Why Neutrals Shouldn’t Draft Settlement Agreements
Whew! It was the end of the second day. Matt Mediator was tired, but pleased. The partners had finally decided what to do with their automobile dealership – Able would manage things, and get a salary on top of his share of the profit. Baker would get a $50,000 cash payment and his share of the profit as it accrued. He only had to meet Able once a month at the dealership and stay available by phone. Other than that, he was going to fish all day every day, or so he said.
Baker’s lawyer Carson (a frequent source of business) glanced briefly at his counterpart Dolan, then looked at Matt expectantly: “You wrote the MOU, Matt. We want you to draft the mediation settlement agreement,” he said.
Neutrals like Matt Mediator are sometimes asked to draft settlement agreements. After all, without the written settlement agreement, the settlement could be moot. While not true everywhere, in some jurisdictions an oral contract reached during mediation will not support enforcement of a mediated outcome, because the related communications are privileged and therefore inadmissible for purposes of enforcement.[i]
Indeed, taken literally, some state ADR statutes (like Texas’) provide that even disclosure of the writtensettlement document is prohibited after mediation, meaning that it can never be used to show the existence, terms, or breach of the settlement.[ii]
- Should Matt draft the agreement?
“Just say no.”
- Increased risk of testimony. Ideally, mediators should not draft settlement agreements at all. There is an increased risk that they will later be called as witnesses, despite statutory protections. For example, in Olam v. Congress Mortgage 68 F.Supp.2d 1110 (1999), the District Court (while admitting that California law applied) disregarded confidentiality and a mediator’s statutory incompetence to testify, compelling testimony from the participants about the defense of duress. The Court (Brazil, J.) held that despite the absolute language of the law, justice required the incompetent and privileged testimony of the mediator and other participants.
The point is that occasionally, despite expectations, mediators will be pulled into litigation about the mediation. If a mediator becomes a draftsman, the focus may shift from the deal to the drafting.
- Unlicensed Practice of Law A non-attorney mediator who drafts a settlement document runs a risk of engaging in the unlicensed practice of law, or UPL. Drafting a legal document – a settlement agreement – is the practice of law, impermissible for a non-lawyer or a lawyer inactive or unlicensed in the jurisdiction.[iii] If a mediator simply captures the parties’ expressed intent in a document, there is no practice of law. If he or she goes beyond that, however, there is such practice.
- Finally, suppose Matt is licensed in the relevant jurisdiction. Aside from any likelihood that he will be called as a witness, should he draft the agreement?
Probably not. A mediator owes all clients neutrality. That’s basic.
Also basic is that an attorney owes a client loyalty, competency and zealous advocacy. To owe those duties to two clients with conflicting interests is a problem, just as it’s a problem to be usefully neutral for them.
For example, suppose Matt realizes that there are different ways to structure the $50,000 – one beneficial to Able and the other to Baker. With duties to both, which method does he pick? Either way, he breaches. And a waiver still leaves the intolerable conflict: His ‘remedy’ is to withdraw from both representations and give no information to either former client.[iv]
Having done so, it is difficult to see how he can continue as a neutral in this case. He is faced with two unhappy former clients, each of whom know that he is keeping secrets financially beneficial to them. The trust, sense of fairness and belief in the mediator’s neutrality that are the foundation of the process are gone.
Mediation is about parties choosing their own destinies. Legal drafting, on the other hand is about counsel making strategic choices in a client’s interests, and making sure that all protections are in place.
It is one thing to produce a memorandum of understanding – a secretarial exercise of collating deal points. It is another to draft a careful, thorough settlement agreement using legal analysis.
Because the tasks are so diverse, it is strongly recommended that the careful neutral refuse any request to draft a settlement.
[i] ‘Oral’ here simply means verbal. The elaborate verbal-recording ritual in Cal. Evid. Code 1118 is excluded.
[ii] See Tex. Civ Code 154.053 and 154.073. Practically, the Texas bench has refused to take this position, which, if taken, would mean that Texas mediation settlements were illusory because they could never be enforced.
[iv] Edelman, Michael ‘Flatt v. Superior Court of Sonoma County: Attorney Withdrawal from Concurrent Respresentations”;35 Santa Clara L. Rev. 1379 (1994-1995)
By Scot Van Soye