Pitfalls of CCP 664.6
By Stan Roden
After nearly thirty-five (35) years in the trenches, including countless criminal and civil trials and various dispute resolution conferences, my recent career shift to a fulltime mediator/arbitrator has been both rewarding and educational. This article provides information I hope the reader will find useful.
A recent case, in which I acted as mediator, involved a series of complex commercial disputes that had been consolidated by the court for discovery and possibly for trial. At all times during the mediation sessions, the parties and counsel were operating under intense time pressures created by upcoming court events.
When settlement was reached, some of the attorneys expressed concern that unless the settlement was consummated immediately, it might unravel due to ‘buyer’s remorse.’ At that point, the parties had two choices: create a written ‘deal point list’ (short version settlement agreement) and get it signed by the parties or appear in court and put the settlement on the record. The deal point list was complicated by many factors, one of which was that not all of the parties directly participated in the negotiations and thus were not present to sign an agreement. Counsel chose the ‘oral record’ approach to be followed by a long-form settlement agreement, release and dismissal. As we were walking over to court, counsel expressed an intention of having the court later enforce the settlement, if necessary, pursuant to CCP section 664.6.
When we arrived, the assigned judge ‘for all purposes’ interrupted other proceedings to allow counsel to state the settlement on the record.1 A court reporter was already present. As earlier stated, two of the named parties were never present at the mediation and were not present in court. Another defendant and the corporation’s attorney had represented the absent parties during the mediation sessions. When appearances were made on the record, the same defendant represented to the court that he had ‘authority’ to represent the other two in the settlement of the case. Another party who had participated in the mediation sessions was a not in court, but he did appear by telephone. Still another party was present in court representing himself. As is customary, one party’s counsel summarized the settlement deal points. The court then asked each of the other counsel and each of the parties ‘if they agreed,’ to which counsel added a comment or two. Eventually, every party present in person or on the phone said “yes” to the judge or nodded in apparent agreement. The court expressed its appreciation, followed by an exchange of handshakes.
Later in my office, I began thinking about the proceedings, and with no particular question in mind, I thumbed though the Rutter chapter on CCP section 664.6, where I discovered some interesting points.
Most counsel are aware that CCP section 664.6 is a powerful tool which can be used to expeditiously enforce settlements. However, failure to adhere to the strict requirements of the statute can lead to potential problems.2
Most transactional and trial lawyers are aware that the court can enforce settlements pursuant to CCP section 664.6 by use of the relatively simple motion procedures set forth in CCP sections 1010, et seq. CCP section 664.6 provides that if the parties sign a settlement agreement or if they orally put in on the record in open court, the court is empowered, upon motion, to enter judgment. (CCP section 664.6.)
What attorneys may not be aware of is that this statute was not intended to be an equitable remedy. Despite the obvious bias of courts to terminate litigation as quickly as possible, appellate courts have applied a ‘strict interpretation’ test in disputes over application or interpretation of the statute. The rationale for this approach is due, in part, to the summary nature of the motion procedure. Sully-Miller Contracting Co. v. Gledson/Cashman Construction, Inc., (CA-2 2002), 103 Cal.App.4th 30, 37 ("Because of its summary nature, strict compliance with the requirements of section 664.6 is prerequisite to invoking the power of the court to impose a settlement agreement"). A strict constructionist approach has been utilized in dozens of appellate decisions since the statute’s enactment in 1981. A few examples of recent cases illustrate how easy it may be to cross the line, only to find out that a settlement, which is the cause for celebration, ends up in expensive litigation proceedings.
The absent party, attorneys & ‘authorized’ agents
It is clear that all parties have to either sign the settlement agreement or be in court when it is put on the record. Further, the term “party” is taken literally. For example, an attorney for a party, who obviously enjoys wide latitude in deciding tactical considerations in litigation management, cannot sign the settlement agreement for the client-party. (Levy v. Superior Court (1995) 10 Cal.4th 578, 585.)
More recently, a court held that an agent of various defendant parties, i.e., a manager of a nonprofit corporation formed by several companies named by the parties in complex asbestos litigation for the express purpose of engaging in settlement efforts, who had agreed in writing and on the record to a settlement on behalf of the principals, lacked the authority to bind those principals, at least within the contemplation of CCP section 664.6. The court set aside the settlement and held that CCP section 664.6 requires that all of the settling parties must sign any settlement agreement. (Gauss v GAF Corp. (CA-1 2002) 103 Cal.App.4th 1110.) The court concluded that the obligation of each party to join in the settlement is a requirement that will be strictly interpreted against corporations as well as natural parties.
For example, where the trial court found that the husband and the wife’s attorney had authority to act on the wife’s behalf, nevertheless the wife was held not bound by a settlement agreement she did not sign. (Williams v. Saunders (CA-3 1997 ) 55 Cal.App.4th 1158, 1162-1163). See also Cortez v. Kenneally (1996) 44 Cal.App.4th 523 [holding agreement signed by a party's attorney and her codefendant spouse not enforceable under §664.6.]
In the facts from the recent mediation mentioned above, there is a serious question whether the defendant party, who indicated to the court that he had ‘authority’ to represent two named parties, was empowered to enter into a settlement that will be enforced pursuant to CCP section 664.6.
There may be an exception to this principle where an insurance carrier has agreed to defend without any reservation of rights. Under those circumstances, the carrier’s agreement to settle may be binding and enforceable pursuant to CCP section 664.6 even if the insured did not sign the agreement. (Robertson v. Chen (1996) 44 CA 4th 1290, 1295-6.) [Rutter, Civil Procedure Before Trial, concludes that his holding is ‘dictum’ (Section 12:959).]
Some parties in court, others sign agreement
At least one possible cure where one party is not present in court is for the party not before the court to subsequently sign the out-of-court settlement agreement. In other words, the parties do not have to give consent in the same manner so long as it meets either the “in writing” or “orally on the record” tests. (Elyaoudayan v. Hoffman (CA-2 2003) 104 Cal App.4th 1421 (held that in a multiparty action CCP section 664.6 does not require that all parties agree to a settlement, orally or in writing, in the same manner, as long as all parties agree to the same material terms and intend to be bound by those terms.)
Intention that the oral agreement is binding
A caveat is in order. If there is evidence either from the in-court statement of counsel or in the signed settlement mediation agreement that the parties intend to be bound only after review and approval of a subsequent written settlement agreement, the court is not likely to enforce either the oral statement of settlement or the written agreement where it is not signed by all of the parties. The test is whether the oral statement or written mediation agreement was intended to be binding at that time, even if no formal written contract is executed. This concept is in harmony with ordinary principles of contract law. (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) "California law is clear that there is no contract until there has been a meeting of the minds on all material points." (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 357-358.)
Assent vs. informed and knowing consent
Where counsel or the court only obtain a token statement of agreement or assume a party’s consent from a nod of the head, recent cases suggest that such a settlement may be vulnerable on the grounds that such a party did not provide sufficient evidence that the other party sufficiently understood and/or agreed to the material terms of the settlement. The test is “whether (1) the material terms of the settlement were explicitly defined, (2) the supervising judicial officer questioned the parties regarding their understanding of those terms, and (3) the parties expressly acknowledged their understanding of and agreement to be bound by those terms." (In re Marriage of Assemi (1994) 7 Cal.4th 896, 911.) Recently, a conservatorship proceeding settlement was not enforced where the court specifically found that “a nod of the head” was not consistent with oral consent. (Conservatorship of McElroy (CA-4 2002) 104 Cal.App.4th 536 (“…head movements are too ambiguous to demonstrate assent and the ambiguity produces the litigation the statute was designed to avoid.”)
Borrowing from criminal law practice and what is required to make sure a pleading defendant creates a record which contains a knowing and intelligent waiver of rights, civil lawyers are advised to make sure that in any open court settlement proceedings that the parties evidence their individual understanding and agreement. It is prudent for counsel to make explicitly clear where a subsequent written agreement, release and dismissal are contemplated, that any failure or dispute about the terms of those documents will not prevent the court from enforcing the settlement that was put on the record or captured in the ‘short-form’ mediation settlement agreement.
Court must explicitly reserve jurisdiction
Last, it is likewise important for an effective CCP section 664.6 settlement that counsel explicitly request that the court agree to retain jurisdiction to enforce the settlement. (Wackeen v. Malis (CA-2 2002) 97 Cal.App.4th 429 [motion to enforce settlement and obtain over $100,000 in attorney’s fees and costs denied where parties failed to make a clear written request for continued jurisdiction in either their settlement agreement or in a separate writing and they failed to make an oral request to the court.] The court expressly found that once a dismissal was entered and absent an explicit reservation of power pursuant to CCP section 664.6, the trial court lacked subject matter jurisdiction to consider the merits of the parties’ right to attorneys fees and costs, which motion was noticed months after the dismissal was entered.
Wherever possible, all mediators are encouraged to document any agreed settlement with a written memorandum, signed by all of the parties, or a combination of a written agreement or oral statements on the record sufficient to demonstrate that each of the parties to the litigation understand the agreement and agree to be bound by it. When in doubt or when faced with an unusual situation, mediators and counsel are advised to refresh their memories by reading the statute with the realization that it will be strictly construed.
If CCP section 664.6 is not available or if court rules that it may not be used, counsel will have to resort to the remedies available prior to the statute, i.e., a) amend the pleadings to assert the settlement as an affirmative cause of action or defense; b) notice a motion for summary judgment (where material facts are not in dispute); or c) file a separate suit in equity to enforce the ‘agreement.’ Each of those remedies is far more complex, time consuming and costly than the expeditious motion procedure of CCP section 664.6.
1 In my experience, most judges are only too willing accept settlements ‘on the record,’ if not immediately, at least during the court’s next recess.2 The author wants to make it clear that it is not anticipated that there were or will be any problems with the mediated case that prompted this comment note. Rather, this article addresses only potential and hopefully only theoretical problems.