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May 30, 2017 Practice Points

A Cautionary Tale When Agreeing to an Informal Settlement Agreement

A handwritten agreement on the back of a napkin could inadvertently become the most impactful document in a civil case.

By Anthony Marcum

Litigation attorneys spend countless hours scrutinizing pleadings, reviewing discovery, and ensuring they comply with local and federal rules. However, if parties are not careful, a handwritten agreement on the back of a napkin could inadvertently become the most impactful document in a civil case.

Beverly v. Abbott Laboratories
In Beverly v. Abbott Laboratories, 817 F.3d 328 (7th Cir. 2016), Martina Beverly sued her former employer, Abbott Laboratories, for discrimination and retaliation. After some of Beverly’s claims survived summary judgement, the parties scheduled a private mediation. Before the mediation, Abbott’s counsel distributed a “template settlement agreement,” which included deadlines, language releasing any claims against Abbott, and details for payment.

The parties’ 14-hour mediation ended with the parties (and counsel) signing a handwritten document which indicated that “Beverly has demanded $210,000 [and Abbott] pay[] cost of mediation to resolve this matter.”

The next day, Abbott’s counsel emailed Beverly’s counsel, stating that Abbott “ha[d] accepted” Beverly’s demand. The email included a draft settlement agreement for Beverly to review and sign. Beverly, however, refused to sign the agreement. In response, Abbott moved to enforce the earlier handwritten document as a settlement agreement. The district court granted Abbott’s motion, finding that the handwritten document was a binding settlement agreement. Beverly appealed.

On appeal, the Seventh Circuit found that the “handwritten agreement was enforceable because the agreement sufficiently define[d] the parties' intentions and obligations.” The court reasoned that Beverly clearly offered $210,000 to resolve the case, which Abbott timely accepted. The court stated that the phrase “to resolve this matter” was sufficient and more formal terms like “waiver, “release,” and “covenant not to sue” were “unnecessary.”

Other jurisdictions have similarly held that an informal settlement agreement is enforceable whenever the parties agree to all material terms, regardless “if those terms are not memorialized in a final writing.” Hansen v. R.I.’s Only 24 Hour Truck & Auto Plaza, Inc., 962 F. Supp. 2d 311, 315 (D. Mass. 2013); see also Glen Elec. Holdings GmbH v. Coolant Chillers, Inc., No. 1:10-CV-1109, 2013 WL 2407613, at *6 (W.D. Mich. May 31, 2013); DeHainaut v. Cal. Univ. of Pa., 490 F. App'x 420, 422 (3d Cir. 2012); Fidelity & Guar. Ins. Co. v. Star Equip. Corp., 541 F.3d 1, 6 (1st Cir. 2008).

These cases highlight that—as long as the material terms of a deal are agreed to—a bare-bones email, letter, or handwritten note may be enforced as a binding settlement agreement. As a result, if one party at the end of a long mediation day wants to ensure that the other side does not later change its mind, it should make certain that the other side signs a document reflecting the material terms of the deal. This document may not be overly formal.

In contrast, if a party is not totally satisfied at the end of a long mediation day, it should not feel compelled to sign anything. Doing so may consequently bind them to terms they did not truly agree to.

Lastly, the avoid any ambiguity, the Beverly Court endorses that litigants in private mediations “record any communications that directly relate to final settlement agreements” as it may “provide[]important clarity” if a post-mediation agreement is later contested by a party.

Anthony Marcum is an associate with Lorandos Joshi, P.C. in Ann Arbor, Michigan.

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