The Case Settled
March 29, 2022
Courts greatly appreciate when parties settle their disputes by agreement. Settlements alleviate the courts of the burden of overwhelming caseloads, and further the public policy of encouraging parties to order their affairs by contract rather than relying on statute and common law. As the Surrogate’s Court recently reiterated in Matter of Eckert, “stipulations of settlement are judicially favored, will not lightly be set aside, and are to be enforced with rigor and without a searching examination into their substance as long as they are clear, final and the product of mutual accord.”
Settling an estate litigation is especially difficult. With estate litigation, parties often find it difficult to reconcile their personal view of what is right and just with the constraints of the law and our imperfect justice system. As this experiment tends to show, it can be hard to take. Nevertheless, settlements often save litigants from the risk and cost of continuing litigation.
What makes a binding settlement? As explained and examined in detail by my colleague, a settlement requires that the parties make an expression of mutual assent on all material terms, and it cannot be conditioned on further events. A classic example of an agreement conditioned on further events is the unenforceable “agreement to agree.” Further, under New York’s Civil Practice Laws and Rules (applicable in the Surrogate’s Court), a settlement “must be in writing and subscribed by the party or the party’s attorney against whom enforcement is sought.” Parties and counsel should understand that the courts so favor settlement that they will find an enforceable settlement agreement among written exchanges that may not have been intended to serve as a settlement agreement. Matter of Eckert illustrates this point.
Eckert involved a fight between the decedent’s surviving spouse and his daughter. Decedent died without a will, and his daughter and surviving spouse filed competing petitions for letters of administration. Decedent’s daughter challenged the validity of the decedent and his surviving spouse’s marriage. Decedent’s surviving spouse alleged that his daughter converted proceeds of certain retirement accounts. With several proceedings and the promise of bitter litigation, the Surrogate referred the parties for alternative dispute resolution, and the parties mediated their dispute shortly thereafter. The mediation produced a verbal agreement, and the surviving spouse’s counsel e-mailed the daughter’s counsel the next day as follows:
Pursuant to the settlement reached, we will incorporate the following terms:
1) $515,000.00 payment within 20 days of fully signed agreement/stipulations of discontinuance being provided. Payment to be made by certified check made payable to [daughter] and delivered to [counsel];
2) Stipulation of discontinuance with prejudice as to petitions in Surrogate’s Court;
3) Stipulation of discontinuance with prejudice as to Sup. Ct. action;
4) Non-disparagement provision;
5) Confidentiality provision;
6) Mutual general releases;
7) Affirmation that [daughter] and [surviving spouse] have or will destroy any medical records in their possession.
If there is anything I missed, please let me know. Also, as we discussed yesterday, to the extent we need to be flexible on payment dates to minimize tax implications, we are willing to work in good faith to ensure that tax treatment is minimized by timing.
(emphasis added).
The daughter’s counsel replied as follows:
Leave the timing of payment open until we have more information. There should also be an indemnification for [the daughter] and, in addition to destroying records in her possession, a representation that [the surviving spouse] has not provided copies of medical records to any other person. We will provide any other comments we may have when we review the draft agreement.
(emphasis added)
The daughter’s counsel sent a draft written settlement agreement for the surviving spouse’s counsel’s review a few days later. After about a month, the surviving spouse’s counsel replied they had researched the tax implications of the settlement. Counsel advised that they had concluded that the settlement would impose “enormous” tax liability on the surviving spouse regardless of the timing of settlement payments, and that as a result the settlement could not be consummated.
The Surrogate’s Court however, enforced the e-mails as a binding settlement. It rejected the surviving spouse’s contention that the settlement was conditioned on confirming its tax implications. According to the court, “if the [surviving spouse] wished to make the settlement contingent upon a review of her tax consequences, it was incumbent on her and/or her counsel to make the term material by explicitly communicating to [the daughter] and/or her counsel that such review was a prerequisite to her full assent to this agreement. These are not casual email communications. A party is entitled to rely upon the communications made by opposing counsel on behalf of the other party with respect to settlement, whatever the mode of communication.”
The lesson here might be for lawyers. The courts might scrutinize and construe an e-mail intended to confirm a conditional commitment as an enforceable agreement. Even in e-mails meant to further open and fruitful settlement discussions, precision is key. Further, a statement reserving all rights when communicating and negotiating with counterparts might be warranted, even if such a statement makes all of the “noises” that one might expect from a lawyer.