In Tennessee How Long Does a Settlement Offer Remain Open When No Expiration Time Period is Provided?

Analysis:  The Tennessee Court of Appeals recently decided an interesting case that discussed how long a settlement offer stays open when the settlement offer does not have a specific expiration date or any reference to how long the offer will remain open.  In the Tennessee Court of Appeals decision of Tonita Reeves v. Pederson-Kronseder, LLC d/b/a Pederson’s Natural Farms, Inc., No. M2013-01651-COA-R3-CV, 2014 WL 1285702 (Tenn. Ct. App. 2014) the employee and employer were preparing to arbitrate an age discrimination case.  Prior to the time of the arbitration the parties entered into settlement negotiations.

On June 29, 2012, a specific settlement proposal was made by defense counsel to the plaintiff after multiple prior emails discussing the concept of settlement (this proposal did not have any expiration date).  Defense counsel followed up with additional emails inquiring about the status of settlement but plaintiff’s counsel provided no specific response.  In the following month the parties engaged in additional written discovery and took additional depositions.  The arbitration was set for August 15, 2012.  Without any further offer being made, the plaintiff emailed defense counsel August 12, 2012, three days before the arbitration, and accepted the June 29, 2012 offer of settlement.  Defense counsel responded by stating that the June 29, 2012 offer of settlement was no longer viable due to the passage of time and the expenses that had been incurred since it was made.

Ultimately, the arbitration went forward and the plaintiff did not receive a favorable outcome at the arbitration.  As a result, the plaintiff filed a lawsuit in Chancery Court alleging breach of contract for the settlement proposal that was “accepted” prior to the mediation.  The trial court found there was no enforceable settlement agreement in this circumstance.  This was appealed to the Tennessee Court of Appeals.

The Tennessee Court of Appeals considered whether there was a legitimate settlement.  The Court basically found that settlement offers only remain open for a reasonable period of time even when there is no expiration date.  Reeves at 4, 5.  The court cited the rule in the Tullahoma Concrete case where the Court stated:

If any such offer of settlement was made, there was no time limit on it and, therefore, in such a situation, the law considers that the alleged offer remained open for a reasonable time.

Reeves at 4 (citing Tullahoma Concrete P. Co. v. T. E. Gillespie Const. Co., 405 S.W.2d 657 (Tenn. Ct. App. 1966)).  The court went on to discuss the fact that “rule of reasonableness is applied to all types of contracts in Tennessee when an offer does not include a specific time within which an acceptance or performance is required.” Reeves at 4 (citing Shearer v. McArthur, 2012 WL 5399221 (Tenn. Ct. App. 2012)).

The plaintiff in Reeves attempted to argue that when a settlement offer is made with no time limitation, it remains open indefinitely until it is either “expressly rejected, withdrawn or accepted.”  Reeves at 5.  The Tennessee Court of Appeals in Reeves rejected this argument and instead found the “reasonableness” test applies to only keep the settlement offer open for a “reasonable” time period.  Under the facts present in the Reeves case the Court found that the offer was closed at the time it was finally accepted by the plaintiff 1 ½ months after it was proposed.  This was due to the additional discovery, depositions and arbitration expenses that were incurred (including costs for non-refundable airplane tickets for witnesses and hotel rooms for the arbitration).  As a result of these significant expenses and discovery completed, the Court found the “reasonable time for Pederson’s offer to remain open had passed by the time Ms. Reeves sought to accept the offer.” Reeves at 5.

Ultimately, under Tennessee law determining how long a settlement offer remains open when no time period is provided is left up to a fact specific inquiry under the “reasonable time” rule.  The best practice for making a settlement offer is to include a specific expiration date if one is desired.  If you do not provide a specific expiration date then there is a risk that the offer will remain open and then a dispute can arise when it is accepted at an inopportune time.  Instead of having this dispute litigated under the “reasonable time” test, it is best simply to have expiration for all settlement offers.