Settlement Reached at Mediation Deemed Unenforceable Due to Parties Failure to Sign Written Agreement

This matter arose from a dispute over the sale of two nail salons.  Defendants PD Nail Corp., CD Nail Corp., Hee Jung Kim, and Sook Hee Kim made a $550,000 down payment and acquired possession of the nail salons, but the sales were not finalized due to the deterioration of the negotiations.  Plaintiffs Gold Tree Spa Inc. and Gold Garden of Wall Township, Inc., and Ok Sim Baik filed suit primarily for breach of contract and breach of an agreement to purchase the nail salons.  The parties voluntarily agreed to mediate their dispute but the defendant Baik refused to sign the settlement agreement following the mediation.  The issue in Gold Tree Spa, Inc. v. PD Nail Corp., 2023 N.J. Super. LEXIS 31 (App. Div. Mar. 28, 2023) was whether the parties reached an enforceable settlement agreement due to the failure of the parties to sign a written agreement at the conclusion of the mediation.

At the mediation session, the mediator did prepare a draft settlement agreement which provided that plaintiffs would retain the $550,000 down payment and defendants would retain possession of Sharon Nails but return possession of Ceci Nails, contingent upon Ceci Nails’ landlord consenting to assignment to its lease to plaintiffs by February 1, 2022.  Additionally, defendants agreed to give the third-party defendants (Soon Wea Son, the manager of Ceci Nails and her new nail salon Graceful Nails of Brielle, LLC) $4,000 to resolve any claims between the parties.  Within a few hours after the mediation ended, plaintiff Baik informed her attorney that she did not want to settle and did not sign the agreement.  This refusal to settle was communicated to the other parties and the trial court.

Thereafter, defendants moved to enforce the settlement.  Plaintiffs filed opposition, stating that they were prepared to honor the settlement agreement if the contingencies could be met regarding the assignment of Ceci Nail’s lease.  The parties did acquire the landlord’s consent, contingent upon defendants guaranteeing two years of plaintiff’s rent.  Defendants contacted the mediator and plaintiffs to finalize the draft settlement agreement and sent a bill of sale, contract for sale of business, assignment of lease, and mutual release and indemnification agreement.  Plaintiff’s counsel responded by requesting an extension of time to review the documents while also seeking clarification in disputing certain terms of the agreement, specifically the defendants’ guaranty.  The parties did not finalize the agreement by February 1, 2022 as required by the draft settlement.

The trial court denied the defendants’ motion to enforce the settlement, stating that the motion to enforce the settlement was moot because the parties failed to reach a valid agreement under Willingboro Mall, Ltd. v. 240-242 Franklin Avenue, LLC., 215 N.J. 242 (2013).  In her decision, the trial court judge explained that Willingboro’s requirement that “[the] terms of settlement must be reduced to writing and signed by the parties before the mediation comes to a close” was not satisfied because the parties did not sign the agreement.  Defendants had argued that Willingboro did not apply because, in that case, the mediation was court-ordered and, in the within case, the party’s mediation was voluntary.  Further, the judge stated that plaintiffs’ actions and communications following their rejection of the settlement were irrelevant because there was no meeting of the minds.

In this published Appellate Division decision, the Court applied Willingboro’s holding.  In Willingboro, the Supreme Court found that “[t]o be clear, going forward, a settlement that is reached at mediation but not reduced to a signed written agreement will not be enforceable.”  The Appellate Division noted that in the within case, the parties failed to sign the draft settlement agreement and, hence, it was unenforceable under Willingboro’s broad, bright-line rule. 

The Court found that it made no difference that in Willingboro the mediation was court-ordered or that it was a voluntary mediation in this case.  It cited to Justice Albin’s statement in Willingboro that “mediation will not always be successful, but it should not spawn more litigation . . . Instead of litigating the dispute that was sent to mediation, the mediation became the dispute.”  The Appellate Division noted that this case was exactly the situation Willingboro was addressing, i.e., settlement through the mediation process only occurs when the parties agree in writing.

Further, the Court noted that there was no meeting of the minds that a settlement was reached.  The e-mails provided by defendants indicated that Baik refused to sign the draft settlement agreement.  Defendants admitted that they were still engaged in negotiations for the settlement and that the settlement became null and void because they did not finalize it by February 1.

Hence, the Appellate Division upheld the trial court’s decision denying the motion to enforce the settlement and remanded the matter back to the trial court.

This published decision reinforces the necessity of a signed written settlement agreement at the conclusion of a mediation to make any agreement reach at a mediation enforceable.  As the Appellate Division pointed out, the agreement needs to be in writing and signed by the parties, regardless of whether it was a court-ordered mediation or a voluntary mediation.  A term sheet with all materials terms should be sufficient to ensure the enforceability of a settlement reached at the mediation.

Tags: settlement