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Be very careful how you conduct business via email...

Court Enforces Email Settlement

A Massachusetts appellate court has considered the enforceability of a settlement agreement negotiated via email.

Basis Technology Corporation (“Basis�) is a software company. In 1999, Amazon.com, Inc. (“Amazon�), an Internet merchant, sought software and services from Basis in order to create a Japanese e-commerce site. The parties entered into a service contract, and they also entered into a “Series A Preferred Stock Purchase Agreement�, where Amazon purchased stock with certain rights from Basis and also received a seat on Basis’s board of directors.

In 2001, Basis amended its “Articles of Incorporation� and recapitalized the company. Amazon consented to these changes. In 2004, Basis again attempted to recapitalize the company; this time, Amazon did not consent to the recapitalization.

Meanwhile, Basis brought a lawsuit against Amazon in 2003 for Amazon’s alleged nonpayment for certain work. The lawsuit proceeded, and a bench trial began on March 21, 2005. During the evening of March 23d, the counsel for Basis sent Amazon’s attorney a lengthy email outlining the general terms of a settlement agreement that the parties had discussed. While the email did not contain the specific language of the settlement, the email did show that the parties had an agreement on the settlement’s framework.

Upon receiving the settlement email from Basis’s attorney, Amazon’s attorney sent a one-word reply email: “correct�. The next day, the attorneys informed the judge that they had reached a settlement. The judge immediately ended the trial.

Over the following weeks, the parties had a disagreement over the terms of the settlement. Basis filed a motion with the court seeking an order enforcing the terms of the settlement email. The trial court ruled that the settlement email constituted an agreement between the parties on all material terms and was not ambiguous. The trial court did make some minor modifications to the settlement email, but otherwise ruled that the terms of the settlement email should be enforced. Amazon appealed this ruling.

The Appeals Court of Massachusetts, Suffolk, affirmed the trial court. Amazon raised two issues on appeal: first, the settlement email exchange did not create a complete and unambiguous document; and second, Amazon had not intended to be bound by the email’s terms.

The court determined that the terms of the settlement email were not ambiguous. Amazon argued that because the settlement email did not precisely define the terms of the settlement, the settlement was not enforceable. For example, the email stated that “the parties would take all reasonable steps to memorialize [the terms] in a written agreement� and also provided that the parties would exchange mutual releases of all claims with certain language appearing in the releases. The court found that Amazon’s counsel had accepted these general terms in the email, and so there was nothing incomplete or ambiguous about the settlement’s terms; rather, the parties had agreed that they would memoralize the specific details at a later date. Thus, the court affirmed the trial court’s ruling that the terms of the settlement were unambiguous.

Next, the court considered Amazon’s argument that it had not intended to be bound by the settlement email. Amazon argued that Basis later added two new proposals to the settlement agreement, and this demonstrated that both parties had not intended the email to serve as the final form of the settlement. The court found that Basis had never repudiated the original terms of the settlement email, and so it was irrelevant that Basis had later discussed possibly adding two additional terms. The court also agreed with the trial court that many of the arguments being raised by Amazon were simply attempts to escape the terms of its agreement with Basis.

Finally, Amazon’s reporting the settlement to the trial court also bound it to the terms of the settlement email. The reporting of the settlement had caused the trial court to terminate the trial. Because terminating a trial is such a serious step in the litigation process, there is an inference that Amazon had intended to be bound by the terms of the settlement email. Thus, the court affirmed the trial court’s ruling that the parties were bound by the terms of the settlement email.

Basis Tech. Corp. v. Amazon.com, Inc., 878 N.E.2d 952 (Mass. App. Ct. 2008).
 
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