Neutral Corner: Case reaffirms enforceability of settlement agreements

Although the goal of most parties may be to reach a final settlement on the designated day of mediation, it is not uncommon for negotiations to continue after the formal session. Such “rolling” negotiations can raise several issues, including whether such negotiations continue to be covered by the ADR rules, whether agreements must be evidenced in writing and what law is applicable in enforcing settlement agreements.

The Indiana Court of Appeals in the recent case of Ellison v. Town of Yorktown, Indiana, 18A02-1504-PL-233 (Dec. 4, 2015), reaffirmed prior Indiana cases holding that settlement agreements, whether reached with or without mediation, are governed by the general principle of contract law and generally not required to be in writing. In Ellison, a landowner and town were engaged in negotiations over easements to construct a storm sewer and hiking trail. The negotiations began in February 2013 and continued in a series of meetings and letters and culminated in a Sept. 19, 2013, letter in which the landowner indicated that:

“Given the time to reflect, she has become concerned about the negative impact the presence of the trail will have on the value of her property … .”

In light of those concerns, the landowner added additional terms and conditions. The town considered a final settlement agreement had been reached previously and sued to enforce the agreement. The trial court agreed, granting summary judgment for the town.

In affirming the trial court, the Court of Appeals found that the series of communications were settlement negotiations and that whether a binding settlement was reached would be determined by general principles of contract law. Although Ellison apparently did not involve a formal mediation, the ruling is consistent with Silkey v Investors Diversified Services, Inc. 690 N.E. 2nd 329 (Ind. Ct. App. 1997), in which the same court ruled that the provisions of Rule 2.7 (E)(2) of the Indiana Alternative Dispute Resolution Rules (which provide that if an agreement is reached in mediation, that agreement “shall be reduced to writing”) was a rule of mediation “process” and did not change the general principles of contract law which control the enforceability of settlement agreements.

Those general principles of contract law applicable to settlement negotiations and reaffirmed by Ellison include the following:

• In Indiana, settlement agreements are strongly favored;

• If a party agrees to settle a pending action but refuses to consummate the settlement agreement, the opposing party may obtain a judgment enforcing the agreement;

• Settlement agreements are governed by the general principles of contract law and generally are not required to be in writing;

• To have a valid settlement, there must be an offer, acceptance and mutual assent;

• For a settlement agreement to be enforceable, there must be evidence of an intent to be bound and a definiteness of terms;

• An acceptance that varies the terms of an offer is a rejection and a counteroffer which can then be enforced by the original offerer;

• A party’s assent to terms may be expressed by acts which manifest acceptance; and,

• If a writing is required by the statute of frauds, the writing requirement can be provided by a series of letters.

The Ellison case should serve to guide courts in enforcing settlement agreements allegedly reached either outside of mediation or as the result of follow-up and continuing discussions after a formal mediation session. The issue when a mediation formally ends is still not settled with particularity. The draftees of the Uniform Mediation Act considered the issue in depth and stated in the comments as follows:

“[T]he drafting committees also elected to leave the question of when a mediation ends to the sound judgment of the courts to determine according to the facts and circumstances presented by individual cases.” Comment, Rule 2(2) UMA.

Although negotiations continuing after a formal mediation session may not be covered by certain provisions of the ADR Rules (such as provisions for sanctions and immunity), Ellison is consistent with the conclusion that the follow-up “rolling” negotiations will nevertheless be subject to the provisions of Indiana Rule of Evidence 408 and will be interpreted pursuant to general provisions of contract law concerning enforceability of agreements.

Finally, participants in mediation and settlement negotiations should be aware of the evolving potential result from the current reality of electronic communications. Emails may form contractual obligations despite the existence of formal integration and “no oral modification” clauses in pre-existing contracts. See, for example, “The Questionable Effect of Informal and Instantaneous Electronic Communication on the Validity of ‘No Oral Modification’ Clauses: Are Texts, Tweets, and Email Destroying the Sanctity of Contract Law?” 90 U. of Det.Mercy L.Rev. 35 (2012).•

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• John R. Van Winkle, of Van Winkle Baten Dispute Resolution, is a former chair of the American Bar Association’s Section of Dispute Resolution and author of West’s Indiana Rules of Dispute Resolution Annotated. The opinions expressed are those of the author.