In an important twist in ca$e law interpreting the admissibility, or lack of
admissibility, of mediation protetted settlement agreements in California, the
I ' California Court of Appeal, Second District, ruled that a settlement agreement
prepared in the course of a mediation is not admissible and is not enforceable
against the persons that signed it where there was at least one party that failed to
execute it and a party which failed to execute the agreement objected to
enforcement. The Court of Appeal also ruled that the attorney's fee provision in
the settlement agreement will not be enforceable against any losing party
because no admissible agreement ~xisted in the first place.
This interesting decision occurred in Cruz Cardenas Rael v. Davis (2008)
DAR 14985 ("Cruz Case"). The Cruz case concerned an action for breach of
contract by the widow of Tony G. Rael, Jr. ("Rael") over the division of assets in
Rael's estate. Rael passed away in 2003. Prior to passing away, Rael had
participated in a mediation in 2002 between himself, Rael's widow and Rael's
three adult children from a prior marriage (Rael's first wife having pre-deceased
Rael). That mediation arose from,a conservatorship action which had been filed
by one of Rael's children and in~olved the post death division of Rael's assets,
which were valued at in excess of $6,330,000 at the time of Rael's death.
Although Rael executed a Settlement Agreement which was entered in
conjunction with the mediation, as did his widow, and the Settlement Agreement
included a waiver of confidentially under Evidence Code section 1123 (which
provides that mediation protected agreements may be admissible as evidence in
a later proceeding where the parties agree in a signed writing), one of Rael's
children had refused to execute the Settlement Agreement. After Rael passed
away, the widow sued the executor of Rael's estate, claiming that Rael had
agreed that, under the terms of the Settlement Agreement, she would receive a
greater 'share of RaeI's estate than had been called for under a prior will and
living trust that Rael had signed prior to the mediation.
The executor denied that an agreement had been formed and argued that
the widow should prove that the Settlement Agreement was admissible before it
could be admitted into evidence. The executor further argued that, while the
widow and Rael had signed the Settlement Agreement and the Settlement
Agreement provided that it would be admissible under Evidence Code section
1123,the Settlement Agreement could not be admitted into evidence because one
of the parties (i.e.,a son of Rael) had failed to sign it and there was conflicting
evidence as to whether Rael had intended it to be enforceable without the
signatures of all parties.
At trial, the Court ruled that the Settlement Agreement was not admissible
and, on appeal, the Court of Appeal affirmed. In its decision, the Court of
Appeal acknowledged that Evidence Code section 1123 provides that a
mediation protected settlement agreement is not rendered inadmissible where
the parties' agreement indicates that the agreement is admissible and is
otherwise enforceable but noted that, because one of the signatories had not
executed the Settlement Agreement, it could not be determined to be severable as
between the signing parties and could not be enforced against any of the parties
which signed the Settlement Agreement.
The Court of Appeal also distinguished Stewart v. Preston Pipeline Inc.
(2005)134 Cal.App.4th 1565wherein the Court of Appeal enforced a Settlement
Agreement entered into in a mediation of a personal injury lawsuit where the
defendant had failed to execute the Settlement Agreement but the Settlement
Agreement had been executed by the defendant' scounsel who had been retained
through the defendant's insurer.
The Court of Appeal distinguished Stewart on the basis that the party
seeking to exclude the Settlement Agreement in that case had been the very party
who had executed the Agreement which' contained a waiver of confidentiality.
Since the Court determined that the Rael Settlement Agreement was not
severable, it concluded that the refusal by one .of Rael's sons rendered the
Settlement Agreement unenforceable given the facts of that case.
It is noted that the Court of Appeal further ruled that the executor of
RaeI's estate could not recover attorney's fees under the Settlement Agreement,
even though it contained an attorney's fees clause which would have otherwise
been enforceable under Civil Code section 1717. See, Santisas v. Goodin (1998)
17 Ca1.4th599,602. As to this issue, the Court of Appeal recognized that the case