Backing Out of Settlement Agreements | New Maryland Case

Last week, the Maryland Court of Appeals decided Falls Garden Condominium Association v. Falls Homeowner’s Association.  It is not a personal injury case. In fact, it’s a case about parking spots. But Falls Garden is actually alawyers2 case about settlement contracts and their enforceability.  If you are a Maryland personal injury lawyer, you need to know when a deal is actually a binding deal.

Typically, counsel on both sides of the aisle assume that you have a binding deal when you agree to the numbers on the claim.  Most settlements really do go smooth, particularly in car accident cases.  State Farm, GEICO and their brethren do not really care about confidentially, admissions, or anything else outside of its standard form settlement agreement.   But malpractice insurers and their doctors and hospitals and product liability defendants often treat settlement agreements like they are reinventing the wheel.

Keep in mind that, as plaintiffs’ attorneys, we never really have those types of things we are trying to slip in under the wire for a settlement.  Our essential term is money and we are not trying to get the defendants to agree to other terms in personal injury cases.

So what this new Maryland Court of Appeals ruling is about is to what extent defendants can impose conditions after settlement and say, “If you don’t like it, we don’t have a deal.”

What This Case is Really About

This case happened because a condo association and a homeowner’s association were feuding over parking spots.  This is because it is a scientific fact that 93.4% of the people involved in condo and homeowner’s associations are stone nuts.  But, after having to resort to litigation, the parties were able to come to a deal on the key issue of the parking spots. They put together a letter of intent memorizing the deal.  The agreement was silent on whether the agreement was intended to be binding.  But the Plaintiff has a change of heart, fires its lawyer and gets another one to try to nix the settlement agreement.  Why?  I don’t know. But remember what I said about these people a minute ago.  Ultimately, both the trial court and Court of Appeals said that the letter of intent was binding on the parties and encompassed the settlement.

The Court’s Logic

Judge Battaglia’s opinion read like a Contracts I Maryland law school exam, explaining the doctrines of “mutual assent,” “materiality,” and the “objective theory of contracts.” But legalease aside, the main question she was tasked with answering was whether both the condo association and homeowner’s association intended to be bound to the letter of intent. She explained two scenarios in which parties would be bound to the letter:

  1. When parties agree on all “essential” terms, only leaving out relevant matters that are not “essential”
  2. When the parties lay every term out on the table and specifically say that they agree to them

She quickly crossed option two off the list, noting that the parties did not explicitly say that they intended the letter of intent to be the final deal. But she did find that, prior to the letter of intent, the parties agreed on the “essential” or “material” terms of the deal, and the letter of intent merely included those terms. The court’s analysis hinged on the terms “essential” and “material.”

Think about this to help: view the contract (letter of intent) as a car. Think of the parking spot lease agreement as the engine: it’s essential to making the car run, it’s the purpose of having a car. Think of the other terms at issue as the spare tire under the trunk: yeah it helps to have it, but it’s not necessary to make the car run.  Here, the engine (lease agreement) was in the car (letter of intent), along with the other essential terms, so it was ready to go, and was binding on the parties.

So how exactly could this tie back into a personal injury settlement?

In a personal injury settlement, there is really one main term that is “essential” and “material:” defendants pay money so that plaintiffs will drop claims.  So going back to our scenario above, let’s say you agree via telephone to accept $500,00 in exchange for dropping the claim.  I don’t think it matters if it is before or after suit is filed.  The defense lawyer does not discuss any other term with you when you make the settlement. But you then get the email attachment with their additional terms.  What are those terms?  Usually it is a confidentially provision that was not asked for in the oral agreement or maybe some language demanding Medicare or other indemnification.

Under this case, the question becomes whether they are material and essential terms of the deal.  I would argue no.  But unless a case comes out that is truly on point, I think you have to be careful. This means you don’t stand down by releasing  your experts, the witnesses you have under subpoena and everything else you need to go to trial until you have an agreement firmly in place.

For contract lawyers and especially for students getting ready to sit for the Maryland bar exam, this case is also a great read.  You can find the opinion in Falls Garden Condominium Association v. Falls Homeowner’s Association  here.

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