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Six shattered settlement suits summarized

“Discourage litigation … [and] compromise whenever you can.”

Abraham Lincoln, Notes for a Law Lecture (1850)

Settlements of legal disputes are “favored in the law,” as the Minnesota Supreme Court has often declared.E.g. Eggleson v. Keller Drug, 265 Minn. 78, 120 N.W.2d 305 (1963).

But compromises to conclude contentiousness can cause some disagreements and lead to litigation. A sextet of those lawsuits this summer were addressed by state and federal appellate courts in Minnesota, three by the Minnesota Court of Appeals and a trio by its federal counterpart, the 8th U.S. Circuit Court of Appeals.

Here is a summary of those half-dozen shattered settlements.

Government grapples

A couple of the cases involved grapples with government entities.

A dispute over who is responsible for certain improvements and related expenses for segments of Highway 14 in southeastern Minnesota led to a settlement agreement that spawned a lawsuit unsuccessfully challenging the deal in Waseca County v. Minnesota Department of Transportation, 2016 Minn. App. LEXIS 632 (Minn. App. June 27, 2016)(unpublished).

Waseca and Steele Counties entered into an agreement with the Minnesota Department of Transportation to settle a pair of lawsuits over repairs of existing shoulders of a road that transverse the counties, stating that the work would comply with MnDOT technical standards. The counties claimed that required paving the shoulders, while MnDOT insisted on using less expensive aggregate consisting of a mixture of sand and stone.

The Steele County District Court in Owatonna agreed with the state, and so did the appellate court. The settlement agreement refers to “aggregate [for] the existing shoulder” and the attached diagrams refer to that material. While state guidelines reference paved shoulders, the MnDOT technical memoranda incorporated in the settlement agreement do not require “rigid adherence” to the guidelines.

Because one provision of the settlement agreement “clearly and unambiguously” provided for “aggregate,” it trumped another more general clause referring to the MnDOT’s technical standards. The clarity of the agreement precludes any effort to “rewrite, modify, or limit its effect by a strained [contractual] consideration,” the court said.

A state employee was barred from seeking re-employment with the state as a result of a settlement agreement in Hunt v. State of Minnesota, 2016 Minn. App. LEXIS 646 (Minn. App. Jul. 5, 2016)(unpublished). The employee, a union member, who worked for the Department of Human Services, settled her discharge claim with a resignation letter and cleansing of the termination from her personnel file. She sued the state, then entered into a settlement agreement reciting a “total and complete resolution,” and her union later signed another agreement on her behalf stating that she would not seek future employment with the state for 10 years.

After being turned down for about a dozen positions with the state, she sued for breach of contract under the first agreement. She also asserted a claim against her union for violating her rights in the second one, which the parties agreed to be dismissed.

The Ramsey County District Court threw out the remainder of the lawsuit, and the Court of Appeals affirmed. The initial agreement was “clear and unambiguous” and nothing in it obligated the state to accept or consider her for future employment, irrespective of the 10-year ban in the second agreement.

A claim of an oral assurance that she could reapply for work with the state was barred by the parole evidence rule. Because the agreement contained an integration clause stating it was final and complete, oral evidence could not be used to vary or alter the written agreement.

Attorney’s authority

Another dispute involving the authority of an attorney to a settlement agreement over repayment of a loan resulted in the agreement being upheld and enforced in Sluck v. Rapacz, 2016 Minn. App. LEXIS 747 (Minn. App. Aug. 1, 2016)(unpublished). The creditor’s attorney told the debtor’s counsel that his client accepted a prepared written repayment plan of what began as a $250,000 debt, comprising two loans and emailed the court when a lawsuit was pending that this case has settled.

The creditor later challenged the deal, claiming that she misunderstood the proposed terms and asserted mistake and lack of authority by her attorney. The Hennepin County District Court rejected those contentions, as did the Court of Appeals in upholding the settlement agreement.

The terms were sufficiently definite to create a binding contract. Moreover, the attorney had authority which was expressed through conduct. The agreement was memorialized in written from, was conveyed by the lawyer to the client, and the lawyer indicated to opposing counsel and the court that the lawsuit over the debt was settled.

These features all were properly taken into account by the trial judge in enforcing the agreement. There was no abuse of discretion in doing so, despite the creditor’s dissatisfaction with the terms of the deal.

Recession ruling

In contrast to Sluck, a signatory to a settlement agreement with her former business colleague was entitled to rescind and recover for conversion in Mogren v. Johnson, 2016 Minn. App. LEXIS 684 (Minn. App. July 18, 2015)(unpublished). The case concerned technology for an innovative hands-free shoe lacing device, designed for people unable to tie their shoes. But after signing a settlement agreement to resolve a business dispute, one of the signatories asked to “rescind (it) and rip it up” because it could impact his pending divorce proceeding, and subsequent documentation reflected that arrangement.

While questioning the credibility of both parties, the Washington County District Court held that the deal was rescinded and ruled that the other signatory was entitled to $50,000 for conversion of assets. The Minnesota Court of Appeals affirmed, holding that there was clear and convincing evidence of mutual rescission. Because the recession was supported by the evidence, the lower court ruling was not clearly erroneous and must be upheld.

The conversion ruling also was affirmed, as was a ruling denying indemnification of attorney’s fees to the prevailing party.

Federal fights

Three more fights over shattered settlements were addressed by the federal court system.

A battle over a settlement in a bankruptcy proceeding led the 8th Circuit to uphold of dismissal of a legal malpractice claim in Schaefer v. Putnam, 827 F.3d 766 (8th Cir. July 1, 2016). A married couple in Iowa sued their former attorney for pre-bankruptcy advice he gave them to transfer various real estate prior to filing a bankruptcy. The advice turned out to be defective, the transfers were voided in the bankruptcy, and the couple entered into an unfavorable settlement with their creditors.

They sued for malpractice, claiming the advice to enter the settlement agreement was improper. The diversity case in federal court was dismissed by the trial judge, and the 8th Circuit affirmed. The basis for the affirmance was res judicata due to a prior suit the couple brought in Iowa state court for malpractice on related issues. Because they could have asserted their claim but failed to do so in the state court case, they could not pursue it later in federal court.

The doctrine of claim preclusion applied because there were identical parties in the two cases, the bankruptcy claim could have been adjudicated previously and there was a final judgment on the merits.

An agreement contained in a collective bargaining agreement regarding pay raises for employees was addressed in Finley Hospital v. NLRB, 827 F.3d 720 (8th Cir. June 27, 2016). The fracas concerned a clause in an expired labor contract between a hospital and nurses calling for annual increases in pay for nurses on their anniversary of employment date. The National Labor Relations Board (NLRB) ruled that the hospital had a duty to pay the raises after the contract expired until an interim settlement or new labor contract was entered.

The 8th Circuit reversed, holding that the language of the labor contract did not provide for compounded annual raises after expectations of only a specific pay increase on a particular day during the one year contract.

An agreement signed after a reduction of a gaming dispute in Iowa was subject to further litigation inClarke County Development Corp. v. Affinity Gaming, LLC, 826 F.3d 1090 (8th Cir. June 24, 2016). The dispute was between a nonprofit organization conducting lawful gambling and a management company it hired to assist it. They entered into a memorandum of understanding at a mediation session arising out of parallel federal and state court ligation, subject to a comprehensive settlement agreement to be approved by various bodies and boards.

A dispute developed over the draft of the final agreement, and the federal district court in Iowa said there was no binding contract and the management company’s board directors did not agree to the arrangement. The case was reversed by the 8th Circuit. Because this case could not be resolved as a matter of law, it was remanded to determine whether the parties intended the mediation agreement to be a binding agreement despite the absence of board approval.

While settlements are viewed favorably in the law — and by most lawyers — they often pose problems as dispute resolution mechanisms. But these cases show settlement can sometimes trigger, rather than terminate, legal disputes.


Ground for vacating a mediated settlement agreement

  • Evident partiality;
  • Corruption; or
  • Prejudicial misconduct by mediator.

As published in Minnesota Lawyer.