Settlement Agreement? It Ain’t Over ‘Til it’s . . . Final, in Writing, Fully Executed, and Admissible

As litigators we have all been there: nearing the end of a hard-fought mediation that lasted all day.  Your significant other texts to ask what is for dinner; daycare closes in thirty minutes; the dog needs to be let out.  The mediator, a retired judge, gently reminds you of his prior commitment—a speaking engagement at a volunteer charity dinner event that night.  Though the parties started the day at opposite ends of the spectrum, after numerous counteroffers, persistent negotiation, and mediation tactics, they finally strike a deal.  

As the mediator prepares a document memorializing the terms of settlement, the parties wait with bloodshot eyes, and a sense of guarded accomplishment considering compromises were
made, but alas, an outcome seems certain.   You text your significant other to indicate that you will pick something up for dinner on your way home.  

Then, the mediator informs you that computer problems are preventing finalization and transmission of the document for signature.  The mediator offers to send an e-mail setting forth the material settlement terms and asks each party to respond via e-mail to confirm the terms are correct, which the parties do. After a quick e-mail to your experts and case team asking them to cease trial preparation work, you leave for home. 

A few days later, after drafting and circulating a formal settlement agreement, the other side gets cold feet—and refuses to sign it.  Too bad, right?  Their e-mails to the mediator confirming settlement will make for a surefire motion to enforce a settlement agreement, right?  Wrong—at least according to a division of the Colorado Court of Appeals in Tuscany Custom Homes, LLC v. Westover, 2020 COA 178.

The Tuscanycourt reviewed a similar situation involving a breach of construction contract dispute between Tuscany Custom Homes, LLC (“Tuscany”), which contracted with John Westover and two of his companies (collectively “Westover”) to construct a home and sell it to Westover, who would in turn sell it to John and Cynthia Platenak, who were joined as third-party defendants.

During mediation, the mediator encountered technical difficulties with his computer and concluded mediation by sending the following e-mail to the parties:

Dear Counsel,

I would like to thank each of you and your respective clients for your hard work today in reaching a resolution. . .  The purpose of this email is to summarize the terms of the settlement reached today, which summary will be used to prepare a formal Mutual Release and Settlement Agreement that is to be prepared by [Tuscany’s counsel]. The terms of the settlement are as follows. . .

I request that all counsel review the above and e-mail their assent to the above terms of settlement.

By e-mail, the parties each indicated their assent, but when Tuscany’s counsel sent a proposed settlement agreement, which Westover’s counsel approved, Westover refused to sign.  Tuscany and the Platenaks pursued a motion to enforce the settlement agreement.  In response, Westover argued an additional clause should be included in the agreement to avoid construing it as preventing Westover from asserting future claims against nonparties.  The parties deposed the mediator who testified that settlement was reached, and that the terms in the settlement e-mail chain accurately reflected the agreement. 

After a hearing, and over objections from Westover that various evidence was inadmissible as confidential mediation communications, the Larimer County District Court granted the motion to enforce the settlement agreement finding that an enforceable oral contract was formed, and that Westover’s additional clause regarding future nonparty claims was not a material term.

On appeal, the Tuscany court ruled that much of the evidence of settlement offered to support the motion to enforce the settlement agreement including the mediator’s e-mail and Tuscany’s draft settlement agreement, constituted inadmissible mediation communications under Colorado’s Dispute Resolution Act (C.R.S. § 13-22-301, et seq.).  In reaching this ruling, the court cited C.R.S. § 13-22-302(2.5), which excludes from the definition of mediation communication: fully executed, written agreements reached as a result of mediation, unless otherwise agreed upon by the parties.  Tuscany ultimately held that, in general, the only admissible evidence of an agreement reached during mediation is a signed written agreement.  As a result, the lower court was reversed because there was insufficient admissible evidence to prove the existence of an enforceable agreement.

Tuscany highlights an important takeaway: the often-overlooked distinction between forming a contract, and proving a contract.  Because evidence of contract formation is generally inadmissible, perhaps the only certain way of proving the existence of terms of an agreement reached at mediation is by ensuring it is: (1) a final agreement; (2) reduced to writing; and (3) fully executed.  While the recent increase in virtual mediations create difficulties in this regard, the experienced litigator must be insistent and vigilant in order to perfect a settlement.  If for some reason a final settlement is not possible, the client must be advised of the risk of settlement unenforceability if any party backs out.