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That Settles It: Attorney Emails Can Create an Enforceable Settlement Agreement

In 2010, Lehman Brothers Special Financing Inc. (“Lehman”) commenced an adversary proceeding against Shinhan Bank (“Shinhan”) to avoid and recover pre-bankruptcy transfers made to the South Korean bank.  In 2015, while a motion to dismiss the case was pending, a mediator proposed a resolution to both sides at a settlement conference.  Two weeks later, counsel for Shinhan emailed the mediator that “Shinhan has agreed to accept” the settlement, whereupon the mediator notified both parties that a settlement was reached.[1] 

Further correspondence between the parties and an exchange of drafts of a settlement agreement followed.  After several follow-up inquiries from Lehman, Shinhan’s counsel sent another email, on June 28, stating that “Shinhan just confirmed that they have completed their internal approval process and the Settlement Agreement will be signed by [. . .] June 30 . . . after which they will remit the Settlement Amount.”[2]

But, just four hours later, the Bankruptcy Court issued an order dismissing Lehman’s claims against Shinhan.  Shinhan subsequently told Lehman that the parties had not entered an enforceable settlement agreement and, therefore, Shinhan would not pay the settlement amount (although it never disputed that it intended to sign the agreement until the Bankruptcy Court granted the motion to dismiss).[3] 

In January 2017, Lehman filed a motion to enforce the putative settlement agreement.  The Bankruptcy Court granted the motion, and the District Court affirmed.  Earlier this month, the Second Circuit Court of Appeals endorsed the analysis conducted by the Bankruptcy Court and affirmed its decision.[4]  

Courts in the Second Circuit have recognized that “parties are free to enter into a binding contract without memorializing their agreement in a fully executed document,”[5] and that “the intention to commit an agreement to writing, standing alone, will not prevent contract formation.”[6]  However, where a party does “not intend to be bound until the agreement is reduced to a signed writing [, they] are not bound until that time.”[7]

In the Second Circuit, the four Winston factors govern the fact-intensive determination of whether the parties intended to be bound to a settlement in the absence of a written and executed settlement agreement:  (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.[8] 

Here, the Second Circuit concluded that the first and the third factors weighed in favor of Lehman.  Shinhan did not expressly reserve the right not to be bound in the absence of a writing in its April 20 e-mail to the mediator.  And, in light of the email correspondence between the parties, the Second Circuit “comfortably concluded” that there were no additional terms of the alleged contract to be agreed upon.[9]  On the other hand, there had been no partial performance of the agreement (Shinhan did not pay anything) and it was the “consistent practice” of the debtor to rely on a written agreement to settle claims in the bankruptcy case.[10]  Therefore, both the second and fourth factor weighed in favor of Shinhan. 

Calling it a “close case,” the Second Circuit concluded that “as of April 20, the parties intended to be bound and the settlement agreement is enforceable.”[11] 

The action contemplated under the settlement agreement here (however defined) was simple and would have been rapidly achieved, rendering the second Winston factor—the absence of partial performance—only minimally probative of any intent on April 20 not to be bound. By contrast, as discussed above, the absence of an express reservation of rights and of outstanding material terms to be negotiated weighs heavily in favor of finding an intention to be bound, especially in view of the parties' conduct (the lack of any meaningful disagreement beyond the settlement amount) and the broader context of the Lehman bankruptcy (with which both parties were apparently familiar). In these circumstances, we conclude that the balance tips in favor of finding an intention to be bound.[12]


[1] Shinhan Bank v. Lehman Bros. Holdings Inc., 2017 U.S. Dist. LEXIS 121926, at *3 (S.D.N.Y. Aug. 2, 2017).

[2] Id. at *4.

[3] Id. at *5.

[4] Lehman Bros. Holdings Inc. v. Shinhan Bank, 2018 U.S. App. LEXIS 19783, at *2 (2d Cir. July 18, 2018). 

[5] Winston v. Mediafare Entm't Corp., 777 F.2d 78, 80 (2d Cir. 1985).

[6] Powell v. Omnicom, 497 F.3d 124, 129 (2d Cir. 2007).

[7] Id.

[8] Lehman Bros. Holdings Inc. v. Shinhan Bank, 2018 U.S. App. LEXIS 19783, at *3. 

[9] Id. at *7.

[10] Id. at *8.

[11] Id. at *8-9.

[12] Id. at *9.