Be Very Careful When Entering into Settlement Agreements

Ragnar Benson, Inc. v. Hempfield Township Mun. Auth., 916 A.2d 1183 (Pa. Super. Ct. 2007)

The Pennsylvania Superior Court untied the knottiest of two settlement agreements in this case.  Under separate written agreements, Kirby Electric contracted with the Municipal Authority to do its electrical construction, while Ragnar Benson contracted to perform general construction on the Authority’s water pollution control plant.  Each filed a lawsuit against the Municipal Authority, asserting breach of contract, and the Municipal Authority counterclaimed, and cross-claimed accordingly.  Kirby and the Municipal Authority agreed to settle their claims and counterclaims, with the provision that Kirby and Ragnar would continue in litigation and that settlement payments would be calculated based upon the outcome of the two contractors’ litigated dispute.

Over a year later, Ragnar settled with the Municipal Authority, which triggered a payment by the Municipal Authority to Kirby of $100,000, and ended the litigation in the mind of the Municipal Authority.  Kirby petitioned for judicial intervention to construe the meaning of the settlement agreement, and the Municipal Authority at the same time petitioned to enforce the settlement agreement that the Municipal Authority had with Kirby. 

Kirby sought judicial intervention because it perceived that the settlement had not gone as it had expected.  In a hearing, Kirby sought to introduce evidence of how it had understood the settlement should play out, but the trial court barred Kirby from introducing anything other than the settlement agreement itself.  This was because the settlement agreement contained an “integration clause” which stated that the settlement agreement contained the entire understanding of the parties.  Not even areas that the agreement was silent on were to be included as the court reviewed the settlement agreement.

Kirby claimed that its settlement purposes had been frustrated, and therefore the agreement could not be enforced in the manner that the Municipal Authority wanted to enforce it.  The Superior Court rejected the argument and declined to re-write the parties’ settlement agreement.

The moral of the story:  keep your settlement agreements clear and comprehensive.  The courts will not intervene if your subjective expectations are not met.