So, We’re Settled, Right?
In many cases, the focus of settlement discussions centers on the amount of money that will be paid to settle a claim. However, other considerations and terms will affect that amount, when, and if a case is truly settled. Settlements can happen quickly, just before, during, or even after a trial. They can occur while a decision on a dispositive motion is pending. The parties, wanting to limit their risk, may come to a quick agreement; but that agreement may not withstand challenge if it is not carefully crafted and executed. Even if there is no challenge to the settlement, unresolved terms can delay payment and result in entry of a judgment against the defendant; adversely affecting personal and business credit ratings. The COVID pandemic, and the shift to electronic communication in lieu of traditional mail, has created a potential pitfall with CPLR requirements that were drafted with pre-COVID communications in mind.
An agreement to settle is, at its core, a contract requiring – as every 1L will tell you – an offer, acceptance, and consideration. Inherent in that contract is a clear definition of what is being offered, and what is accepted; there cannot be an agreement if the terms are not clear. Most Plaintiffs are looking at one term, the money they will put in their pocket. Defendants have the same consideration but may have other terms that are of great importance. These can range from non-admission of liability clauses, confidentiality, specific release language, and lien payments. All terms, however, must be known before the settlement can be effected.
As practitioners continue working remotely, the informality of e-mail can also be an obstacle to an enforceable settlement. While e-mail has become the norm, and many a settlement has been negotiated via email, to obtain an enforceable settlement, the requirements of CPLR 2104,[i] requiring a written, subscribed agreement, must still be observed.
A recent New York County Supreme Court decision, Rawald v Dormitory Auth. of New York, 70 Misc 3d 1217(A) (Sup Ct. 2021), illustrates, in rather dramatic fashion, how an attempt to quickly reach a settlement before a decision on a dispositive motion had unintended consequences.
In Rawald, while the decision on the Motion for Summary Judgment was pending, the parties reached a settlement only on the amount to be paid and confirmed the settlement amount by e-mail. Plaintiff’s counsel sent an e-mail confirming the amount and stated, “Please send release language and parties to be released,” with his e-mail signature block below. Counsel for the defendant confirmed that they had settled at that amount and that the release language was forthcoming. The next day, the Court’s decision granting the defendants’ motion for summary judgment was entered, and defendant withdrew its offer to settle at the agreed upon amount. Facing the dismissal of the claims, Plaintiff sought to enforce the putative settlement.
In ruling against the Plaintiff, the court noted that, in addition to the settlement amount, “numerous terms beyond the settlement amount alone would be material,” and the e-mails left those terms unresolved.[ii] This included terms such as release language, admissions of liability, lien responsibility, and assent from the Workers’ Compensation carrier. Notably, the lack of any reciprocal obligation by the Plaintiff, or in 1L Contract parlance, “consideration,” eliminated Plaintiff’s chances of enforcing the agreement.
In addition to the lack of substance, the informality in form did not comply with CPLR 2104’s subscription requirement. Ordinarily, in a pre-COVID world, a hard-copy letter would be sent with a signature.
The outcome of Rawald is a cautionary tale to all parties seeking a quick settlement. As firms and attorneys have moved to remote work and to utilizing more electronic communication, e-mail and less formal means of communication have become more prevalent.[iii] “[T]he prevalent informality and brevity of e-mail style and the speed of transmission,” in particular, means that courts must take additional measures to ensure that email-based settlements will be enforced only when it is clear that parties meant to be bound, and on what terms.[iv] E-mail can still serve as a medium for settlement, but there must be some concrete subscription, other than the automatic signature block, to satisfy the requirements of CPLR 2104.
While, in Rawald, the defendant was the beneficiary of the deficiencies in formality, had the court’s decision been to deny defendant’s motion or had there been a motion for summary judgment granted in favor of Plaintiff, the roles could easily have been reversed.
Another COVID-related settlement hurdle is the prompt-payment obligations under CPLR 5003-a.[v] Where parties have been tripped up in the past is compliance with the formality of the “tender” requirements in paragraph (g), which require the plaintiff to “personally deliver or to mail, by registered or certified mail, return receipt requested” the release and stipulation (of discontinuance).[vi] Again, with the trend of relying more on electronic communication, less on postal mail, and a virtual shunning of in-person contact, these requirements resist the COVID move to electronic transmittal and virtual offices.
As the communication trends spawned by the COVID pandemic evolve, the proliferation of new modes of communication continues into the foreseeable future, and the number of trials that are docketed remain low, parties and the courts will be pressured to resolve cases through settlement. Even though the circumstances in Rawald were exaggerated by the COVID situation, what happened there could happen in any case. To make sure that a case is “SETTLED,” and the settlement is enforceable, the parties must make sure they have discussed all material terms of the settlement and comply with the formalities of the CPLR, even when using more informal modes of communication.
As the saying goes: “An ounce of prevention is worth a pound of cure.” Counsel should have a meaningful discussion with their clients and insurers to make sure that all terms, in addition to monetary payment, are considered and included in the settlement negotiations. Before settling on the dollar amount, make sure that everything you’re paying for is in the settlement discussion (e.g., confidentiality often costs extra and must be supported with separate consideration). Finally, draft and circulate a memorandum of the terms of the settlement for the parties to sign or acknowledge by e-mail. Even if the final form of the release language is yet to be negotiated, the substance should be agreed to, and accounted for, in the memo or settlement agreement.
If you’ve got questions about effectuating settlement, or find yourself in a “situation,” give us a call or send us an email. We love “situations,” and we are here to help.
[i] An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered. With respect to stipulations of settlement and notwithstanding the form of the stipulation of settlement, the terms of such stipulation shall be filed by the defendant with the county clerk. CPLR 2104.
[iv] Weldon v 210 E. 73rd Owners Corp., 2007 NY Slip Op 50838[U], at *1 [Sup Ct, NY County, Apr. 19, 2007].
[v] (a) When an action to recover damages has been settled, any settling defendant, except those defendants to whom subdivisions (b) and (c) of this section apply, shall pay all sums due to any settling plaintiff within twenty-one days of tender, by the settling plaintiff to the settling defendant, of a duly executed release and a stipulation discontinuing action executed on behalf of the settling plaintiff.
[vi] Id. at (g).