Mediation is very effective in resolving disputes. Franchisors are enthusiastic about mediation, especially pre-suit, because it can eliminate the need to disclose settlements to prospective franchisees otherwise required under the FTC Rule. Regardless of whether the mediation involves a franchise dispute, or another negotiated dispute resolution, the focus is now on implementing settlement agreements which can be readily enforced. This issue is particularly acute in dealing with cross-border dispute resolution where enforcement may occur in geographies far from the seat of the dispute that may be the home of the party against whom the agreement is being enforced.
The American Bar Association’s Forum on Franchising recently presented the program “Do you Really Want to Litigate in London or Timbuktu? Negotiating and Settling International Franchise Disputes Before Arbitration or Litigation Heats Up.” International practitioners Kristin L. Corcoran, Martine De Konig and Robert F. Salkowski, illustrated some of the challenges of international dispute resolution. This discussion explained why we should be prepared to settle these cases early. It also highlighted the importance of having settlement agreements which can be enforced anywhere.
Absent a court rule, statute or treaty, enforcement of a settlement agreement is a matter of simple contract enforcement. Drafting is key to maximizing the enforceability. But mediated settlement agreements, that is, settlement agreements in which third party mediators are involved, may be more easily enforced both domestically and internationally. As will be seen, I would recommend a third party mediator involvement in almost every important mediated outcome.
Drafting Considerations for Settlement Agreements
Decide whether confidentiality is important. This may dictate whether and how security for performances are structured and the methods of enforcement.
These contractual provisions may be useful in your more complicated settlement agreements:
- Escrow of documents of title. Real estate deeds, UCC-1 filings, judgments by consent, mortgages, corporate stock certificates or membership interests in business entities can be escrowed. The documents can be released like any other closing upon certain performances. The escrow agent ideally should be a third party, and sometimes a mediator can be convinced to perform this role. More often, the role is more likely to be assumed by one of the counsel in the case. The instructions should be clear and minimize discretion as too much discretion invites litigation.
- Dispute resolution provisions. If the settlement agreement is breached, a cost-effective and expedited dispute resolution is necessary. Domestic settlement agreements can state venue provisions and expedited procedures, like motions on short notice for enforcement. These provisions should be coordinated with any local court rules which provide for expedited enforcement of settlement agreements. For international agreements, the clear preference is to provide for dispute resolution through arbitration, which may even contain expedited procedures and timeframes. Enforcement of arbitration awards is expedited through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).
- Further assurances clauses. This is important boilerplate language that requires the parties to cooperate and assist by performing any additional acts to give effect to the settlement. This would include execution of any additional documents and procuring required acts by third parties.
- Third party guarantors and/or security. The parties can agree to third party guarantors of payment and/or performance. The monetary obligations can be collateralized by a security interest in assets with a UCC lien. The lien can be filed at the outset. In the alternative, the UCC-1 for example may not be authorized to be filed until a default occurs. Non-monetary performances may be secured with a performance bond. Payment bonds and irrevocable standby letters of credit may be used to secure payment performances. Consent judgments may be agreed upon even at the outset if the performances are expected to be performed in short order.
Court Rules May Aid Enforcement of Settlements
Many federal courts have local rules which modify Federal Rule of Civil Procedure 41, pertaining to withdrawal of cases. For example, in the Eastern District of Pennsylvania, Local Rule 41.1 provides for dismissal of a case upon settlement, but upon petition, may be reinstated for good cause within 90 days, especially for non-performance of a settlement agreement. Federal Rule 41 itself allows a court by specific order to retain jurisdiction over any withdrawn or dismissed case to enforce a settlement. Note that courts generally do not want to be burdened by retention of jurisdiction except for short periods of time. Once a jurisdiction expires, a new lawsuit to enforce the settlement would be required. Similarly, state courts sometimes have specific rules on enforcement. Pennsylvania Rule of Court 229.1 imposes sanctions if settlement funds are not paid within 20 days.
Enforcement of Mediated Settlement Agreements
The United States and over 50 other nations are signatories to the United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention”), though the United States Senate has not yet ratified the Convention and the EU is not a signatory. Many countries have not yet signed or ratified the Singapore Convention. When ratified, each signatory agrees to enforce to enforce a mediated settlement agreement in an expedited manner, similar to the confirmation of an arbitration award under the New York Convention. The mediated settlement is seen as being more reliable than the non-mediated settlement, which could be subject to claims of unfairness. Not every mediated settlement agreement fits under the Singapore Convention. No international settlement should be finalized until it is checked against the requirements of the Convention. Best practices suggest that the enforcement provisions specifically state that the agreement may be enforced under the Singapore Convention.
Israeli based international arbitration advocate, Eric Sherby, takes a critical look at the Singapore Convention in “The Singapore Convention. The Emperor’s New Clothes of International Dispute Resolution”, International Dispute Resolution News, ABA Section of International Law (Fall 2020). He makes a strong case that the contractual provisions discussed above are sufficient for international enforcement. He argues that the Singapore Convention is superfluous, and may even do more harm than good because of its definition of mediator breach and potentially allowing a party to raise the defense even after the counter-party has acted to its detriment in relying on the settlement agreement. Mr. Sherby may be correct, but we never know whether we can obtain the important drafting concessions and security we need to ensure easy enforcement of the settlement. The Singapore Convention is still in its infancy and I am unaware of any case which have addressed or opposed enforcement under the Convention.