Settlement agreements often start to come apart at the seams during negotiations, so it helps for attorneys who handle such negotiations to know when the agreement will be binding and when it will not.
Yesterday, the Court issued an opinion in Astellas Pharma Inc. v. MSN Pharma. Inc., C.A. No. 23-689-JFB-CJB (D. Del.) discussing what happens when parties reach a settlement agreement but it falls apart before they actually sign.
It started with the basic proposition that, in the abstract, a signed, written agreement is unnecessary:
a signed and executed agreement is not a prerequisite for contract formation unless the parties “parties positively agree that there will be no binding contract until the formal document is executed.” . . .
A settlement agreement is formed when “a reasonable negotiator . . . would have concluded, in that setting, that the agreement reached constituted agreement on all of the terms that the parties themselves regarded as essential.” . . . Thus, a settlement agreement is enforceable without a signed writing, unless the parties agree otherwise through the language of their agreement or conduct in negotiations.
Astellas Pharma Inc. v. MSN Pharma. Inc., C.A. No. 23-689-JFB-CJB, at 6 (D. Del. Jan. 21, 2025) (citations omitted).
In this case, the parties had negotiated and (seemingly) agreed to a detailed written settlement agreement. One of the parties, however, backed out just before signing. The other party sought to enforce the agreement.
The Court found that it could not, because every exchanged draft of the agreement included a signature provision, requiring that all parties sign the agreement before it becomes binding:
11. Term. This Agreement shall not be binding on the Parties until it has been signed below by all the Parties, at which time it shall be deemed effective as of the Effective Date. . . .
Apparently, nobody discussed this during the negotiations. It first appeared in a form license agreement that the patentee circulated at the start.
The Court found that the parties had reached agreement on the substantive provisions of the agreement:
The conduct of the parties demonstrates they reached a meeting of the minds on the terms contained in the October 5 draft agreement. . . . A party objectively manifests acceptance when they unconditionally respond to an offer to contract “on identical terms as the offer.” . . . Here, MSN’s October 5 email and draft agreement objectively evidence an intent to be bound by the settlement agreement. Specifically, the draft reflects final edits to the key terms that had been the focus of the parties’ negotiations. . . . The October 5 email states that the parties were “very close” to a final agreement and, if Astellas was happy with the changes, they would “proceed towards signing.” . . . In response, Astellas did not make any changes to the draft, unequivocally stated “we ok with the changes,” and took steps to proceed towards execution. . . . Therefore, the parties conduct reflects a meeting of the minds on settling the litigation on the terms outlined in MSN’s final draft agreement.
Id. at 7-8. But the signature provision meant that there was no binding agreement until the parties signed the document:
However, the draft settlement agreement contained the Signature Provision. As a reminder, a formally executed copy is not required unless “parties positively agree that there will be no binding contract until the formal document is executed.” . . . Here, . . . the purported agreement contains the Signature Provision, which specifically provides the “[a]greement shall not be binding on the Parties until it has been signed below by all the Parties.” The term is unambiguous: signatures are required to create a binding agreement. Astellas proposed the term, did not object to the term at any stage of negotiations, and the term appears, unchanged, in the October 5 version of the contract. A reasonable negotiator in MSN’s position would, thus, understand that signatures were a necessary condition to settling the matter. The Signature Provision, therefore, operated as a condition precedent for settlement, meaning “no binding contract will arise until the” agreement was signed. . . . Because MSN did not sign, no binding contract arose.
Because the parties “positively agreed” to require signatures, the Court will not “treat the insistence upon a writing as unimportant” and must conclude “no enforceable contract had yet been formed despite agreement upon all of the substantive terms of a contract.” . . . Therefore, Astellas cannot meet its burden of showing there is no dispute of material fact, or that they are entitled judgement as a matter of law.
Id. at 8-9.
It looks like the patentee really, really wanted to make the settlement agreement enforceable. But the Court easily rejected each of their arguments.
First, it did not matter that the signature provision was not discussed in the negotiations, because it was present in all of the drafts:
the continued presence of the Signature Provision in the draft agreements, including the final versions from each party, would tell a reasonable negotiator that the Signature Provision was a term of the parties’ agreement. 10 Indeed, because nobody objected to the term, a reasonable negotiator would understand that it was an uncontroversial aspect of the bargain. Astellas provides no basis for enforcing only the “core” of the agreement, while ignoring other terms agreed to by the parties.
Second, the Court rejected the idea that the signature provision was not an "essential term" of the agreement. It held that whether it was essential or not is irrelevant. What matters is whether the parties agreed to require signatures before the agreement is final, which they had.
Third, the patentee argued that enforcing the signature provision would render the integration clause superfluous, given that it states that the final agreement overrides prior agreements. The Court did not go for that, noting that the integration clause still matters and, regardless, the proposed reading of the integration clause would render the signature clause itself superfluous.
Finally, the Court rejected the idea that the agreement to require a signature must occur by statements between the negotiators themselves, rather than as a provision in the proposed final agreement they are discussing:
[N]one of the cases cited by Astellas articulate a rule that a “positive agreement” [to a signature requirement] must be shown by statements in negotiations and cannot be shown by a contract term and the Court has located none. . . . Nor does such a rule make sense. Indeed, under Delaware law, “[i]f a writing is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent,” meaning it would be anomalous to adopt a rule that requires ignoring the plain language of an agreement in favor of silence in contract negotiations to understand the intent of the parties.
The Court ultimately concluded that the patentee simply had to live with their own proposed signature provision:
While Astellas may now regret adding the Signature Provision to the proposed agreement, they are bound by that choice.
If you enjoyed this post, consider subscribing to receive free e-mail updates about new posts.
