No Signature, No Settlement: NJ Appellate Division Reiterates Settlements Reached at Mediation Absent a Signed Agreement Are Unenforceable

On March 28, 2023, in a published decision in Gold Tree Spa, Inc, v. PD Nail Corp., the New Jersey Appellate Division extended the New Jersey Supreme Court’s seminal decision in Willingboro Mall, Ltd. v. 240/242 Franklin Ave., LLC and confirmed that settlements reached at mediation are unenforceable when the parties do not sign a term sheet before mediation comes to a close, irrespective of whether mediation is voluntary or court-ordered. Although the Gold Tree case involved a commercial dispute, the decision contains important lessons for employers and employment law practitioners.

Facts

Gold Tree Spa, Inc. (Gold Tree) agreed to sell two nail salons to PD Nail Corp. (PD Nail). After PD Nail made a down payment to purchase the salons, negotiations fell apart and the sale could not be finalized. Gold Tree filed a lawsuit alleging, among other things, breach of the purchase agreement. Thereafter, the parties voluntarily agreed to mediation. At mediation, the parties reached a settlement and a draft settlement agreement was reduced to writing by the mediator. Pursuant to the terms of the settlement, Gold Tree would retain the down payment and PD Nail would retain possession of one of the nail salons, subject to the landlord consenting to assign the lease to PD Nail. A few hours after mediation, Gold Tree informed its attorney that it no longer wished to settle and did not sign the agreement. As a result, PD Nail moved to enforce the settlement.

Trial Court Decision

The trial court denied the PD Nail’s motion to enforce finding the parties failed to reach a valid settlement at mediation. PD Nail’s motion for reconsideration was also denied. The court held that the terms of the settlement agreement must be reduced to writing and signed by the parties before mediation ends. The trial court also found PD Nail’s argument unpersuasive that Willingboro did not apply because the Gold Tree mediation was voluntary and not court-ordered.

Appellate Division Decision

On appeal, in addition to maintaining that the New Jersey Supreme Court’s decision in Willingboro only applies to court-ordered mediation, PD Nail further argued that even if a settlement agreement was not executed, Gold Tree conceded that the parties settled by their subsequent conduct and communication. The Appellate Division found both arguments unpersuasive. The court concluded that the law was settled in Willingboro, when a settlement is reached at mediation but not reduced to a signed written agreement, the agreement is not enforceable. Thus, because the parties did not sign a settlement agreement, the settlement was unenforceable. The court further concluded that while there is a distinction between the various forms of mediation, the differences are irrelevant, because the New Jersey Supreme Court created a bright line rule that settlements agreed to through the mediation process must be agreed to in writing and reduced to a signed written term sheet.

The Bottom Line

Most employment litigation is resolved short of trial, frequently at mediation. The Appellate Division’s holding is an important reminder that the terms of a settlement must be reduced to writing and signed by the parties before the mediation ends. Failure to do so will result in an agreement that is unenforceable in a court of law should one party challenge the settlement reached at mediation.

For more information regarding this decision and how to properly document and enforce settlements, please contact John C. Petrella, Esq., lead Partner of the firm’s Employment Law & Litigation practice via email here or Dina M. Mastellone, Esq., lead Partner of the firm’s Human Resources Counseling & Compliance practice via email here, or call 973.533.0777.