July 30, 2018
For a vast number of professionals, email has become the preferred method for communicating and conducting business. However, many of those people who would choose to fire off a quick email over picking up a phone may not be aware that a casual email can transform into a binding, enforceable contract. Such was the case for the parties in Shinhan Bank v. Lehman Brothers Holdings Inc. (In re Lehman Brothers Holdings Inc.), Case No. 17-2700, 2018 WL 3469004 (2d Cir. July 18, 2018) in which the Second Circuit held that an exchange of emails with a mediator constituted a binding agreement.
Lehman Brothers Holdings Inc., the chapter 11 bankruptcy plan administrator for Lehman Brothers Special Financing Inc., filed an adversary proceeding to “claw back” certain transfers to hundreds of noteholder defendants, including Shinhan Bank. While the defendants’ motion to dismiss was pending before the bankruptcy court, Lehman and Shinhan entered into mediation to settle the amount that Shinhan would pay. After an email from Shinhan indicating the parties agreed to the terms of the settlement, the mediator responded with an email confirming that they had accepted his proposal and agreed on the amount of a payment in settlement of Lehman’s claim against Shinhan.
Subsequently, Shinhan requested certain changes to the settlement agreement to which Lehman consented. Shinhan sent Lehman an email indicating its client would sign the written agreement as revised between the parties. Approximately four hours after that email was sent, the bankruptcy court issued its order dismissing Lehman’s claims against Shinhan and the other defendants with prejudice. Shinhan subsequently advised Lehman that it did not believe an enforceable agreement had been entered into and that it would not pay the settlement amount. Lehman filed a motion to enforce the settlement agreement, which was granted by the bankruptcy court and affirmed by the district court on appeal.
In a per curiam opinion, the Second Circuit applied the following four factors enumerated in Winston v. Mediafare Entertainment Corp., 777 F.2d 78 (2d Cir. 1985) to determine whether the parties intended to be bound in the absence of a writing: “(1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.” Id. at 129.
The Second Circuit found the first factor satisfied because Shinhan did not expressly reserve the right not to be bound in the absence of a writing. Second, there was no partial performance of the agreement, so the second factor weighed against finding an agreement. Third, because Shinhan reneged on the agreement only after the bankruptcy judge dismissed the adversary proceeding, the Second Circuit concluded that signing the agreement was the only outstanding matter. Lastly, Lehman admitted that no settlements had been reached in the case without a written agreement, thus weighing in favor of Shinhan.
Taking the four Winston factors into consideration, the Second Circuit determined that the balance tipped in favor of finding an intention to be bound and held that the settlement agreement was enforceable. Although the decision does not have precedential effect, it should nevertheless be a lesson that under the right circumstances, an otherwise casual email could be interpreted as a binding, enforceable contract.
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