Battling for the Spoils of Terrorism Litigation

To create an enforceable oral contract, both parties must intend to be bound by their oral representations alone. An otherwise valid oral agreement does not constitute a contract if “either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist … until the whole has been reduced to … written form.” The fact that parties contemplate a writing is evidence, therefore, that they do not intend to bind themselves by an oral agreement. Another factor in determining intent to be bound is the parties’ conduct after they reach an alleged oral agreement. Under District of Columbia law, courts determining whether parties intend to be bound by oral representations consider other factors as well, including “whether the amount involved is large or small.”…

First, the evidence establishes that Kagy and Perles discussed and contemplated a written agreement. In March 1997, Kagy drafted a proposed written contract providing that she would recover one-third of Perles’s fee in Flatow. By Kagy’s own admission, Perles refused to sign Kagy’s proposal on the ground that it was “all wrong.” Kagy testified that she repeatedly asked Perles to reduce their alleged one-third fee arrangement to writing after Perles refused to sign Kagy’s proposal in March 1997. About a month after their May 1997 telephone exchange, moreover, the parties had a serious “altercation” arising out of “Kagy’s frustration at not having a written fee agreement in place.” The evidence indisputably establishes, therefore, that the parties at various points contemplated a written contract.

Second, the parties’ conduct after the May 1997 telephone conversation is a separate factor suggesting that the parties did not intend to create an oral contract. Perhaps most telling, the trial evidence does not reveal any conduct of the parties after the May 1997 conversation that supports Kagy’s assertion that they created a binding contract in that conversation. In fact, Kagy testified that she did not draft a written agreement reflecting the terms of the May 1997 telephone conversation because she was concerned that Perles would not sign it. Kagy also testified that “on numerous occasions” after the May 1997 exchange, she tried to persuade Perles to “sit down and work it out,” but Perles “always refused to do so.” The context of Kagy’s statement makes clear that what had to be “worked out” was Kagy’s compensation in Flatow, which suggests that no final agreement had been reached in the May 1997 telephone conversation.

Third, the potentially large fee award in the Flatow case further suggests that Perles and Kagy did not intend to be bound by their oral conversation. Perles’s client in Flatow was eventually awarded more than $200 million in damages from the Iranian Government. Perles has received several million dollars so far in fees (and could receive far more in the future if additional assets become available to cover the punitive damages awards). It strains credulity to suggest that Perles and Kagy, both of whom are attorneys, intended a single, undocumented telephone conversation to give rise to a mutually binding agreement giving a junior attorney the potential right to millions of dollars in compensation for her work.