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Signing On The Dotted Line

From the Blog of Phyllis G. Pollack.

Settlement agreements can be difficult to get out of. The Sixth Appellate District of the California Court of Appeal made this point clear in its opinion in Chan v. Lund (Case No. HO34196 – Sept 29, 2010.)

It seems that Chan and the Lunds were neighbors. Using Norma Tree Service (an unlicensed contractor), the Lunds caused some branches of Chan’s cypress trees (extending over the boundary fence and onto the Lunds’ property) to be trimmed. Chan took exception to this and so sued both the Lunds and the Norma Tree Service.

Allegedly, the case was settled at mediation on the eve of trial. But, soon thereafter, Chan fired his attorney, and hired a new one. In response to motions to enforce settlement brought by both defendants pursuant to CCP §664.6, Chan claimed that his consent to the settlement was obtained through economic duress, undue influence and fraud perpetrated by his former attorney. He also asserted that the California Evidence Code provisions concerning the confidentiality of mediation communications and precluding mediators from testifying at subsequent proceedings, violated the due process clause of both the United States and California Constitutions.

The trial court rejected all of Chan’s claims and granted the motions to enforce settlement. The appellate court affirmed.

In his declaration opposing the motions to enforce settlement, Chan recited that his attorney threatened to abandon Chan if Chan did not attend the mediation and that he would not represent him at trial. Chan recited in his declaration that because of this threat, he attended the mediation at which point his attorney agreed to represent him the next day at trial. However, Chan further alleged that during mediation, when there seemed to be an impasse, his attorney again threatened to abandon Chan if Chan did not negotiate in good faith.

The appellate court determined that Chan’s contentions did not constitute extortion, economic duress, undue influence, fraud or even an invalid business transaction between an attorney and his client contrary to Rules of Professional Conduct, Rule 3-300. (Id. at pp. 8-24). The appellate court found it did not need to reach the constitutional issues because Chan had at best made an “offer of hope” rather than an offer of proof of the substance of the testimony that the mediator would provide. (Id. at pp. 25-26, n.27).

The appellate court rejected Chan’s contention that he could rescind the settlement agreement based on extortion, economic duress, undue influence and/or fraud because, as the court noted, his attorney was neither a party to the settlement agreement nor conspired with the Lunds in obtaining Chan’s consent to the settlement agreement. Looking at the requirements for each of these claims, the appellate court pointed out that the operative parties are usually the threatening party and his victim. The threatener extorts, uses economic duress, undue influence or commits fraud in order to force the victim to agree to something, e.g. a settlement agreement. But here, the Lunds did no such thing and assuming that Chan’s former attorney committed any of these alleged acts, he did not make the Lunds even privy to what he was up to; rather, they acted in good faith in complete ignorance of the attorney’s alleged misdeeds and gave value or consideration to Chan in exchange for his agreement to settle. The attorney had no interest or rights in the settlement agreement and did not conspire with the Lunds to accomplish the settlement by means of any of the alleged misdeeds. (Id. at pp. 8-24).

The appellate court also addressed the issue of whether the attorney violated Rule 3-300 (of the Rules of Professional Conduct) prohibiting an attorney from entering into a business transaction with his client unless certain very specific requirements were met. (Id. at pp. 19-22). First, the court noted that this rule does not apply to the agreement by which an attorney is retained. Second, when the attorney offered to discount his fees to induce Chan to settle, such an offer did not constitute a “business transaction” within the meaning of this rule. Further, the attorney did not acquire any interest in Chan’s property which is one of the requirements for the rule to apply. (Id.) In short, the court noted an offer to discount fees does not constitute a “business transaction” within the meaning of Rule 3-300. (Id.)

Finally, the court rejected Chan’s constitutional claims because the appellate record offered neither any indication of the alleged testimony of the mediator if allowed to testify nor an actual specific order or ruling barring Chan from introducing such evidence: Chan’s claim was just too theoretical to be taken up by the court. (Id. at pp. 24-26).

Consequently, Chan could not avoid the settlement but instead was obligated to accept the sum agreed upon in settlement.

So. . .when you do settle a dispute and memorialize it in writing, think long and hard before signing. . . it may not be so easy to get out of it if you later have second thoughts.

. . .Just something to think about!


Phyllis Pollack

Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as… MORE >

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