April 28, 2021
People usually think of a “litigation settlement” as written, agreed terms signed by the parties. However, parties can become legally bound to oral or electronic settlement terms before the parties get to a formal writing or court order. Generally speaking, a contract to settle a lawsuit or other dispute does not require a signed writing to be binding. When settlement discussions culminate late at night or on the courthouse steps, the parties may be confused as to whether the exchange constitutes a binding agreement or a mere step towards a future agreement. When the parties agree upon a set of settlement terms, the legal work does not end there. Best practices call for the attorneys to properly reduce the agreement to a written agreement, so that its terms may be implemented and avoid the acrimony over what had been agreed to.
There have been recent judicial opinions about what constitutes a settlement agreement. In the 2019 personal injury case Cully v. Smith, the Circuit Court of Fairfax County found that although the parties had not signed a written instrument, they had entered into a binding agreement in the form of email exchanges between their lawyers regarding settlement of a personal injury case by payment of $610,000.00 in exchange for a dismissal. In Cully v. Smith, the insurance defense lawyer representing Todd Smith sent the plaintiff David Cully’s counsel an email stating, “Our last and final offer is $610,000. If not accepted before the settlement deadline of May 7 at noon, that offer is withdrawn and no further settlement will be considered.” Cully’s lawyer responded, “Mr. Cully accepted your below offer of $610,000 in full and final settlement of this case.” Next, the insurance companies sent $610,000.00 to the defense lawyers, who then told the plaintiff they would pay the money if provided with a written release of Smith, Smith’s employer and the insurance companies. Counsel to the Plaintiff Cully responded that the settlement only had two terms: (1) payment of $610,000 and (2) settlement of the civil suit. The insurance defense lawyers argued that the execution of a written release was customary in settlement of personal injury claims and ought to be included in understanding what the parties meant, or alternatively that the agreement was only “in principle” and ought not to be enforced by the court as to only those two terms because it wasn’t fully formed. The wording used in negotiations determines whether it is mere words discussing ideas about settlement or if the exchange constitutes an enforceable contract itself. So, if there is a preliminary settlement agreement, how does one know if it is binding or unenforceable? Some states such as Maryland (in the 2020 case 4900 Park Heights Ave. LLC v. Cromwell Retail 1, LLC) recognize four categories of “settlements in principle” as identified in the treatise, Corbin on Contracts:
- At one extreme, the parties may say specifically that they intend not to be bound until the formal writing is executed, or one of the parties has announced to the other such an intention.
- Next, there are cases in which they clearly point out one or more specific matters on which they must yet agree before negotiations are concluded.
- There are many cases in which the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential, but that other people often include in similar contracts.
- At the opposite extreme are cases like those of the third class, with the addition that the parties expressly state that they intend their present expressions to be a binding agreement or contract; such an express statement should be conclusive on the question of their “intention.”
According to this analysis, when an agreement to settle falls into the first or second categories, it is not yet enforceable, and the parties must finalize the terms before it becomes binding. For agreements that fall within the third or fourth categories, they do not require any additional formalization to be legally enforceable. Even if there is already a binding contract, the parties can agree to amend or restate it for whatever reason. While Judge David Oblon does not cite the Maryland case law outlining these categories, the settlement emails in the Cully v. Smith case would appear to fall within the third category. A settlement agreement is a “contract,” formed by “consideration” and “mutual assent.” Consideration is what is bargained for, i.e., a price, property, benefit to the party making the promise or the detriment to whom the promise is made. A promise that does not include anything bargained for in exchange isn’t a contract. Mutual assent is determined by the reasonable meaning of the parties’ expressions actually communicated to the other party. We typically think of this in terms of “offer and acceptance.” When one party communicates something that comes across as a clear, definite take-it-or-leave-it proposition, and that is accepted, then that creates a binding contract. An exchange of emails between lawyers (or the parties themselves) regarding settlement can result in an enforceable contract between the parties (without the necessity of later reducing that to a formal looking written agreement). Not all email exchanges accomplish this, because the wording of the exchanged communications matters. Generally speaking, attorneys have authority to bind their clients in matters dealing with the litigation, such as signing consent orders or submitting responses that may be deemed a party admission. However, in settlement negotiations, attorneys do not have implied authority – there must be express authority from the client to bind him under contract law. However, no authorization letter from the client is necessary. The client’s express authorization of the attorney may be inferred from the words or conduct of the attorney.
In the Cully v. Smith case, there was no apparent issue with the lawyers’ authority to negotiate the settlement. The defense attorney’s email was deemed a contractual “offer” because of how clear and unequivocal it was. His words manifested an intention for the recipient to have the power to accept it, because of the take-it-or-leave-it qualities. Courts are loathe to set aside formed contracts (even if oral or unofficial looking). There is a judicial presumption in favor of finding the contract not to be so indefinite or uncertain as to set it aside. The lawyer’s email included a specific dollar amount. The court observed that the term “settlement” unambiguously refers to ending of a suit or dispute by a compromise including specific compensation. By contrast, a “release” is an immediate relinquishment or discharge of the right of action. Both a release and a settlement preclude further suit regarding the resolved claim. Documents are often styled “Settlement and Release Agreement” or “Settlement Agreement and Release” because the insurers want the release and the claimant views the compensation as essential. Fairfax County Circuit Court ruled that the email exchange was binding and that the plaintiff was not required to provide the written release as an additional requirement to get the $610,000.00. Insurance companies are accustomed to getting things resolved the way they desire because they are the ones paying the money. Its common for plaintiffs, once they get to a certain point in the case and the promise of money is made, to be willing to sign what they are asked to sign when they are okay with the price. It’s not uncommon for the parties and lawyers to agree upon certain terms and then the lawyer for one side prepares a written agreement that fails to properly reflect the agreed upon terms, adds additional language that changes the overall meaning of the settlement or other bait-and-switch tactics. Sometimes the parties agree to terms, and then all the terms have to be re-negotiated in the context of reducing the agreement to a written instrument to be signed.
In his opinion, Judge Oblon discussed a 2001 settlement dispute that went to the Supreme Court of Virginia, Alexakis v. Mallios. In that case, the parties informed the judge that the case had been settled and recited the terms into the court reporter’s transcript at the hearing, indicating that they had resolved all claims. Included in the settlement was sale of a parcel of real estate on documentation identical to those used in a prior transaction. In that case, the Supreme Court observed that the purchaser’s undisclosed interpretation could not defeat the unambiguous, express terms of the settlement. If one side later had concerns arising after the recitation of the terms into the record, they came too late. The Alexakis case illustrates why lawyers should be on their toes should their opponent try to recite settlement terms in open court before a judge so that they are recorded in the court reporter’s transcript as an official evidence of contract, because the terms may not be recited correctly. Also, counsel should be cautious about employing the “read the terms into the record” trick because their opponent may later hold them to precisely those terms, despite the absence of desired items. Once the terms are recited into the court reporter transcript and assented to, either side can move the court to reduce the terms to a written order that can subsequently enforced legally if breached. In the Cromwell Retail 1, LLC opinion, the Maryland Court of Special Appeals partially reversed the judgment because the trial court entered an order that did not accurately reflect the terms of the settlement made by the parties.
In April 2021, the Supreme Court of Virginia decided Bolton v McKinney, reflecting a development of the law in Virginia with respect to litigation settlements. Generally speaking, prevailing litigants in Virginia (and almost all other states) may not, with very limited exception, recover their attorney’s fees against their opponent unless there is a statute or contract that provides for an award of attorney’s fees. This is called the “American Rule.” The issue of attorney’s fees arises in the context of settlement agreements because having to pay a lawyer to defend a lawsuit brought after there has been a settlement and release is contrary to the whole notion of settling in the first place. Attorneys routinely put prevailing party attorneys’ fees provisions into their settlement agreements. Bolton and McKinney made a “Settlement Agreement and Global Mutual Release of Claims.” Later, McKinney sued Bolton three times relating to the same issues in the settlement, causing Bolton to incur lawyer bills in excess of $80,000.00. The Settlement Agreement was silent on the issue of attorney fee awards. The issue of Bolton’s attorney’s fees came up, and the circuit court declined to award them, because they weren’t provided for in the contract or any applicable legislation. The Supreme Court decided that the “American Rule” does not apply in breach of covenants not to sue cases, because the expenditure of attorney time in a direct or consequential result of the breach of the covenant not to sue. The Court observed that without a fee-shifting effect, the covenant not to sue could not be vindicated, because there would not be any practical consequence if a party can repeatedly breach the covenant not to sue and not bear financial consequences. The holding of Bolton v. McKinney is important to understand in cases like Cully v. Smith or Alexakis v. Mallios where there is a covenant not to sue that is agreed upon in emails or in a recorded conversation, and later there is a subsequent suit and the issue of attorneys’ fees arises.
These things may make settlement agreements sound mysterious or scary but they really aren’t. The meaning of words used in settlement negotiations matters. An experienced attorney can help the client when the opponent tries to walk back on terms already agreed. Parties should carefully consider what is being said or not said when engaged in settlement discussions that become exhaustingly protracted or are sprung on you unexpectedly.
April 8, 2021
When a homeowner receives a notice of violation from their HOA or condominium, they must decide if they are going to fight it, comply or file an architectural application to receive formal approval. There are many instances when the homeowner can and ought to keep the installed improvement. However, there are other situations in which it makes more sense to comply with the HOA’s request or to otherwise adjust things to address the violation. Also, HOAs frequently send out notices in error or the homeowner receives them after the violation was cured. However, the story does not always end with the voluntary compliance by the landowner. Often the covenant enforcement process will continue with additional letters or HOA hearings despite the correction. There may be pending litigation. The HOA or neighbor instigating such in or out of court complaints may have some sort of axe to grind and wants to continue the legal action vindictively. This blog post addresses the legal aspects of covenant enforcement when the accused owner has cured or abandoned the complained of structure or activity. I am not saying that the owner’s default response to a HOA letter ought to be to just obey it.
Fairfax County Circuit Court considered such questions in a 2004 decision. Rose Hall HOA filed a complaint with the court seeking an injunction and attorney’s fees against an owner, Charles H. Jelinek, whose architectural application for a black ornamental fence was denied but they installed it anyway. While suit was pending, the Jenlineks removed the complained of fence. The letter opinion of Judge Kathleen MacKay doesn’t say whether they removed the fence because it was not allowed by the language of the covenants or if the owners took it down not because they were in the wrong but to simply avoid continued legal action. The HOA filed discovery requests in an effort to continue fighting in court. The Jelineks filed a motion to have the suit dismissed on the grounds that it was now moot because the fence was removed. The HOA wanted to continue the suit, not because they thought that the fence would be put back up, but only because they wanted to get an award of attorney’s fees as the prevailing party. Did the HOA “prevail” in the litigation because the owner removed the complained of fence after suit was filed? In this suit, the HOA did not seek any damages. The court found that now that the fence is gone, the HOA cannot prevail because an injunction order cannot be entered because the grounds for the injunction is no longer at issue. Where the defendants action sought to be enjoined has been abandoned, the whole grounds for equitable relief no longer exists, and the matter ought to be dismissed. Unlike suits for money damages, cases like injunctions or declaratory judgments are in what’s called “equity jurisdiction,” which requires an actual controversy to be presently existing. This doctrine is commonly referred to as a question of “mootness” (when the alleged violation has ceased) or “ripeness” (when the offense hasn’t happened yet). The court found the case moot and dismissed it in its entirely.
In some cases, the factual context for the mootness question is less clear-cut than a complaint about a fence that has been completely removed. Sometimes suits for injunctions are more about conduct or how improvements or objects on the property are used rather than their mere existence. In cases involve flooding or erosion, the water infiltration may not occur every day, and in fact may be irregular depending upon the weather or how the defendant has configured downspouts that day, or other conditions. In some cases, an injunction may be granted even if the complained of conduct only occurred once. Some cases raises a question as to whether the complained of improvement actually violates a legal obligation owed by the landowner to the association under the governing instruments or if the HOA is overstepping its bounds. The owner may decide to reconfigure the fence, drain or other structure or vegetation to conform to the instruments (and not necessary what the manager is ordering them to do). The opponents may want to pursue the case more aggressively, arguing that the corrective activity somehow functioned as an admission that the HOA or neighbor was right and the owner was wrong. However, that may misconstrue the defendant’s actions or intentions. Also, angry people sometimes want their opponent to cease doing things related things that have always been legal as a kind of punishment.
For reasons such as these, when HOA or neighbor disputes escalate to litigation, sometimes “giving in” on certain points can be a powerful legal defense strategy, but one that must be properly navigated to resolve the dispute while adequately defending the owner’s rights.
Rose Hall HOA, Inc. v. Jelinek, et al., 66 Va. Cir. 172 (Fairfax Co. Oct. 28, 2004)(MacKay, J.).
Note that the picture associated with this blog post is a stock image and does not depict anything discussed in this article.