Posted on December 15, 2016
What constitutes a binding agreement to settle a lawsuit? Seems like a simple enough question to answer. Most people would say an agreement, reduced to writing, should be sufficient to dispel any dispute as to whether an enforceable settlement exists. But what if the agreement is just a few sentences, hastily scribbled on a scrap of paper, with the intention of firming up the particulars at a later time?
Such “back-of-a-napkin” agreements are common in litigation, often entered into after marathon mediation sessions where the parties have gone back and forth for hours, sometimes over the course of multiple days. Recently, the 7th Circuit Court of Appeals was called-upon in Beverly v. Abbott Laboratories, 7th Cir., No. 15-1098 (March 16, 2016) to determine whether such an agreement is, in fact, enforceable. It’s answer – Yes.
In Beverly, the plaintiff, Martina Beverly, filed a lawsuit against her former employer, Abbott Laboratories, claiming Abbot discriminated against her based on her national origin and disability. After several months of litigation, the parties agreed to participate in a private mediation. The day before the mediation, Abbott’s counsel emailed Beverly’s counsel a “template settlement agreement” in order to avoid “any surprises in the event that [the parties] are able to resolve the matter.” The template included provisions regarding a review period, payment, indemnification, and releases.
The parties then engaged in a mediation session lasting approximately fourteen hours, near the end of which they signed a brief handwritten agreement that stated:
I Jon Klinghoffer will commit that my client will communicate to its internal business client the fact that Abbott/AbbVie has offered $200,000 + Abbott/AbbVie pays cost of mediation to resolve this matter and that Martina Beverly has demanded $210,000 + Abbott/AbbVie pays cost of mediation to resolve this matter. Both parties committ [sic] that their offer and demand will remain open until Tuesday, July 22, 2014, 3:00 PM central.
The following day, Abbott’s counsel emailed Beverly’s counsel and accepted Beverly’s demand for $210,000 plus the costs of the mediation, attaching a draft of settlement agreement that was largely identical to the template sent prior to the mediation. Several minutes later, Beverly’s counsel responded, “Oh happy days! Best $10,000 Abbott has ever spent. You are a gem.” Case settled, right? Apparently not.
Beverly decided not to sign the formal settlement agreement, so Abbott’s counsel moved to enforce the handwritten document that was signed by the parties at the mediation. Beverly argued the handwritten agreement was a preliminary document that was not enforceable because it omitted a number of material terms. The district court granted Abbott’s motion, finding that the parties had entered into a binding settlement agreement that included all material terms—specifically, the dismissal of the case in exchange for $210,000 and mediation costs. Beverly then appealed that decision to the 7th Circuit Court of Appeals.
The 7th Circuit, affirmed the district court’s decision, opining that the “handwritten agreement was valid and enforceable, since the agreement’s material terms were clearly conveyed and consented to by both parties, and the existence and content of the draft proposal do not affect enforceability.” The Court specifically rejected Beverly’s position that the handwritten agreement omitted a number of material terms by failing to explain how those terms were “so vital that the parties would not have settled the dispute without them.”
The Court’s decision in Beverly emphasizes the rule of law that a written agreement, even one so basic as a few handwritten sentences, that contains the material terms of the parties’ settlement is enforceable. The decision also highlights the need for parties to litigation to carefully consider the terms of any proposed settlement prior to agreeing to anything in writing, and, whenever possible, to formalize all of the terms of any agreement to the greatest extent possible prior to signing.
For questions regarding litigation, mediation, or any other aspect of Ohio construction or business law, please contact the attorneys at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971.
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