In the Matter of the Estate of Lillian L. Fischer, the Appellate Division of the Superior Court of New Jersey (Docket No. A-0091-10T2) determined that a failure to disclose information in a mediation did not require a settlement to be overturned. This case was recently decided on June 14, 2011.
In the Fischer case, the parties entered into a settlement of a case as a result of a court sponsored mediation. Sometime thereafter, a disagreement arose concerning the disposition of certain assets that had not been disclosed during the mediation.
One of the parties to the mediation was aware of certain assets (in this case certain securties) and this party declined to alert the mediator or the other side that these assets existed because “[n]obody asked her about it”. The other side, which was unaware of these assets, alleged that there was bad faith due to the failure to disclose the existence of additional assets.
The Trial Court determined that there was no duty to disclose the fact that there were additional assets noting that there was no “exchange of discovery” or “clear identification of each party’s positions about these issues.” Accordingly, the Trial Court found no basis for concluding that there was any bad faith or bad motive during the mediation process. An appeal of the Trial Court’s decision was filed.
The two issues that were considered on appeal were whether there was a breach of the covenant of implied good faith and fair dealing that is implied in every contract under New Jersey law and whether there was an intentional failure to make a disclosure to the detriment of the other side.
The Appellate Division affirmed the decision of the Trial Court finding that courts will not rewrite or unduly expand settlement agreements in order to deem settled or waived things not legitimately encompassed. The Appellate Division found that the implied covenant of good faith and fair dealing does not require “either side in negotiations to reveal any and all information that might help the adversary and hurt his or her own client.” On the issue of the claim of fraud, the Appellate Division found that no fiduciary relationship existed between the parties and the transaction was not fiduciary in nature. In fact, the Appellate Division found that the adversarial relationship placed each side on notice to conduct their own due diligence. In addition, both parties were represented by counsel and entered into the settlement knowingly, voluntarily, and with an equal opportunity to negotiate the terms. It was further noted that if one side failed to investigate the existence, or the potential value, of certain assets prior to entering into a settlement, it was not the fault of the party not making the disclosure.
Mediation is an excellent process. It resolves disputes quickly and usually saves all parties significant expense. However, parties to a mediation must be aware that it is the obligation of each party to perform their own due diligence or understand that their lack of information cannot be used as a basis to later undo a settlement.