The finality of mediated settlement agreements - unilateral versus mutual mistakes

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  • | 12:00 p.m. May 30, 2011
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by The JBA ADR Practitioner’s Section Chair Blane McCarthy

Most of us remember, less than fondly, our first-year contracts class in law school. For me, the memory is particularly vivid, as Professor Kuenzel was “old school,” thriving on the Socratic method that was foreign to all of the students in his class. Still, we learned how to think like a lawyer, and even picked up some fundamental contract principles that often rear their heads in “the real world” of lawyering–and mediation.

Mediated settlement agreements are contracts. With few exceptions, courts uphold contracts, even if they turn out to be detrimental to one or both of the parties. The court in Cordovez v. High-Rise Installation Inc., quoting a prior decision, gave ample warning of this principle:

“Mediation, like arbitration, is an alternative dispute resolution device. It is not to be engaged in casually or carelessly.”

Cordovez attempted to rescind his mediated settlement agreement on the basis of mutual mistake, a valid defense if proven. In July 2006, he suffered a head injury on the job, resulting in nausea, vomiting, headaches and pain around the left eye. Diagnostic testing failed to show an objective basis for these complaints, and his workers compensation doctor discharged him to full duty, opining that he suffered from post-concussive syndrome that would have no residual effects. In November 2006, Cordovez and his counsel participated in a voluntary, private mediation that resulted in a washout, in other words complete, settlement. The parties executed the settlement agreement on Dec. 7, 2006.

In February 2007, due to continued symptoms, Cordovez sought treatment from an eye institute, where he was diagnosed with CCF, an abnormal connection between the arteries in the brain and the veins in the brain. Later deposition of his workers compensation doctor confirmed that CCF is only known to be caused by head trauma, leaving no dispute that his CCF was caused by his work-related injury.

In his attempt to rescind the previously executed Mediated Settlement Agreement, Cordovez and his lawyer characterized CCF as an unknown injury, rather than an unexpected consequence of a known injury. The distinction was one of mutual mistake (unknown injury) versus unilateral mistake (unexpected consequence). Not surprisingly, the employer/carrier was eager to enforce the terms of the nominal settlement reached years prior, and claimed his condition was within the scope of the agreement he signed. The court agreed.

“’(C)ases settled in mediation are especially unsuited for the liberal application of a rule allowing rescission of a settlement agreement based on a unilateral mistake.’ The time to ascertain the full implication of Claimant’s injury was before the mediation . . . The JCC rightly concluded that ‘parties have . . . the right to make, what is apparent in hindsight, a bad bargain — especially when represented by counsel.’”

The first moral of the story is to tread cautiously when signing a mediated settlement agreement. Proving mutual mistake is nearly impossible, as the party seeking to enforce the agreement is usually highly motivated to effectuate the “bad bargain” the other side accepted.

The second moral of the story hits lawyers more directly. We don’t know the epilogue, but I’d bet dollars to donuts that when the claim of mutual mistake failed to rescind his mediated settlement agreement, Cordovez turned his sights to his lawyer, claiming that counsel’s unilateral mistake cost him the case.

Lawyers do their clients, and themselves, a disservice by pursuing hasty, premature settlements. Presume that mediated settlement agreements are final because, with very few exceptions, your presumption would be correct.



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