Settlement Negotiators Beware: Verbal Negotiations May Have Unintended Consequences

Based on a policy favoring the settlement of lawsuits and the avoidance of costly and time-consuming litigation, many courts have held that a trial court may enforce an oral settlement agreement. See, eg, Kukla v. National Distillers Products Co., 483 F.2d 619, 621 (6th Cir. 1973); Taylor v. Gordon Flesch Co., 793 F.2d 858, 862 (7th Cir. 1986). This may be true even if the parties contemplate that a written agreement embodying the terms agreed to will later be prepared and executed. See, eg, Matter of Estate of McCormick, 926 P.2d 360, 363 (Wyo. 1996)

However, the operative word is 'agreement.' What happens if the alleged oral agreement is disputed? Or what happens if the alleged oral settlement agreement is based on an acceptance of terms discussed merely as possibilities during settlement negotiations? Some states require that settlement agreements be in writing or at least be evidenced by a signed document. See, eg, Michigan Mut. Ins. Co. v. Indiana Ins. Co., 637 N.W.2d 232, 234-235 (Mich. App. 2001)(citing Michigan Court Rule 2.507(H)). In some such states, until the writing requirement is met, a party may disavow an otherwise undisputed oral settlement agreement. See, eg, Gojcaj v. Moser, 366 N.W.2d 54, 59 (Mich. App. 1985)