August 3, 2007
JM AGENCY, INC., D/B/A THE SPANO AGENCY, PLAINTIFF-APPELLANT,
NAS FINANCIAL SERVICES, INC.; AMERIHEALTH INS. CO. OF NJ, ON ITS OWN BEHALF AND AS AN AGENT FOR AMERIHEALTH HMO, INC., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-1541-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted July 17, 2007
Before Judges C.S. Fisher and Grall.
In this appeal, we conclude that the trial judge mistakenly granted defendants' motion to enforce a settlement by finding that a dispute about the terms of their alleged agreement --that is, whether defendants would admit liability -- was immaterial. The record reveals that this disputed term was an essential part of the bargain and, in light of the parties' inability to agree on that point, defendants' version of the alleged agreement should not have been enforced.
Plaintiff commenced this action seeking the recovery of a monetary judgment based upon commissions it was not paid for having produced a client for defendants. After defendants' motion to dismiss certain aspects of plaintiff's complaint was granted, the parties engaged in mediation and appeared to have reached a settlement that was contingent upon being memorialized in a written agreement. When the parties could not agree on the terms of a written agreement, defendants moved to enforce what they believed to be the alleged settlement's terms. The trial judge granted that motion and this appeal followed.
Specifically, plaintiff appeals from the order of June 9, 2006, which enforced the settlement, as well as an earlier interlocutory order entered on January 9, 2006, which dismissed plaintiff's conversion claim and its demands for punitive damages and attorneys' fees. We find the arguments asserted by plaintiff concerning the January 9, 2006 order to be without sufficient merit to warrant discussion in a written opinion, R. 2:11-3(e)(1)(E), and affirm that order. We reverse the order of June 9, 2006 for the following reasons.
There is no dispute that during mediation plaintiff demanded $5,000; in the alternative, plaintiff's counsel advised that plaintiff would accept the lesser amount of $2,297.15, which appears to have been the amount of commissions due, together with defendants' admission of liability. Defendants agreed to pay $2,297.15, but balked at admitting liability. According to his certification, plaintiff's attorney advised the mediator that plaintiff was agreeable to accepting the lesser amount but remained insistent upon receiving defendants' admission of liability. Defendants continued to refuse to admit liability, but counsel for defendant AmeriHealth suggested that a statement could be included in the settlement agreement, which would reflect that defendants had "reviewed the matter" and "determined that commissions were due." Plaintiff's counsel responded that "this might be acceptable" but that it was ultimately subject to plaintiff's approval.
A proposed settlement agreement was thereafter circulated. It contained a provision that the payment of the settlement funds was "not an admission of liability, but is made for the purpose of terminating all disputes and litigation between the parties." Plaintiff's counsel objected, advised that plaintiff was unwilling to further negotiate the terms of the agreement, and asserted that the matter ought to be returned to the active trial calendar. Defendants later forwarded a revised agreement, which -- in lieu of the language that the payment of the settlement funds was "not an admission of liability" -- stated: "[u]pon review of the coverage file . . . it was determined that $45,942.94 was received in premium payments, but no commissions were paid. Commissions in the amount of $2,297.15 would have been received by [plaintiff]." Plaintiff found that this statement insufficiently conveyed the admission of liability that plaintiff had bargained for. As a result, plaintiff refused to sign the agreement.
Defendants moved for enforcement of the alleged settlement. In granting the motion, the trial judge concluded that plaintiff had not "adequately explained . . . why it requires a stipulation of liability by the defendants rather than the language offered by the defendants." He also held that this disputed term was not material to the settlement agreement. Consequently, the judge entered an order on June 9, 2006 that enforced the alleged settlement agreement and mandated that plaintiff execute a stipulation of dismissal, the written settlement agreement, and a release in favor of defendants.
"A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). And a binding settlement agreement is formed only when the parties agree on all essential terms and manifest an intention to be bound. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992). Thus, as a general matter, the common law rules governing when a binding contract has been formed apply in determining whether negotiations generated a binding settlement agreement.
In considering these rules to the facts presented by the record at hand, we conclude that the trial judge mistakenly (a) placed the burden of persuasion on plaintiff, (b) failed to recognize that plaintiff had never agreed on the point in dispute, and (c) held the disputed term to be immaterial to the parties' undertaking.
In finding that a binding agreement was formed, the trial judge emphasized the well-established fact that "[s]ettlement ranks high in our public policy." Nolan, supra, 120 N.J. at 472 (quoting Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961)). We discern from the judge's invocation of this stated policy the basis for his saddling plaintiff with the burden of persuasion.
Reliance upon this public policy, however, was erroneous since the question posed in the trial court was not whether an existing settlement agreement should be enforced but whether a settlement agreement was ever formed. The former question places the burden on the party seeking relief from a settlement agreement. The latter question -- presented here -- places the burden on the party seeking a finding that a settlement agreement was formed.
In other words, had a settlement agreement been formed, it would have been appropriate to hold plaintiff to the burden of demonstrating why it should not be enforced. As the Nolan Court held, a settlement agreement will be honored absent a movant's "demonstration of 'fraud or other compelling circumstances.'" 120 N.J. at 472 (quoting Pascarella v. Bruck, 190 N.J. Super. 118, 125 (App. Div.), certif. denied, 94 N.J. 600 (1983)). But this approach applies only when a settlement agreement actually exists.
Here, the parties disputed whether they had agreed on all their alleged agreement's essential terms. In that circumstance, the public policy that favors the enforcement of settlement agreements was not triggered and the burden remained on defendants to demonstrate that a settlement agreement had been formed. Amatuzzo v. Kozmiak, 305 N.J. Super. 469, 475 (App. Div. 1997). We, thus, conclude that the trial judge erred when he held that defendants' version of the settlement agreement should be enforced because plaintiff had not "adequately explained . . . why it requires a stipulation of liability by the defendants rather than the language offered by the defendants." To the contrary, the burden was on defendants to show that the parties had agreed on all essential terms of their agreement.
The judge also mistakenly held that the attorneys' negotiations generated an enforceable settlement agreement. In this regard, it is important to recognize that careful consideration of settlement negotiations is warranted when they are conducted by an attorney without the direct participation of the client, as here. In such circumstances, we have held that a litigant will not be bound by an attorney's statements during negotiations unless the client has "specifically authorized" the attorney to bind him or her. Amatuzzo, supra, 305 N.J. Super. at 475; see also City of Jersey City v. Roosevelt Stadium Marina, Inc., 210 N.J. Super. 315, 327 (App. Div. 1986).
As explained by Judge Shebell:
Negotiations of an attorney are not binding on the client unless the client has expressly authorized the settlement or the client's voluntary act has placed the attorney in a situation wherein a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement, not just negotiations, on behalf of the client. [Amatuzzo, supra, 305 N.J. Super. at 475.]
Here, the attorneys discussed the terms and content of a settlement agreement during mediation and assumed they could agree on a memorializing agreement that would be satisfactory to their clients. When a draft agreement was circulated, plaintiff found it unacceptable because it omitted defendants' admission of liability. Later attempts at crafting language more acceptable to plaintiff failed to ameliorate its concerns on this point, following which the parties' discussions ended. We are satisfied that plaintiff never agreed to settle the lawsuit on the terms that were imposed by the judge's order.
In enforcing the version of the settlement agreement proposed by defendants, the trial judge also concluded that defendant's admission of liability was not a material or essential term. The judge stated in his oral decision that plaintiff's insistence upon defendants' admission of liability "is not material and serves no purpose other than some kind of emotional satisfaction of the plaintiff regarding this litigation." We reject this.
What is material or essential "depends on the agreement and its context and also on the subsequent conduct of the parties . . . ." Restatement 2d, Contracts § 131, comment g (1981). Plaintiff's complaint invoked the jurisdiction of the court and sought the entry of a judgment that would declare defendant liable and award damages. The right to pursue that relief in the trial court is a fundamental right. As plaintiff's waiver of that fundamental right would be viewed by defendants as an essential aspect of a settlement agreement, by the same token, the consideration plaintiff sought in return also represented an essential term. Both aspects of this alleged exchange of promises met with the common law's approach as to what is material or essential to a contract. Ibid.; see also Medivox Prod., Inc. v. Hoffmann-LaRoche, Inc., 107 N.J. Super. 47, 58-59 (Law Div. 1969) (Handler, J.).
The parties' subsequent actions also reveal the materiality of this disputed term. Considering plaintiff's insistence on obtaining defendants' admission of liability before releasing plaintiff's claim, and considering defendants' steadfast unwillingness to provide that stipulation, it becomes readily apparent that the term was of great relevance to both parties. Restatement 2d, Contracts, supra, § 131 comment g. The parties' actions during and subsequent to the settlement negotiations demonstrate their shared belief that whether defendants would admit liability was a material aspect of their nascent settlement agreement. During negotiations, plaintiff's attorney expressed his client's desire that defendants admit liability and defense counsel, in fact, endeavored to craft language that would meet plaintiff's demands. Upon their failure to agree on the written terms of a settlement agreement, the parties then engaged in this dispute about that term. In light of the considerable time and effort spent over the question, it is plain to see that the parties viewed this term as something essential or material to their undertaking.
In short, we find relevant the context and the parties' view of what is important in determining the materiality of any disputed terms in such an agreement. See Isetts v. Bor. of Roseland, 364 N.J. Super. 247, 254 (App. Div. 2003); Dept. of Pub. Advocate v. N.J. Bd. of Pub. Utilities, 206 N.J. Super. 523, 528 (App. Div. 1985). A full and fair consideration of the parties' contentions reveals that whether defendants would admit liability in exchange for plaintiff's release of the claim was something that was discussed and disputed, and of great importance to the parties. The judge's conclusion that this term was immaterial finds no support in the record.
We conclude that the record abundantly demonstrates that plaintiff never evinced an intention to be bound to an agreement that did not include defendant's admission of liability and that the parties' failure to agree on that essential term precluded a finding that they had entered into a binding settlement agreement. Accordingly, we find that the trial judge erred in declaring that the suit was settled and in enforcing that conclusion by directing plaintiff to execute a stipulation of dismissal, the proposed written settlement agreement, and a release.
The order under review is reversed and the matter remanded for a trial on the merits.
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