Neutral Corner: Recent appellate case raises mediation issues

May 4, 2016

Neutral Corner: John Van WinkleThe recent Indiana Court of Appeals decision Jonas v. State Farm Life Ins. Co., ____N.E. 3d ______, 2016 WL 1248589 (Ind. Ct. App. 2016) highlights several issues concerning mediation and settlement in both state and federal courts.

In that case, an insurer filed a federal court interpleader action, seeking to interplead the proceeds from a life insurance policy. The surviving spouse claimed sole right to the proceeds. The insurer pled uncertainty as to whether the deceased spouse’s estate or the couple’s children would claim an interest. The District Court granted the interpleader, dismissed the insurer with prejudice and ordered the funds distributed. After the dismissal with prejudice of State Farm, the insured, on March 4, 2014, filed an appeal with the 7th Circuit. In April of 2014, before briefs were filed, the insured and insurer engaged in settlement discussions involving, to some extent, the Circuit Mediation Program of the U.S. Court of Appeals.

During those settlement discussions, the parties reached a verbal settlement agreement. State Farm’s counsel sent a proposed final release which contained a confidentiality clause. The insured’s counsel responded that his client objected to the confidentiality clause and that if it was not removed from the release by the close of business that same day, the offer to settle would be withdrawn. Counsel for State Farm responded that same day: “State Farm agrees to remove the confidentiality paragraph.” The insured’s counsel responded: “Fine. When can my client expect to be paid?” Several days later, Jonas, the insured, informed State Farm that he was withdrawing from the settlement, stating: “I reconsidered and rejected [State Farm’s] proposal.”

A year later, Jonas filed an action in state court, seeking interest, fees and damages for bad faith. State Farm moved to enforce what it considered to be a settlement agreement. The trial court granted summary judgment, finding an enforceable settlement agreement and Jonas appealed.

On appeal, the insured argued that pursuant to Vernon v. Acton, 732 N.E.2d 805 (Ind. 2000), a mediated settlement agreement must be in writing and signed by the parties to be enforceable. The Court of Appeals held, however, that at the time the settlement was discussed, there was no pending state court action and that the Indiana ADR Rules only apply to civil and domestic litigation filed in state court. Therefore, the court ruled that general state contract law controlled and, under that law, an oral settlement agreement is enforceable.

The Jonas decision raises several issues for mediation participants: Must a mediated agreement be in writing? What are the rules applicable to a mediation conducted pursuant to the 7th Circuit Mediation Program? Are email communications concerning settlement negotiations “writings?”

As to the first issue, it is submitted that the holding in Vernon v. Acton, supra, is not that mediated settlement agreements must be in writing to be enforceable. Rather, the core ruling in Vernon is that oral settlement agreements are not an exception to the ADR confidentiality rules. Therefore, unless reduced to writing and signed, oral mediation agreements should be considered as settlement negotiations and inadmissible in evidence. Van Winkle, “Rules on Alternative Dispute Resolution Annotated,” pp 100-104, (2015 Edition)

The second issue raised in the Jonas case is what rules apply to mediation conducted pursuant to the Circuit Mediation Program of the U.S. Court of Appeals for the 7th Circuit. The insurer in Jonas contended that all communications connected with 7th Circuit mediation are confidential, citing that court’s website which states: “The Seventh Circuit Court of Appeals conducts confidential mediations … .”

The Jonas court did not address that argument because the insured did not argue to the trial court that such confidentiality provisions were violated, and so the issue was not properly presented in the appeal. Unanswered was what confidentiality rules, if any, govern mediations in the 7th Circuit Court of Appeals program and whether the “confidentiality” provision referenced on that program’s website is broader than or the same as the evidentiary exclusionary provisions of Federal Rule of Evidence 408. Note also that the Indiana Supreme Court Committee on Rules of Practice and Procedure posted certain proposed amendments to ADR Rule 2.11. The proposed amendments would restate that mediations under the Indiana ADR Rules are to be considered settlement negotiations and would add a new section stating in part: “Mediation sessions shall be confidential … .” The proposed amendments, however, do not delineate the scope or practical effect of simply stating sessions are “confidential.”

Finally, the Jonas case raises again the increasingly common issue of when and to what extent do email communications concerning settlement constitute “writings.” See “The Questionable Effect of Informal and Instantaneous Electronic Communication on the Validity of ‘No Oral Modification’ Clauses: Are Texts, Tweets and Email Destroying the Sanctity of Contract Law?” 90 U. of Det Mercy L.Rev. 35 (2012).•


John R. Van Winkle, of Van Winkle Baten Dispute Resolution, is a former chair of the American Bar Association’s Section of Dispute Resolution and author of West’s Indiana Rules of Dispute Resolution Annotated. The opinions expressed are those of the author.


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