Court Enforces Hand-Shake Deal in Mediation

Authored by R. Benjamin Cassady, D. Brian Kacedon, and John C. Paul

Abstract

Agreements reached during court-appointed mediation are just as binding as court-sanctioned settlements. For example, the parties in a recent patent-infringement suit ostensibly reached a settlement during mediation, only for one party to recant days later. Giving weight to the neutral-mediator’s view that a settlement had in fact been reached, the Court rejected the recanting party’s about-face and sanctioned it for the additional fees and costs its actions forced its opponent to incur in enforcing the original agreement.

Background

A patent-infringement suit between ThermoLife International, LLC¹ and Tribravus Enterprises, LLC, dba iForce Nutrition (among other defendants) was scheduled for mediation on September 3, 2015. Representatives of both parties and their respective counsel appeared at the mediation and, after much back and forth, the parties reached a settlement in principle minutes before iForce’s team needed to leave to catch a flight. The mediator recited the terms of the agreement to the parties, and they shook hands. In the interest of time, rather than signing a formal term sheet, the mediator confirmed that he would send an email memorializing the terms of the agreement to the parties.

Less than an hour after the parties parted ways, the mediator sent the email confirming the terms of the settlement. He also informed the parties that he would notify the Court clerk that a settlement had been reached, and he did the next morning. In a follow-up email the same day, the mediator relayed to the parties the Court’s request that they file a motion to stay the case while the settlement was finalized. iForce’s counsel did not respond to any of the mediator’s emails.

Four days later, ThermoLife’s counsel sent iForce a draft of the settlement agreement and a proposed motion to stay. Hours before the motion was to be finalized, iForce’s counsel informed ThermoLife and the mediator that iForce did not agree to the settlement terms. Over the next three weeks, iForce promised to address the settlement terms with ThermoLife, but, according to ThermoLife, never substantively followed up before leaving a voicemail simply stating: "We do not have a settlement." The day after receiving the voicemail, ThermoLifefiled a motion to enforcement the settlement, and for sanctions against iForce.

The ThermoLife Decision

The Court rejected iForce’s position that the settlement was not final or enforceable, finding that "settlement agreements reached through mediation are as binding as those reached during litigation," and that oral settlement agreements are enforceable, even if a party subsequently refuses to sign a written agreement. The Court also rejected iForce’s argument that the parties’ handshake was simply a confirmation that the proposed settlement terms were understood, finding iForce’s position "contrary to the custom and practice of what a handshake represents after the recitation of an agreement to settlement terms."

Ultimately, the Court found that: 1) iForce did not dispute the settlement despite many opportunities to do so in the days following the mediation; and 2) the credible neutral mediator believed the case was settled, a fact "deserving of significant weight" according to the Court. It was clear, the Court said, that iForce simply had a belated change of heart. Accordingly, the Court granted ThermoLife’s motion to enforce the settlement agreement.

The Court also sanctioned iForce, awarding ThermoLife attorneys’ fees incurred in preparing its enforcement motion because iForce’s denial of the settlement evidenced "bad faith" and "vexatious conduct." But the Court stopped short of awarding ThermoLife the fees and costs associated with the mediation itself, concluding that iForce entered the mediation in good faith, as evidenced by the fact that the parties reached a settlement (before iForce recanted).

Strategy and Conclusion

Agreements reached in the presence of court-appointed, neutral mediators can be binding. Even so-called "hand-shake" agreements between the parties can be enforced. Thus, licensors and licensees participating in mediation should treat it seriously, and expect to be bound to agreed-upon terms. Moreover, in the event a party disagrees with the mediator’s summary of the mediation or an unsigned term sheet, that party would be well-served to state its objections immediately, as courts may find that delayed protestations evidence a post-hoc change of heart, rather than a contemporaneous failure of the minds to meet.

Endnotes

¹ The ThermoLife decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/ThermoLifeInternationalLLCvDPSNutritionInc-pawd-2-15-cv-00273.pdf.

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