Introduction

In cases where less than a complete general release and Civil Code section 1542 waiver are given in the settlement agreement, special attention needs to be paid to identifying and initiating negotiations over the scope of the release early in the mediation process. For a variety of reasons, in the actual practice of negotiating the terms of the release this is frequently overlooked or ignored until after the parties have reached agreement on the key terms of settlement. At that point, an unexpected dispute over the scope of the release can loom as a deal-breaker. This article examines this problem and suggests approaches the author has found effective in dealing with it.

The Problem

Civil Code section 1542 provides that a general release does not extend to unknown or unsuspected claims. Waiver of the section is generally required by a settling defendant in order to provide peace of mind and protection against the prospect of further litigation with the same plaintiff.

Analogously, the doctrine of merger provides that a cause of action litigated to judgment in a first suit cannot be relitigated in a second; the cause of action is merged into the judgment and the plea of res judicata will be sustained if raised in any subsequent trial. The merger rule assumes a single cause of action. In actual practice, it is often difficult to determine whether the cause of action is single or multiple and whether the second suit is barred.

For parties engaged in a mediated settlement process, the interplay between negotiating the scope of a release on the one hand, and principles of merger, on the other, is that merger principles will establish the de facto parameters of the scope of release that a plaintiff is likely to agree to give and, correspondingly, that a defendant is apt to accept. That is to say, parties to a negotiated resolution will require, as a general proposition, that the release included in the settlement agreement be as narrow or broad as merger principles would provide assuming a trial outcome substantially identical to the substantive terms of settlement. The operative logic of this symmetry is that neither party should be advantaged or disadvantaged by the happenstance that resolution occurred via a negotiative, as opposed to adjudicative, process. The objective is to maintain parity, so far as possible, regarding the legal consequences of resolution.

Thus, due to the relationship between negotiated release terms and the law of judgments, parties, counsel and the mediator may have to negotiate the probable ramifications of the merger doctrine as it applies to their case and the terms of settlement. So too, pragmatic considerations such as the need for closure, risk of exposure, and the ability to sustain further litigation will also factor into the formulation of parties' maximum bargaining positions vis-a-vis release terms. Finally, further complexities will arise in cases involving multiple parties, multiple insurers, exclusivity of remedies issues, arguably split causes of action, and potential third party claims, to name only a few. (For an overview of this area, see 7 Witkin, California Procedure, 3d Edition, Judgment, §§:243-254, (1997)).

Contexts in which the problem may be present

Obviously, this problem may exist in many contexts. A few representative examples, though not exhaustive, will illustrate some of the recurring cases in which scope of release issues occur. In construction defect cases, it can present as a dispute between the property owner and designer, builder or subcontractor over the extent to which the release will apply to known versus unknown claims, certain classes of defects but not others, etc. In product liability cases, it can present as a dispute over the extent to which the release will apply to claims against various types of injury and damage caused by the product but not others. For example, a release might extend to claims for property damage caused by a construction product such as fireproofing material, but not to claims for future personal injury damages caused by the product. In cases with complex insurance coverage issues and/or multiple insurers or excess insurers, the problem may present as a dispute over release language that will permit the parties to engage in further litigation to resolve unsettled issues of apportionment, contribution, reimbursement, subrogation, etc. (See the recent opinion in Mitchell, Silberberg & Knupp v. Yosemite Insurance Company (1997) 97 CDOS 7964. Although different issues were raised in that case, the fact pattern is illustrative of the insurance context in which scope of release issues emerge.)

In summary, the potential for this problem exists whenever conditions are such that plaintiff seeks to preserve rights to sue defendant in the future and defendant wishes to preclude or limit the prosecution of such claims. A factor compounding the problem is the customary uncertainty over the res judicata and/or collateral estoppel effects of a judgment providing relief substantially the same as the key terms of the negotiated settlement.

Approaches for the Mediator and Counsel

If plaintiff's counsel knows that a Civil Code section 1542 waiver will not be given, this issue should be identified and put on the table as soon as possible. This will allow counsel and the parties the most time to negotiate the issue and, hopefully, come to agreement on it.

Equally important, early surfacing of this issue by the plaintiff or defendant will avoid or minimize the problem of a party feeling betrayed or "sandbagged" in the negotiation. Such feelings often result when a negotiator has agreed to key substantive terms of settlement based on a reasonable but erroneous assumption that his counterpart is willing to give a type of release other than what he's actually willing to give. Good faith misunderstandings such as these are serious since they may have served as the basis for a negotiator having decided to take a given position in the negotiation. Having taken that position based on an erroneous assumption about the type of release that would be included in the settlement agreement, it may be awkward or even impossible for the negotiator to backtrack and alter his position when he learns that the claimant will give only a limited release. The entire negotiation is thus thrown into jeopardy.

Therefore, as soon as it becomes apparent that the scope of release is an issue, it needs to be addressed in the mediation. In the author's experience, initial, direct face-to-face discussions between counsel, rather than through caucusing, over the scope of release is the most effective way to launch negotiations concerning this issue. The reason for this is that the question of what the scope of the release is going to be is sufficiently case-specific and legally complex that direct communication between counsel is vital. Without it, confusion and error are almost certain. Even apparently good direct discussions don't assure effective communication; misunderstanding often occurs. Nevertheless, facilitated by the mediator as a "third" set of eyes and ears, these discussions will normally lay the groundwork needed to successfully negotiate this issue. Generally, these discussions will lead to further dialog between counsel, or to further caucusing with the mediator, or to a further combination of both direct discussions and caucusing in order to reconcile the positions of the parties.

Thus, timing when to begin negotiations over the scope of release issue will depend to some extent on the degree to which the mediation is being conducted in open session versus caucus. If there is early caucusing, then the mediator can privately explore whether the parties are headed for a dispute over the scope of release, and can attempt to surface this issue in the most productive way; probably by alerting the sides to the issue first in caucus and then returning to open session to bring it into the negotiations. On the other hand, if the mediation is being conducted primarily or entirely in open session, it may be necessary to wait until later in the mediation process when the framework of settlement is more developed, but still formative, and consideration of the scope to release seems reasonable. In mediations that are conducted primarily in open session, it will often be necessary for settlement negotiations to have progressed further (than in caucus) in order to be sufficiently mature to support meaningful negotiation of non-standard release terms.

Implicit in this discussion is the view that resolution of disputes over the scope of release terms often calls for a different, more collaborative approach as compared with other issues commonly in play in commercial mediations, and which are usually dealt with more strategically, via caucus. Why the difference in approach? Because, among other things, non-standard release terms, by their nature, often hold open the door to the possibility of future litigation between the parties. Consequently, parties and counsel feel an even greater need to clearly understand what they are agreeing to, why, and the level of risk they are assuming. To produce this level of confidence and trust nearly always requires frank dialog between the parties and counsel themselves.

Finally, a more collaborative approach also augers well for mediator neutrality. In the less strategic atmosphere of an open, joint-session the mediator can be more facilitative and less strategic. So long as negotiations are productive, counsel can directly test one another's positions and make their own assessments as to what adjustments in their positions may be required in order to come to agreement with their adversary. The mediator can assist by identifying common and opposing interests and needs, and helping develop strategies for satisfying them insofar as is possible.

Conclusion

Counsel and the mediator should determine as early as possible whether there is a dispute over the scope of the release that will be included in the settlement agreement. If there is a dispute, the mediator should pay special attention to facilitating direct face-to-face discussions by counsel over this issue early in the mediation. This will improve the parties' chances of successfully negotiating an acceptable release and will minimize the chance that a negotiator will over- or under- extend himself in the negotiation based on a good faith misunderstanding of the type of release his counterpart will give or accept. Timing when to raise the release issue will vary depending on whether the mediation is conducted mostly in open session versus mostly in caucus. Finally, by negotiating the issue of non-standard release terms more collaboratively, the neutrality of the mediator is reinforced.