A recent decision of the Delaware Court of Chancery provides a useful example of why the terms of a successful mediation need to be sufficiently memorialized in writing, immediately, so that the settlement can be enforced in the event that a formal and comprehensive settlement agreement is not completed later. In Starkman v. O’Rourke, No. 2018-0901-KSJM, Order (Del. Ch. Jan. 14, 2019), the court ordered the enforcement of the term sheet that was signed by the parties after a mediation, even though the parties could not complete a more formal agreement.
Why this Case is Noteworthy:
- This decision explains why the term sheet signed after a successful mediation must include all the essential terms. This is so, because if it is not included in the term sheet, and as sometimes happens, a formal agreement cannot be agreed upon later, the term sheet signed after the mediation will be the only document that the parties will have to rely on.
The Moral of this Story:
- If a settlement is reached after mediation, do not let anyone who is a decision-maker leave the room unless all the material terms that are important to the parties are included in a signed document, however informal, that expressly provides that it is a binding agreement. Do not wait for a more formal and comprehensive agreement–which may never come.
Key Takeaways from this Ruling:
- A term sheet that explicitly provides that it is binding, however informal it may be, signed by all parties, with authority, after a successful mediation will be enforced even if the parties cannot later agree on a more formal and comprehensive agreement.
- If a term or condition is important, it needs to be in the signed term sheet, or otherwise don’t expect the Court to enforce it.
- This decision comes in the form of an Order, but Orders can be cited as authority in submissions to Delaware Courts.
- The ruling refers to Court of Chancery Rule 174, which provides clarity about the parameters of mediation, such as confidentiality when a member of the Court conducts the mediation.
- This Order distinguishes a prior Chancery ruling involving an “oral agreement” reached after mediation, that was not reduced to writing, and that was not enforced due to certain ambiguities and lack of proof about what was a part of the so-called oral agreement.
- The Court also distinguished other Chancery decisions where a post-mediation agreement was not sufficiently documented.