When do Parties to Litigation have an Enforceable Settlement Agreement?
Nearly all disputes settle prior to a judge or jury deciding the case. In a perfect world, the parties reach an understanding on the important terms through email, telephone, and/or in-person negotiations, and then memorialize the agreement in a formal document prepared by counsel and signed by all the parties. Sometimes, however, complications arise during the drafting of the agreement and one side refuses to go forward. In this situation, depending on the circumstances, the recalcitrant party may be held to the deal even though that party did not sign any settlement document.
The pivotal question is whether the parties had agreed to all the material terms of the settlement during their negotiations. If they did, then the preparation of a detailed, formal settlement agreement is considered the administrative task of memorializing the deal, not a condition to the deal itself. Procedurally, the party wishing to proceed with the settlement files a motion to enforce the settlement, and the party disclaiming the deal opposes the motion. The court is then tasked, in essence, with figuring out whether the parties had entered into a contract, with the contract being the settlement agreement. Did the parties have a “meeting of the minds” on the terms of the settlement. The pertinent evidence is the communications between the parties, or more specifically, their attorneys. Also critical is whether counsel orally report to the court that the case has settled, in which case it can be very difficult for one party to walk away from the deal.
Emails between counsel is the most common method of reaching a deal (especially during COVID), so counsel needs to choose his or her words carefully. Counsel also must make sure the client understands the significance of those email communications. If the client has not been a litigant previously, the client may be under the misconception that until the ink on the signatures is dry there is no deal. As always, clear communication by counsel, both with the client and the adversary, is the key.