ALTERNATIVE DISPUTE RESOLUTION

Willingboro Mall Ltd. v. 240/242 Franklin Avenue LLC

New Jersey Law Journal

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Willingboro Mall Ltd. v. 240/242 Franklin Avenue LLC, A-62 September Term 2011; Supreme Court; opinion by Albin, J.; decided August 15, 2013. On certification to the Appellate Division (421 N.J. Super. 445 (App. Div. 2011)). D.D.S. No. 03-1-1016 [33 pp.]

Willingboro Mall, LTD., the owner of the Willingboro Mall, sold the property to 240/242 Franklin Avenue, L.L.C. To secure part of Franklin's obligation, the parties executed a mortgage on the property. Claiming that Franklin defaulted, Willingboro filed a mortgage-foreclosure action. Franklin denied that it had defaulted and sought dismissal of the complaint. The parties were ordered to participate in a nonbinding mediation.

During the mediation, Franklin offered Willingboro $100,000 in exchange for settlement of all claims and for a discharge of the mortgage. Willingboro's manager orally accepted the offer in the presence of the mediator. However, the settlement was not reduced to writing before the end of the mediation session.

After Franklin then sent a letter to the judge and Willingboro setting forth the purported terms of the settlement, Willingboro rejected the terms and refused to sign a release or to discharge the mortgage.

Franklin filed a motion to enforce the settlement, attaching certifications from its attorney and the mediator that revealed communications between the parties during the mediation. Among other things, the mediator averred that the settlement was accurately memorialized in Franklin's letter to the court.

Willingboro did not move to dismiss the motion or strike the certifications based on violation of the mediation-communication privilege, but requested an evidentiary hearing and the taking of discovery. The court granted the motion.

However, the mediator refused to testify regarding the mediation without a court order, which was issued after Willingboro's attorney stated that the parties agreed to the disclosure. The mediator was deposed and divulged mediation communications.

On the first day of the evidentiary hearing, the mediator gave detailed testimony concerning communications between the parties during the mediation. However, on the second day, Willingboro moved to expunge "all confidential communications" disclosed and to bar any further mediation-communication disclosures, arguing that mediation communications are privileged under the New Jersey Uniform Mediation Act and Rule 1:40-4. The judge ruled that Willingboro had waived the privilege. At the conclusion of the hearing, the judge held that a binding settlement was reached and granted Franklin's motion to enforce the settlement.

The Appellate Division affirmed. Willingboro's petition for certification was granted. It urges the court to hold that, under Rule 1:40-4(i), a settlement reached at mediation is not enforceable unless it is reduced to writing at the time of the mediation and signed by the parties and it disputes the finding that it waived the mediation-communication privilege.

Held: Defendant expressly waived the mediation-communications privilege and the parties' oral settlement is enforced. Going forward, to be enforceable, the terms of a settlement reached at mediation must be reduced to writing and signed by the parties before the mediation comes to a close — although if the complexity of the terms cannot be drafted by the end of the mediation session, it should be continued for a brief but reasonable period to allow for the signing of the settlement. Audio- or video-recorded agreement will meet the test of a written agreement signed by all parties under N.J.S.A. 2A:23C-6(a)(1) and N.J.R.E. 519(c)(a)(1). A party that expressly waives the mediation-communication privilege and discloses privileged communications cannot later complain that it has lost the benefit of the privilege.

Public policy favors settlement and the courts encourage mediation as an important means of settling disputes. Mediation is governed by Rules 1:40 to 1:40-12, the Mediation Act, N.J.S.A. 2A:23C-1 to -13.

Rule 1:40-4(c) provides that a communication made during mediation is privileged. N.J.S.A. 2A:23C-2 broadly defines a mediation communication as any statement that occurs during a mediation or is made for purposes of considering or participating in a mediation or retaining a mediator. Both N.J.S.A. 2A:23C-4(a) and N.J.R.E. 519(a)(a) confer a privilege on mediation communications.

However, the privilege is not absolute. Two exceptions are relevant here. The first is the signed-writing exception, which allows a settlement reduced to writing and properly adopted by the parties to be admitted into evidence to prove the validity of the agreement. Rule 1:40-4(i) specifies the manner in which settlements are to be memorialized but does not state specifically that a written agreement must be signed by the parties. However, N.J.S.A. 2A:23C-6(a)(1) and N.J.R.E. 519(c)(a)(1) both provide that "an agreement evidenced by a record signed by all parties to the agreement" is an exception to the mediation-communication privilege.

The second exception is waiver. The privilege may be waived if it is expressly waived by all parties to the mediation with full knowledge of their legal rights.

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