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When a Mediated Agreement is Not an Agreement …

Posted by Steve Russell on August 7, 2015

Most litigation is resolved before trial, often as a result of mediation.  In Texas, the standard practice for disputes that settle at mediation is to prepare a short “Rule 11 agreement” that is signed by the parties and their counsel before leaving the mediator’s office.  Such agreements are called Rule 11 agreements because Rule 11 of the Texas Rules of Civil Procedure makes agreements between attorneys or parties concerning a pending lawsuit enforceable if in writing, signed, and filed with the court.  A typical Rule 11 agreement signed at mediation might state the parties agree “to release each other from all claims asserted in this suit” in exchange for some payment and “to execute and deliver such additional agreements and documents as shall be necessary to carry out the purposes of this agreement.”  The Rule 11 agreement may include other “deal points,” such as division of property in a partnership dissolution or the extent to which a party may continue to use a business or trade name.

With the Rule 11 agreement in hand, the lawyers typically go back to their offices and prepare a more detailed, “long form” settlement agreement that incorporates the deal points of the Rule 11 agreement.  The long form agreement prepared after mediation will usually include much longer release language than that of the Rule 11 agreement.  The long form agreement may also include other terms not in the Rule 11 agreement, but of the type generally seen in settlement agreements.  An example of such terms is an agreement to return to the mediator to resolve any disputes that arise in performance of the settlement agreement.  Some negotiation of the long form settlement agreement may occur, but the end result is usually a signed settlement agreement and dismissal of the lawsuit.

This procedure has been used in Texas for many years and works well – until it doesn’t.  Recently, one of the Houston courts of appeal held a Rule 11 agreement signed at mediation was not enforceable because it was ambiguous.  In Lane-Valente Industries (Nat’l), Inc. v. J.P. Morgan Chase, NA, ___ S.W.3d ___, (Tex.App. – Houston [14th Dist.] 2015, no pet.), the parties mediated a dispute involving payment of sales taxes related to renovation of some banking facilities.  They agreed to settle and signed a Rule 11 agreement that said they would sign “full mutual releases in favor of each other, including an agreement that this settles and resolves all claims/issues by and between [the parties] that were raised or that could have been raised/brought out of the incident(s) made the basis of this suit.”  Later, when the attorneys drafted a more detailed settlement agreement, the parties were unable to agree on the specific language for the releases.  The plaintiff contended the phrase “full mutual releases” included all claims between the parties, including claims not specifically made in the lawsuit, while the defendants contended the parties intended to settle and release only claims made in the suit.  Unable to resolve this new dispute, the plaintiff filed a motion to enforce the Rule 11 agreement.

The trial court denied the motion to enforce and instead ordered the parties to sign releases that stated: “This settles and resolves all claims/issues by (name of party) against (name of party) that were raised or that could have been raised/brought out of the incident(s) made the basis of this lawsuit.”  At a hearing on a motion to rescind that order, the trial court stated the release language in the Rule 11 agreement was “too broad” and that its order was an effort to make the release less broad.  The trial court denied the motion to rescind and the plaintiff later filed a new lawsuit to enforce the Rule 11 agreement.  Cross motions for summary judgment were filed.  The court granted the defendants’ motion and ordered the plaintiff to sign a settlement agreement with the more narrow release language it had previously ordered.  The plaintiff then appealed.

The appellate court reversed the judgment, finding the reference to “full mutual releases in favor of each other” in the Rule 11 agreement was ambiguous.  In doing so, the court noted that the parties did not agree to “general releases of all claims” or “full releases of all claims among the parties.”  Absent such language, the court was unable to determine whether the parties intended to include claims other than those raised in the suit or that could have been raised based on the incident at issue.  Because the Rule 11 agreement was “reasonably susceptible to more than one interpretation,” the court held it was not enforceable.

So, what are the lessons in all this?

First, everybody loses when a mediated settlement falls apart.  The parties in the Lane-Valente case no doubt intended to settle the dispute that gave rise to the lawsuit (i.e., who was responsible for the sales taxes at issue), but were unable to consummate that settlement and ended up in protracted litigation, incurring more legal expenses.  The courts, which usually side in favor of mediated agreements, spent limited resources considering an issue ancillary to the dispute that gave rise to the original claim.

Second, ambiguous terms should not be included in Rule 11 agreements signed at mediation (or in long form settlement agreements).  For example, if a party wants a release of all claims the parties to the lawsuit might have against each other, whether or not asserted in the suit, the Rule 11 agreement should say this very specifically.  If specific language is critical, consider taking it to the mediation and asking that it be used in the Rule 11 agreement.

Third, if there are any provisions that would be “deal breakers” if not included in the long form settlement agreement, those provisions should be included in the Rule 11 agreement.  In their haste to leave after a long day of mediation, parties sometimes don’t think about including “standard” provisions, such as confidentiality or dispute resolution provisions, in the Rule 11 agreement prepared by the mediator.  If a dispute later arises about whether to include such provisions in the long form agreement, it will be difficult to argue the parties intended to include the omitted point, however “standard” one might think them to be.  Nobody likes to raise these issues at the end of a mediation session, but it’s better to find out at the mediation that there is no agreement, when the decision makers are still in the room, than to discover it a few days later.

Bottom line?  Be sure your Rule 11 agreement includes all the deal points, in very specific terms.  And, be sure to include all the terms you want – those things that if not included would be “deal breakers.”  Otherwise, you might find yourself litigating what you thought was the end of your case.

Steve Russell
Steve Russell

Steven Russell is the founder and managing member of Russell & Wright, PLLC.