Businesses involved in Texas litigation should review a recent decision by the Texas Supreme Court where the court refused to enforce an oral settlement agreement. In Knapp Medical Center v. De La Garza, 2007 WL 3230144 (Tex. 2007), the court made it clear that an oral agreement settling a case cannot be enforced in a Texas court. The court concluded that Texas Rule of Civil Procedure 11, which requires that agreements related to pending litigation must be in writing, bars the enforcement of an oral agreement.
Dr. Javier De La Garza, M.D. filed suit against Knapp Medical Center, a hospital in Weslaco, Texas for defamation, business disparagement, interference with business relations, and civil conspiracy. During the trial, De La Garza’s attorney offered to settle the case based on the hospital’s insurance policy limits of $1,000,000. When he made the settlement offer, De La Garza’s attorney understood that the hospital would also contribute an additional $200,000 to the settlement. After he made the policy-limits demand, the attorney learned that in fact, the hospital did not plan to contribute the additional $200,000 to the settlement. Instead, the insurer had agreed to settle for the $1,000,000 policy limits. In open court prior to the closing arguments, De La Garza’s attorney explained to the judge that he had made the offer with the understanding that the hospital would contribute the additional $200,000. The hospital’s attorney, while acknowledging that an additional contribution had been discussed, stated that the insurer had agreed to settle the case for policy limits. Despite the disagreement, De La Garza agreed on the record to settle the underlying claims for $1,000,000, while purporting to reserve his right to collect an additional $200,000 from the hospital in another lawsuit. The judge accepted the agreement and discharged the jury. De La Garza then signed a Release that acknowledged the settlement funds as complete satisfaction of the claims asserted in the litigation.
De La Garza later filed suit against the hospital for the disputed $200,000, alleging claims for fraud and breach of an oral agreement that pre-dated the agreement that was read into the record and accepted by the court. The trial court entered judgment in favor of De La Garza and awarded attorney’s fees. The hospital appealed, contending that Rule 11 barred De La Garza’s claims. The court of appeals ignored the Rule 11 argument, concluding instead that parol testimony of one of the attorneys was sufficient to support the existence and breach of the settlement agreement.
Without hearing oral argument, the Supreme Court granted review and reversed the court of appeals’ decision, holding that the purported oral settlement agreement was unenforceable under Rule 11. Rule 11 states that “unless otherwise provided in these rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” The court noted that Rule 11 “has long been a part of Texas jurisprudence” and represented “the wisdom of eschewing the verbal agreements of counsel in favor of written ones . . ..” The rule is intended to promote finalizing settlements “by objective manifestation so that the agreements do not themselves become sources of controversy.” In sum, for a settlement to be enforceable in Texas, it must comply with Rule 11.
In this case, the only agreement that complied with Rule 11 was the agreement read into the record to settle the case for $1,000,000. There was no written agreement to settle for any other amount. The hospital’s alleged agreement to contribute an additional $200,000 was neither in writing nor made in open court and entered into the record. Accordingly, it was not enforceable. The decision in Knapp serves as a reminder to Texas practitioners and litigants that compliance with Rule 11 is a necessary prerequisite to seeking enforcement of any agreement related to a pending lawsuit.
Full Opinion Text: http://www.supreme.courts.state.tx.us/historical/2007/nov/060575.pdf