Court Enforces Settlement Agreement Despite Sunshine Act Violation

The Legal Intelligencer

(by Blaine Lucas and Anna Skipper)

Most lawsuits settle before disposition by the courts. Any settlement agreement is just that, an agreement between the parties, which to be enforceable must possess all the elements of a valid contract—offer, acceptance, and consideration or a meeting of the minds. In Pennsylvania, when one of the parties to a settlement agreement is a public entity, additional considerations come into play, most notably the Sunshine Act, 65 Pa. C.S. Sections 701-716.

Enacted by the General Assembly to facilitate more transparent means of governmental decision-making, the Sunshine Act has existed in some form since 1974, and places restraints upon a local agency’s ability to enter into contracts, including settlement agreements. Specifically, the Sunshine Act requires that all “official action,” including final decisions on the creation of liability by contract or the adjudication of rights, duties and responsibilities, must be taken at a duly advertised meeting open to the public. On the other hand, the Sunshine Act permits “deliberations” in six enumerated categories to take place in private “executive session.” One permissible reason to deliberate in private is to consult with the agency’s attorney regarding information or strategy in connection with litigation or with issues on which identifiable complaints are expected to be filed. However, any official action arising out of deliberations in executive session still must be taken at an open meeting. Thus, even if  settlement of a lawsuit is discussed in executive session, it still must be voted upon at a public meeting subject to all of the Sunshine Act’s requirements.

Recently, the Pennsylvania Commonwealth Court considered the fate of a settlement agreement that was agreed upon by a public agency in executive session, but never voted upon at a public meeting. In Baribault v. Zoning Hearing Board of Haverford Township, No. 1211 C.D. 2019, (Pa. Commw. Ct. Jun. 12, 2020) the Court held that such an agreement was enforceable, despite this failure.

In Baribault, the parties had been in dispute since 1993, and had already gone through extensive litigation and settlement discussions. The Baribaults (the landowners) owned five properties, which they leased to Villanova University students. In 1989, Haverford Township (the township) amended its zoning ordinance and Home Rule Charter (the township charter) to define student housing, and to permit that use only by special exception. When the township zoning officer denied the landowners’ applications to continue the use of the properties as student housing rentals, the landowners sought a declaration from the Township Zoning Hearing Board (the ZHB) that their continued use of the properties in that manner constituted a lawful nonconforming use, and challenged the constitutionality of the amendments. The ZHB denied relief without opinion, and the Landowners filed five separate land use appeals with the Court of Common Pleas of Delaware County (the trial court). The trial court issued a stay order with regard to one property, although the parties treated it as though it applied to all five. Consequently, for the next 25 years, the Landowners were permitted to rent all five properties to students without additional proceedings or the imposition of fines or penalties.

In 2018, the parties returned to the negotiating table, and entered into settlement discussions to resolve all five outstanding appeals. In August, 2018, the trial court was advised that the parties (consisting of the landowners, the township, and the ZHB), had reached a settlement agreement in which the landowners would relinquish their right to rent two of the five properties to students in exchange for the designation of the remaining properties as nonconforming uses and special exceptions.

The parties all agreed that the township commissioners (the commissioners) had approved the terms of the agreement during an executive session of their regularly scheduled meeting on Oct. 9, 2018. At the township solicitor’s request, the landowners’ counsel drafted a settlement agreement and release (the agreement), which the commissioners reviewed and approved in a second executive session held on Nov. 13, 2018. In December, 2018, the landowners advised the trial court that the township had approved the agreement, and they were waiting on the ZHB’s approval, and the township solicitor confirmed this via email to the trial court. In February 2019, the agreement was circulated to the parties by the landowners, who signed it along with the ZHB through its legal counsel. The township never executed the agreement.

When the landowners subsequently filed a motion to enforce the agreement, the township alleged that there was never a valid agreement to enforce. The township did not dispute any of the facts alleged, but argued that any action taken by the commissioners was a nullity because they never approved or disapproved the proposed settlement terms in an official action at a public meeting, as required under the Sunshine Act as well as the township charter. Because there was no public vote, they argued there was no lawful acceptance of the terms of the settlement, and thus no settlement agreement to enforce.

The trial court consolidated the five appeals, and, in March 2019, granted the landowners’ motion, entering an order enforcing the terms of the agreement. The township appealed, contending that the trial court erred by concluding that the commissioners could approve a settlement agreement, or that the township solicitor could do so on their behalf, when the commissioners did not take official action on the settlement terms at a public meeting. The Commonwealth Court affirmed in a precedential opinion on July 13.

In its plenary review, the court noted that  the enforceability of a settlement agreement is determined according to principals of contract law. The court reasoned that there must have been an offer, acceptance, and consideration or a meeting of the minds, and that oral settlement agreements may likewise be enforceable and legally binding. Reasoning that the commissioners had conveyed approval of the settlement, both to the landowners as well as to the trial court through counsel, the court found that there was a meeting of the minds regarding the material terms of the settlement that expressed the intention of the parties to settle the case and thus was valid and binding, despite the absence of any writing or formality.

Turning then to the unique issues surrounding contracting with public entities, the court considered whether the commissioners could agree to the settlement agreement even when they failed to comply with the requirements of the Sunshine Act and township charter. The court found that the commissioners failure to comply with the requirements of the Sunshine Act did not warrant the automatic nullification of the agreement. The court cited to Section 713 of the Sunshine Act, which states that if a court determines that the meeting did not meet the requirements of the act, it may in its discretion, find that any or all official action taken at the meeting is invalid, thus concluding that invalidation of official action taken in violation of the Sunshine Act is not axiomatic, but discretionary.

In invoking this discretion, the court relied upon prior Commonwealth Court decisions in which public agency decisions or agreements made in private were enforced. The court cited to Borough of East McKeesport v. Special/Temporary Civil Service Commission of Borough of East McKeesport, 942 A.2d 274, 280 (Pa. Commw. Ct. 2008) which held that a special commission’s decision to reinstate the borough police captain would not be invalidated for lack of compliance with the notice requirements of the Sunshine Act, and Keenheel v. Pennsylvania Securities Commission (PSC), 579 A.2d 1358, 1361 (Pa. Commw. Ct. 1990), in which the Securities Commission voted in executive session to accept a settlement agreement in violation of an earlier version of the Sunshine Act, and the court refused to aside the agreement.

Due to the protracted history of the case, the township solicitor’s representations to opposing counsel and the trial court regarding the status of the settlement, and the landowners’ good faith reliance on the settlement, the court held that the trial court did not abuse its discretion by enforcing the agreement and affirmed. As stated by the court “to conclude otherwise and allow the Township to unilaterally nullify the agreement under the guise of a Sunshine Act violation would perpetrate an injustice upon the landowners who have reasonably relied on the township’s representation regarding the settlement agreement.”

The court concluded by briefly disposing of the township’s argument that the township solicitor was not authorized to bind the township to the agreement. The court noted that before an attorney may agree to a settlement, he must have actual authority to settle from his clients, and here the solicitor’s authority was clearly expressed by the commissioners, as evidenced by two emails from the solicitor confirming that the commissioners had approved the settlement and agreed to the proposed language. Thus, the court found that the solicitor did not act on its own by entering the agreement, but was duly authorized by his client to do so.

The Commonwealth Court’s decision in Baribault has made it clear that a public agency cannot avoid its obligations under a settlement agreement based on its own failure to comply with the requirements of the Sunshine Act. This being said, it is in the best interest of both private parties and the governmental agency with which they are litigating to assure that any settlement agreement is approved at a public meeting, so as to avoid situations like that which arose in Baribault.

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Reprinted with permission from the September 4, 2020 edition of The Legal Intelligencer© 2020 ALM Media Properties, LLC. All rights reserved.