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A Cautionary Tale for Claims Traders and Other Contract Counterparties

By David Griffiths and Leonard Yoo (Weil, Gotshal & Manges LLP).

During a negotiation over a sale of claims, when parties agree to a price and preliminarily agree to enter into a final agreement, is there a binding agreement to negotiate in good faith towards a final agreement? 

The bankruptcy court in Westinghouse addressed this very issue.  In Westinghouse, Seaport, on behalf of its client, reached out to Landstar to purchase its claims against Westinghouse Electric Company LLC.  An employee of Landstar negotiated with Seaport to sell the claims but explained to Seaport that, while she was authorized to negotiate a price, all other terms would need to be approved by Landstar’s legal counsel.  Seaport and Landstar’s employee eventually agreed to a price for the claims that was “subject to” executed documentation.  Two days after this agreement, Landstar informed Seaport that it decided to not go through with the sale.  Seaport and its client litigated this matter arguing that there was a binding obligation to negotiate in good faith because it was customary in the claims trading industry for parties to agree on the price over email and negotiate the other terms towards a final agreement. 

The bankruptcy court disagreed and held that a preliminary agreement to negotiate in good faith was not formed because, among other reasons, (i) Landstar reserved its right to not enter into a binding agreement and (ii) Seaport did not explicitly confirm with Landstar that there was an enforceable agreement as to the obligation to negotiate in good faith nor the purchase price.

The full article is available here.

Written by:
Editor
Published on:
October 16, 2018

Categories: Claims TradingTags: Claims Trading, David Griffiths, fund, Leonard Yoo, Weil Gotschal & Manges

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