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The South Dakota Supreme Court held that a trial court properly enforced a settlement agreement that the plaintiff refused to sign where the record supported a finding that the plaintiff expressly authorized her attorney to accept the settlement offer.
In Melstad v. Kovac, No. 23891, 2006 WL 3056313 (S.D. Oct. 25, 2006), Melstad sued Kovac for personal injuries suffered in a motor vehicle accident. After extensive negotiations, the parties settled the case on the eve of trial for $325,000. Melstad later refused to sign the written settlement agreement, claiming she had not authorized her attorney to settle for that amount.
Kovac filed a motion to enforce the settlement agreement. The trial court granted the motion after an evidentiary hearing that included testimony by Melstad and her former attorney, the one who negotiated the settlement.
On appeal, Melstad argued that authority to settle her claim had to be in writing. As support for her argument, Melstad cited both the Uniform Commercial Code and the South Dakota Rules of Professional Conduct. The Court rejected Melstad’s argument because neither of the cited authorities requires an attorney’s settlement authority to be in writing. Nevertheless, the Court acknowledged that written settlement authority “may be advisable to avoid misunderstanding and liability.”
The Court also found evidentiary support for the trial court’s determination that Melstad expressly authorized her attorney to settle for $325,000. In reaching this finding, the Court detailed the course of negotiations that ultimately closed the gap between the parties’ settlement offers. While deferring to the trial court’s credibility determinations, the Court noted that Melstad retracted her initial sworn statement when her attorney produced phone records refuting her claim that they did not speak on the day preceding the settlement agreement.
Recent years have brought increased litigation over the enforcement of settlement agreements. As a possible remedy, some commentators have advocated a “cooling-off period,” a brief period of time during which parties are free to rescind a newly reached settlement agreement. See James R. Coben & Peter N. Thompson, Disputing Irony: A Systematic Look at Litigation About Mediation, 11 Harv. Negot. L. Rev. 43, 136 (2006) (citing Nancy A. Welsh, The Thinning Vision of Self-Determination in Court-Connected Mediation: The Inevitable Price of Institutionalization?, 6 Harv. Negot. L. Rev. 1, 86-92 (2001)). A cooling-off period might have prevented the satellite litigation in this case because Melstad started expressing her reservations only three days after the settlement agreement was reached.
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