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Party Bound By Settlement Agreement's Terms Despite Failing to Sign It

The Sixth Circuit Court of Appeals recently held that a party can be bound to a mutual release of claims in a settlement agreement despite failing to sign it. In Baker Hughes, Inc. v. S&S Chemical LLC, et al., case no. 15-2413 (6th Cir. September 2, 2016), a former employee sued his employer in Oklahoma, alleging he did not receive his full compensation. The employer sent the employee a draft settlement agreement proposing to resolve the case. The draft agreement indicated that the employer would pay the employee $10,000 in exchange for a mutual release of claims. The employee signed the settlement agreement, but the employer never did. The employer later filed suit against the former employee in Michigan and alleged that the employee was using the employer's trade secrets in his new business. The employer argued that, at the very least, a genuine issue of material fact existed regarding whether the mutual release of claims in the settlement agreement applied because the employer never signed the draft. The Sixth Circuit Court of Appeals disagreed, affirming the trial court's decision that the release was enforceable against the employer. "[T]he transmission of the Settlement to [the employee] constituted an offer . . . ." The offer was accepted when the former employee "signed the draft of the Settlement" and "communicated his acceptance to [the employer]" when the signed draft was faxed to the employer's counsel. The Court noted that "nothing in the record suggests that [the employer's] offer was expressly conditioned upon [the employer] later signing the Settlement." The case is a strong reminder to clients and attorneys alike to be cautious when exchanging multiple drafts of settlement agreements. A party may be bound by a draft's terms regardless of whether the draft has been signed. If a party's attorney is transmitting a draft settlement agreement but does not yet have his or her client's approval regarding specific language, the attorney should expressly state that the settlement is conditioned on the client's signature.

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