Be Sure You're Sure Before Settling

Sometimes, settling a lawsuit can involve making assumptions or agreements you might later regret. While living with a less than perfect agreement is a necessary part of resolving litigation, careful drafting can preserve your ability to make minor course corrections that may not affect the ultimate agreement.

The need for preserving flexibility is amply demonstrated in the 2013 case Glen Electric Holdings v. Coolant Chillers, Inc., Case No. 1:10-cv-1109 (W.D. Mich. May 31, 2013). In this case, the plaintiffs sued the defendants for trademark infringement based on the latter’s use of the name “Coolant Chillers,” which too closely mirrored the plaintiffs' trademarked name "KK Koolant Koolers." The parties mediated their dispute and reached agreement on the materials terms of a settlement, which the defendants’ attorney reduced to writing in an email sent the morning after the mediation ended. Among the provisions agreed to and included in the email were the defendants’ promises to change the name of their company from Coolant Chillers, Inc. to “U.S. Cooling Chillers, Inc.” and pay $105,000 to the plaintiffs. The plaintiffs also agreed that defendants could use a different name if the new name proved unavailable, but this language was not included in the email from the defendants’ attorney. After the plaintiffs’ attorney acknowledged that his client agreed to the terms expressed in the email, the defendants’ attorney prepared and sent a more formal settlement agreement that also did not contain any language concerning the name change.

On the same day that the defendants’ attorney sent the settlement agreement to the plaintiffs’ attorney, Coolant Chiller’s president contacted the plaintiffs’ representative and asked if the plaintiff would agree that the name of the new company could be “Fluid Chillers, Incorporated.” The defendants’ representative made this request because there were too many companies with names similar to U.S. Cooling Chillers, Inc. He also asked if the plaintiffs would accept a lump sum payment of $40,000 instead of the $105,000 because the new chosen name did not use the word “cooling.” During the mediation, plaintiffs had agreed to an alternative payment in such a situation, but that option was not included in either the email or the settlement agreement draft. The plaintiffs agreed to the name change, but refused to accept the lower payment, contending that a meeting of the minds had been reached on the material terms.

After the defendants refused to proceed with the settlement, the plaintiffs brought a motion to enforce the parties’ agreement. The magistrate judge deciding the motion agreed with plaintiffs and found that an enforceable and binding agreement existed once the plaintiffs’ attorney had agreed to the terms laid out in the email the defendants' attorney sent. The magistrate also concluded that the facts did not support the defendants’ position that an alternate payment scenario existed because, even though one had been discussed during the mediation, it was not accepted and not reduced to writing.

The moral of Glen Electric Holdings is simple: if you’re not certain you can live with the terms of the agreement, try to include options that will protect you should you want to later change your mind. Here, the defendants decided after the fact that they did not want to use the word “cooling” in their new company name but left the alternative payment in the mediation room and out of the agreement. Careful planning and communication with their attorney could have saved the defendants $65,000.

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