When is a Settlement Agreement Enforceable?

When parties negotiate terms of an agreement, particularly a settlement agreement, they often confirm certain terms in writing with the understanding that “standard” terms, such as releases in the case of a settlement, will be added to the final agreement. Those “standard” terms, however, are not always part of the agreement and, thus, an enforceable agreement actually may be reached sooner than the parties realize. This is what happened, at least to one party, in Scheinmann v. Dykstra , No. 1:16-cv-05446-AJP, 2017 WL 1422972 (S.D.N.Y. Apr. 21, 2017).

In Scheinmann , Scheinmann’s counsel sent an email to Dykstra’s counsel on March 13, 2017, offering in pertinent part that the parties “settl[e] this matter on the following terms:

● Mr. Dykstra agrees to an up-front payment of some amount. I realize that he has significant financial difficulties and I am not talking about a large number. You tell me what he can come up with.

● Mr. Dykstra consents to a judgment being taken in favor of Mr. Scheinmann in the amount of $15,000 less the amount of the up-front payment; and

● Mr. Dykstra dismisses his counterclaim with prejudice.

This offer remains open until 5 pm (central time) on Wednesday, March 15th.”

Dykstra’s counsel responded the next day with an email stating:

My client can agree to the second and third terms, but he does not have any money to pay towards the $15,000. He was counting on the Harper Collins money (as was I) and his other lawsuit was dismissed on summary judgment.

Please let me know if we have a deal.

The following day Scheinmann’s counsel responded with another email stating in pertinent part: “We have a deal. I will put together a consent judgment within the next week.”

About two and a half hours later after Scheinmann’s counsel confirmed the parties “have a deal,” Dykstra’s counsel responded with an email of his own inquiring, “are you going to draft the settlement/mutual release?” Scheinmann’s counsel replied by noting there was no need for “another settlement agreement” because “the entirety of the [settlement] agreement” was contained in their prior emails. Scheinmann’s counsel elaborated further by noting, “[t]he judgment . . . concludes the litigation” and “no additional release [is] necessary.” Dykstra’s counsel countered by contending that a mutual release was “a standard term[,]” and he needed something in the judgment to confirm that all disputes between the parties are resolved so that there is finality.” Dykstra ultimately chose not to sign the proposed consent judgment and Scheinmann filed a motion to enforce the settlement.

The court found that the parties’ emails demonstrated the parties “reached a mutual agreement to settle the case following an offer, acceptance, consideration, mutual consent and intent to be bound.” The court relied heavily on the email confirming that the parties “have a deal.” The court further noted that an exchange of emails may constitute an enforceable agreement if the emails contain all the agreement’s essential terms. In this case, the court concluded the emails contained all the material terms, which were the only terms. It was only after the parties had reached agreement that the notion of a mutual release had first been raised. But, as Scheinmann’s counsel noted, there was no need for mutual releases because the judgment that was to be entered would conclude the litigation. Additionally, the judgment, once entered, would effectuate the agreed upon terms – settlement, dismissal of the action with prejudice, judgment entered against Dykstra, and dismissal of Dykstra’s counterclaim. Although the court acknowledged that a mutual release might be a “standard item” in many settlements, it concluded that such a provision is not material to all settlement agreements. Furthermore, the court noted that there are various types of releases, ranging from broad releases releasing all claims from the beginning of time to more limited, specific releases.

The court further found that the settlement was enforceable under the four Winston factors: (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether there is agreement on all the terms of the alleged contract; and (4) whether the agreement is the type of contract that is usually put in writing. The court noted that the first factor was the most important and found that there was no expression by either party in this case not to be bound without a signed written document. The absence of such a reservation weighed in favor of Scheinmann, meaning there was an enforceable agreement. As for the second factor, the court found that there was not partial performance, as Dykstra repudiated the agreement before the judgment was signed. The court noted that this factor was neutral and did not favor either party’s position. With respect to the third factor, the court found that the parties agreed to settle their dispute with a judgment entered against Dykstra for a specific judgment amount and dismissal of his counterclaim. The court further found that a general release was not a material term of the agreement. Based on these findings, the court determined that the third factor weighed in favor of Scheinmann’s position that there was an enforceable settlement agreement. Lastly, the court determined that the fourth factor weighed in favor of Scheinmann as well. To this end, the court found that the agreement at issue was not a complex one and “[n]o formal writing was required to memorialize these terms.” The court further noted that Dykstra did not even contend a more formal writing was required, but only sought the addition of a release, and that a writing did exist in the form of the email exchange that memorialized the terms of the parties’ agreement.

The court’s decision in Scheinmann is an important reminder that parties may not be able to back away from a settlement agreement if they expect “standard” terms to be added to the agreement and those “standard” terms ultimately are not included. In short, before confirming an agreement has been reached, whether it is a settlement agreement or another agreement, make sure all material terms you want addressed are adequately referenced in the term sheet or email exchange, or at least note an appropriate reservation that the agreement is subject to approval of a written agreement that will elaborate on the agreed upon terms and include other terms.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585.

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