Wednesday, February 25, 2015

Court of Appeals of Maryland Bolsters Enforceability of Settlement Agreements

Falls Garden Condominium Ass’n, Inc. v. Falls Homeowners Ass’n, Inc.,
437 Md. 422, 86 A.3d 1274 (2014).

The Court of Appeals of Maryland recently added further support for the enforceability of settlement agreements prior to trial. While the underlying facts did not involve personal injury (the case actually involved a dispute over parking spots), the Court’s decision has a profound impact on the amount of leeway that defense attorneys have to impose additional conditions after the initial settlement.

Without going into too much detail regarding the facts, the underlying case involved a feud of “Hatfields and McCoys” proportions over parking spots situated between a condo association and a homeowner’s association in Baltimore County, Maryland. During the course of the litigation, the parties were able to come to a resolution and they drafted a letter of intent memorializing the terms after numerous e-mail correspondence regarding the settlement. Despite the length of the negotiation and drafting process for the letter of intent, there was no language in the letter of intent addressing the binding nature of the agreement. As happens all too often, problems arose following the execution of the letter of intent, and the homeowner’s association was forced to file a Motion to Enforce Settlement Agreement to implement the terms of the letter of intent.

At the subsequent hearing on the homeowners association’s motion, counsel for the condominium association argued that the association’s understanding was that there was not an enforceable agreement until every term was negotiated and a document was signed and executed by both parties. The trial court disagreed and granted the motion to enforce and entered an order directing the homeowners association to prepare a settlement agreement consistent with the terms of the letter of intent. The condominium association filed an interlocutory appeal, and the Court of Special Appeals affirmed. Falls Garden Condominium Ass’n, Inc. v. Falls Homeowners Ass’n, Inc., 215 Md. App. 115, 79 A.3d 950 (2013). The condominium association then filed the present appeal.

The Court of Appeals of Maryland, in an opinion written by the Hon. Lynne A. Battaglia, affirmed the intermediate appellate court’s ruling. Following a lengthy treatise on contract law, the Court addressed the question of whether the parties intended to be bound by the letter of intent. The Court outlined two scenarios in which Maryland law dictated that the parties were bound by the letter: (1) when, after a review of the facts, it is apparent that the parties agree on all “essential” terms, omitting only those terms that can be deemed “non-essential;” or (2) when the parties explicitly address every term and explicitly agree to such terms. While the Court found that option two did not apply, it found that the underlying facts mandated the conclusion that the letter of intent memorialized all “essential” or “material” terms of the deal.

Typically, in personal injury settlements, an agreement is made over the phone for the “essential” terms of the deal; namely, an agreed upon settlement amount will be provided in exchange for the release of all claims. Savvy counsel will then memorialize the terms in an e-mail or letter, and follow up with a release that contains standard Medicare and/or other indemnification language. Under the Court’s ruling, any additional provisions in the release are seemingly deemed “non-essential,” making the oral agreement over the phone enforceable. In an effort to avoid a lengthy dispute when a settlement goes awry, it may be prudent to outline the standard provisions of your release in your letter and/or e-mail memorializing your oral agreement. It is especially important when a more unusual provision is included in your release and was not discussed at settlement, such as a confidentiality provision. RSRM has successfully argued multiple motions to enforce settlement agreements in the past and continues to be your go-to source for future enforcement of such agreements. 

Contributed by Catherine A.B. Simanski

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