Court Rules That Settlement Term Sheet Is Not Worth The Paper It’s Written On

Judge Amy J. St. Eve of the Northern District of Illinois recently held that a purported settlement agreement in a putative class action filed by Craftwood Lumber Co. against Interline Brands, Inc. was not enforceable. See Craftwood Lumber Co. v. Interline Brands Inc., No. 11-4462 (N.D. Ill. Sep. 23, 2014). Judge St. Eve held that the “Term Sheet” executed at the end of the parties’ mediation session lacked sufficient detail to establish that a binding and enforceable settlement had been reached.

Craftwood filed a putative class action against Interline and alleged that Interline had violated the TCPA through certain faxing activities. On October 13, 2013, the parties participated in a mediation session and executed a one-page Term Sheet. After the mediation, Interline sent a different settlement proposal to Craftwood. Craftwood, in turn, rejected that proposal and then moved for class certification. Interline responded by informing the court (over Craftwood’s objection) that the motion was moot because the parties had reached a settlement. Craftwood begged to differ.

The court considered numerous declarations regarding the chain of events and numerous briefs regarding their legal effect, if any.  The Term Sheet that the parties signed at the end of the mediation described:  (1) the structure of the settlement (“claims made structure”); (2) the total class award ($60 million); (3) a “blow-out provision”; (4) attorneys’ fee award ($8 million on top of the class award); (5) a confidentiality provision; and (6) an award to the named plaintiff ($25,000).  Judge St. Eve held that the Term Sheet was not enforceable because it lacked other important information, such as the amount per claim and whether class members would be paid per recipient or per fax, that were “material to a class action settlement.” She held that “[t]he provisions upon which Interline relies are not true parameters because they are not specific enough to allow a court to reasonably imply the missing claim amount.  The court cannot simply ‘derive [it] mathematically,’ as Interline submits.” Judge St. Eve also held that it was unclear whether Craftwood and Interline “intended to be bound by the Term Sheet,” and pointed to the fact that after the mediation, Interline sent a distinct settlement proposal to Craftwood and “the parties requested additional time to reach a settlement,” from the court rather than “some time to ‘finalize the papers’ or ‘memorialize’ the settlement.”

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