Monday, June 19, 2017

A Cautionary Tale for Mediation Settlements

By Mike Northrup

Settlements in mediation are often reached after many hours of back-and-forth negotiations between the mediating parties and the mediator.  The parties and attorneys are tired and possibly emotional.  And, it is at this point that the lawyers are called upon for focus and clarity as they have to draft the key terms of the agreement reached.  This is no time to rush.  A 2015 opinion from the Houston Fourteenth Court of Appeals illustrates the importance of taking a few extra minutes to read over and consider the language and terms of the agreement—even if it is merely an outline of the key terms, with a more formal agreement to be drafted later.

In Lane-Valente Industries (Nat’l) Inc. v. J.P. Morgan Chase, 468 S.W.3d 200 (Tex. App.—Houston [14th Dist.] 2015, no pet.), Lane Valente Industries (LVI), Bovis Lend Lease Services (BLLS), and JP Morgan Chase (Chase) went to mediation and settled.  At the mediation, they drafted the outline of the terms of their agreement, which provided for the parties to give each other full mutual releases of claims, using the following language:

“All parties will execute full mutual releases in favor of each other, including an agreement that this settles and resolves all claims/issues by and between [BLSS, LVI, and Chase] that were raised or that could have been raised/brought out of the incident(s) made the basis of this suit.”

Later when drafting the more formal settlement agreement, the parties disputed what this language required.  It took years of further litigation to get to an answer and the court of appeals ultimately concluded that the quoted language was ambiguous—potentially meaning there never was an agreement.  Why?  The court of appeals analyzed the language and concluded that the language did not specify which claims were subject to the full release.  In the court of appeals’ view, the quoted language could require (1) releases of all claims that could have been brought relating to the incident that was the basis of the suit, or (2) releases of all claims of any kind that could have been brought regardless of whether the claims related to the incident that was the basis of the suit.

The casual reader—and particularly one exhausted after a long mediation—might not see the potential for these divergent interpretations, and apparently those different interpretations made a big difference to the parties in the case.  The problem in phrasing is the broad initial statement that the parties will execute full mutual releases, which might imply an intent to release all claims, whether related or not.  The parties’ phrasing goes on to use the term “including,” which suggests that the release of claims related to those brought in the suit is just one category of what was to be included in the “full mutual releases.”  Had the parties substituted the word “for” in place of “including,” the ambiguity would have been eliminated.  The result in this case stands as a warning to counsel and their clients to spend a few extra minutes reading and re-reading the wording of a mediation agreement and consider possible alternative interpretations.

You could save yourself a lot of headaches and expense by rewording the terms to avoid all possible misinterpretations.

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