Orlofsky ADR Services

Seventh Circuit Addresses The Binding Nature of Mediation Agreements

In Beverly v. Abbott Laboratories, 15-1098 (7th Cir. 2016), the parties ended a mediation by each stating a final cash offer that would remain open for a few more days. Before the deadline, the defendant accepted the plaintiff’s final offer, but when the defendant later tendered a complete settlement agreement, the plaintiff refused to sign. The Seventh Circuit ruled that the agreement was binding because it had all the necessary material terms. Along the way, however:

The expected: The court ruled that there can be a binding contract even if the parties contemplate later executing a formal written agreement. Because the plaintiff failed to show that any material terms were missing, the offer and acceptance created a binding contract. This is standard contract law that virtually all courts have held applicable to mediation agreements.

The interesting: One term not in the contract was the division of plaintiff’s money between lost wages and other damages, a division that has important tax consequences for both sides. The Court hinted that this might have been material, but the plaintiff failed to raise it in the trial court.

The strange: In rejecting plaintiff’s argument that some missing provisions were material, the court stated:

It bears mentioning that a transcript (or some other recording) of the private mediation session here may have provided important clarity regarding the parties’ beliefs and intentions relating to the handwritten agreement and the draft proposal. We encourage future litigants to record any communications that directly relate to the final settlement agreements.

This is a strange and unprecedented suggestion. Why not put in writing anything that would be recorded in a conversation during the mediation, and eliminate the need for transcripts or recording devices which, for many good reasons, have never been a part of the mediation process? As this author has suggested before, most of these disputes can be avoided by having the agreement reached during the mediation, however, brief, contain the following conclusion: “Although the parties intend to draft a formal settlement document, this agreement contains all the material terms and is a binding contract.”