Written by Danny Royce, Esq.
A critical tool in our case resolution arsenal is mediation. Many carriers and claimants turn toward mediation to resolve contentious litigation. As we all know, mediation sessions can be slow and arduous often taking the better part of a day (and sometimes longer). More often than not, mediation sessions accelerate toward compromise toward the end of a long session. Such compromise frequently coincides with the highest points of stress and fatigue among litigants and lawyers. One potential consequence of this confluence of factors is a hastily written or incomplete settlement agreement. This presents a pitfall easily avoided by the savvy and conscientious lawyer. The Supreme Court of Virginia recently ruled on this very issue in the case of LongView Int’l Technology Solutions Inc. v. Lin (2017 Va. Unpub. LEXIS 9 *, VLW 017-6-030(UP)). Longview presents as a cautionary tale for litigants and lawyers trying to finalize mediated settlement agreements.
In LongView, the parties participated in a 12 hour mediation session with an experienced mediator. Upon reaching an agreement, the lawyers drafted a six-paragraph “Term Sheet” which stated the defendant tech company would pay the plaintiff investor (and former officer) $3 million over a four-year period, and another $12 million when the company was sold. The Term Sheet included language at the top of the document that the parties were “intending to be fully bound by its terms.” The parties signed the Term Sheet and sought to remove the trial from the docket. The judge managing the docket heard a request for a continuance of the case and pressed the parties on whether they had an agreement, or just an agreement to agree. Upon receiving assurances from the lawyers and litigants that there was an actual agreement the trial was removed from the docket.
The parties contemplated ongoing talks to finalize a more detailed settlement agreement, but those talks subsequently broke down and plaintiff investor took the matter to court in Fairfax County. According to defendant LongView, the agreement’s terms were not sufficiently certain and complete, and the parties’ conduct demonstrated a mutual understanding that details of the agreement were yet to be finalized. Did the parties have a deal? Was the “Term Sheet” a contract or merely an “agreement to agree” at a later date? After months of unsuccessful additional negotiations about specifics of the “Term Sheet” the parties ended up in Fairfax Circuit Court and ultimately before the Supreme Court of Virginia.
The Fairfax Circuit court ruled that LongView breached the Term Sheet provision calling for prompt payment of $3 million to plaintiff investor. In fact, a comment from the presiding judge during trial underscores the importance of this issue and why LongView has drawn considerable attention. The judge stated, “this is one of those issues that needs resolution because we are faced with it time and time again, that people come to us and say they’ve resolved things in mediation and then they haven’t really resolved things in mediation. So how do we handle that? And this is something that is probably going to be a topic at our next judges’ meeting, as well.”
The decision was appealed to the Supreme Court where the Court upheld enforcement of the provision calling for the initial $3 million payment by way of an unsigned order. The Supreme Court used an objective test and stated that the Term Sheet’s language objectively indicated the existence of an agreement. Specifically, the Term Sheet stated it was “a settlement agreement … made effective” on the date it was signed, and that the parties executed the agreement “intending to be fully bound by its terms.” According to the Court’s Order, although the Term Sheet expressly contemplated a subsequent more formal agreement, the mere fact that later writing was planned did “not vitiate the agreement.”
The Order further stated that LongView’s conduct supported the Court’s interpretation of the Term Sheet (although consideration of LongView’s conduct was unnecessary for the Court to reach its decision). In support of this proposition, the Court cited the parties’ having persuaded the trial judge to cancel the trial because they had settled the case. Furthermore, the Court pointed to LongView’s filing of a counterclaim for breach of the Term Sheet’s confidentiality provision. While the trial Court did not consider the Term Sheet’s $12 million future payment provision (on grounds that the dispute was not ripe), the Supreme Court took a different approach and stated that the Term Sheet had to be considered as a whole. The ambiguous payout terms of “proceeds” after a “sale” of the company did not make the agreement indefinite as a matter of law. The Supreme Court upheld the Circuit Court decision that plaintiff’s quarterly payments were to start on the date the Term Sheet was signed, and upheld the Circuit Court’s rejection of plaintiffs claim that the $3 million was due in a lump sum.
There are valuable lessons to be gleaned from the LongView case. LongView argued that the signed Term Sheet was a place holder for a future agreement but received a strong rebuke from the Court. The lesson foisted upon LongView, and equally pertinent to our clients, is to never make assumptions about written documents relating to settlement terms and perhaps even more importantly to always give sufficient critical thought (and legal counsel) before signing any such documents. Documents such as “Memoranda of Understanding” and “Letters of Intent” can serve as important tools to assist in memorializing the status and terms of ongoing negotiations. However, these documents should be carefully reviewed to ensure they are nothing more and will not be interpreted by the courts as a binding agreement to which one of the parties may be extremely disappointed.
The key take-away is that written agreements must contain all of the terms necessary to fulfill the parties’ respective expectations. You can trust the experienced attorneys at KPM LAW to make sure your settlements reflect the terms and conditions to which you have actually agreed. Thank you for placing your trust in us to do so!