A Deal Is a Deal – Making Sure You Can Live With Your Settlement Agreement

While resolving a legal dispute can bring a sense of relief, it is important to make sure that you can live with the terms of the settlement agreement...

While resolving a legal dispute can bring a sense of relief, it is important to make sure that you can live with the terms of the settlement agreement. In most cases, it is very difficult, if not impossible, to amend a settlement agreement after its signed, particularly if you simply have second thoughts.

Tesla CEO Asks Court to Terminate SEC Consent Decree

Tesla CEO Elan Musk recently made legal headlines when he sought to terminate his settlement agreement with the Securities and Exchange Commission (SEC). As we discussed in a prior article, Musk drew the ire of the SEC in 2018 when he tweeted to his 22.3 million followers on Twitter that he was planning to take his company private. 

Tesla later confirmed that a final decision about taking the company private had not yet been reached.

The SEC responded with an enforcement action against Musk and Tesla, alleging that Musk made false and misleading public statements about taking Tesla private in violation of Section 10(b) of the Securities Exchange Act of 1934. Pursuant to a settlement with the SEC, Musk and Tesla each paid $20 million penalties. The settlement agreement also required the company to add two independent directors to its board and appoint a securities attorney to vet the social media posts of Musk and other senior executives.

The SEC has subsequently launched legal inquiries into Tesla’s compliance with the terms of the agreement, most recently in the wake of Musk tweeting about potentially selling 10% of his Tesla equity. Musk, however, claims that the SEC is using the settlement agreement to “harass” him and his company.

On March 8, 2022, Musk filed a motion asking a New York district court to terminate the consent decree. “The equities strongly favor terminating the consent decree, which the SEC has used to trample on Mr. Musk’s First Amendment rights and to impose prior restraints on his speech,” his motion argues. “Contrary to the SEC’s conception, the consent decree is not a charter for subjecting Mr. Musk to unwarranted scrutiny for exercising his constitutional right to speak his mind in public

In response, the SEC maintains that Musk lacks a valid basis to challenge the consent decree. “Musk cannot now cast off the amended final judgment simply because he has found complying with Tesla’s procedures to be less convenient than he had hoped, or because he wishes the SEC would not investigate whether Tesla’s disclosure controls and procedures are actually being maintained and followed,” the SEC argues.

Evaluating the Merits of a Settlement Agreement

The dispute between Musk and the SEC highlights the importance of thoroughly evaluating settlement agreements, specifically with regard to their long-term implications. Often times clients suffer from “buyer’s remorse” and have second thoughts immediately after an agreement is reached.  Such remorse does not form a basis to revoke or revise an agreement.

Our litigation attorneys are often called on to review the merits of settlement agreements. In such situations, we not only offer legal advice, but also help our clients determine if they will be able to live with the terms of the agreement. When evaluating a settlement agreement, we recommend clients consider two important issues: 1) is there a future business consideration or principle involved in the decision, as opposed to just dollars and cents; and 2) how will you feel about this settlement in six months, looking back at it and the choice you made. The look-back aspect is often the more important of the two, because as the SEC noted, “a deal is a deal.”

Parties negotiating a settlement agreement should also be mindful that when sufficient essential terms of an agreement are reached, a party’s failure to execute settlement documents will not excuse performance and a court may find an enforceable agreement reached notwithstanding. Similarly, courts have also held that an email message that contains all material terms of a settlement, demonstrates a mutual accord, and includes the typed name of the party to be charged under circumstances manifesting an intent that the name be treated as a signature, may constitute an enforceable settlement agreement. To avoid such a result, it is imperative to make your intent clear during negotiations and specify in writing that a final settlement will only be reached once the parties fully execute a separate, written agreement.

Overturning a Settlement Agreement

While settlement agreements are legally binding contracts, there are a few situations in which a court may overturn a settlement agreement. For instance, a settlement agreement may be invalid if it’s made under fraud or duress. Additionally, a mutual mistake or a misrepresentation by the other party may also serve as grounds to overturn a settlement agreement. When circumstances change, the parties can also mutually agree to amend the settlement agreement. This generally requires the parties to renegotiate the terms of the settlement and agree to a new agreement. Court approval may also be required. Once the amended settlement becomes final, it supersedes the original agreement.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bob Levy, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.