Please ensure Javascript is enabled for purposes of website accessibility
Home / News Stories / Mediated ‘Term Sheet’ was a binding contract

Mediated ‘Term Sheet’ was a binding contract

Contract-Form-Paper-MAINLawyers and their clients wrap up a marathon mediation session with a seasoned professional mediator in a multi-million dollar case.

After 12 hours at the table with retired circuit judge Arthur Vieregg, the lawyers draw up a six-paragraph “Term Sheet” that says the defendant tech company will pay an investor and former officer $3 million over a four-year period, and another $12 million when the company is sold.

The parties sign off on the agreement and a judge calls off the trial, set for the following Monday.

After talks break down on a more detailed settlement agreement, the plaintiff investor heads to court with the two-page Term Sheet in hand.

Do the parties have a deal?

Yes, says the Supreme Court of Virginia.

The court upheld enforcement of a provision calling for the initial $3 million payment in its April 13 unpublished order in LongView Int’l Technology Solutions Inc. v. Lin (VLW 017-6-030(UP)).

Familiar scenario

Fairfax Circuit Judge Lorraine Nordlund ruled that LongView had breached the Term Sheet provision calling for prompt payment of the $3 million to plaintiff Sandra Lin.

A comment from Nordlund during the Oct. 27, 2015, trial shows why the LongView case has drawn considerable attention in the mediation community.

“I’ll tell you this,” she told the lawyers and parties, “this is one of those issues that needs resolution because we are faced with it time and time again, that people come to us and say they’ve resolved things in mediation and then they haven’t really resolved things in mediation. So how do we handle that? And this is something that is probably going to be a topic at our next judges’ meeting, as well.”

Court records show a dispute over how firm the parties’ agreement was when they signaled to another Fairfax judge that trial was unnecessary. When a judge managing the docket heard an initial request for a continuance of the case, he pressed the parties on whether they had an agreement, or just an agreement to agree. Receiving assurances that the parties had an “agreement,” the judge cancelled the Jan. 13, 2014, trial.

But after months of continued haggling, the parties wound up before Nordlund and then in the high court last February.

A 22-line document “seems sparse” for a multi-million dollar transaction, Justice William C. Mims observed to Lin’s attorney, Tysons lawyer Richard D. Holzheimer Jr., during oral argument.

But “here’s your hurdle,” Mims said to LongView lawyer Benjamin S. Boyd, of Washington D.C., who argued the agreement was unenforceable.

The Term Sheet, which the parties signed, stated at the top of the document that they signed it “intending to be fully bound by its terms,” Mims said.

According to LongView, the agreement’s terms were not certain and complete, and the parties’ conduct demonstrated their mutual understanding that they had to nail down details of their agreement.

Objective test

The Supreme Court order said the Term Sheet’s language objectively indicated the existence of an agreement.

The Term Sheet stated it was “a settlement agreement … made effective” on the date it was signed, and that the parties executed the agreement “intending to be fully bound by its terms,” according to the Supreme Court’s unanimous unsigned order.

Although the Term Sheet expressly contemplated that the parties would draft a more comprehensive agreement, the mere fact that they planned for a later formal writing did “not vitiate the agreement,” the order said.

The order said LongView’s conduct supported the court’s reading of the Term Sheet, although consideration of that conduct was not necessary to decide the case. The Supreme Court cited the parties’ persuading the trial judge to cancel the upcoming trial because they had settled the case and LongView’s filing of a counterclaim for breach of the Term Sheet’s confidentiality provision.

Nordlund said she did not have to consider the Term Sheet’s $12 million payment provision, as the dispute over the later payment was not ripe because there was no claim the company had been sold.

The Supreme Court disagreed with that approach and said the Term Sheet had to be considered as a whole. That the terms of a payout of “proceeds” after a “sale” of the company were ambiguous did not make the agreement indefinite as a matter of law.

The Supreme Court upheld the circuit court decision that Lin’s quarterly payments were to start on the date the Term Sheet was signed, and its rejection of Lin’s claim that the $3 million was due in a lump sum.