Be Careful What You Email – You Could Be Entering Into a Settlement Agreement!

Every commercial litigator is aware of the warning “be careful what you put in writing.”  In fact, this expression is played out daily in communicating with clients and opposing counsel.  Yet, certain legal ramifications of email communications are often overlooked.  In a recent decision, Justice Andrea Masley of the Manhattan Commercial Division reminds us that a few swift clicks of the keyboard can turn a mere email exchange into a valid and binding settlement agreement (DT Net Lease I Reit v Coughlan).

Background

The Coughlan case arises out of DT Net Lease I REIT’s (“Plaintiff”) action to enforce a completion guaranty executed by defendants James L. Coughlan, Robert J. Coughlan, Frank Castagna, and Rita Castagna (collectively, “Defendants”) in connection with the development of a new built-to-suit office building.  While waiting for a decision on Defendants’ motion to dismiss, in or around December 2021, the parties began to negotiate a settlement agreement.

On or about January 6, 2022, Plaintiff’s counsel emailed Defendants’ counsel that Plaintiff, “wants to wrap things up” and would settle provided the parties had an agreement in principle by January 7, and a settlement documented by January 11.  However, Defendants did not confirm to the settlement by January 7.  On or about January 14, the parties reached an agreement with respect to the settlement amount, and Plaintiff’s counsel indicated that she would begin drafting a settlement agreement (the “Settlement Agreement”).  Over the next several days, the parties exchanged comments and revisions to the Settlement Agreement.

On January 19, Defendants’ counsel emailed a redline of proposed changes to the Settlement Agreement, including a proposed term of 60 days to pay the settlement amount.  Following negotiations between the parties, Plaintiff’s counsel emailed Defendants’ counsel that “subject to confirmation on the 45 days, this should be the final draft.”  On January 25, Defendants’ counsel responded by stating that “the 45 days is acceptable and this agreement can be executed…This is not a substantive issue, but a timing issue in terms of syncing up all of the signatures.”

Over the next several weeks, the parties informed the Court that they were hopeful to finalize the Settlement Agreement and were just awaiting signatures and the execution of releases.  Despite these hopeful remarks, on February 14, Plaintiff’s counsel reneged on the Settlement Agreement on the basis that it was not concluded timely.

As a result, on March 4, Defendants’ filed a motion pursuant to CPLR 2104 to enforce the Settlement Agreement.  In opposition, Plaintiff argued that the Settlement Agreement should not be enforced because (i) the Agreement was not signed and was in violation of CPLR 2104, and (ii) Plaintiff did not intend to be bound to a settlement until the Agreement was signed by both parties.  Justice Masley rejected both arguments.

Analysis

First, the Court rejected Plaintiff’s argument that the unsigned Settlement Agreement was in violation of the writing requirement under CPLR 2104.  The Court explained that the combination of the emails and the Agreement satisfied CPLR 2104.  Specifically, the Court noted that these documents contained both the entire agreement and counsels’ signatures.  Further, the Court highlighted that the execution of releases was inconsequential as to whether the parties had an enforceable settlement.

Second, the Court rejected Plaintiff’s argument that Plaintiff did not intend to be bound by the Settlement Agreement until both parties signed.  In its review, the Court noted that there was no evidence that there was an express indication by Plaintiff to be bound only upon the execution of the Agreement.  In addition, the Court found that there was neither (i) a deadline contained in the Agreement, nor (ii) any exchanges between the parties that “time is of the essence.”

Upshot

The Coughlan decision reminds us that attorneys must proceed with caution when negotiating settlement agreements via email.  Further, because New York courts favor settlements, it would be wise for attorneys to include disclaimer language in any settlement exchanges with opposing counsel.  An ounce of preventive language in a settlement exchange is worth a pound of cure.