement amount? By when must it be paid? Is there an indemnification provision? Who does it cover? Does it exclude med pay in a UM or UIM situation? Is confidentiality a requirement?
My standard agreement often anticipates a standard settlement agreement. I include the language “not inconsistent with terms herein.” And I make the agreement enforceable by the court. At least theoretically, that makes the issue for the court whether the proposed standard release includes language inconsistent with the agreement. That’s a question that the court can answer as a matter of law. And, if all else fails, the mediation agreement itself is enforceable as the settlement agreement, without any new writing.
It’s worth considering what may happen if one of the parties doesn’t perform. Is the claimant left with the original action or with a lesser claim, based upon the settlement agreement? In any instance where a payment plan is set up, the failure to pay will be a question. Consider that issue and set forth the terms in the mediation agreement.
Conclusion: Make the Agreement Enforceable
Ultimately, it’s up to the parties to memorialize the agreement. But your final role as mediator is to assist the parties in formalizing the settlement that they believe they reached into an enforceable agreement. That means knowing the terms, making sure the parties understand the terms, and then clearly spelling them out in a written agreement that can stand on its own even if a contemplated formal agreement never comes into being.
See you at mediation.
This article was originally published on the State Bar of Wisconsin’s Dispute Resolution Blog. Visit the State Bar sections or the Dispute Resolution Section web pages to learn more about the benefits of section membership.
1Paul R. Ponfils Trust v Charmoli Holdings, LLC, 2019 WI App 56, 389 Wis. 2d 88, 935 N.W.2d 308.