Enforceability of Settlement Agreements

By: Scott P. Fisher

Settlement agreements are most often negotiated between counsel for the respective parties.  Generally, the two (or more) opposing counsel receive instructions from their clients but communicate the back and forth offers of settlement amongst themselves only to later relate those discussions to their clients and obtain further instruction and authority.  Eventually, the counsel will agree to a settlement, most often, but not always, in writing.  This raises the question of whether a settlement agreement reached between counsel is enforceable when the actual party to the settlement has not “signed on the dotted line.” 

The answer is yes.  Indiana courts have consistently held that settlement agreements are strongly favored by judicial policy and that if a party agrees to settle a pending action but later refuses to consummate a written settlement agreement, the opposing party may seek enforcement from the court in which the action is pending.  An essential part of this analysis is the question of whether the parties to the alleged agreement achieved a “meeting of the minds” as required by traditional contract law analysis.  As in, was there an offer, an acceptance and did they agree on all the essential terms.  If so, then even if the parties can’t agree on the terms of a written settlement agreement, there is still an enforceable agreement.

Take for example, the case of Zimmerman v. McColley.  In Zimmerman, Opal and Edward McColley authorized their non-attorney granddaughter to negotiate with Auto-Owners Insurance Company on their behalf to settle their personal injury claims arising from an automobile accident.   During the pre-suit period, the granddaughter communicated via telephone multiple times with the claims adjuster, and their communications culminated in a conversation wherein the claims adjuster asked the granddaughter whether the claim could be settled for $115,000.  After speaking with the McColleys, the granddaughter agreed that they would accept that amount and inquired about signing releases and obtaining a check.  At that point, but not before then, the claims adjuster indicated the settlement would be paid through a structured settlement.  Once the claims adjuster explained the operation of a structured settlement to the granddaughter, the granddaughter indicated that her grandparents would not agree to that arrangement. The McColleys then filed suit and filed a petition to enforce the settlement agreement.

Both the trial court and the Court of Appeals concluded that the parties had entered into an enforceable oral contract for a lump-sum settlement of $115,000. In its affirmation of the trial court’s decision, the Court of Appeals examined whether the parties reached the “meeting of the minds” required for an enforceable contract, noting that the parties’ intent should be evaluated by outward expressions of their conduct rather than “hidden intentions.” The Court reasoned that the parties’ outward expressions indicated the parties reached an enforceable oral agreement—the claims adjuster asked whether the McColleys would be willing to settle for $115,000, and after speaking with her grandparents, the granddaughter responded they would.  It was at that moment that the parties reached an enforceable oral agreement.

Much like the Zimmerman case, in Sands v. Helen HCI, LLC, the parties engaged in a back-and-forth exchange with one another.  The parties exchanged multiple emails with one another regarding dismissal of one lawsuit as a pre-condition to settling another.  Several days after one of the parties responded with an email that said “Deal.  Jeremy [Johnson] will work with you to get (sic) and the other counsel to get papers done,” the opposing counsel, who had earlier stated “when we get this agreement finalized, I believe it will be a simple matter of substitution to get the Sands-Helen HCI agreement done,” responded by stating that there was no longer an agreement because the proposed settlement documents were not “acceptable.”

Sands filed a Motion to Enforce a Settlement Agreement, arguing that the email exchange constituted an agreement on all material terms, while Helen HCI characterized the email exchange as an “agreement to agree.” The trial court denied Sands’ motion. On appeal, after determining that neither party alleged that counsel lacked authority to bind his client, the Court of Appeals discerned the parties’ intent by examining the parties’ email communications. The court determined that once Sands’ counsel responded “Deal” and indicated that documents would be drafted, the parties’ settlement agreement became a binding contract and that the written documents were to be a memorialization of that contract.  Regardless of whether the terms of a written settlement agreement could be agreed upon, the parties had an enforceable settlement agreement.