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Joseph v. Edison Control Corporation

A-3856-04T1 (N. J. Super. App. Div. 2006) (Unpublished)

AGREEMENTS; ORAL — An oral settlement is valid and binding on the parties and it does not necessarily require a subsequent written agreement.

A director, who was also the board chairman, owned sixty-seven percent of a corporation’s stock. The CEO, also a director, owned four percent of the corporation’s stock. These two directors proposed to the board a reverse-split transaction for the corporation to go public. The corporation’s two other directors were appointed as special committee to consider the proposal and subsequently hired a financial advisor to determine the value of the corporation. The board ultimately approved the transaction at seven dollars per share contingent upon a shareholder vote (excluding the votes of the two directors who owned stock in the corporation). The shareholders approved the transaction.

A shareholder then filed a class action suit on behalf of the corporation’s former minority shareholders alleging that the class was frozen out in a going-private transaction. The suit named the four directors of the corporation as defendants. The shareholder argued against the discounts used to reach the valuation of seven dollars per share, decried the fairness of the price, alleged misstatements and admissions in the disclosure soliciting the shareholder vote, and questioned the financial advisor’s independence. The lower court directed the case to mediation. The board chairman attended a mediation conference and had authority to settle the dispute on behalf of all defendants. At the mediation conference, the mediator and the parties contacted the lower court by telephone to convey that they had settled the case for $1.5 million. Additionally, the defendants agreed not to challenge the class certification. During the same telephone call with the lower court, the parties confirmed that the settlement would not be placed on the record. Two days later, the mediator sent a letter to the lower court with copies to each party’s counsel confirming that the case had been settled for $1.5 million. The shareholder’s counsel sent drafts of a stipulation and settlement agreement to the corporation’s counsel by electronic mail. The corporation’s counsel did not respond to the shareholder’s counsel communication. Several weeks later, the counsel for the corporation told the shareholder’s counsel that the corporation would not settle the case.

The shareholder filed a motion to enforce the settlement reached at the mediation conference, and the lower court granted the motion. The corporation moved for a stay of the enforcement order and for recusal of the lower court’s judge. The lower court denied both of the corporation’s motions, finding that the telephone call on the day of the mediation conference firmly supported a valid and binding oral settlement. The mediator’s letter confirming the settlement as well as the electronic mail of the drafts of settlement documents sent by the shareholder’s counsel showed that there was no dispute concerning the settlement. The lower court held that the most significant part of the settlement was the amount of $1.5 million and the other terms were pro forma. It noted that neither party expressed that the oral settlement would be conditioned upon a subsequent written agreement. The Appellate Division affirmed the lower court’s decision.


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