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Feb 25, 2014

No Signed Settlement Necessary, Except When It Is

On January 28, 2014, the Kansas Court of Appeals, held that the parties bind themselves to an enforceable settlement, even though the parties contemplate subsequent execution of a formal instrument. In dicta, the court issued a strong reminder to counsel who routinely wish to draft a settlement that when the parties specifically condition a contract on it being reduced to writing and signed, there is no enforceable contract until such act is accomplished.

In O’Neill v. Herrington, the Plaintiffs, the O’Neills, sent an email to defendant McDowell, Rice, Smith & Buchanan, PC (MRSB) offering to dismiss their pending lawsuit in exchange for a mutual release. MRSB accepted the offer by return email. The O’Neills asked MRSB to prepare the written settlement agreement, and then the O’Neills read and requested a modification to the release, and then told MRSB to “send them a signed copy of the formal written settlement agreement and release for them to sign.” MRSB did so, and then emailed the trial judge to advise him of the settlement, and the trial judge asked the O’Neills to confirm the settlement via email, which the O’Neills did. 

When the O’Neills refused to sign the agreement, MRSB moved to dismiss the case with prejudice and require the O’Neills to sign the settlement agreement. The trial court found that the settlement bound the parties, even though the written settlement had not been signed. The court of appeals affirmed.

The O’Neills made two arguments on appeal in an attempt to avoid settlement. First, that it was not their intent to settle two previously dismissed claims against MRSB, but only the pending claims in the current lawsuit. Second, that they did not intend to be bound by the agreement until they had a formal written agreement reviewed by counsel.

As to the O’Neills’ intent, the court of appeals held that the test for a meeting of the minds is objective, not subjective, and that while the O’Neills secret intent may have been to provide a limited release, the O’Neills failed to disclose this intent, and thus it may not be considered. Thus, the emails, which used unambiguous words between the parties, showed that an offer and acceptance had occurred.

As to the contention that the O’Neills did not intend to be bound until a written agreement was reviewed by their attorney and signed, the court of appeals dismissed this argument. It found that the trial judge specifically explained to the O’Neills that the agreement to settle was binding even before the settlement papers were signed. Second, the O’Neills contacted MRSB and set a 24-hour deadline to settle. The O’Neills did not have an attorney at that time, and did not plan to meet with their attorney until the next week, long after their self-imposed deadline had expired. The court of appeals found it was disingenuous for the O’Neills to contend that they did not intend to be bound by the settlement agreement on the day they made and accepted the offer to MRSB. Thus, when one party has made a settlement offer and the other party has unconditionally accepted it, neither party may call off the agreement pending signatures on a written settlement.

The full opinion of the case may be found online here.