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Court Enforces Settlement Agreement Confirmed by Counsel for Both Parties

By Francis G.X. Pileggi

Wilt v. Kenyon, No. 4833-VCN (Del. Ch., Dec. 22, 2009), read letter decision here

This short letter decision from the Delaware Court of Chancery addresses whether counsel for the parties reached a binding settlement agreement.

Overview

The background of this case involves a two-member LLC. One of the members filed an action seeking appointment of a receiver to oversee the dissolution and liquidation of the LLC. Although the parties agreed to the appointment of a receiver, in principle, in November 2009, there were difficulties encountered in the precise terms for the form of order. One of the issues was whether the receiver would be able or authorized to sell the business as a going concern. During a subsequent teleconference with the Court, counsel for the parties informed the Court that there was only one remaining issue. Shortly after the conference with the Court, counsel for Kenyon informed counsel for Wilt that they would relent and accept Wilt's position on the one remaining issue--thus resulting in a full and complete agreement as to the settlement.

Thereafter, however, counsel for Wilt informed counsel for Kenyon that they would insist on a prior form of order. Thereafter, the Court instructed the parties to set forth their views on whether or not an agreement on the settlement had been reached, and this letter decision resolved that issue.

Summary of Short Letter Ruling

The Court referred to a 1956 decision from the Court of Chancery for the position that:

'Attorneys of record in a pending action, such as Wilt's attorney and Kenyon's attorney, who agree to a compromise of a case are presumed to have lawful authority to make such an agreement. Accordingly, when opposing attorneys orally agree to compromise and settle a lawsuit, a binding contract may be created.' See footnotes 2 and 3.

The Court determined that when Kenyon's counsel notified Wilt's counsel that his client had agreed to relent on the only remaining open issue regarding the power of the receiver to sell the business as an operating entity, all issues at that point were resolved and a binding Settlement Agreement had been reached. Thus, the Court required the parties to submit a final form of order implementing this letter decision and that the form of order should also include the 'final text of the Settlement Agreement.'

POSTSCRIPT: For other recent decisions of the Court of Chancery addressing the enforceability of settlement agreements reached by or with counsel, see cases highlighted on this blog here. The Fox. v. Paine case at the foregoing link in particular should be noted by those often engaged in business litigation, as it recognizes that in Delaware extrinsic evidence can be admissible even to interpret unambiguous contracts in two instances: (i) to review undisputed facts to put the agreement in context; and (ii) to confirm the Court's conclusion that there is no ambiguity in the agreement.

Full post as published by Delaware Corporate and Commercial Litigation Blog on January 09, 2010 (boomark / email).