Settlement Agreements, Third-Party Beneficiaries, and Conditions Precedent, Oh, My!
This is the latest chapter in a long saga that started with lawsuits in 1983 and has resulted in several disputes between clients and various attorneys. This particular opinion, Richardson v. Casher, 14-P-503 (requires a sign-in to Bloomberg Law), out of the Appeals Court of Massachusetts, deals with a $9 million settlement agreement that was negotiated by attorney Casher with Travelers Indemnity Company. After the settlement agreement was reached, Casher and his clients, the Picciotto parties, entered into an allocation agreement deciding how the settlement should be disbursed. The allocation agreement included disbursements from Casher’s share to the Picciotto parties’ former attorney, George Richardson, and UP, a charitable organization that donates legal services in insurance cases and helped the Picciotto parties out at one point in the 30-year court battle. The court found that both of these parties were third-party beneficiaries of the allocation agreement.
Unfortunately for Richardson and UP, when presented with the allocation agreement, Travelers rejected it. The settlement agreement was therefore amended to permit Travelers to file an interpleader action and pay the vast majority of the settlement account into the court instead of disbursing it in the way the allocation agreement had contemplated. The interpleader action then dragged on for several years. Eventually, Casher received a bit more under the interpleader action than he had expected to receive under the allocation agreement. Richardson filed a complaint in the interpleader action and the judge found that Casher was required to pay Richardson and UP under the allocation agreement, with a slight increase to reflect the fact that Casher had actually received more than the allocation agreement would have given him. Casher and the Picciotto parties appealed.
On appeal, the court concluded that the condition precedent to Casher’s obligation to pay Richardson and UP under the allocation was never met, and so no duty had been triggered for Richardson and UP to seek to enforce. Casher and the Picciotto parties argued that the condition precedent to the disbursements under the allocation agreement was the immediate receipt of the sizable first installment of the settlement money (set at $5 million in the allocation agreement), which never happened because instead Traveler paid the money into the court. The appeals court agreed with this argument. To find otherwise, the court say, would make the allocation agreement nonsensical, as it was premised on the straightforward receipt of the majority of the settlement money. The fact that Casher and the Picciotto parties eventually received the money through the interpleader action didn’t matter when it was clear from the face of the allocation agreement that none of the parties contemplated that the first distribution of the settlement money would be anything other than immediate. The court therefore concluded that the immediate distribution of at least the first part of the settlement funds was a condition precedent to Casher’s duties to pay Richardson and UP. When that initial $5 million distribution never happened, the condition precedent was never fulfilled, and Casher never became obligated to pay Richardson and UP.
The lesson here is, of course, to always play the what-if game as thoroughly as you can: “What if Travelers refuses to distribute the funds the way we’ve contemplated?” Asking that question may have caused the allocation agreement to be re-written in such a way as to protect Richardson and UP’s interests. The bigger complicating wrinkle for both Richardson and UP, however, is that they were only third-party beneficiaries who actually had no part in the drafting of the allocation agreement (they didn’t even know about it until much later), so they had no ability to protect their interests in the language.