MD high court ruling on marital settlement agreement may impact business transactions, lawyers say

A family law ruling filed last week by the Maryland Supreme Court confirmed marital settlement agreements are contracts, but the decision may ultimately have more of an impact on contract law and business transactions, lawyers say.

In a 5-2 decision with Justice Steven Gould writing for the majority, the high court found that Todd Pattison did not timely accept Deborah Pattison’s settlement offer in their divorce proceeding when he signed the settlement package documents three days after the date his wife specified the agreement must be executed.

The majority disagreed with Todd that Deborah accepted the terms of the agreement through her signature on September 25, 2020 and that her condition for same-day execution was not part of the agreement, but rather an extrinsic attempt to change its terms. Though the Anne Arundel County Circuit Court granted Todd’s motion to enforce the settlement agreement, citing the agreement’s language and plain terms were definite and reflected the parties’ intent to be bound, both the appellate court and high court ultimately disagreed.

“We have considered all the exhibits in the record, and we determine that, as a matter of law, no contract was formed due to Husband’s failure to adhere to Wife’s deadline, and that the evidence, including the excluded exhibits, does not support the circuit court’s waiver finding,” Gould wrote.

According to the opinion, the proposed marital settlement agreement included a provision that the husband would pay the wife a monetary award of $760,000, to be paid in six installments over two and a half years.

The high court’s ruling means that Deborah can file for divorce and seek a larger award than what was provided in the proposed agreement, said Susan Elgin, counsel for Deborah Pattison.

“From my perspective, it’s been a simple argument the entire time of offer and acceptance, and not whether there was a valid agreement,” Elgin said in a phone call. “That’s what the [Maryland] Supreme Court found.”

Elgin, who began representing Deborah when the opposing party tried to enforce the agreement, said that because the case came in the context of a marital settlement agreement, it became confused (at the trial court level) as an issue concerning whether marital settlement agreements are enforceable, rather than whether there was an offer and acceptance. She said the decision can apply to any contract.

Thomas Fleckenstein, counsel for Todd Pattison, said the Maryland Supreme Court’s ruling came as a surprise.

“Certainly, we’re disappointed at the prospect of having to go back to the circuit court and potentially starting at square one, but we’ll sort through that with my client and with the circuit court once it gets the case back,” Fleckenstein said.

Both Fleckenstein and Elgin noted that the case is highly fact specific. Fleckenstein said the decision could have more of an impact on contract law than family law cases, although the overall impact of the ruling is “hard to predict.”

In a dissenting opinion written by Justice Peter Killough and joined by Justice Angela Eaves, Killough said the majority incorrectly framed the case through an “offer and acceptance” construct, where Killough says the parties had already negotiated and agreed to all material terms of a settlement, which was reduced to writing that the wife signed.

Killough emphasized that Deborah’s cover letter that directed Todd to sign the agreement on September 25, 2020 was excluded from evidence as hearsay and should not have been considered a condition precedent to contract formation.

“In reversing the trial court’s enforcement of the Settlement Agreement, the Majority has effectively announced a new rule of contract construction: a fully executed, integrated settlement agreement — signed, notarized, and negotiated by counsel — may be set aside if one party can point to any contemporaneous, extrinsic communication arguably conditioning its formation. That departs from Maryland’s objective theory of contracts,” Killough wrote.

Ferrier Stillman, a partner at Tydings who co-chairs the firm’s family law practice group, said the dissent’s argument would leave in limbo settlement agreements.

“I think finality is important, and my disagreement with the dissent is it leaves everything hanging,” Stillman said. “How long is the wife supposed to wait?”

Stillman said the majority’s decision does not change the law but rather emphasizes what many family law attorneys understood the law to be: that marital settlement agreements are contracts.

“I think it’s an important case because it confirms that a contract is contract is contract, and the marital settlement agreement is contract and therefore contractual interpretation applies,” Stillman said. “I think sometimes especially lay people think of a marital settlement in a different way than they might think of a … regular contract or a business contract. This is a good reminder that it doesn’t work that way; that a marital settlement agreement is a binding contract.”