Litigation

Litigation. “Of course, this letter is not intended to create, nor do you or we presently have any binding legal obligation whatever in any way . . ..” In 1991 those words played a major role in the Massachusetts Appeal Court’s reversal of a $32 million trial judgment against Federal-Mogul Corp. in the case (infamous to Massachusetts business lawyers of the time) of Schwanbeck v. Federal-Mogul. The plaintiff in that case claimed he had a deal to buy a division of Federal-Mogul, and FM had breached that agreement. While the trial court agreed (resulting in the $32 million judgment), the Appeals Court reversed, in part on the language quoted above. That case was an object lesson to attorneys in our firm involved in M&A transactions that it was essential to include “no legal obligation” language in every transaction, unless and until our client was prepared to be legally bound. An article that I wrote in 1991 discussing this case in more detail is linked here. However, this problem is not limited to contracts – it arises surprisingly often in settlement discussions in litigation. Not too long ago our firm had a case in which the attorneys for the other side insisted that a verbal conversation with an attorney in our firm, followed by a confirmatory letter that outlined a settlement at a high level of generality, was enough to result…