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Settled at Mediation? Not Until Final Releases Are Executed (PA)

February 8, 2018

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Mediations can be exhausting ordeals -- and this is by design, to a degree.  After a long day (or days) of mediation, parties have time to hash out their issues and reach a middle ground to settle a case.  But once a deal is struck, the next phase of litigation -- drafting the settlement documents -- begins.   And attorneys need to take proper care to ensure thorough, executed releases to finalize settlement.
On January 31, 2018, the Superior Court of Pennsylvania affirmed a motion to enforce settlement in <em><a href="http://blog.wcmlaw.com/wp-content/uploads/2018/02/Khalil-v.-Travelers-Indemnity.pdf">Khalil v. Travelers Indemnity</a></em>.  In 2009, plaintiff Dr. Ahlam Khalil filed a lawsuit against her neighbor and Travelers Insurance Company and State Farm when water damage seeped into her apartment.  During that litigation, the apartment company, Pier 3 Condominium Association (“Pier 3”) filed a separate complaint against Khalil for outstanding fees.
In 2011, Khalil settled the claims against her neighbor and the insurance companies but refused to accept any payments in light of the second lawsuit with Pier 3.  In 2012, the second case went to trial and a jury returned a verdict in favor of Pier 3.  In light of this verdict, Khalil entered mediation with the various parties in 2014, at which a term sheet was agreed to which discussed a “global resolution of all claims” and that the settlement was “condition upon: (a) The parties reaching agreement on the terms of a final written settlement agreement”.  Following the mediation, Khalil and Travelers attempted to formalize the finalized language of the settlement agreement but were unable to come to terms.
In 2016, Khalil filed another lawsuit against the defendants which alleged that she was fraudulently induced to settle and discontinue her claims.  Travelers then filed a motion to enforce settlement which the trial court granted.
On appeal, the Superior Court looked at whether the term sheet was an enforceable settlement.  In Pennsylvania, settlement agreements are governed by contract law.  The court will look at the language of the agreement and see if it is unambiguous and then determine the intent of the parties.  After reviewing the term sheet, the court agreed with Khalil and found that it was conditioned upon the parties agreeing on the terms of a final written settlement agreement, which was never reached.  As such, it was not enforceable, and the court overturned the order.
This case demonstrates the potential for settlements to fall apart if not properly followed through on.  Though term sheets and a memorialization of mediations or settlement negotiations can lay the groundwork for a settlement agreement, it is important to follow up on these temporary agreements to either finalize a written agreement or to follow through on agreed upon conditions.  Without following through on these steps, a settlement can fall apart and extend litigation as seen in this case.   Thanks to Peter Cardwell for his contribution to this post.  Please email <a href="mailto:BGibbons@wcmlaw.com">Brian Gibbons</a> with any questions.

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