The Massachusetts Superior Court recently held that a settlement agreement may be reformed to include mutual releases where the final written agreement mistakenly included only a one-way release and the opposing party recognized, but did not disclose, the error.
In Cahoon Capital Strategic Income Fund, LLC v. Ross, the parties negotiated a settlement to resolve disputes arising out of a private lending business relationship between Cahoon Capital Strategic IncomeFund, LLC (“Cahoon”) and QS Private Lending, LLC (“QS”), (and its principal, Steven A. Ross (“Ross”)). Throughout the negotiations, all term sheets and written exchanges reflected an agreement to exchange mutual releases. However, when defense counsel drafted the formal settlement agreement, she mistakenly included only a release from QS Private Lending and its principal to Cahoon, omitting a reciprocal release from Cahoon to QS and Ross. Cahoon’s counsel immediately noticed the omission, initially viewed it as a mistake, and ultimately remained silent while the agreement was executed.
After Cahoon later brought claims that should have been released, QS and Ross sought reformation. Following a jury-waived trial, the court ordered reformation, holding that reformation is warranted not only for mutual mistake, but also where one party makes a drafting mistake that is known to the other party, who may not remain silent and take advantage of the error. The court emphasized that reformation is an equitable remedy designed to enforce the parties’ true intent, even where sophisticated counsel are involved and multiple drafts were exchanged.
The decision serves as a cautionary reminder that parties and their counsel cannot exploit known drafting errors in agreements and that Massachusetts courts will reform agreements to reflect the terms the parties actually agreed upon.
