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Settlor Beware: A Cautionary Tale When Negotiating A Pre-Trial Settlement

A recent case decided by the Federal District Court of Massachusetts, Lane v. Powell, No. CV 17-12356-PBS (D. Mass. June 19, 2020), serves as an important cautionary tale for practitioners, litigants, and other interested parties (such as insurers) with respect to their handling of pre-trial settlement negotiations. In that case, claims of personal injury and wrongful death were asserted following the sinking of the fishing vessel, “the Orin C,” and the tragic passing of its captain, David Sutherland. After the Plaintiffs (two crew members and Mr. Sutherland’s Estate) filed suit, the proceedings became quite acrimonious among the parties and their counsel. Nevertheless, the parties engaged in settlement negotiations to try to resolve the case.

On May 6, 2020, Defense Counsel sent an email enclosing a purported “final offers to settle” the case with $100,000 designated for Mr. Sutherland’s estate and $2,500 for each of the remaining Plaintiffs. This offer (1) did not require global settlement, i.e. each Plaintiff could accept or reject it individually, (2) had no confidentiality clause, and, (3) required a “full and complete general release of all claims, including 93A/176D, and entities.” Six days later (on May 12, 2020), Defense Counsel increased the offer to $120,000, for all claims.

On May 14, 2020, Plaintiffs’ Counsel replied: “$120,000 is accepted. Palmer accepts $10,000. Lane accepts $10,000. The estate accepts $100,000. The releases will include the 93A [Bad Faith] case, but no confidentiality.” Twelve minutes later, Defense Counsel responded, “Excellent, that’s great. I'll order the checks...I'll draft releases and get them to you. Let me know what you want to do with the court – a Notice of Settlement followed by Stip [sic] of Dismissal?” To which, Plaintiff’s Counsel replied, “Send to me what you propose and I'll review.”

Defense Counsel’s proposed releases included the parties’ attorneys as released individuals, but the reference to the lawyers was removed during subsequent negotiations. However, regarding the possibility of later claims being made against the parties or attorneys arising from the handling of the litigation, Plaintiffs’ Counsel wrote:

“The content of the releases that [you] sent to me for my clients to sign looks fine.... We have a remaining problem, however before my clients can sign the releases and that is the claims that were threatened against my clients and me… One thing I'd like to avoid is further litigation (something I'm sure we can all agree on), so I'm drawing up a release that I'd like [Defendants] and [their insurer] to sign, as well. I'll get it over to you by tomorrow for your review.”

Defense Counsel responded that releases of the attorneys were not part of the agreed-upon settlement, writing, “The deal is done.... We don't get to leverage the case for our own security. By proposing new elements to an already done deal you are putting your clients’ settlements at risk.”

The next day, on May 20, 2020, Plaintiffs’ Counsel replied, “Continued settlement talks (about the content of the release) hinge on a total resolution of all claims, both pending and planned.” The Defendants then filed a motion to enforce the settlement purportedly reached on May 14, 2020, which the Plaintiffs opposed.

In their opposition, the Plaintiffs argued that any release of claims must also cover all future claims arising out of litigation conduct, including claims against attorneys or other individuals, and that the failure to reach an agreement on that point precluded, “a meeting of the minds,” as to the material elements of the settlement.

In its ruling on the motion, the Court noted that, “to create an enforceable contract, there must be agreement between the parties on the material terms of that contract, and the parties must have a present intention to be bound by that agreement.” “A term is material if it is, “an essential and inducing feature of the contract,” “judged in the specific context of all relevant facts and circumstances.” However, “[a] reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.”

The Court then evaluated the communications exchanged by counsel, concluding that the May 12, 2020 offer consisted of a payment of $120,000 but no other terms. Although Plaintiffs’ Counsel “accepted” that offer, his May 14, 2020 email was deemed to be a counter-offer because it added additional material terms, including that the related “releases” would “include the 93A [Bad Faith] case, but no confidentiality.” This counter-offer made no reference to a release of any claims related to collateral allegations of unlawful conduct, “arising out of litigation conduct,” by the attorneys, parties, or other related parties. When Defense Counsel agreed to the added terms on May 14, 2020, a meeting of the minds was reached, and the parties no longer had the power to propose additional material terms, such as a release for attorneys.

The Court added, “while Plaintiffs’ counsel may subjectively have intended to also cover all potential claims arising out of the case, including against his law firm, a party’s “subjective intent is irrelevant when [he] knows or has reason to know that [his] objective actions manifest the existence of an agreement.” Accordingly, the Court allowed Defendants’ motion to enforce settlement. Accordingly, the settlement consisted of the Defendants’ agreement to pay $100,000 to the estate of David Sutherland, and $10,000 to each of the remaining Plaintiffs; a release of all claims against the Defendants, including potential 93A/176D claims against their insurer, and no confidentiality provision, but left open potential claims arising from the conduct of the litigation,

This case serves as an important reminder that special care should be taken by practitioners when negotiating and communicating pre-trial settlement offers. This case further demonstrates how quickly, and potentially unexpectedly, a party may bind itself to disadvantageous terms or, worse yet, expose itself to additional liability, in the event that appropriate care is not exercised. Therefore, Counsel should be explicit in all communications to opposing counsel regarding the specific terms of any proposed settlement agreement.

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