In Tuscany Custom Homes, LLC v. John B. Westover, et al., No. 2020CA1724, the Colorado Court of Appeals held that post-mediation communications from a mediator memorializing the parties’ agreement reached during mediation (but not executed by the parties) and an unsigned settlement agreement formalizing those settlement terms were “mediation communications” under Colorado’s dispute resolution statute (C.R.S. § 13-22-302(2.5) & -307) and thus inadmissible evidence of a settlement agreement. While the Court’s holding does not necessarily set new law or change our understanding of Colorado’s mediation statutes, it serves as a cautionary tale to those engaged in mediation that the extra effort to solidify the parties’ agreements before ending the day is the safest bet. Clients can sometimes walk away from mediations and, having time to mull over their decision, change their minds even though it seemed to everyone that a deal was reached. Regardless of whether an oral agreement to settle was reached during mediation, without a signed agreement it will be an uphill battle to prove the existence of the settlement that occurred during mediation.

In Tuscany Custom Homes, the parties arrived at an oral agreement of settlement terms during the mediation. Because the mediator had computer issues, nothing was memorialized in writing or signed by the parties during the mediation session. The mediator followed up with an email to all parties summarizing the terms of the settlement reached during mediation and requested all counsel review the email and assent to the terms. Counsel agreed the mediator’s email was correct and continued the email chain for several days making additions to the terms. Thereafter, Plaintiff’s counsel drafted a settlement agreement and counsel for Defendant Westover responded “We don’t have any changes. Provided there’s no redlines, we’ll get our clients to sign”. Plaintiff and the other defendant then signed the draft agreement, but Defendant Westover refused to sign.

Plaintiff filed a motion to enforce the settlement agreement, arguing that an oral settlement agreement was reached at mediation. It attached the mediator’s email and the draft settlement agreement as proof of the agreement and its terms. Defendant Westover argued the evidence proffered was inadmissible under Colorado’s dispute resolution act because it revealed confidential “mediation communications”. The District Court found in favor of Plaintiff, holding the evidence was admissible:

[T]he objected to communications in [the mediator’s email] and [the Draft Agreement] were not made in the presence of the mediator, were not connected to specific mediation services proceedings, and were typical settlement negotiations apart from the mediator and mediation. Rather, the communications in [the mediator’s email] and [the Draft Agreement] were made to express and confirm already agreed upon terms, to seek written assent to those previously agreed upon terms, and were typical settlement negotiations apart from the mediation. The purpose of [the mediator’s email] to counsel was to obtain written confirmation of what had previously been orally agreed to [by] the parties during the mediation. As such, the Court finds that [the mediator’s email] and [the Draft Agreement] do not contain “mediation communications” under C.R.S. 13-22-302(2.5), which are confidential under C.R.S. 13-22-307.

The Court of Appeals reversed, holding that the evidence was inadmissible to prove an agreement to settle. The Court held the mediator’s email constituted a memorandum or note under the statutory definition of “mediation communication” because it outlined the terms of a transaction or contract. The Court further found that the email was prepared “pursuant to” a “mediation services proceeding” because the parties agreed during mediation that the mediator would draft the summary and send it to the parties. As to the draft settlement agreement, the Court held that it was also a “mediation communication” because it was made at the mediator’s behest, and the mediator was kept on the email communications sending the draft agreement to all parties.

The Court further reiterated that a party cannot use an unexecuted written draft of certain terms as proof that an oral settlement agreement was reached at mediation. Such would be inadmissible evidence of mediation communications. The Court concluded that Colorado’s statutory provisions (§§ 13-22-307, 13-22-302(2.5), 13-22-308(1)) “work in tandem to ensure that, in general, the only admissible evidence of an agreement reached during mediation is a signed written agreement.” The Court reasoned that “[o]therwise, a party — after going through a mediation proceeding — could write down oral communications made during the mediation, not seek any other party’s written assent to the document, and then submit the document as evidence of an agreement reached at the mediation, claiming that it is not a protected mediation communication because it was not written in the mediator’s presence or at the mediator’s behest.”

The Court’s holding counsels against a handshake deal or “settlement in principle” arrangement at mediation. Parties should be cognizant of the consequences associated with failing to memorialize and sign a formal written settlement agreement during mediation, and they should seriously consider whether keeping the mediator involved in post-mediation communications and discussions is necessary. And, while we have all become somewhat accustomed to the virtual world this past year, computers despite making our lives easier are prone to technical issues when you least expect it. Parties, and their counsel, should aim to come to mediation with a draft settlement agreement so that details and nuances can be worked through, resolved. documented, and signed during the mediation session. To the extent technical issues ensue, as was the case in Tuscany Custom Homes, parties should endeavor to etch out key settlement terms on paper and sign. At a minimum, such a document should serve as the exception under C.R.S. §13-22-302(2.5) and be admissible in court to enforce its terms.