Amazon Caught in Common Settlement Trap

by Lee Gesmer on January 16, 2008

If you’re in the middle of a trial, don’t tell the judge that you’ve settled the case unless you absolutely, positively mean it. Amazon fell into this trap in its recent litigation with Basis Technology, a Massachusetts linguistics software company. On the third day of trial over a dispute arising out of a contractual relationship the parties informed the judge that the case had been settled. The judge ended the trial, but the settlement agreement that the parties then attempted to negotiate for signature foundered over the calculation of Amazon’s minority stock ownership in Basis, an important element of the settlement. After the dispute was brought to the attention of the trial judge she examined the negotiations and held that the intention of the parties had been to settle. She ruled that all of the material terms of the settlement had been agreed upon, and that Amazon’s objection to the stock calculation was a “post hoc objection” insufficient to derail the settlement. The trial judge refused to reopen the trial, and entered judgment on the terms sought by Basis.

Amazon appealed the judgment entered by the trial court, but the Appeals Court rejected the appeal. In addition to affirming the reasoning of the trial court judge, the Appeals Court emphasized an important principle, long recognized by many courts: when you report a case settled during trial, the court will bend over backwards to enforce the settlement, even if the terms are only oral.This case doesn’t create new law, or even apply a novel legal principle, but it serves as a reminder to be extremely careful, when reporting a settlement during trial, that in fact you have every important aspect of the settlement nailed down, and in writing. Amazon, or it’s counsel, forgot this, and paid the price.

You can read the full decision here.

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