Generally speaking, New Jersey statutes and court rules cloak settlement negotiations with secrecy (legally, called a “privilege”) such that what goes on in those proceedings are not evidential, that is, they are “privileged” from being disclosed to a court.

Somewhat of an exception arises in cases in which the negotiations produce an oral agreement. Let’s first deal with this in the context of settlement negotiations not in the mediation context. Usually, it happens this way: the parties are participating in a “4-way” settlement session in which each party is present (either physically or by phone), as is their attorneys. Through the negotiations, agreement is reached as to the basic provisions such that both parties walk away from the session thinking that they have reached a binding agreement, albeit oral, subject only to “finalizing” it by reducing it to writing (and filling in details that would normally expand the basic terms during the drafting process), approved by the attorneys, and signed by the parties. One of the parties then changes his or her mind before any written agreement is signed. The other party says “wait a minute, you can’t do that, we had an oral agreement. You can’t change your mind.” The party backing off of the arrangement says “but we did not have a full agreement. There were many terms and details still to be negotiated.”

So now the “other party” files a motion with the court to enforce the oral agreement. Will the court do so or does the “agreement” need to have been written not just oral?” The simple answer is that the oral arrangement may well be binding. At what is known as a “Harrington” hearing, the court will take testimony and determine: (1) was there an oral agreement; (2) did the parties intend the agreement to be binding; and (3) what are the terms of that agreement. An important element of the inquiry is whether the basic terms sufficiently articulated the intention of the parties such that if the details of the later “fill-in” terms do not change the discussed basic terms, they will not be held to prevent a finding that the arrangement was binding.

As a practice note, many attorneys exchange letters at the beginning of the process which indicate that no arrangement is effective or binding unless and until the terms are reduced to writing and signed by the parties. Thus, such an agreement as to the process obviates a Harrington exercise.

Now enter mediation. Under New Jersey statutes and court rules, a “mediation communication” is privileged and “shall not be subject to discovery or admissible in evidence in a proceeding.” Thus, a mediator may not be compelled to provide evidence of a mediation communication.  Further, “a mediator may refuse to disclose a mediation communication, and may prevent any other person from disclosing a mediation communication of the mediator.” Waiver of the privilege by either a party or the mediation needs to be express. If a mediation communication privilege has been properly waived, only the portion of the communication necessary for the application of the exception from nondisclosure may be admitted.

Therefore, it would seem that a Harrington hearing would not be available for mediation communications unless both parties waived the privilege. Since the privilege really belongs to the parties and not the mediator, if such a privilege is properly waived, the mediation might well be compelled to testify as to the negotiations.

All of this is the contextual basis for the recent case of Willingboro Mall, Ltd. V. 240/242 Franklin Avenue, L.L.C., just decided by the Appellate Division. Even though this was a non-family matter, it is still, nonetheless, instructive. Here, during the process of a law suit and before trial, the parties agreed to a settlement through the auspices of a mediator.  The attorney for the defendants wrote to the judge setting forth the terms of the settlement. A copy of the letter was sent to all concerned, and in particular, to the other party’s attorney. About two weeks later, the attorney for the defendants again wrote to the court indicating that there had been partial implementation of the agreement. Thereafter, plaintiff refused to consummate the settlement. It asserted that a final, binding agreement had not been reached. The defendants then filed a motion for (essentially) a Harrington hearing.

If the matter did not involve a mediator, the Harrington hearing would seem to have been in order. But since a mediator was involved, it would seem on first blush that the evidence which might be offered by either the defendants or the mediator would be privileged, and therefore, the issue of whether or not there had been a binding agreement could not be reached.

The trial court, however, allowed discovery and following a plenary hearing at which testimony (including the mediator) on whether a binding agreement had been reach was admitted, the court found that there had been a binding agreement. In such posture, the court enforced that agreement which it had found to be enforceable.

On appeal, Judge Cuff (a former family court judge) held that the two letters constituted “a writing” within the intendment of the law. Moreover, it appears (although the court does not expressly so state) that the plaintiff waived the privilege by: (1) his silence, that is, not objecting to the first letter written by the defendant’s attorney; and (2) participating in discovery without objecting.

The bottom line rules are thus –

  1. settlement negotiations are usually cloaked with privileged and confidential;
  2. if a party alleges that an oral agreement reach is binding, the party opposing that conclusion needs to object immediately;
  3. the level of privilege and confidentiality of settlement negotiations conducted by a mediator are even higher than those conducted without such a facilitator;
  4. unless there is a waiver of the privilege, the issue of whether or not the parties arrived at an enforceable oral agreement with the aid of a mediator may be incapable of admissible proof, in which case, the inquiry is essentially rendered moot.