An exchange of emails with a mediator can constitute a binding settlement, even if the parties never sign a written agreement, the Second Circuit said in a nonprecedential opinion.
The opinion drives home an important practice point: A casually written email can be a binding contract. Unless you intend for an email to be binding, always say that agreement depends on negotiating and signing a definitive settlement agreement.
As plan administrator, Lehman Brothers Holdings Inc. was in mediation with one of some 250 defendants in a so-called clawback suit where Lehman was attempting to recover payments made after bankruptcy. The amount of the payment the defendant would make was the only issue in mediation. The mediation took place while the defendants’ motion was sub judice seeking dismissal of the adversary proceeding.
The mediator sent Lehman and the defendant an email confirming that they had accepted his proposal and agreed on the amount of a payment in settlement of Lehman’s claim against that defendant. Lehman then sent the defendant the draft of a written settlement agreement. According to the defendant, the agreement contained additional terms that had never been discussed, much less agreed upon in mediation, such as the timing and manner of payment, the identity of the parties to the settlement, the scope of releases, and other terms.
Subsequently, the defendant requested changes in the agreement to which Lehman agreed. According to the bench opinion by Bankruptcy Judge Shelley C. Chapman in March 2017, the defendant’s counsel sent Lehman an email saying its client would sign the written agreement as revised.
According to Judge Chapman, she issued her opinion granting the motion to dismiss the adversary proceeding against the defendant and others hours after the defendant’s counsel said the client would sign the agreement. A few days later, the defendant said it would not sign the settlement agreement.
Lehman filed a motion to enforce the settlement agreement, which Judge Chapman granted.
In her bench opinion, Judge Chapman said the refusal to sign the settlement was a “change of heart” because she had granted the motion to dismiss, not for lack of intent not to be bound absent a signed, written agreement. Applying the factors required by Winston v. Mediafare Entertainment Corp., 777 F.2d 78 (2d Cir. 1985), Judge Chapman ruled that the settlement agreement was enforceable, although unsigned.
District Judge Denise Cote upheld Judge Chapman, and so did the Second Circuit in a per curiam opinion on July 18.
The circuit court analyzed the four Winston factors one by one. Two were in favor of finding a settlement, and two were not. The appeals court said it was a “close case.”
On telling the mediator there was agreement on the settlement amount, the appeals court said the defendant “did not expressly reserve the right not to be bound in the absence of a writing.” The first Winston factor therefore weighed in favor of finding an intent to be bound, the circuit said.
There was no partial performance, so the second Winston factor weighed against finding an agreement.
The third factor weighed in favor of an agreement, the circuit said, because the defendant’s failure to identify disagreement on any material issues was “strong evidence” of agreement. The appeals court “comfortably” concluded that signing the agreement was the only remaining step, because the defendant “reneged” on the agreement only after the bankruptcy judge ruled that she would dismiss the adversary proceeding.
The fourth factor concerns the regularity with which writings are required. That factor was in favor of the defendant because Lehman conceded that no settlements had been in effect during the entire Lehman bankruptcy without a written agreement.
The circuit court said that the “balance tips in favor of finding an intention to be bound,” given the absence of an express reservation of rights and the lack of material terms remaining to be negotiated.
It is unclear whether the appeals court would have found a binding agreement had the defendant not later said it would sign the settlement. However, the appeals court focused on the original email exchange when the mediator notified the parties that they had agreed on the settlement amount. The opinion therefore might be understood to stand for the proposition that there was a binding agreement at the earlier point in time, because the amount was the only issue in mediation.
Nonetheless, the opinion is nonprecedential, so its precedential value is limited.