July 2, 2010
Delaware Courts Reaffirm Old Axiom: Read the Settlement
In June, Vice Chancellor Strine wrote an opinion in Cambridge North Point LLC v. Boston and Maine Corporation, which reaffirmed what I hope most lawyers still remember: you need to read each draft of your documents.
The gist of the case is that Cambridge and B&M worked together on a high-end real estate deal in Boston. Over time, the "relationship deteriorated" leading Cambridge to sue B&M for breach of contract. The parties settled that dispute, but B&M did not follow through on their obligations and ended up in court again. And, again, they reached a new settlement agreement. B&M breached again and Cambridge sued.
Rather than arguing they did not breach the second agreement, B&M claimed that the agreement was unenforceable and should be rewritten "because B&M was supposedly duped into agreeing to commitments it did not know it was making." B&M argued that Cambridge “quietly” added what the court called "plain language" to the draft settlement that required B&M to pay $3.5 million. B&M argued that the way the clause was added to the contract "led B&M to overlook it, and B&M signed that agreement without noticing the new commitment." Thus, B&M requested the court to re-write the contract to omit the $3.5 million payment.
Vice Chancellor Strine was not impressed:
Because this court’s job is not to refashion contracts into the form that parties with the benefit of hindsight wished they had scrivened, or to reward counsel for their own lack of diligence, I reject B&M’s argument. B&M is a sophisticated commercial party that was represented by lawyers. Those lawyers read the various iterations of the draft settlement agreement, noticed that extensive revisions were made, and proposed revisions of their own. They should have noticed the new $3.5 million provision — especially given that the settlement agreement was only six pages in length, and the opening language of the key paragraph in the agreement clearly signaled the importance of the subject matter that it addressed. Indeed, use of comparison software, which is common within the legal industry, would have immediately revealed the changes Cambridge North Point made to the drafts. Or, B&M and its lawyers could have simply lined up successive drafts and performed a manual review of the drafts’ half-dozen pages. But, the B&M witnesses testified they did none of those things. Nor did they do the most obvious thing: read the entire agreement and outline what B&M’s obligations were under it.
This is a huge error, and it is one that can be rather easily avoided. Not that it happened here, but I hate the idea of someone adding a clause to see if it will be caught by the opposite party. Nonetheless, in these kinds of negotiations, one must be on the look out for such things. Plus, it was SIX PAGES. This is not a two-hundred page settlement in which the clause could have been buried. (Incidentally, even if it is two-hundred pages or more, that "comparison software" Vice Chancellor Strine mentioned is essential.)
Too bad for B&M, but I think I have just found a new negotiation exercise that will help teach law, negotiation, and last, but certainly not least, ethics.
July 2, 2010 | Permalink
This is a good reminder to trust but verify. There are bad people who do bad things (like secretly insert contract clauses) but more commonly, people make mistakes. This is a good example of why an attorney should always take the time to double check the final document and make sure it reflects the entire agreement between the parties. The sad thing is that this mistake was probably missed on two levels: by B&M's inside counsel and by an outside firm.
Posted by: DBW | Jul 3, 2010 12:33:03 PM