Running With Scissors: Avoiding Mishaps When Drafting Agreements at the End of Mediation

HIGHLIGHTS:

• An agreement reached at the conclusion of a mediation session typically represents an abbreviated version of a formal settlement agreement that will be entered into by the parties at a later date.
• Occasionally, however, parties are unable to finalize the comprehensive settlement agreement, and the terms of the memorandum of understanding become vital to resolving related disputes.
• This Holland & Knight alert offers tips for preparing an agreement that is more likely to withstand judicial scrutiny.

The Illinois Uniform Mediation Act (735 ILCS 35/1, et seq.) provides that communications made during mediations are generally privileged and otherwise exempt from disclosure. One of the exceptions to this statutory rule is for an agreement evidenced by a record signed by all of the parties to the agreement, namely a memorandum of understanding or similar agreement executed at the conclusion of the mediation.

An agreement reached at the conclusion of a mediation session typically represents an abbreviated version of a formal settlement agreement that will be entered into by the parties at a later date. Occasionally, however, parties are unable to finalize the comprehensive settlement agreement, and the terms of the memorandum of understanding become vital to resolving related disputes.

Below are tips for preparing an agreement that is more likely to withstand judicial scrutiny.

1. Ensure that the agreement is memorialized in writing and executed by all of the parties to the agreement. In Billhartz v. Billhartz, 2015 IL App (5th) 130580-U, ¶ 38, the appellate court noted that the "Uniform Mediation Act ... contemplates that a signed, written agreement is admissible and enforceable following mediation and that oral communications generally are not." Using that logic, the court determined that the agreement at issue was not enforceable even though the parties "orally indicated they had reached an agreement" during the mediation session because the parties did not sign the memorandum of settlement. Trial courts are even willing to enforce handwritten agreements signed by counsel for the parties at the conclusion of mediation. In re Estate of Davinroy, 2017 IL App (5th) 160385-U, ¶¶ 21-22. Therefore, it is wise to reduce any agreement of the parties into writing and confirm that all of the parties have executed the agreement prior to ending the mediation.
2. Familiarize yourself with the applicable case law and local rules in your jurisdiction. Although agreements must be in writing to be enforceable under the Uniform Mediation Act, in federal court "it has long been recognized that oral settlement agreements reached during a mediation or pretrial conference are fully enforceable by the court presiding over the underlying litigation." Thermos Co. v. Starbucks Corp., No. 96 C 3833, 1998 WL 299469 at *4 (N.D. Ill. May 29, 1998). Thus, it is important to know whether any action related to your dispute would arise under federal or state law. Similarly, it is equally important to review the applicable local rules before preparing a memorandum of understanding. In Cook County, Illinois, an agreement must be "reduced to writing and signed by each of the parties." In Monroe, Perry and Randolph counties in Illinois, an agreement during mediation must be "reduced to writing on the Memorandum of Agreement Form or attached thereto and signed by the parties and their counsel, if any, at the conclusion of the mediation." If any of these conditions are not met – e.g., counsel did not sign the memorandum – the agreement will not be enforceable. See In re Marriage of Akbani, 2014 IL App (5th) 130266 (2014), ¶ 41. In the Eighteenth Judicial Circuit of DuPage County, Illinois, an agreement "shall be reduced to writing and signed by the parties or their agents before termination of the mediation conference." Reviewing the applicable local rules and common law in your jurisdiction will aid you in satisfying relevant conditions on agreements reached during mediations.
3. Include a provision stating that the agreement is binding and enforceable between the parties. In Majkowski v. American Intern. Group, Inc., No. 08 CV 4842, 2008 WL 5272193 (N.D. Ill. Dec. 16, 2008), the U.S. District Court for the Northern District of Illinois held that a "Settlement Term Sheet" signed during the mediation was valid and enforceable even where the plaintiff refused to execute the detailed settlement agreement weeks after the mediation because the document explicitly stated it would be binding and enforceable. As such, it is a best practice to include a clause stating that the agreement is binding and enforceable.
4. Include a provision stating that, if a dispute arises during the negotiation of final settlement agreement, the mediator will act as arbitrator of any such dispute, and his decision will be final and binding upon the parties and unappealable. Occasionally, parties that have reached an agreement during the mediation session end up in a dispute over the specific language proposed in the formal settlement agreement. Incorporating a procedure in the memorandum of understanding to resolve such disputes ensures that these quarrels are handled conclusively and efficiently.
5. Provide that a formal written settlement agreement is NOT a precondition of settlement. An agreement of understanding should expressly state whether or not a formal written agreement is a condition precedent of settlement. Mediation parties who acknowledge that the agreement reached in mediation is binding should also remove all doubt and provide that the execution of a formal settlement agreement is not a precondition for settlement. Brownlee v. Hospira, Inc., 869 F.3d 509 (7th Cir. 2017).
6. State that all material terms are included in the agreement of understanding. What is a material term of the agreement? Academy Chicago Publishers v. Cheever, 144 Ill.2d 24 (1991) is an important case that defines a "material term." The agreement of understanding should first contain sufficient material terms so that a court can discern the terms of the agreement. Second, the agreement of understanding should also state that all of the material terms have been included within the agreement.
7. For purposes of clarity and efficiency, include a date certain for when the formal, detailed written settlement agreement will be finalized and executed.

Following the guidance above will increase the probability that a court would find an 11th-hour agreement of understanding, reached at the conclusion of an exhausting but successful mediation session, will be valid and enforceable.