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Question on Mediated Settlement Not Appropriate Issue for Interlocutory Appeal

ABA American Bar Association, Section of Litigation, Alternative Dispute ResolutionThis article was also published by the American Bar Association’s Section of Litigation, Alternative Dispute Resolution Committee.

proposed terms of mediation agreementIn Miller v. Basic Research, LLC, 13-4048, 2014 WL 1778046 (10th Cir. May 6, 2014), the parties mediated a class-action lawsuit. At the conclusion of several mediation sessions, they informed the court that the mediation had been successful and that they had a handwritten document stating the “Proposed Terms” of the settlement. When the parties attempted to draft the final agreement, however, negotiations broke down. The plaintiff filed a motion to enforce the mediated agreement, and the defendant opposed that motion. The district court ruled that the parties had reached a binding settlement because they “had in fact agreed to the material terms of a settlement and any ongoing disagreements concerned only ‘linguistic changes.'”

The defendant then sought to appeal that ruling. The defendant acknowledged that the ruling was interlocutory because, under Federal Rule 23, a class-action settlement must be approved by the court after a fairness hearing in which class members, after receiving notice, are entitled to participate. Because the fairness hearing had not yet taken place, the settlement was not final, and therefore the order finding that the parties had reached a binding settlement was interlocutory.

The defendant argued for appellate jurisdiction under the collateral-order doctrine, which permits an appeal of an interlocutory order where the district court’s order “[1] conclusively determine[s] the disputed question [on appeal], [2] resolve[s] an important issue completely separate from the merits of the action, and [3] [is] effectively unreviewable on appeal from a final judgment.” To meet this standard, the defendant noted that it would be difficult to appeal the question of whether there was an enforceable settlement once the settlement had been presented to the class and approved at a fairness hearing. The defendant also noted that it have to pay for notice to the class, which would be wasted money if the appellate court were late to determine that there was no enforceable agreement. The court rejected the defendant’s argument, ruling that, if the settlement is approved by the district court after a fairness hearing, the defendant will able to argue on appeal that no binding settlement was reached during the mediation. Therefore, the collateral-order doctrine was not applicable and there was no basis to hear an interlocutory appeal.

Finally, the conclusion of the court’s decision hints at a problem the district court will face on remand. Notice will have to be sent to class members informing them of the settlement and fairness hearing. It is likely that the notice will have to disclose the defendant’s position that there is no binding settlement agreement, a very odd disclosure for a class notice.