New Jersey Supreme Court Upholds Oral Settlement Reached During Mediation, But Requires Future Settlements to Be Written

In a recent 6-0 opinion, the New Jersey Supreme Court has held that, going forward, settlement agreements reached during court-ordered mediation must be reduced to a signed writing before mediation ends in order to be enforceable. The Court also found that a party waives New Jersey’s mediation-communication privilege, set forth in N.J.R.E. 519, by not objecting to evidence of conversations that took place during the mediation and by offering evidence of mediation communications.

During mediation of the foreclosure claims in Willingboro Mall, LTD. v. 240/242 Franklin Avenue, L.L.C., Willingboro orally accepted Franklin’s settlement offer and authorized its attorney to enter into the settlement. Nevertheless, Willingboro later notified Franklin that it was rejecting the terms of the settlement and refused to dismiss the action. Franklin filed a motion to enforce the settlement, attaching certifications from its attorney and the mediator that revealed communications made during the mediation. Willingboro filed its own certification in response and requested an evidentiary hearing and discovery. Five witnesses, including the mediator, were deposed and an evidentiary hearing was held, during which Willingboro reversed course and moved for an order striking all confidential mediation communications. The trial judge ruled that Willingboro had waived the mediation-communication privilege and found that a binding oral agreement had been reached during the mediation. The Appellate Division affirmed.

On review, the Supreme Court held that, although Franklin’s motion to enforce contained unauthorized disclosures of communications protected by the mediation-communication privilege, Willingboro did not timely object to the unauthorized disclosures. Instead, Willingboro “proceeded to litigate whether it had, in fact, entered into a binding, oral settlement agreement” and itself disclosed otherwise privileged mediation communications. Concluding that the privilege issue was essentially a wash, the Court went on to affirm the Appellate Division’s enforcement of the oral settlement agreement. However, the Court also held that “going forward, a settlement that is reached at mediation but not reduced to a signed written agreement will not be enforceable.” To facilitate this requirement—and to promote New Jersey’s policy favoring settlements via mediation—the Court noted that an audio- or video-recording could qualify as the necessary “writing” signed by all parties to the settlement. The Court also recommended that if necessary for complex settlements, “the mediation session should be continued for a brief but reasonable period of time to allow for the signing of the settlement.”

The takeaways from this case are clear: a party seeking to protect mediation communications must timely invoke that privilege, and parties should be prepared to memorialize a settlement agreement reached during mediation either in a signed writing or other recording before terminating the mediation. Although the question was not explicitly addressed by the Court, parties would be well-advised to memorialize settlement agreements in this manner even where the mediation is voluntarily entered into by the parties.