California Mediation and Arbitration

CCP 664.6 AND FRCP 41(a): Retention Of Jurisdiction To Enforce Settlement Agreement In Federal And California State Courts

Because Federal Courts Are Courts Of Limited Jurisdiction, The Procedures Differ.

        We posted on December 4, 2017, about Sayta v. Chu, A148823 (1/5 11/29/17) (published), an opinion that "offers an object lesson on the requirements to invoke [Cal. Code of Civ. Proc.] section 664.6 and the consequences of failure to comply with those requirements."  Section 664.6 enables a California state court to enforce a settlement agreement in a case that it has dismissed, by retaining jurisdiction to do so.  The obvious advantage for the party seeking to enforce a settlement is that it need not file a new lawsuit to enforce the settlement.  

        In order to rely on 664.6, the parties to a stipulated settlement need to request the court to retain jurisdiction over the parties to enforce the settlement, if the parties have requested the court for this specific retention of jurisdiction prior to dismissal.   In Sayta, enforcement went sideways because the parties failed to request the court to retain jurisdiction to enforce the settlement before dismissal, and thus the court lost jurisdiction.

        Federal court is somewhat different.  The key case is Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 377 (1994) (Scalia, author).   Because a federal court is one of limited jurisdiction, meaning there must be a basis for federal jurisdiction, bare enforcement of most settlement agreements, which after all are merely contracts, will very likely not create a basis for federal jurisdiction.

        However, there are two or three ways to skin this cat.  Federal Rule of Civil Procedure 41(a) allows the parties to voluntarily dismiss by a stipulation of dismissal signed by all parties who have appeared, and it also allows for dismissal by court order by plaintiff on terms the court considers proper.  If the parties wish to provide for the court's jurisdiction to enforce a dismissal-producing settlement via the stipulation route, they can do so, if the district court embodies the settlement contract in its dismissal order as a condition to dismissal, or the court retains jurisdiction to enforce the settlement agreement, and the parties so agree.  And if the dismissal is, pursuant to plaintiff's instance, by court order, it must be done "upon order of the court and upon such terms and conditions as the court deems proper," which means the court can require the parties' compliance with the terms of the settlement contract or provide for the court's "retention of jurisdiction" over the settlement contract.

            PRACTICE TIP:  In federal court, the Stipulation and proposed Order language should indicate that the parties request that the district court retain jurisdiction to enforce the settlement -- and the Order will recite that the district court retains jurisdiction to enforce the settlement agreement.  But the settlement agreement itself need not be put before the Court.  This is our conclusion, based on the alternative language in Kokkonen, that "the court is authorized to embody the settlement contract in its dismissal order (or, what has the same effect, retain jurisdiction over the settlement contract) if the parties agree." (Italics added).

        HAT TIP to Gail Killefer, the director of the ADR program for the USDC, Central District, for bringing to the attention of panel mediators the distinction between federal and state retention of jurisdiction to enforce a settlement agreement.

           NOTE:  This post has been revised, and the Practice Tip added, after comment from Gail Killefer.  Any mistakes are entirely my own.

Section 664.6: Court Of Appeal Refuses To Enforce Settlement Because Email Failed Electronic Signature Test

Dot I’s and Cross T’s When Relying On An Electronic Signature!

     In J.B.B. Investment Partners, Ltd. v. Fair, Case Nos. A140232, A141228 (1/2 Dec. 30, 2014) (Kline, Richman, Stewart), the Court of Appeal reversed a trial court’s enforcement of a settlement agreement under CCP section 664.6, because email and voicemail messages failed to satisfy the electronic signature requirements.  And because the settlement agreement could not be enforced by plaintiff, plaintiff could not recover attorney’s fees.  This case is must reading for attorneys and their clients conducting business by electronic transactions under the California Uniform Electronic Transactions Act (UETA).

     The parties briefed whether the email complied with the the UETA provision:  “If the law requires a signature, an electronic signature satisfies the law.”  Civ. Code, section 1633.7(d).  That was too simplistic for the Court of Appeal, which pointed out that the plaintiffs failed to demonstrate that the parties agreed to conduct transactions by electronic means or that defendant intended with his printed name at the end of his email to sign electronically plaintiff’s offer.  See Civ. Code, sections 1633.2 and 1633.5(b).  Under a separate common law contractual analysis, the Court also failed to find that the parties intended to form a contract, given that further settlement documents were not signed.

     As we have blogged before, relying on important electronic transactions without dotting all the I’s and crossing all the t’s is risky business.  See April 30, 2014 blog post.

Arbitration/Settlement/CCP 664.6: Fourth District, Division 2 Affirms Judgments, Finding Settlement Agreement Is Not Too Uncertain To Enforce

A Roadmap For Drafting An Enforceable Settlement Agreement

     In our next case, the factors supporting enforceability of a settlement agreement provide a roadmap for drafting an enforceable agreement.

     Defendants appealed two identical judgments entered in related lawsuits, arguing that the trial court should have not enforced a settlement agreement because, among other things, it was too uncertain. Hiatt v. Elite Leather Company and Huntington Industries, Inc. v. Elite Leather Company, Case No. G047980 consolidated with G047980 (4th Dist. Div. 3 Dec. 19, 2013) (Rylaarsdam, Acting P.J., author) (unpublished).

     A settlement agreement is enforceable under CCP section 664.6 only if the parties agreed to all material settlement terms.  Plaintiffs argued the settlement agreement was not uncertain as to material terms, whereas defendants argued that the agreement was uncertain and just an “agreement to agree” that was never sufficiently nailed down.

     Here, the agreement contained a procedure for choosing a forensic accounting expert; a methodology; a provision for what would happen if either party disputed the finding on what was owed under an asset purchase agreement; binding arbitration if a party rejected the accountant’s conclusion; an agreement to confer with the mediator concerning selection of an accountant; and a provision that the agreement was enforceable even without further written provisions.  That was sufficient to concluded the agreement was not void for uncertainty as to material settlement terms.

     Additional points weighed in favor of enforceability:  the parties had signed the agreement; counsel had approved the agreement as to form; an insurance company’s signature was not necessary, as the insurer was not a party; plaintiffs timely submitted the names of three experts, but defendants failed to do so; both parties participated equally in the drafting; the terms were read aloud by plaintiff’s counsel with plaintiff’s co-counsel and defense counsel and the mediator present; and, the agreement explicitly stated, “this document is intended to be fully enforceable . . . .”

     The opinion is particularly helpful for a discussion of cases in which an agreement has failed or succeeded to be enforced under 664.6.

     Both judgments were affirmed.

Mediation: Fourth District, Division 1, Affirms Trial Court’s Determination Defendant Agreed to “Binding Mediation”

Court of Appeal Concludes Binding Mediation Need Not Be An Oxymoron, Distinguishing Lindsay v. Lewandowski

     The trial court enforced a settlement agreement, under Cal. Code Civ. Proc. section 664.6, resulting in a binding mediation award in favor of plaintiffs.  Defendant appealed, contending that it never agreed to resolve the dispute through “binding mediation”, that the agreement was uncertain, and that binding mediation is not among the constitutionally and statutorily permissible means of waiving jury rights.  Bowers v. Raymond J. Lucia Companies, Inc., Case No. D059333 (4th Dist. Div. 1 May 30, 2012) (McConnell, P.J., author) (certified for publication).

     The Court of Appeal affirmed.  Though “binding mediation” may at first blush seem like an oxymoron to you and to me, here, there was “substantial evidence” from which the trial court could determine what the parties intended by way of alternative dispute resolution.  The evidence included a transcript of counsels’ comments to an arbitration panel, which was informed of the settlement, and a written settlement agreement with a written amendment.  Despite the somewhat unusual use of the term “binding mediation,” it was apparent that the parties chose a mediator, that they mediated, that the framework involved each party submitting their “last and final offer which shall be some amount between $100,000 and $5,000,000”, and that “[t]he mediator shall then be empowered to set the amount of the judgment in favor of Plaintiffs against [Defendant] by choosing either Plaintiffs’ demand or Defendants’ offer, such binding mediator judgment to then be entered as a legally enforceable judgment . . . “

     When the parties were unable to resolve the dispute themselves, the mediator resolved the dispute by choosing the $5,000,000 amount.  (Compare baseball-style arbitration, “in which an arbitrator decides a monetary dispute by selecting from the parties’ final proposals”, which the Court of Appeal cites as “an example of binding mediation”.)

     Along the way, the Court had to distinguish Lindsay v. Lewandowski, 139 Cal.App.4th 1618 (2006), a case in which the Court of Appeal refused to enforce an agreement requiring “binding mediation.”  However, unlike the appellants in Lindsay, “the defendant in this case never objected to binding mediation or insisted it was entitled to a post-mediation arbitration hearing until after the mediator made an award in plaintiffs’ favor.”  Also, unlike the parties in Lindsay, the parties in Bowers “elaborated on what they meant by the alternative dispute resolution method they chose.” 

     Finally, the Court of Appeal concluded that giving up a right to a jury trial through the ADR method chosen was not forbidden by the Constitution or by statutes.  True, statutory rules prescribe how one can waive the right to a jury trial, and end up instead with a court trial.  But the parties can choose a dispute resolution mechanism (such as settlement) that avoids trial altogether.  And that, according to the Court, is what happened here:  “In this case, the parties agreed to settle their dispute through binding mediation in a nonjudicial forum.”

     So, unless “binding mediation” is truly an oxymoron in all circumstances, Bowers is indeed distinguishable from Lindsay, and hence, the result is different.

Enforcement of Settlement Agreement: Second District, Division 8 Holds Settlement Enforceable Against Employer Under CCP section 664.6 in Wage and Hours Case.

 

Court Rejects Employer’s Arguments That Agreement Lacked Material Terms and Was Obtained Through Fraud.

     Mejia v. Jhan, Inc., No. B230818 (2^nd Dist. Div. 8 January 10, 2012) (unpublished), involved an overtime dispute between the employee, Mejia, and the employer, Jhan, Inc. The parties entered into a settlement agreement calling for the employer to make a lump sum payment of $25,000, without admission of liability, and for the parties to execute a further long form agreement, a common term in short form agreements.

     You guessed it: the employer did not pay $25,000, claimed that the agreement was unenforceable for lack of material terms, argued that it had been obtained through fraud and argued that the employee had breached a confidentiality agreement.

     From the employee’s point of view, it turned out that the settlement was adequately drafted:

“The Stipulation satisfies the statutory prerequisites of section 664.6. It is a written agreement duly executed by all parties. Moreover, paragraph 6 of the Stipulation expressly provides that "[t]his mediation settlement agreement is intended to be binding and enforceable and is effective this 13th day of Oct., 2010, and reflects the final agreement between the parties to this dispute, and each of them, pursuant to Evidence Code Section 1123. This stipulation for settlement is admissible and subject to disclosure, despite the otherwise enforceable requirements of confidentiality, solely for the purpose of establishing in court that an agreement has been reached by the parties for purposes of enforcing and interpreting that agreement."

     Evidence of fraudulent inducement was lacking, and even if the employee had breached a confidentiality term, that did not render the agreement unenforceable.

     Result: Affirmed on appeal. Justice Grimes authored the opinion, in which Justices Rubin and Flier concurred.