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by Andrew Flake

I spent a full day recently in virtual mediation. The case was a challenging IP dispute, one with a contentious and emotional history behind it, and even when schedules demanded concluding the full session, counsel and I worked well into the night on the final elements of a deal. After the mediation, both lawyers were available by phone, texting and calling back and forth with their clients and with me, one of them even taking breaks from refereeing a daughter’s school event to provide needed input. We finished just after midnight.

I was proud of counsel’s efforts and of course with the result. Part of the reason we worked so hard, even after getting an agreement in principle, is that it needed to be documented; everyone recognized the potential for a loss of progress if the negotiation were not concluded and got pushed to the following day or week. For that reason, the last hour or so, which was spent getting the parties’ settlement written into an agreement that they could review and sign, was the most critical part of the day. I don’t expect anyone got their normal full night’s sleep.

True, preparing an agreement at the conclusion of the mediation day can seem like a tall order. Mediation is hard work, and the days are long. Counsel are often hesitant to spend additional hours on the preparation and review of what is often called “boilerplate,” those terms that are important adjuncts, like a merger clause or multiple counterparts clause, but not part of the substantive deal itself. Or there may be a desire to take clear language and make it clearer, or more detailed.

That is still no reason to defer a final signed agreement. If more drafting of particulars, as opposed to the material terms themselves, is needed, there is a solution. The parties may plan to negotiate a more formal agreement later, but were that not to occur, the mediation settlement should be clear that it is the final.

In my own agreements, I’ll often include language to the effect that “Counsel for the parties intend to prepare a more formal version of this document incorporating its terms, but in the event that does not occur, it is the parties’ intention that this document continue to bind them and serve as a full and final agreement.”

The key point here is that it is not necessary to have a lengthy and detailed document — although counsel will sometimes get a start on preparing on and be able to finalize it at mediation — only that all of the material terms are included. The document needs to makes clear that the parties are not leaving further items for negotiation and that they intend to be bound. Ideally, not only the parties, but counsel, and the mediator, can sign the document as further confirmation of the parties’ agreement and alignment.

If the parties do, for some reason, wish to leave open items for negotiation, they certainly can, and there are reasons that may make sense. The resulting agreement, however, is a different one, and the only obligation the parties have there is to negotiate in good faith. Here’s a good overview from the Second Circuit, discussing a mediation agreement in an employment case, of the difference in these two types of agreements:

The first (Type I) [kind of agreement] “occurs when the parties have reached complete agreement (including the agreement to be bound) on all the issues perceived to require negotiation.” Id. at 498. This kind of agreement is preliminary “only in the sense that the parties desire a more elaborate formalization of the agreement,” which, although not necessary, is desirable. Id. 

The second (Type II) “is one that expresses mutual commitment to a contract on agreed major terms, while recognizing the existence of open terms that remain to be negotiated.” Id. In the second type of preliminary agreement, the parties “bind themselves to a concededly incomplete agreement in the sense that they accept a mutual commitment to negotiate together in good faith in an effort to reach final agreement within the scope that has been settled in the preliminary agreement.” Id. While a party cannot demand performance under a Type II agreement, a party may demand “that his counterparty negotiate the open terms in good faith toward a final contract incorporating the agreed terms.” Murphy v. Institute of International Education, 32 F.4th 146, 150–51 (2d Cir. 2022) (noting parties included the language, with no reservation, that “agreement has been reached on all issues”).

The discussion is of New York law, using those courts’ “Type I” and “Type II” terminology, but the distinction is still applicable. An agreement to negotiate is an obligation, but it is a difficult one to enforce, and it is not the same as a final agreement.

Absent a signed agreement, clear on material terms, where can a mediation get derailed? In all sorts of ways. Where the parties do not take the time to document their agreement, the terms themselves may not be clear when they start to draft. It may be that the parties understood elements of their attempted settlement differently. Recall may change, or in some cases, a degree of buyer’s remorse may impact all of these variables. Events may change, such that a party no longer wishes to settle.

As counsel, when you take the time to work with your mediator to get the settlement done the same day, and then to negotiate the language, you may get less sleep–but the sleep you do get, I feel sure, will be sounder.

[The case referenced is Murphy v. Institute of International Education, 32 F.4th 146, 154 (2d Cir. 2022) (decided April 26, 2022)(affirming district court’s enforcement of mediation agreement).]