Written Settlement Terms May Be Inadmissible

Law Talk

Sam K. Abdulaziz
Attorney at Law

In the case Fair v. Bakhtiari, Thomas Fair sued his ex wife (Maryann Fair), Karl Bakhtiari (a previous business partner) and other various business entities. Fair believed that they had all left him out of real estate ventures that Fair should have rightfully been involved in and also alleged there was other wrongful conduct, all of which caused him monetary damages.

The complaint was filed, the defendants answered, and the case went to a two-day mediation. Thomas Fair's attorney handwrote a memo of settlement terms including (but not limited to) over $5 million being paid to Fair, which would be a "...purchase of all T. Fair's stock & interests (as capital gain to Fair)." It also included Maryann Fair giving up community property interest in this same settlement, as well as other items and a paragraph that indicated, "Any and all disputes subject to ... arbitration rules." Each of the parties filed their Case Management Statements with the court and let the court know that the case settled in mediation and that the parties were in the process of getting the formal settlement agreement signed by all.

Shortly before the scheduled Case Management Conference, some of the defendants discovered that Thomas Fair did not believe the agreement for the $5 million for purchase of his stock and interests applied to some of the business interests. There were also tax issues that were still to be resolved and not addressed. At the Case Management Conference, Bakhtiari's attorney asked for a continuance indicating that they had reached a settlement and were in the process of ironing out some of the complicated tax issues.

Another Case Management Statement was then filed, which said that the parties "...were ultimately unable to reach an agreement as to the scope and subject matter of the proposed settlement ...should be resolved through the regular court process." Fair's attorney demanded arbitration of the matter as per a paragraph of the settlement memorandum signed by all parties at the mediation and filed a motion to compel (force) arbitration. Defendant's counsel stated that the settlement memorandum could not be binding (hold the parties to the agreement) because they had never actually come to a meeting of the minds (full agreement and understanding) on key provisions of the case and the memorandum was therefore inadmissible.

The trial court denied the motion to compel binding arbitration because the settlement papers signed at the mediation were inadmissible and therefore, there was no arbitration agreement. When appealed, the Court of Appeal reversed the trial court's decision because they saw the provision, "...[a]ny and all disputes subject to ... arbitration rules" to mean that all parties meant for the settlement memorandum to be enforceable. The Court of Appeal indicated that since the memorandum included "words to that effect" it was admissible.

This matter was then taken to the Supreme Court of California. The same statutes were reviewed as well as the case of Weddington Productions, Inc. v. Flick, which had a similar situation and discussed that "consent" and "mutuality" must be in an agreement. Because of the ambiguous language in the settlement memorandum, there is no definitive mutual consent in the settlement memorandum -particularly on the issue of what all of Fair's stock and interests were.

The Supreme Court of California agreed with the trial court, overturning the Court of Appeal. There was no "written settlement agreement" because the settlement memorandum signed at the mediation was not admissible.