Attorney’s Email Rendered Draft Settlement Agreement Binding

During the documentation stage, the parties continued to negotiate terms. Several weeks later, Devon sent Line Finders a new proposed version of a draft settlement agreement. That draft agreement required the parties to forward the two injured workers’ demands to Line Finders’s insurance company if both workers decided to pursue compensation. If the insurance company denied the claims, Line Finders would then defend and indemnify Devon. Notably, the new draft removed the mutual execution contingency.

The same day, Line Finders’s attorney responded via email that “[t]he settlement agreement looks fine. Please send me an execution version and I will procure a signature.” Before Devon sent an execution version, it received a demand from the second injured employee. Devon did not immediately notify Line Finders of the second demand. Instead, Devon signed the settlement agreement and sent it to Line Finders, attaching the second employee’s demand. The parties jointly tendered the employee demands to the insurer. Line Finders refused to sign the settlement agreement.

Devon moved to enforce the settlement agreement. Line Finders objected, arguing that (1) it never signed the settlement agreement, which was contingent on mutual execution, and (2) the settlement agreement was premised on mistake and fraud because Line Finders relied on the fact that one employee had not yet made any demand, and Devon failed to timely disclose the second demand. The trial court rejected both arguments, finding that Line Finders’s counsel accepted the settlement agreement by his email, and that there was no mistake of fact because Line Finders understood an additional employee demand was possible.

E-Mail Acceptance Was Sufficient to Form Contract

The U.S. Court of Appeals for the Tenth Circuit affirmed the district court’s ruling and concluded that Line Finders’ counsel’s email stating the agreement “looked fine” created an enforceable contract. The appellate court explained that acceptance is not binding unless it is “unconditional, identical to the offer, and does not modify, delete, or introduce any new term into the offer.” Because Line Finders accepted the terms of the settlement agreement by email, it was enforceable as of that date.

The court also concluded that while an earlier draft of the settlement agreement required mutual execution, that contingency was later removed. Even though Line Finders’s counsel said he would “procure a signature,” the appellate court explained it was the attorney’s acceptance, not any signature, that created a binding agreement. In so holding, the court found probative that after Line Finders accepted the agreement, the parties jointly tendered the two employees’ demand to the insurer as contemplated by the agreement.

No Fraud or Mistake

The court of appeals also rejected Line Finders’s argument that its acceptance of the agreement was predicated on a mistake of fact or fraud. The settlement agreement, the court explained, expressly contemplated that the second employee could make a demand and set forth the consequences if a demand occurred. That Line Finders assumed the employee would not make a demand because the employee had not done so by the time it accepted the agreement was not a ground to rescind the settlement.

With Settlement Agreements, the Devil Is in the Details

ABA Litigation Section leaders warn that this case is a poignant reminder to counsel to be clear about the method of acceptance of any settlement. The “loose” acceptance—that the agreement “looks fine”—should not be enough to bind the parties, asserts Jim Cooper, Houston, TX, cochair of the Litigation Section’s Insurance Coverage Litigation Committee. The opinion is “scary because I live in a world where signatures are expected on settlement agreements. Now I will think about adding a mutual execution into future settlement agreements,” he adds.

Qualifying language, such as a statement that the lawyer needs to confer with his client, could avoid this situation all together, suggests Joseph V. Schaeffer, Pittsburgh, PA, cochair of the Section’s Pretrial Practice & Discovery Committee. Lawyers have to be “really clear as to what he or she means when saying ‘we have a deal,’” especially if the party wants a term such as mutual execution, agrees Paula Bagger, Boston, MA, cochair of the Section’s Commercial & Business Litigation Committee. While “there are very few mistakes in litigation that can’t be cured,” continues Shaeffer, this case shows that unintentionally accepting a settlement agreement by email “seems to be one of them.”

Hashtags: #settlements, #ADR, #mediation

Resources

• Grant H. Hackley, “No Takebacks! Playground Rules Apply to Email Settlement,” Litigation News (Feb. 08, 2022).
• Brendon Ishikawa, “Preparing for a Successful Settlement Agreement,” Business Law Today, (Mar. 12, 2018).

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