Weekly Law Resume - July 5, 2012: Beware of Waiving Jury Trial and Appeal Rights: Settlement Agreement Authorizing “Binding Mediation” Award Held Enforceable

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[author: Karen L. Moore]

Ryan N. Bowers et al., v. Raymond J. Lucia Companies, Inc.

California Court Of Appeal, Fourth District (May 30, 2012)

Parties are using mediation as a form of alternative dispute resolution more and more frequently. This case considered whether a provision for binding mediation was enforceable.

Plaintiffs Ryan Bowers, Marc Seward and Jeffrey LaBerge (“Plaintiffs”) filed a lawsuit against Defendant Raymond J. Lucia, Sr. (“Lucia”) and other entities for defamation and related business torts. In turn, Lucia filed an arbitration petition against Plaintiffs who were compelled to arbitrate with Lucia. Plaintiffs dismissed Lucia from their state court case to allow the arbitration with Lucia to proceed separately from the lawsuit. A few days later, the parties agreed to settle their dispute before the arbitration panel rendered a decision. In the settlement agreement, the parties agreed to dismiss with prejudice the arbitration and state court litigation and resolve their dispute via binding mediation. If the mediation failed, the parties stipulated that the “mediator shall be empowered to set the amount of the judgment in favor of Plaintiffs against Raymond J. Lucia Companies, Inc. (“RJLC”) at some amount between $100,000 and $5 million, such binding judgment to then be entered as a legally enforceable judgment in San Diego Superior Court without objection of any Party.”

The parties reached an impasse at mediation. Plaintiffs’ submitted a final demand of $5 million and RJLC submitted a final offer of $100,000. After asking for more information from the parties, the mediator issued a judgment of $5 million in favor of Plaintiffs. RJLC objected and Plaintiffs petitioned in state court to confirm the mediator’s award. RJLC opposed the petition arguing that the trial court could not confirm a “mediation award” as opposed to an “arbitration award.” RJLC argued that after the failed mediation, RJLC intended for the mediator to commence a full arbitration and evidentiary hearing - as opposed to immediately enter an award based on the last demand and offer. However, the trial court enforced the settlement agreement and mediator’s award pursuant to Code of Civil Procedure Section 664.6, which provides: “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement…” RJLC moved for reconsideration, to vacate the judgment, and for a new trial. The trial court denied the motion, finding that the parties’ settlement agreement was enforceable and the parties had agreed to be bound by the mediator’s award based on the last demand and offer.

Defendant Raymond J. Lucia Companies, Inc. (“RJLC”) appealed from the judgment enforcing the settlement agreement and binding mediation award in favor of Plaintiffs. On appeal, RJLC argued that the $5 million judgment in Plaintiffs’ favor should be reversed because: 1) RJLC never agreed to resolve the parties’ dispute through binding mediation; 2) a settlement agreement term providing for binding mediation was too uncertain to be enforceable; and 3) binding mediation is not among the constitutionally and statutorily permissible means of waiving jury trial rights.

The Court of Appeal affirmed the decision of the trial court based on Section 664.6. There was substantial evidence supporting mutual intent and express agreement between the parties to allow the mediator - after unsuccessful mediation - to select between Plaintiffs’ $5 million demand and RJLC’s $100,000 offer. There was no objective evidence to support RJLC’s contention that a new evidentiary arbitration hearing was required.

RJLC contended that the term “binding mediation” was inherently uncertain, relying on Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, in which the court held that a stipulated settlement agreement was too uncertain to be enforceable where it was unclear whether all parties had actually agreed to binding mediation or arbitration. However, the Court of Appeal distinguished Lindsay because RJLC and Plaintiffs stipulated in detail regarding the binding mediation, such that the settlement agreement terms were certain and enforceable. The Court of Appeal noted that binding mediation is a recognized alternative dispute resolution (“ADR”), allowing the mediator to interact with the parties to elicit more information, documentation or discussion as needed to render a decision.

RJLC further contended that the settlement agreement was unenforceable because binding mediation was not a constitutionally permissible means of waiving jury trial rights. RJLC cited to the California Constitution, Article 1, Section 16 and California Code of Civil Procedure Section 631, listing statutory means of waiving a civil jury trial which are not inclusive of settlement or ADR. However, the Court of Appeal relied on Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, providing that parties may waive their right to jury trial by settling the underlying dispute or agreeing to a non-judicial ADR arrangement. Here, the parties agreed to waive their right to jury trial by settling the underlying controversy through “binding mediation” as detailed in the settlement agreement.

COMMENT

Courts will enforce settlement agreements designating binding ADR terms if parties mutually consent to terms that are certain. This case illustrates the importance of strategizing regarding potential outcomes before agreeing to binding ADR processes in lieu of a jury trial. In general, parties are entitled to appeal all or part of a jury verdict, depending on evidentiary issues preserved for appeal. However, if the parties agree, a binding mediation and/or other binding ADR process involving waiver of jury trial rights can preclude an objecting party’s ability to appeal a final award.

For a copy of the complete decision see: http://www.courtinfo.ca.gov/opinions/documents/D059333.PDF