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Settlement Negotiators Beware: Verbal Negotiations May Have Unintended Consequences
Many corporate and litigation counsel know that oral settlement agreements may be enforceable. However, such counsel should be aware that terms discussed as mere possibilities during settlement negotiations may be mistakenly or knowingly misconstrued by an opposing party as an actual settlement agreement or an offer to settle. The former, or acceptance of the latter, could lead to two undesirable results if opposing counsel seeks enforcement by the court. First, the court could require an unwanted lengthy and expensive evidentiary proceeding to determine whether or not such an agreement occurred ' an outcome which would be based solely on the credibility of the witnesses involved. Second, and even worse, the court could enforce an unintended settlement agreement. In fact, if the underlying lawsuit is pending in federal court, such unintended and unwanted results could occur even if the otherwise applicable state law has a writing requirement.
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)
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