Matthew DeVries | Burr & Forman | June 4, 2019
Although it was a summary order with no precedential effect, the Second Circuit held in In re: Lehman Brothers Holdings, Inc. that an exchange of emails with a mediator can constitute a binding settlement, even if the parties never signed a written agreement. While the case is certainly interesting and the holding appears to be novel, it appears consistent with traditional contract law principles.
In Lehman Brothers, there was a mediation between Lehman and an individual defendant. 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. Finally, the record contained evidence that defendant’s counsel sent Lehman an email saying its client would sign the written agreement as revised.
The question before the court was “whether the parties intended to be bound [to a settlement] in the absence of a document executed by both sides” by considering:
(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 all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract usually committed to writing.
Altough two factors weighed in favor of an agreement and two factors weighed against and agreement, the Second Circuit ultimately held that the “balance tips in favor of finding an intention to be bound.” It is not clear 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.
Lesson learned: Words matter, but written words matter more!