Supreme Court of California Justia
Docket No. S129220A
Fair v. Bakhtiari

Filed 12/14/06 (reposted same date to correct counsel listing)


) S129220
Defendants and Respondents;
Super. Ct. No. 417058

_______________________________________ )

Documents prepared for purposes of mediation are generally inadmissible
in civil proceedings. (Evid. Code, § 1119, subd. (b).) However, a signed
settlement agreement reached through mediation is exempt from this general rule
if it “provides that it is enforceable or binding or words to that effect.” (Evid.
Code, § 1123, subd. (b) (section 1123(b)).)1 This case turns on whether the
document at issue satisfies the requirements of section 1123(b).
The parties concluded a mediation session by signing a handwritten single-
page memorandum captioned “Settlement Terms.” The final provision stated:
“Any and all disputes subject to JAMS arbitration rules.” The trial court found
Further statutory references are to the Evidence Code, unless otherwise


this “term sheet” inadmissible, and denied a motion to compel arbitration. The
Court of Appeal reversed, holding that the memorandum was admissible because
the arbitration provision constituted “words to [the] effect” that the settlement
terms were “enforceable or binding” under section 1123(b).
The Court of Appeal gave section 1123(b) an unduly expansive reading.
The aim of the provision is to allow parties in mediation to draft enforceable
agreements without requiring the use of a formulaic phrase. However, the writing
must make clear that it reflects an agreement and is not simply a memorandum of
terms for inclusion in a future agreement. The writing need not be in finished
form to be admissible under section 1123(b), but it must be signed by the parties
and include a direct statement to the effect that it is enforceable or binding. For
reasons we explain below, the arbitration clause in the memorandum before us
fails to satisfy this standard.
Plaintiff R. Thomas Fair sued Karl E. Bakhtiari, Maryanne E. Fair, and
various business entities (we refer to the businesses as the Stonesfair defendants).
Bakhtiari was plaintiff’s former business partner and Ms. Fair his former wife.
Plaintiff alleged that they had wrongfully excluded him from real estate
syndications, denied him compensation, misappropriated profits, and engaged in
other financial misconduct. Plaintiff also accused Bakhtiari of physically
assaulting him on more than one occasion.
Bakhtiari, Ms. Fair, and the Stonesfair defendants answered separately, and
the parties mediated their disputes over the course of two days. At the end of the
second day, plaintiff’s counsel drafted a handwritten memorandum recording
settlement terms, as set forth below.2 The memorandum was dated March 21,
2002, and signed by the mediator and the parties.

“1. Cash payment of $5.4 MM to T. Fair w/in 60 days.

The parties filed case management reports informing the court that the case
had settled in mediation. On April 4, counsel for the Stonesfair defendants
circulated a formalized settlement and release agreement, confirming the parties’
intent to settle all their disputes “as of and effective March 21, 2002.” A few days
before the case management conference, counsel for the Stonesfair defendants
learned from plaintiff’s counsel that plaintiff believed the parties’ agreement for
the transfer of his assets did not apply to certain business interests. The attorneys
also discussed unresolved tax issues. Counsel for all parties appeared at the case
management conference, where Bakhtiari’s attorney requested a continuance. He
told the court: “We’ve reached a settlement agreement. We are now in the
process of exchanging settlement agreements. And there are some complicated
taxation matters involved.” The trial court granted the continuance.
The parties were unable to finalize their settlement. On June 6, 2002, one
of the attorneys for the Stonesfair defendants substituted as counsel for all

“2. Payment treated as purchase of all T. Fair’s stock & interests (as capital gain
to Fair)[.]
“3. [Defendants] will not look to Fair for reimbursement or indemnification of
any phantom income paid by them to date.
“4. This provision relates solely to Fair’s right to indemnity and does not preclude
other rights of the parties. Fair will be indemnified as a former officer, director &
employee by SFC/SMC/SC [the Stonesfair defendants], according to applicable
law, against all 3rd party claims, including LPs [limited partners] or IRS, arising
from the operation of SFC/SMC. Fair will not make any adverse contacts with
IRS [or] LPs re: SFC/SMC, at risk of loss of indemnity and will not suggest,
foment or encourage litigation by LPs or any individual against defendants, at risk
of loss of indemnity.
“5. Maryann Fair disclaims any community prop[erty] interest in settlement
“6. Parties will sign mutual releases and dismiss with prejudice all claims. Am’t
of settlement will be confidential with appropriate exceptions.
“7. All sides bear their own attorneys fees and costs, including experts.
“8. If Fair needs to restructure cash payments for tax purposes, defendants will
cooperate (at no additional cost to defendants).
“9. Any and all disputes subject to JAMS [Judicial Arbitration and Mediation
Services] arbitration rules.”

defendants, and filed a case management document informing the court that the
parties “were ultimately unable to reach agreement as to the scope and subject
matter of the proposed settlement terms.” He suggested the case “should be
resolved through the regular court process.”
On June 10, plaintiff’s attorney wrote to defendants’ counsel, demanding
arbitration under paragraph 9 of the settlement memorandum. (See fn. 2, ante, pp.
2-3.) Defendants’ counsel rejected the demand, contending the parties had not
entered an enforceable agreement. He claimed the settlement memorandum was
inadmissible under section 1119, subdivision (b), which protects the
confidentiality of writings “prepared for the purpose of, in the course of, or
pursuant to, a mediation.”
Plaintiff moved to compel arbitration, contending the parties had agreed to
be bound when they signed the March 21 memorandum, and thus any disputes
over the meaning or extent of their agreement were subject to arbitration. Plaintiff
noted that counsel for all defendants had told the court the case had settled.
Defendants opposed the motion. They objected to the admission of the settlement
memorandum and parts of opposing counsel’s declarations reciting mediation
discussions. In reply, plaintiff contended the March 21 memorandum was
admissible on various grounds, including that the presence of an arbitration
provision made the parties’ agreement “enforceable” as contemplated by section
The trial court excluded the memorandum and the portions of the
declaration by plaintiff’s counsel describing the settlement reached in mediation.
The court found that the requirements of section 1123 were not met, and
concluded “[t]here is insufficient demonstration of an arbitration agreement given
the inadmissibility of the term sheet.” Accordingly, the court denied the motion to
compel arbitration.
The Court of Appeal reversed, deciding that the provision “[a]ny and all
disputes subject to JAMS arbitration rules” could only mean the parties intended
the settlement terms document to be “enforceable or binding.” Therefore, the
court held that the memorandum included “words to that effect” and was
admissible under section 1123(b). The court also determined that the
memorandum reflected a valid arbitration agreement. We granted defendants’
petition for review.
We have repeatedly noted that the mediation confidentiality provisions of
the Evidence Code were enacted to encourage mediation by permitting the parties
to frankly exchange views, without fear that disclosures might be used against
them in later proceedings. (Rojas v. Superior Court (2004) 33 Cal.4th 407, 415-
416; Foxgate Homeowners’ Assn. v Bramalea California, Inc. (2001) 26 Cal.4th 1,
14.) Toward that end, “the statutory scheme . . . unqualifiedly bars disclosure of
communications made during mediation absent an express statutory exception.”
(Foxgate Homeowners’ Assn., at p. 15, fn. omitted; see Rojas, at p. 416.) In
Foxgate and Rojas we disapproved “judicially crafted exception[s]” to the
mediation confidentiality statutes. (Foxgate Homeowners’ Assn., at p. 14; Rojas,
at p. 424, quoting Foxgate.) In this case we construe the exception expressly
provided in section 1123(b) for written settlement agreements.
Section 1123(b) was added in 1997, as one of many statutory mediation
reforms recommended by the California Law Revision Commission
(Commission). (Stats. 1997, ch. 772, § 3, p. 4178; see Recommendation on
Mediation Confidentiality (Jan. 1997) 26 Cal. Law Revision Com. Rep. (1996) p.
407.) The Commission’s 1997 Recommendation includes an introductory letter to
the Governor stating that its revisions were intended “to eliminate ambiguities. In
particular, the Commission recommends clarifying the application of mediation
confidentiality to settlements reached through mediation. Clarification is critical
to aid disputants in crafting agreements they can enforce.” (Recommendation on
Mediation Confidentiality, supra, 26 Cal. Law Revision Com. Rep., at p. 409; see
also p. 414.) In its Recommendation, the Commission observed: “These
recommended reforms on achieving an effective settlement are the most crucial
element of the Commission’s recommendation. They should enhance the
effectiveness of mediation in promoting durable settlements.” (Id. at p. 424.) The
Commission’s official comments are deemed to express the Legislature’s intent.
(Rojas v. Superior Court, supra, 33 Cal.4th at p. 418, fn. 6.)
The Commission noted that a predecessor statute, former section 1152.5,
“fails to highlight a critical requirement concerning written settlement agreements
reached through mediation. Under Section 1152.5(a)(2), unless it is offered to
prove fraud, duress, or illegality, a written settlement agreement is admissible only
if it so provides. [Fn. omitted.] Parties overlooking this requirement may
inadvertently enter into a written settlement agreement that is unenforceable
because it is inadmissible.” 3 (Recommendation on Mediation Confidentiality,
supra, 26 Cal. Law Revision Com. Rep., at p. 422.)
The Commission proposed to remedy this problem by addressing the
admissibility of settlement agreements in a separate section. “This will draw
attention to the requirements and decrease the likelihood that the parties will
inadvertently enter into an unenforceable agreement.” (Recommendation on
Mediation Confidentiality, supra, 26 Cal. Law Revision Com. Rep., at p. 422.)
Former section 1152.5, subdivision (a)(2) provided: “Except as
otherwise provided in this section, unless the document otherwise provides, no
document prepared for the purpose of, or in the course of, or pursuant to, the
mediation, or copy thereof, is admissible in evidence or subject to discovery, and
disclosure of such a document shall not be compelled, in any civil action or
proceeding in which, pursuant to law, testimony can be compelled to be given.”
(Stats. 1996, ch. 174, § 1, p. 1366.)

Former section 1152.5, subdivision (a)(4) provided for disclosure of a
document upon the consent of all parties, and subdivision (a)(5) permitted a
written settlement agreement to be admitted when relevant to show fraud, duress,
or illegality. (Stats. 1996, ch. 174, § 1, p. 1367.) Thus, as noted by the
Commission, a party resisting enforcement of an agreement that did not include a
provision making it “admissible in evidence” could withhold consent to disclosure
and thwart the agreement, unless the party seeking enforcement could show fraud,
duress, or illegality.

Accordingly, mediation confidentiality and the disclosure of settlement
agreements are now treated in separate provisions. Section 1119 states the general
rule that writings prepared for, in the course of, or pursuant to mediation are
inadmissible, “[e]xcept as otherwise provided in this chapter.” 4 Section 1123
states the exceptions applicable to written settlement agreements, including the
requirement at issue here: “The agreement provides that it is enforceable or
binding or words to that effect.” (§ 1123(b).) 5 The Commission explained:
“[t]he proposed section on settlements would explicitly make an executed written
settlement agreement admissible if it provides that it is ‘enforceable’ or ‘binding’
or words to that effect. Because parties intending to be bound are likely to use
words to that effect, rather than stating that their agreement is ‘admissible,’ the
Commission regards this as an important addition.” (Recommendation on
Mediation Confidentiality, supra, 26 Cal. Law Revision Com. Rep., at p. 423; see

4 Section 1119, subdivision (b) provides: “No writing, as defined in
Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a
mediation or a mediation consultation, is admissible or subject to discovery, and
disclosure of the writing shall not be compelled, in any arbitration, administrative
adjudication, civil action, or other noncriminal proceeding in which, pursuant to
law, testimony can be compelled to be given.”

5 The full text of section 1123 is as follows:
“A written settlement agreement prepared in the course of, or pursuant to, a
mediation, is not made inadmissible, or protected from disclosure, by provisions of
this chapter if the agreement is signed by the settling parties and any of the
following conditions are satisfied:

“(a) The agreement provides that it is admissible or subject to disclosure, or
words to that effect.

“(b) The agreement provides that it is enforceable or binding or words to
that effect.

“(c) All parties to the agreement expressly agree in writing, or orally in
accordance with Section 1118, to its disclosure.

“(d) The agreement is used to show fraud, duress, or illegality that is
relevant to an issue in dispute.”

The conditions for the admission of oral agreements are addressed in
sections 1118 and 1124.

also Cal. Law Revision Com. com., 29B pt. 3 West’s Ann. Evid.Code (2006
supp.) foll. § 1123, p. 214.) 6
The Court of Appeal correctly reasoned that the “words to that effect”
clause reflects a legislative concern not with the precise words of a settlement
agreement, but with terms unambiguously signifying the parties’ intent to be
bound. The court erred, however, by concluding that the inclusion of an
arbitration clause in the parties’ list of settlement terms satisfied section 1123(b),

6 The exception stated in section 1123(b) appears to be unique to
California. Mediation statutes frequently exempt signed settlement agreements
from the scope of confidentiality protection without further qualification. (See,
e.g., Colo. Rev. Stat. § 13-22-302(2.5); Fla. Stat. § 44.102(3); Mont. Code Ann. §
26-1-813 (3); N.C. Gen. Stat. § 7A-38.1(l); 42 Pa. Cons. Stat. Ann. § 5949(b)(1) &
(c); Va. Code Ann. § 8.01-576.10; Wn. Rev. Code § 5.60.070(1)(e) [governing
mediation pursuant to referrals or agreements made before 2006].) This is the
approach taken in the Uniform Mediation Act, which has been adopted in six
states. (U. Mediation Act, § 6(a)(1); 710 Ill. Comp. Stat. 35/6(a)(1); Iowa Code
§ 679C.106(1)(a); Neb. Rev. Stat. § 25-2935(a)(1); N.J. Stat. Ann. § 2A:23C-
6(a)(1); Ohio Rev. Code Ann. § 2710.05(A)(1); Wn. Rev. Code § 7.07.050(1)(a)
[governing mediation pursuant to referrals or agreements made after 2005]; see
also The Uniform Mediation Act (2002) 22 N. Ill. U. L.Rev. 165, 210-214 [text of
Act with drafters’ notes].)

In Wisconsin, “any written agreement, stipulation or settlement made
between 2 or more parties during or pursuant to mediation” is exempted from
confidentiality, with no mention of a signature requirement. (Wis. Stat. §

Other statutes provide broadly for the disclosure of any communications
during mediation if enforcement of a mediated agreement is sought. (See, e.g.,
Ariz. Rev. Stat. § 12-2238(B)(4); Conn. Gen. Stat. § 52-235d(b)(2) [disclosure
permitted if “necessary to enforce a written agreement that came out of the
mediation”]; Or. Rev. Stat. § 36.222(4) [disclosure permitted “to the extent
necessary to prosecute or defend” enforcement action]; Wyo. Stat. § 1-43-
103(c)(v).) The federal Administrative Dispute Resolution Act of 1996 authorizes
disclosure if it is “relevant to determining the existence or meaning of an
agreement . . . that resulted from the dispute resolution proceeding or to the
enforcement of such an agreement.” (5 U.S.C. § 574(b)(6).)

See generally Deason, Enforcing Mediated Settlement Agreements:
Contract Law Collides With Confidentiality (2001) 35 U.C. Davis L.Rev. 33, 44-
51, 61-66; The Uniform Mediation Act, supra, 22 N. Ill. U. L.Rev. at pp. 213-214
(collecting statutes).

on the ground that the clause could only reflect an intent that the document would
be “enforceable or binding.” Although the Legislature did not provide the courts
with a bright line when it permitted the admission of signed agreements including
“words to that effect,” we conclude a narrower interpretation of this clause is
required. We are guided by the ordinary meaning of the statutory language, its
context, and the legislative purposes it was meant to serve. (Hassan v. Mercy
American River Hospital (2003) 31 Cal.4th 709, 715; see also Rojas v. Superior
Court, supra, 33 Cal.4th at p. 422.)
The phrase “words to that effect” in section 1123(b) refers to language that
conveys a general meaning or import, in this instance the meanings of
“enforceable or binding.” (American Heritage Dict. (4th ed. 2000) p. 570.) Under
section 1123(b), the use of such language will exempt a written settlement
agreement from the general rule that documents prepared during mediation are
inadmissible in future proceedings. The Legislature’s goal was to allow parties to
express their intent to be bound in words they were likely to use, rather than
requiring a legalistic formulation. The Legislature also meant to clarify the rules
governing admissibility and reduce the likelihood that parties would overlook
those rules. To meet these objectives, we must balance the requirements of
flexibility and clarity, without eroding the confidentiality that is “essential to
effective mediation.” (Foxgate Homeowners’ Assn. v Bramalea California, Inc.,
supra, 26 Cal.4th at p. 14; see Rojas v. Superior Court, supra, 33 Cal.4th at p.
In order to preserve the confidentiality required to protect the mediation
process and provide clear drafting guidelines, we hold that to satisfy the “words to
that effect” provision of section 1123(b), a writing must directly express the
parties’ agreement to be bound by the document they sign. Plaintiff would have
us infer the parties’ intent from the mention of arbitration in the settlement terms
memorandum. Arbitration is a method of enforcement subject to negotiation, like
other settlement terms. A tentative working document may include an arbitration
provision, without reflecting an actual agreement to be bound. If such a typical
settlement provision were to trigger admissibility, parties might inadvertently give
up the protection of mediation confidentiality during their negotiations over the
terms of settlement. Disputes over those terms would then erupt in litigation,
escaping the process of resolution through mediation. Durable settlements are
more likely to result if the statute is applied to require language directly reflecting
the parties’ awareness that they are executing an “enforceable or binding”
Plaintiff claims that in this case, permitting defendants to use the shield of
mediation confidentiality to thwart the agreement reflected in the memorandum of
settlement terms would undermine the entire purpose of mediation, which is to
settle disputes. He points out that after signing the memorandum, defendants told
the trial court the case had settled and circulated a formal agreement declaring the
settlement terms effective as of the date of the memorandum. Plaintiff contends
this conduct proves that an enforceable settlement was intended, and that
defendants’ subsequent repudiation of the settlement was merely an instance of
“settlors’ remorse.” According to plaintiff, defendants refused to cooperate with
his attempts to bring the parties back before the mediator to discuss the disputes
that developed. Defendants, on the other hand, insist they always viewed the
memorandum as a nonbinding document similar to a letter of intent regarding a
proposed business relationship.
Plaintiff’s characterization of defendants’ postmediation conduct is one
reasonable interpretation of the facts in this case. However, we do not believe the
Legislature contemplated that in order to rule on the admissibility of a settlement
agreement under section 1123(b), the court would examine extrinsic evidence to
resolve competing claims over the parties’ intent. As explained above, the statute
is designed to produce documents that clearly reflect the parties’ agreement that
the settlement terms are “enforceable or binding.”

Plaintiff seeks support from Business and Professions Code section 467.4,
which governs alternative dispute resolution programs administered by the
Dispute Resolution Advisory Council (DRAC) of the California Department of
Consumer Affairs. There, the Legislature specified that a settlement agreement
reached with the assistance of such a program is unenforceable and inadmissible
“unless the consent of the parties or the agreement includes a provision that clearly
states the intention of the parties that the agreement or any resulting award shall be
so enforceable or admissible as evidence.” (Bus. & Prof. Code, § 467.4, subd.
(a).) Plaintiff reasons that the omission in section 1123(b) of a demand for “a
provision that clearly states the intention of the parties” means the Legislature
contemplated a less specific requirement for settlements reached in mediation
We disagree. The “clearly states” provision of Business and Professions
Code section 467.4 is not such a critical statutory phrase that its omission from
section 1123(b) can be deemed to reflect a different legislative intent. (Compare,
e.g., In re Young (2004) 32 Cal.4th 900, 907.) The terms of section 1123(b),
particularly when viewed in light of the purposes for which they were framed, are
generally consistent with those of Business and Professions Code section 467.4.
The Legislature is not required to employ identical terminology in separate
statutes serving similar policy objectives. It would be anomalous to impose
stricter requirements on settlements fostered by DRAC programs than on those
reached in mediation proceedings. We construe related statutes so as to harmonize
their requirements and avoid anomaly. (Coachella Valley Mosquito & Vector
Control Dist. v. California Public Employment Relations Bd. (2005) 35 Cal.4th
1072, 1089.)
Plaintiff also contends that an arbitration clause is severable from the
contract in which it appears, and enforceable as a matter of law. He asserts that
the strong public policy favoring arbitration supports the enforceability of the
arbitration clause in the settlement memorandum signed by the parties. (See, e.g.,
St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187,
1195.) However, a settlement agreement drafted during mediation must be
admissible before a court can reach the issue of enforceability. Under our
interpretation of section 1123(b), the parties are free to draft and discuss
enforcement terms such as arbitration clauses without worrying that those
provisions will destroy the confidentiality that protects mediation discussions. A
different rule could hinder the policy favoring arbitration by discouraging parties
from including arbitration clauses in draft agreements.
Plaintiff argues alternatively that the settlement memorandum before us
must be viewed as a whole and construed by the standard rules of contract
interpretation to determine whether it is “enforceable” for purposes of section
1123(b). However, this interpretation would render the statutory exception
superfluous and permit the admission of any signed, written agreement meeting
the requirements for an enforceable contract. That approach has been taken in
other jurisdictions (see fn. 6, ante, pp. 7-8), but our Legislature has imposed a
different rule. Section 1123(b) requires the parties to affirmatively provide that
their agreement is enforceable or binding.
Thus, to satisfy section 1123(b), a settlement agreement must include a
statement that it is “enforceable” or “binding,” or a declaration in other terms with
the same meaning. The statute leaves room for various formulations. However,
arbitration clauses, forum selection clauses, choice of law provisions, terms
contemplating remedies for breach, and similar commonly employed enforcement
provisions typically negotiated in settlement discussions do not qualify an
agreement for admission under section 1123(b).7 (See, e.g., Aragaki et al., A
Litigator’s Guide to Effective Use of ADR in California (Cont.Ed.Bar 2005)
§§ 12.14, 12.19, 12.21, pp. 540, 543-544.)

Plaintiff raises other arguments that are beyond the scope of our review,
some of which he presented in his briefs below. On remand to the Court of
Appeal, he may pursue those claims. Of course, the court is not obligated to
consider arguments not made in the original briefing.

The judgment of the Court of Appeal is reversed. The matter is remanded
for further proceedings consistent with our opinion.




Under subdivision (b) of Evidence Code section 1119 (section 1119(b)),
documents prepared during mediation are not admissible in evidence. There is an
exception to this rule under subdivision (b) of Evidence Code section 1123
(section 1123(b)), which applies to a “written settlement agreement” when it is
signed by parties and “provides that it is enforceable or binding or words to that
Here, the parties signed a document during mediation that contained
settlement terms, including a provision for arbitration of “[a]ny and all disputes.”
I agree with the majority that the mediation document is inadmissible under
section 1119(b), and that it is not within the settlement agreement exception under
section 1123(b). Unlike the majority, however, I do not reach that conclusion by
holding that an arbitration clause can never constitute “words to [the] effect” that a
settlement agreement is “enforceable or binding.” Rather, I conclude that
substantial evidence supports the trial court’s implied finding that the mediation
document at issue here was not a “written settlement agreement.”
R. Thomas Fair (plaintiff) sued Maryanne E. Fair (his former wife), Karl E.
Bakhtiari, and three corporations, alleging that they had wrongfully excluded him
from real estate syndication businesses and engaged in various other misconduct.
On March 21, 2002, during the second day of mediation, plaintiff’s counsel wrote

a document entitled “Settlement Terms,” containing nine provisions. (See maj.
opn., ante, at p. 2, fn. 2.) The document stated that plaintiff would receive a
“[c]ash payment of $5.4 [million] . . . w/in 60 days” and that the payment would
be “treated as purchase of all [plaintiff’s] stock & interests (as capital gain to
[plaintiff]).” The document’s final provision stated: “Any and all disputes subject
to JAMS arbitration rules.” The parties signed the mediation document.
On April 3, 2002, defendants’ attorneys submitted case management
conference questionnaires to the court in which they stated, in identical language,
that “the case has settled” but also that a formal settlement agreement “is being
circulated for approval.” At a hearing on April 17, 2002, defendants’ counsel told
the court that the parties had “reached a settlement agreement” but also that they
were “now in the process of exchanging settlement agreements.” At the same
hearing, plaintiff’s counsel assured the court that “the case is going to settle.”
(Italics added.)
Despite these assurances, a dispute arose concerning the mediation
document’s provision that the cash payment to plaintiff would be “treated as
purchase of all [plaintiff’s] stock & interests (as capital gain to [plaintiff]).”
Plaintiff’s attorney asked one of defendants’ attorneys whether defendants would
be interested in also purchasing plaintiff’s interests in certain limited partnerships
related to the corporate defendants. Defendants took the position that those
interests, alleged to be worth as much as $500,000, were already included.
Plaintiff adamantly insisted they were not included.
On June 6, 2002, defendant Bakhtiari’s attorney submitted a case
management conference questionnaire to the court stating that “[a]though the Case
Management Questionnaire submitted on April 3, 2002 by defendant Bakhtiari’s
former attorney indicated that the dispute had settled after mediation, it in fact, has

not” and that “[t]he parties were ultimately unable to reach agreement as to the
scope and subject matter of the proposed settlement terms.”
On June 20, 2002, plaintiff brought a motion to compel arbitration under
the mediation document. Defendants opposed the motion on the ground that there
was no admissible evidence of an agreement to arbitrate. Defendants argued that
the parties had not intended that the mediation document, which defendants
referred to as a “term sheet,” would be binding and that they never came to a
meeting of the minds on key provisions. Thus, according to defendants, the
mediation document was inadmissible under section 1119(b) and not within the
settlement agreement exception under section 1123(b). The parties submitted
declarations and other documentary evidence in support of their respective
positions. The trial court denied the motion to compel arbitration, stating: “There
is insufficient demonstration of an arbitration agreement given the inadmissibility
of the Term Sheet.”
The controlling legal principles were stated by the Court of Appeal in
Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793 (Weddington),
as follows: “A settlement agreement is a contract, and the legal principles which
apply to contracts generally apply to settlement contracts. [Citation.] An essential
element of any contract is ‘consent.’ [Citations.] The ‘consent’ must be ‘mutual.’
[Citations.] ‘Consent is not mutual, unless the parties all agree upon the same
thing in the same sense.’ [Citations.] [¶] ‘The existence of mutual consent is
determined by objective rather than subjective criteria, the test being what the
outward manifestations of consent would lead a reasonable person to believe.’
[Citation.] Outward manifestations thus govern the finding of mutual consent
required . . . for contract formation. [Citation.] The parties’ outward
manifestations must show that the parties all agreed ‘upon the same thing in the

same sense.’ (Civ. Code, § 1580.) If there is no evidence establishing a
manifestation of assent to the ‘same thing’ by both parties, then there is no mutual
consent to contract and no contract formation.” (Weddington, supra, 60
Cal.App.4th at pp. 810-811; accord, Bustamante v. Intuit, Inc. (2006) 141
Cal.App.4th 199, 208-209.) “Where the existence of a contract is at issue and the
evidence is conflicting or admits of more than one inference, it is for the trier of
fact to determine whether the contract actually existed.” (Bustamante v. Intuit,
Inc., supra, at p. 208.)
This case is similar to Weddington. There, mediation resulted in a one-page
memorandum stating that “ ‘[a]ll parties agree to settle and dismiss on the
following terms’ ” and then providing for a cash payment, the transfer of certain
property, and a licensing agreement. (Weddington, supra, 60 Cal.App.4th at
p. 799.) The mediation memorandum also contained a provision for its
enforcement under Code of Civil Procedure section 664.6, which provides for the
entry of judgment under the terms of a stipulated settlement. (Weddington, supra,
at p. 800.) The Court of Appeal observed: “The reference to enforceability
pursuant to section 664.6 suggests that the parties subjectively thought they had
formed a settlement contract. Nevertheless, subsequent events illustrate quite
vividly that they had never agreed on the same terms for a Licensing Agreement.”
(Id. at pp. 800-801.)
When disputes surfaced about the meaning of the licensing provision, the
parties in Weddington returned to the mediator, who attempted to impose terms to
which one party never agreed. (Weddington, supra, 60 Cal.App.4th at pp. 796-
797, 804-807.) The Court of Appeal concluded that the parties had never agreed
upon the material terms needed for an enforceable license agreement and that the
mediator lacked authority to impose material terms to which the parties had never
agreed. (Id. at pp. 815-816; see also Terry v. Conlan (2005) 131 Cal.App.4th

1445, 1460 [“like Weddington, the parties left significant ambiguities in . . .
material terms that demonstrated there was no meeting of the minds”].)
Here, substantial evidence supports the trial court’s implied finding that, as
in Weddington, supra, 60 Cal.App.4th 793, the parties may have subjectively
believed they had reached a settlement agreement, but a key term of the agreement
(requiring plaintiff to convey “all [his] stock and interests”) was ambiguous, the
ambiguity could not be resolved by consideration of the parties’ outward
manifestations, and later events demonstrated that the parties did not understand
the term in the same way. This failure to reach a meeting of the minds prevented
the formation of a contract. (See Weddington, supra, at p. 811 [“If . . . a supposed
‘contract’ does not provide a basis for determining what obligations the parties
have agreed to, and hence does not make possible a determination of whether
those agreed obligations have been breached, there is no contract.”].)
Accordingly, there was no “written settlement agreement” within the meaning of
Evidence Code section 1123, and the trial court properly ruled that the document
the parties signed during mediation was inadmissible in evidence.
Instead of relying on the absence of a “written settlement agreement,” the
majority relies on the absence of a provision in the mediation document “that it is
enforceable or binding or words to that effect” (§ 1123(b)). The majority holds
that the arbitration clause was not, and could never be, such a provision. I
Of course, as this case illustrates, an arbitration provision does not
necessarily mean that a document prepared during mediation is a binding
agreement rather than merely a list of partial or tentative contract terms. But once
a court has determined that a document prepared and signed by the parties during
mediation is actually a “written settlement agreement”—that it embodies a

meeting of the minds on all material terms needed for settlement—the inclusion in
that settlement agreement of a provision for arbitration—which is an enforcement
mechanism—may properly be viewed as an acknowledgement by the parties that
their settlement agreement is binding and enforceable. A statement that any
dispute over a settlement agreement’s terms will be subject to arbitration means
that the agreement is “enforceable” through the arbitration process.
To be sure, the wording of the arbitration provision will make a difference.
The wording of the provision must be consistent with the conclusion that the
document is actually a settlement agreement and that it is to be enforced by
arbitration. When these requirements are satisfied, however, an arbitration
provision should, in my view, satisfy the statutory requirement that the “written
settlement agreement” expressly provide “that it is enforceable or binding or
words to that effect.”
Although I do not agree with the majority’s holding that an arbitration
clause can never satisfy the requirement of section 1123(b) that a written
settlement agreement “provide[] that it is enforceable or binding or words to that
effect,” I agree with the majority that the trial court here properly ruled the
mediation document inadmissible under section 1119(b). Accordingly, I join in
the reversal of the Court of Appeal’s judgment, which reversed the trial court’s
order denying the motion to compel arbitration.

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Fair v. Bakhtiari

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted
XXX 122 Cal.App.4th 1457
Rehearing Granted


Opinion No.

Date Filed: December 14, 2006


County: San Mateo
Judge: George A. Miram


Attorneys for Appellant:

Howard Rice Nemerovski Canady Falk & Rabkin, Gilbert R. Serota, Curt Holbreich and Chandra Miller
Fienen for Plaintiff, Cross-defendant and Appellant.


Attorneys for Respondent:

Shartsis, Friese & Ginsburg, Shartsis Friese, Arthur J. Shartsis, Mary Jo Shartsis, Erick C. Howard; Horvitz
& Levy, Ellis J. Horvitz and Jon B. Eisenberg for Defendants and Respondents and for Defendant, Cross-
complainant and Respondent.

Counsel who argued in Supreme Court (not intended for publication with opinion):

Gilbert R. Serota
Howard Rice Nemerovski Canady Falk & Rabkin
Three Embarcadero Center, 7th Floor
San Francisco, CA 94111-4024
(415) 434-1600

Arthur J. Shartsis
Shartsis Friese
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
(415) 421-6500

Opinion Information
Date:Docket Number:
Thu, 12/14/2006S129220A

1Fair, R. Thomas (Plaintiff, Cross-defendant and Appellant)
Represented by Gilbert Ross Serota
Howard Rice et al.
3 Embarcadero Center, 7th Floor
San Francisco, CA

2Bakhtiari, Karl E. (Defendant and Respondent)
Represented by Arthur Joel Shartsis
Shartsis Friese & Ginsburg
One Maritime Plaza, 18th Floor
San Francisco, CA

3Bakhtiari, Karl E. (Defendant and Respondent)
Represented by Jon B. Eisenberg
Horvitz & Levy, LLP
1970 Broadway, Suite 1200
Oakland, CA

4Bakhtiari, Karl E. (Defendant and Respondent)
Represented by Ronald Fox Garrity
Simpson Garrity & Innes, PC
601 Gateway Boulevard, Suite 950
South San Francisco, CA

5Stonesfair Financial Corporation (Defendant, Cross-complainant and Respondent)
6Stomesfair Management Company (Defendant, Cross-complainant and Respondent)
7Fair, Maryann (Defendant and Respondent)
8Storesfair Corporation (Defendant, Cross-complainant and Respondent)

Dec 14 2006Opinion: Reversed

Nov 15 2004Record requested
Nov 15 2004Petition for review filed
  by counsel for deftrs. and resps. ( Karl E. Bakhtiari, et al.,)
Nov 17 2004Received Court of Appeal record
  file jacket/briefs/appendices/accordian file
Dec 2 2004Answer to petition for review filed
  by counsel for (R. Thomas Fair)
Dec 10 2004Reply to answer to petition filed
  by counsel for (Stonesfair Fin. Corp.)
Jan 12 2005Petition for review granted (civil case)
  Votes: George, C.J., Baxter, Werdegar, Chin, Brown and Moreno, JJ.
Jan 13 2005Note:
  Records sent to Cal-Coord. Office.: RT=2, 2, w/2 vols. of appendices, 3, 4, 6, 7, Pet. for Rehrg. Ans. to Pet. for Rehrg. and misc. docs.
Jan 24 2005Certification of interested entities or persons filed
  by counsel for resp. (Bakhtiar)
Jan 26 2005Certification of interested entities or persons filed
  by counsel for aplt. (R. Fair)
Feb 14 2005Opening brief on the merits filed
  by counsel for (Bakhtiari)
Mar 16 2005Answer brief on the merits filed
  by counsel for aplt. (R.Thomas Fair)
Mar 30 2005Request for extension of time filed
  Counsel for respondent requests extension of time to April 25, 2005, to file the reply brief on the merits.
Apr 4 2005Extension of time granted
  Respondent's time to serve and file the reply brief on the merits is extended to and including April 25, 2005. No further extensions will be granted.
Apr 25 2005Reply brief filed (case fully briefed)
  by counsel for (K. Bakhtiari, et al.,)
Feb 9 2006Received:
  from counsel for (Bakhtiari) Notice of Unvailability for oral argument on March 6 -10 and co-counsels unavailability on February 27 thru March 8, 2006.
Mar 17 2006Change of contact information filed for:
  co-counsel for respondents Karl E. Bakhtiari, et al.
Sep 5 2006Case ordered on calendar
  October 4, 2006, at 9:00 a.m., in Santa Barbara
Sep 22 2006Supplemental brief filed
  counsel for Plf., Cross-deft., Aplt. (Thomas Fair)
Oct 4 2006Cause argued and submitted
Dec 14 2006Opinion filed: Judgment reversed
  and Remanded for further proceedings. OPINION BY: Corrigan, J. --- joined by: George, C.J., Baxter, Werdegar, Chin, Moreno, JJ. CONCURRING AND DISSENTING OPINION BY: Kennard, J.
Jan 17 2007Remittitur issued (civil case)
Feb 6 2007Returned record
  to the First District Court of Appeal, Division Two (two doghouses)
Feb 9 2007Received:
  receipt for remittitur from CA 1/2

Feb 14 2005Opening brief on the merits filed
Mar 16 2005Answer brief on the merits filed
Apr 25 2005Reply brief filed (case fully briefed)
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website