United States: The Inadvertent Settlement Agreement (And How To Avoid It)

The recent case of Jarvis v. BMW of North America, LLC  is an important reminder to attorneys to avoid inadvertently reaching a settlement agreement that is unacceptable to the client, or equally problematic, one that is missing critical (but not legally "essential") terms and conditions. In Jarvis, the District Court for the Middle District of Florida granted the defendant's motion to enforce a settlement agreement that had been negotiated by the parties through their respective counsel – even though the plaintiffs refused to sign the agreement.

As the Jarvis court noted, "Florida law is clear that a settlement agreement may be reached through a series of email exchanges." Id. at 5. Unless Florida's statue of frauds applies (and it often does not) execution of a memorialized agreement is a "mere formality." Id. Other jurisdictions similarly hold that email exchanges can constitute enforceable settlement agreements. See, e.g., Forcelli v Gelco Corp.

Thus, where a series of emails between counsel (or the litigants themselves) demonstrates offer, acceptance, consideration and a mutual meeting of the minds on all essential terms – Florida courts routinely find such exchanges to constitute "a complete, binding, and enforceable settlement agreement." See Rolfase International.

In Jarvis, counsel for the parties had fully negotiated a formal agreement with authority from their respective clients, and it was only at the point of final execution that the plaintiffs apparently had a change of heart. But Florida courts have found an enforceable settlement agreement with much less. For example, in Miles v. Northwestern Mutual Life Insurance Company ("NML"), counsel for NML sent a settlement offer by email to counsel for Miles. The terms of the offer (relating to a claim on a disability insurance policy) included: a specified lump sum payment to Miles, a plan for future payments to Miles, a release in favor of NML, and dismissal with prejudice of all pending claims. Miles accepted the offer.  Thereafter, NML provided Miles with a draft settlement agreement that fleshed out some of these essential terms – including terms relating to the release. Specifically, NML's draft confirmed Miles's status as partially disabled for the duration of the policies, a term that NML believed it needed to prevent Miles from re-litigating certain issues.

Miles rejected the draft agreement, claiming that "[t]he email exchange is the contract." NML moved the district court to enforce the settlement and require Miles to sign NML's more formal draft agreement. The district court declined to do so. Agreeing with Miles, the court held that the email exchange contained all the essential terms of the settlement – it was the settlement agreement. The court explained that, if NML's draft agreement simply memorializes the email, there is no need for it, and alternatively, if NML's draft agreement memorializes NML's interpretation of the essential terms of the email agreement, the court was not in a position to endorse NML's interpretation.

Significantly, it is not only lawyers who can find themselves in the predicament of NML's counsel. Case law reveals that clients themselves potentially risk the same problem when they engage in settlement dialogue with apparent authority to do so. See Rolfase International.

But Florida law is also clear that this problem can be avoided: "Where the parties intend that there will be no binding contract until the negotiations are reduced to a formal writing, there is no contract until that time." Miles, 677 F. Supp. 2d  at 1316. Contemplation of a formal agreement is not enough. Id. There must be evidence that the parties did not intend to be bound unless and until a formal agreement is memorialized and executed.

Thus, prior to commencing any settlement dialogue, counsel should make clear – in writing – that there is no binding agreement between the parties unless and until all parties have executed a mutually-acceptable written agreement.

The Inadvertent Settlement Agreement (and How to Avoid it)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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