Formation of San Diego Contracts: Legal Lessons from Monster Energy

For a San Diego business contract to be formed — to be enforceable in our courts — the parties must come to an agreement. Most often, “agreement” is indicated by a signature or, with online contracts, by clicking on the “I agree” box. There are other methods of showing “agreement.” One can indicate agreement with a contract by signing a different document, one that relates to and refers to the contract in question. That is one of the legal lessons from the recent California Supreme Court decision in Monster Energy Co. v. Schechter, Case No. S251392 (Cal. Supreme Court July 11, 2019). When confronted with contract formation issues, it is imperative that you consult an experienced San Diego corporate attorney for advice and counsel.

Monster Energy presented the legal question of whether an attorney was bound by a settlement agreement between his clients and the business that had been sued. In particular, the attorney, David Schechter, sued Monster Energy Company on behalf of the parents of a teenager who allegedly died of cardiac arrest after drinking two Monster Energy drinks within a short period of time. The lawsuit alleged wrongful death among other causes of action. The case settled and a settlement agreement was drafted and signed by Monster Energy and by the plaintiffs in the wrongful death lawsuit. As to those parties, there is no question that a contract was formed and that the parties came to an agreement.

However, all the attorneys for the parties, including Schechter, also signed the settlement agreement under the preprinted notation “APPROVED AS TO FORM AND CONTENT.” Among the provisions of the settlement agreement was a strict confidentiality clause. Under that provision, the parties were to keep the settlement and the amount of the settlement confidential. As quoted by the court, the agreement stated:

“The Parties understand and acknowledge that all of the terms, conditions and details of this Settlement Agreement including its existence are to remain confidential. Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement, and the negotiations leading thereto, and will not publicize or disclose the amounts, conditions, terms, or contents of this Settlement Agreement in any manner…” (emphasis added)

There were also several other references to “and their counsel” throughout the settlement agreement.

Shortly after the settlement was finalized, an agent of the plaintiffs’ attorneys wrote an article disclosing various information about the settlement. The article was posted online. Monster Energy Company sued the lawyers for breach of contract. Monster Energy asserted that the attorneys were bound by the confidentiality provisions of the settlement agreement and that the online article breached those confidentiality provisions.

In response to the lawsuit, Schechter and the other attorneys argued that they were not signatories to the settlement agreement and, therefore, were not bound by any confidentiality provisions. The trial court agreed with Monster Energy Company; but the Court of Appeals agreed with Schechter. The Court of Appeals held that signatures next to the words “approved as to content and form” did not signify an agreement to be bound, but rather a statement by the lawyers that it was “okay” for their clients to sign the agreement.

The California Supreme Court reversed the Court of Appeals and held that the attorneys could be deemed bound by the settlement agreement (more proceedings were needed at the trial level). In so holding, the Supreme Court focused on methods that a party to a contract can be deemed to have agreed and consented. Under California law, courts look to what are called the “outward manifestations of consent” that would lead a reasonable person to believe that consent had been given. In practice, this means that the courts focus on the agreement and the acts of the parties involved. In this respect, for the Supreme Court, the pre-printed words “approved as to content and form” was only one piece of the puzzle with respect to whether the attorneys had agreed to be bound by the settlement agreement. Certainly, those words did not preclude the possibility that the lawyers manifested their intent to be bound. Other pieces included:

• The fact that the settlement agreement specifically sought to bind the attorneys to confidentiality
• The fact that the agreement mentioned the clients and “their attorneys” several times
• The fact that “approved as to form and content” meant that the attorneys had read the settlement agreement including the confidentiality provision — in other words, the attorneys knew the confidentiality provisions referenced the parties” attorneys
• Public policies considerations including the fact that binding confidentiality often facilitates settlement agreements
• The fact that attorneys are, in general, agents of their clients and that this agency relationship is well-understood
• Various statements in the online article referencing the confidential nature of the settlement — again, signifying that the attorneys knew and understood about the confidentiality provisions

From these facts, the Supreme Court held that it was at least reasonable to argue that the lawyer’s signature on the settlement document was evidence of his understanding of the agreement’s terms and of his willingness to be bound by the terms that explicitly referred to him. As noted, the case was returned to the trial court for a full factual finding with respect to Monster Energy’s breach of contract claim.

Contact San Diego Corporate Law

For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.

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