A settlement term sheet signed after mediation by the debtor, her nondebtor husband and the creditor was enforceable, according to Bankruptcy Judge Ashely M. Chan of Philadelphia, even though the debtor and her husband later took the position that there should have been a formal settlement agreement with additional terms.
Before bankruptcy, the creditor had sued the debtor for defamation in federal district court. More than a year later, the debtor filed a chapter 13 petition with a smidgeon of debt aside from the $525,000 proof of claim filed by the defamation plaintiff.
After the creditor filed a motion to dismiss the chapter 13 case or modify the automatic stay, the debtor’s counsel and counsel for the creditor agreed to mediation. The debtor, the debtor’s nondebtor husband and the creditor attended a mediation conducted via Zoom. The debtor and the creditor were represented at the mediation by counsel, but the husband did not have counsel of his own at mediation.
At the conclusion of the seven-hour mediation, the debtor, her nondebtor husband and the creditor signed a two-page, single-spaced settlement term sheet. As Judge Chan said in her September 14 opinion, the term sheet contained the following terms: (1) the husband would pay the creditor $18,000 over 36 months; (2) the debtor would remove her online comments about the creditor; and (3) the creditor would dismiss the defamation suit against the debtor. In addition, the term sheet contained a mutual release of all claims by the parties, a confidentiality clause and a nondisparagement clause.
The mediator filed a certificate stating that a confidential settlement had been reached. The certificate said that the parties would prepare “a confidential settlement agreement” and a stipulation “regarding the resolution of pending matters.”
Within a few days, the debtor’s counsel told the creditor’s counsel that the debtor did not consent to filing a motion to approve the settlement, saying, among other things, that the term sheet was not a final settlement.
So, counsel for the creditor unilaterally filed a motion to enforce the term sheet and a motion to approve settlement under Bankruptcy Rule 9019. The debtor responded by saying she was not bound by the term sheet, and the nondebtor husband contended that it was not enforceable as to him because had had not been represented by counsel in mediation. The debtor also contended that material terms were missing, such as choice-of-law and enforcement provisions.
With leave from Judge Chan, counsel withdrew for both the debtor and the husband. Neither the debtor nor the husband appeared at the hearing on the creditor’s motions.
Resolving the dispute over enforceability, Judge Chan began by saying, “Settlement agreements reached through mediation are as binding as those reached through litigation,” and “settlement agreements are interpreted as binding contracts.” Citing the Third Circuit, she said that “‘the test for enforceability of an agreement [in Pennsylvania] is whether both parties have manifested an intention to be bound by its terms and whether the terms are sufficiently definite to be specifically enforced.’ Channel Home Ctrs. v. Grossman, 795 F.2d 291, 298–99 (3d Cir. 1986).”
Again citing the Third Circuit, Judge Chan said that an intention to formalize the agreement does not prevent enforcement. Citing the Pennsylvania Supreme Court and countering the husband’s objection, she said that “the lack of independent legal counsel is not sufficient to find a contract unenforceable.”
Judge Chan found that “all the parties manifested an intention to be bound by the Settlement Term Sheet by voluntarily signing it after the Mediation Session” and that the “material terms [are] sufficiently precise and definite to render the Settlement Term Sheet enforceable.”
In granting the creditor’s enforcement motion and the creditor’s 9019 motion, Judge Chan also found sufficient consideration among the parties and compliance with the standards for approval of a settlement.
A settlement term sheet signed after mediation by the debtor, her nondebtor husband and the creditor was enforceable, according to Bankruptcy Judge Ashely M. Chan of Philadelphia, even though the debtor and her husband later took the position that there should have been a formal settlement agreement with additional terms.
Before bankruptcy, the creditor had sued the debtor for defamation in federal district court. More than a year later, the debtor filed a chapter 13 petition with a smidgeon of debt aside from the $525,000 proof of claim filed by the defamation plaintiff.
After the creditor filed a motion to dismiss the chapter 13 case or modify the automatic stay, the debtor’s counsel and counsel for the creditor agreed to mediation. The debtor, the debtor’s nondebtor husband and the creditor attended a mediation conducted via Zoom. The debtor and the creditor were represented at the mediation by counsel, but the husband did not have counsel of his own at mediation.