Take Your Time Before Agreeing to Settle in Principle

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You have gone back and forth with an adversary via email several times and keep getting closer to a monetary settlement. Finally, the other side makes an offer that is over your bottom line, and you want to put the matter to rest. Should you accept? Maybe, but before you do, be sure that you have thought through all the non-monetary components of that offer. Failing to do so could end up binding you to an agreement that does not include provisions that are important to your client.

Lane v. Powell started as a wrongful death and personal injury action that became particularly nasty during the litigation. Certain lawyers, expert witnesses and other non-parties were accused of defamation and criminal witness tampering. Eventually, summary judgment limited the claims in the case, and the remaining parties engaged in serious settlement negotiations. After several emails between counsel closed the gap, the following exchange took place:

  • First, Defendants’ counsel wrote: “I’ve got $120,000 for all claims and nowhere else to go for more.”
  • Two days later, Plaintiffs’ counsel responded: “$120,000 is accepted. …The releases will include the 93A case, but no confidentiality.”
  • Twelve minutes later, Defendants’ counsel answered: “Excellent, that’s great. I’ll order the checks.”

Defendants’ counsel then prepared a settlement agreement and sent it to Plaintiffs’ counsel, who balked at the release because it did not cover himself and his law firm. Defendants would not agree to the broader release demanded by Plaintiffs’ counsel, however, and ultimately filed a motion to enforce the settlement agreement that had been tendered. In resolving that motion, the Court first set out a few basic principles of contract law:

To create an enforceable contract, there must be agreement between the parties on the material terms of that contract, and the parties must have a present intention to be bound by that agreement. A term is material if it is an essential and inducing feature of the contract. Whether a term is material should be judged in the specific context of all relevant facts and circumstances.

The Court then ruled that:

When [Defendants’ Counsel] agreed to the added terms, writing “Excellent, that’s great. I’ll order the checks,” a meeting of the minds was reached [and Plaintiffs’ counsel] no longer had the power to propose additional material terms, such as a release for attorneys.

While Plaintiffs’ counsel argued that a release of counsel was a material term of the settlement such that there was no meeting of the minds on the settlement agreement, the Court responded:

While Plaintiffs’ counsel may subjectively have intended to also cover all potential claims arising out of the case, including against his law firm, a party’s “subjective intent is irrelevant when [he] knows or has reason to know that [his] objective actions manifest the existence of an agreement.”

One of the lessons of Lane for in-house counsel is quite straightforward. Before saying or doing anything that could be deemed to be acceptance of an offer – even if the offer appears in an informal email – be sure you have thought through whether there are other terms of the deal that you must have. Waiting to include those terms in the formal, full-blown contract could result in you waiving your right to include them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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