Making Essential Terms Inessential

Originally published by Richard Smith.

The owners of a company that owned and operated three ASI Gymnastics centers attempted to effectuate a business divorce via a Rule 11 agreement calling for the appointment of a panel of appraisers. A dispute ensued over how the appraisers were to do their work, and that led the parties back to the courthouse to sort out the terms and enforceability of the Rule 11. The trial court ruled that the agreement was valid, and the Court of Appeals affirmed. While the plaintiffs argued that the agreement lacked essential terms as to the interest rate and payment period for the buyout, the Court of Appeals held that the agreement itself (represented in a series of email exchanges between the attorneys) stated that those terms were not the “heart of the proposal,” and the rest of the terms were indeed agreed upon. (Notably, the buyout funds were actually tendered as a lump sum, rendering the interest rate and payment terms moot.) The Court also rejected the plaintiffs’ contention that the Rule 11 was unenforceable because it was not manually signed, ruling that they had not timely objected that the electronic signature blocks on the emails were invalid as signatures for a Rule 11 agreement. However, the Court reversed and rendered an award of attorney fees in favor of the defendants, concluding that the dispute was already before the trial court when the defendants filed a declaratory judgment counterclaim that they had validly complied with the Rule 11 agreement.

Crews v. DKASI Corp., No. 05-14-00544-CV

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