Why Neutrals Shouldn’t Draft Settlement Agreements


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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 written settlement document is prohibited
after mediation, meaning that it can never be used to show the existence,
terms, or breach of the settlement.[ii] 

1.  
Should
Matt draft the agreement?

 “Just say no.”

a.   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.

b.   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.

c.   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.    

[iii]
Cooley, John  ‘Shifting Paradigms: The
Unauthorized Practice of Law or the Authorized Practice of ADR’ hlttp://www.mediate.com/articles/cooley2.cfm#N_6_
(Feb 2001; last visited 09/15/2015.)

[iv]
Edelman, Michael  ‘Flatt v.
Superior Court of Sonoma County: Attorney Withdrawal from Concurrent
Respresentations”;35 Santa Clara L. Rev. 1379
(1994-1995)

 

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Scott Van Soye
Managing Editor - Scott Van Soye is the managing editor of ADR Times. He is also a full-time mediator and arbitrator working with the Agency for Dispute Resolution with offices in Irvine, Beverly Hills and nationwide. He is a member of the California Bar, and practiced real estate, civil rights, and employment law for over twenty years. He holds an LL.M. in Dispute Resolution from Pepperdine University, where he is an adjunct professor of law. He welcomes your inquiries, and can be reached at [email protected] or (800) 616-1202, Ext. 721