ATTORNEY FOR APPELLANTS ATTORNEYS FOR APPELLEE
Stephen Gerald Gray Bryce H. Bennett, Jr.
Indianapolis, Indiana Michael Patrick Dugan
Riley Bennett & Egloff
Indianapolis, Indiana
In The
INDIANA SUPREME COURT
KIRK E. VERNON, and )
MARTHA VERNON, )
Appellants (Plaintiff), )
)
v. ) 49S02-9809-CV-488
)
ADAM J. ACTON, )
Appellee (Defendant). )
________________________________________________
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable John L. Price, Judge
Cause No. 49D11-9512-CT-1937
________________________________________________
On Petition To Transfer
June 30, 2000
DICKSON, Justice
The plaintiff-appellants, Kirk and Martha Vernon, are appealing from
a judgment granting motions to enforce an oral pre-trial mediation
settlement agreement and to impose attorney fees filed by the defendant-
appellee, Adam Acton. Denying the existence of any agreement, the
plaintiffs raised multiple issues on appeal. The Court of Appeals
affirmed. Vernon v. Acton, 693 N.E.2d 1345 (Ind. Ct. App. 1998). We
granted transfer and requested additional briefing regarding issues related
to the Indiana Rules for Alternative Dispute Resolution (A.D.R. Rules). We
now reverse the trial court, concluding that the mediator's testimony
regarding the alleged oral settlement agreement was confidential and
privileged and that it was not admissible pursuant to the A.D.R. Rules
incorporated in the parties' written agreement to mediate.
This case arises from an automobile collision involving vehicles
driven by plaintiff Kirk Vernon and defendant Adam Acton. Prior to filing
a complaint for damages, the plaintiffs and the defendant engaged in a
voluntary pre-suit mediation pursuant to a written agreement establishing
the terms and conditions of the mediation process. The defendant contends
that the session produced an oral agreement to settle the plaintiffs'
claims for $29,500.00. A few days after the mediation session, the
defendant's insurance company issued a check and a release form to the
plaintiffs. The plaintiffs returned both unsigned and promptly filed a
complaint against the defendant alleging negligence and seeking damages for
physical injuries and loss of consortium. In his answer, the defendant
asserted various affirmative defenses and a counterclaim seeking damages
for breach of the settlement agreement and attorney fees. Both parties
timely filed demands for jury trial. Two months later, the defendant filed
a "Motion to Enforce Settlement Agreement," along with a "Motion for
Attorney's Fees."
The trial court heard evidence on the defendant's pre-trial motions
and made the following determinations: that the plaintiff had accepted the
defendant's settlement offer; that there was an oral agreement that the
plaintiffs would execute a release of all claims in exchange for
$29,500.00; that the defendant did not breach the confidentiality
provisions of the Agreement to Mediate or the A.D.R. Rules by disclosing
statements made during the mediation process; and that the defendant was
entitled to $8,000.00 in attorney fees from the plaintiffs because the
lawsuit was a frivolous, unreasonable, and groundless action in light of
the settlement agreement.
The plaintiffs contend that, during the hearing on the defendant's
pre-trial motions to enforce settlement agreement and for attorney fees,
the trial court erroneously admitted evidence regarding the alleged
settlement in contravention of the parties' mediation agreement, A.D.R.
Rule 2.12,[1] and Indiana Evidence Rule 408. The defendant asserts that
only the statements made during the mediation process before settlement
were confidential. He argues that neither the parties' agreement, the
A.D.R. Rules, nor the Evidence Rules prohibit evidence of an oral
settlement agreement reached in mediation.
At the trial court evidentiary hearing, David Young, a claims
representative for Farmers Insurance, the defendant's insurance company,
testified regarding events that occurred on October 23, 1995, at the
Indianapolis offices of National Alternative Dispute Resolution Services,
Inc. Young; the mediator, Paul S. Petticrew; the plaintiffs; their
attorney, Kirk A. Knoll; and his investigator, Clifford Somers, attended
the mediation, held pursuant to a signed Agreement to Mediate. The
mediation session lasted about three and one-third hours on a single day.
Over the plaintiffs' objection, the trial court permitted Young to testify
that, at the conclusion of the mediation session and while at the
mediator's offices, "We agreed to settle the claim at $29,500." Record at
214. Young stated that he delivered the settlement check and release to
Somers a few days after the mediation session. Over repeated objections by
plaintiffs' counsel, the mediator, Petticrew, testified that the parties
reached agreement in separate rooms, after which he brought them together
for the purpose of summarizing the terms of the agreement. Petticrew
stated that "[t]he parties had reached an agreement of $29,500 in full and
final satisfaction of the claims" and that "the parties agreed that the
adjustor was to deliver a check for $29,500 along with a release to the
claimants' attorney's office." Record at 305-06. At no time did Petticrew
prepare or submit a written version of the agreement to the parties to be
signed. However, five months later, on March 18, 1996, in response to a
request from Young, Petticrew issued a written report on the mediation,
stating in part: "After three and one third hours of negotiation through
the pre-litigation mediation process, the parties reached an agreement for
a full and final settlement of claimants' claims for twenty-nine thousand
five hundred dollars ($29,500.00)." Record at 276.
In response to the trial court overruling the plaintiffs' objections
and admitting evidence of the existence of an alleged oral settlement
agreement, plaintiff Kirk Vernon testified that, when he left the meeting
with the mediator, he did not believe that he had entered into a binding
agreement. Sowers, the investigator for the plaintiffs' attorney,
testified that, at the time of leaving the mediator's office, an offer had
been extended but the plaintiffs had unresolved questions regarding whether
they had to pay back their medical insurance carrier. To establish their
contention that there was no meeting of the minds, the plaintiffs also
attempted to present testimony during the hearing regarding statements and
events during the portion of the mediation session that preceded the
mediator's summary, but the trial court sustained the defendant's
objections to this testimony. The plaintiffs contend that the trial
court's decision had the effect of allowing the parties to testify as to
the legal conclusion that an agreement had been reached but excluded
evidence of the facts relevant to whether the alleged agreement existed.
The trial court ruled that it could hear evidence that an agreement
was reached, but that A.D.R. Rule 2.12 prevented it from receiving evidence
of "what went on during the mediation process."[2] Record at 228. The
Court of Appeals upheld the trial court's judgment, based upon Indiana
Evidence Rules 402 and 408 and its view that the confidentiality provisions
in the parties' written agreement to mediate could not supersede the Rules
of Evidence. Vernon, 693 N.E.2d at 1348-50.
This mediation was entered into pursuant to a written Agreement to
Mediate.[3] The agreement required confidentiality in conformity with
state law and Supreme Court Rules.[4] Both parties claim that by their
Agreement to Mediate they intended to be governed by the A.D.R. Rules.
They dispute the scope, but not the applicability, of the A.D.R. mediation
confidentiality rule. Each party presented arguments both to the trial
court and to the Court of Appeals based on the A.D.R. Rules. The trial
court's decision was grounded solely upon the A.D.R. Rules. We note that
the A.D.R. Rules would not have otherwise applied to this pre-suit
mediation,[5] see Anderson v. Yorktown Classroom Teachers Ass'n, 677 N.E.2d
540, 542 (Ind. Ct. App. 1997). However, because each of the parties
intended to be governed by the A.D.R. mediation confidentiality rule, and
to guide the bench and bar, we will analyze the mediation in this case as
governed by the A.D.R. Rules.
At the time of the mediation in this case, the Indiana A.D.R. Rules
provided in pertinent part:
RULE 2.12 CONFIDENTIALITY
Mediation shall be regarded as settlement negotiations.
Evidence of (1) furnishing or offering or promising to furnish, or (2)
accepting or offering or promising to accept, a valuable consideration
in compromising or attempting to compromise a claim which was disputed
as to either validity or amount, is not admissible to prove liability
for or invalidity of the claim or its amount. Evidence of conduct or
statements made in the course of mediation is likewise not admissible.
This rule does not require the exclusion of any evidence otherwise
discoverable merely because it is presented in the course of the
mediation process. This rule also does not require exclusion when the
evidence is offered for another purpose, such as proving bias or
prejudice of a witness, or negating a contention of undue delay.
Mediation meetings shall be closed to all persons other than the
parties of record, their legal representatives, and other invited
persons. Mediators shall not be subject to process requiring the
disclosure of any matter discussed during the mediation, but rather,
such matter shall be considered confidential and privileged in nature.
The confidentiality requirement may not be waived by the parties, and
an objection to the obtaining of testimony or physical evidence from
mediation may be made by any party or by the mediators.
A.D.R. 2.12 (1995) (emphasis added).
This rule provides for confidentiality in mediation to the extent
provided for in other settlement negotiations. This remained so when we
revised and renumbered the rule as A.D.R. Rule 2.11 in December of 1996
(effective March 1, 1997), modifying it to read: "Mediation shall be
regarded as settlement negotiations as governed by Ind. Evidence Rule 408,"
the language of which we specifically set forth in this A.D.R. Rule.
Likewise, this evidence rule has, from the time of its adoption in 1994,
provided: "Compromise negotiations encompass alternative dispute
resolution." Ind. Evid. R. 408. Although the mediation confidentiality
rule declares that "[e]vidence of conduct or statements made in the course
of mediation is likewise not admissible," the rule also provides:
This rule does not require exclusion of any evidence otherwise
discoverable merely because it is presented in the course of the
mediation process. This rule does not require exclusion when the
evidence is offered for another purpose, such as proving bias or
prejudice of a witness, or negating a contention of undue delay.
A.D.R. 2.12 (1995). Evidence Rule 408 contains a parallel provision.
We note that, in general, settlement agreements need not be in
writing to be enforceable. Ind. Farmers Mut. Ins. Co. v. Walters, 221 Ind.
642, 646, 50 N.E.2d 868, 869 (1943); Klebes v. Forest Lake Corp., 607
N.E.2d 978, 982 (Ind. Ct. App. 1993). However, when a settlement agreement
is reached in mediation, the mediation rules required that "it shall be
reduced to writing and signed." A.D.R. 2.7(E)(2).[6] In Silkey v.
Investors Diversified Serv., Inc., 690 N.E.2d 329 (Ind. Ct. App. 1997), the
Court of Appeals confronted the issue of "what effect, if any, should be
given to the oral agreement reached by the parties at the conclusion of a
mediation." Id. at 331-32. Unlike the present case, the parties in Silkey
agreed that an agreement was reached, and the claim presented was whether
the agreement was enforceable even though it was not signed. Noting that
the terms of the agreement were not in dispute, the Court of Appeals held
that the trial court acted properly in ordering the parties to reduce their
agreement to writing and to file it with the court. Id. at 334. The
Silkey court did not address the admissibility of evidence to establish the
existence and terms of an alleged oral mediation settlement agreement.
Because of the nature of the mediation process and its significant
and increasing role, considerable attention has been given to whether
claims of oral mediation settlement agreements should be enforceable. We
note that the March 2000 discussion draft of a proposed Uniform Mediation
Act under consideration by the National Conference of Commissioners on
Uniform State Laws provides that "a record of an agreement between two or
more disputants" shall not be protected by privilege or prohibition against
disclosure, Section 8(a)(1), and the Reporter's Notes provide the following
thoughtful explanation:
This exception is noteworthy only for what is not included: oral
agreements. The disadvantage of exempting oral settlements is that
nearly everything said during a mediation session could bear on either
whether the disputants came to an agreement or the content of the
agreement. In other words, an exception for oral agreements has the
potential to swallow the rule. As a result, mediation participants
might be less candid, not knowing whether a controversy later would
erupt over an oral agreement. Unfortunately, excluding evidence of
oral settlements reached during a mediation session would operate to
the disadvantage of a less legally-sophisticated disputant who is
accustomed to the enforcement of oral settlements reached in
negotiations. Such a person might also mistakenly assume the
admissibility of evidence of oral settlements reached in mediation as
well. However, because the majority of courts and statutes limit the
confidentiality exception to signed written agreements, one would
expect that mediators and others will soon incorporate knowledge of a
writing requirement into their practices. See Ryan v. Garcia, 27 Cal.
App.4th 1006 (1994) (privilege statute precluded evidence of oral
agreement); Hudson v. Hudson, 600 So.2d 7 (Fla. App. 1992) (privilege
statute precluded evidence of oral settlement); Cohen v. Cohen, 609
So.2d 783 (Fla. App. 1992) (same); Ohio Rev. Code § 2317.02-03
(Baldwin 1998).
Nat'l Conf. of Comm'rs on Unif. State Laws, Uniform Mediation Act, Draft
Report, Section 8, Reporter's Note 2, Subsection 8(a)(1), Record of an
Agreement (Mar. 2000) .
We agree with this approach. Notwithstanding the importance of
ensuring the enforceability of agreements that result from mediation, other
goals are also important, including: facilitating agreements that result
from mutual assent, achieving complete resolution of disputes, and
producing clear understandings that the parties are less likely to dispute
or challenge. These objectives are fostered by disfavoring oral
agreements, about which the parties are more likely to have
misunderstandings and disagreements. Requiring written agreements, signed
by the parties, is more likely to maintain mediation as a viable avenue for
clear and enduring dispute resolution rather than one leading to further
uncertainty and conflict. Once the full assent of the parties is
memorialized in a signed written agreement, the important goal of
enforceability is achieved. We decline to find that the enforcement of
oral mediation agreements is a sufficient ground to satisfy the "offered
for another purpose" exception to the confidentiality rule and Evidence
Rule 408.
We therefore hold that the mediation confidentiality provisions of
our A.D.R. Rules[7] extend to and include oral settlement agreements
undertaken or reached in mediation. Until reduced to writing and signed by
the parties, mediation settlement agreements must be considered as
compromise settlement negotiations under the applicable A.D.R. Rules and
Evidence Rule 408.[8]
Having previously granted transfer, thereby vacating the opinion of
the Court of Appeals, we now reverse the judgment of the trial court and
remand this cause for a jury trial.
SHEPARD, C.J., SULLIVAN, BOEHM, and RUCKER, JJ., concur.
-----------------------
[1] Pursuant to amendment of December 23, 1996, effective March 1,
1997, the substance of this Rule 2.12 is now found in Rule 2.11 (1999).
[2] The trial court explained its ruling as follows: "The Court may
hear evidence that there was an agreement reached and I have received that.
What negotiations and so on that went into it, I may not under these rules
receive that evidence." Record at 226. Further, "[n]ow, under 2.12, I'm
not permitted to receive information on what went on during the mediation
process. So I've got the very difficult problem that I can see the
footprint but I can't be told what happened when the footprint was being
made." Record at 228.
[3] The Agreement to Mediate was not admitted into evidence at the
trial court's hearing on the defendant's motions, but it is in the Record
as Exhibit A to the Plaintiffs' Reply to Counterclaim; Demand for Jury
Trial. Record at 30-37. This agreement included the following provisions
regarding confidentiality:
2.1 The mediation process is confidential. All parties expressly
understand and agree that any statements made during the mediation
process by either party about any matter shall be considered
confidential, in conformity with State law and Supreme Court Rules.
Further, all parties understand and agree that insofar as the
mediation process is directed towards the settlement of issues which
might otherwise be the subject of litigation, statements made by
either party during the process are intended to be taken as being in
furtherance of settlement and, therefore, not admissible as evidence
in court.
Further, in signing this Agreement, all parties understand and agree
to be foreclosed and barred from: telling any statement made by the
other party; requesting the production of any notes, documents, or
tapes made in mediation; or, requesting the testimony of the mediator
with regard to any part of the mediation process in Court or any other
legal process.
Record at 36-37.
[4] Supplemental Brief of Appellants at 3-4; Appellee's Supplemental
Brief on A.D.R. Rules at 7.
[5] The A.D.R. Rules apply only to "all civil and domestic relations
litigation filed" in Indiana trial courts, subject to certain exceptions
not relevant to this case. A.D.R. 1.4. By their terms, they do not apply
to a mediation not instituted pursuant to judicial action in a pending
case. Although not in effect at the time of the mediation in the present
case, this Court has since expressly recommended the Pre-Suit Mediation
Guidelines developed by the Indiana State Bar Association. A.D.R.
Guideline 8 (adopted Dec. 4, 1998, effective Jan. 1, 1999). The Pre-Suit
Guideline suggests that the parties should, by private agreement, protect
the confidentiality of the pre-suit mediation process in accordance with
the A.D.R. Rules. A.D.R. Guideline 8.4 & Form B(5). Strongly favoring the
amicable resolution of disputes without resort to litigation, this Court
encourages the use of mediation and other amicable settlement techniques
and procedures.
[6] At the time of the mediation, A.D.R. 2.7(E)(2) stated: "If an
agreement is reached, it shall be reduced to writing and signed. The
agreement shall then be filed with the court. If the agreement is complete
on all issues, it shall be accompanied by a joint stipulation of
disposition." Amendments to this subsection adopted December 23, 1996,
effective March 1, 1997, added the phrase "and signed by the parties and
their counsel" to the end of the first sentence and the phrase "In domestic
relations matters" to the beginning of the second sentence. Similarly,
A.D.R. Guideline 8.8 states: "If an agreement to settlement is reached, it
should be reduced to writing promptly and a copy provided to all parties."
[7] A.D.R. 2.12 (1995), and A.D.R. 2.11 (1997).
[8] To the extent that Silkey, 690 N.E.2d 329, holds to the contrary,
it is disapproved.