Judge finds attorney’s silence justifies redo of settlement

Listen to this article

Defendants in a business dispute are entitled to reformation of an earlier settlement agreement between the parties that, because of their attorney’s drafting mistake, included a one-sided release of claims, a Superior Court judge has ruled.

Defendants Steven A. Ross and his company QS Private Lending filed a counterclaim for reformation of a 2022 settlement agreement after being sued by Cahoon Capital Strategic Income Fund in 2023 for breach of contract and related claims stemming from the ending of the parties’ business relationship. Cahoon’s lawsuit included claims against the defendants that arose both before and after the 2022 settlement.

According to the defendants, a drafting error in the settlement agreement committed by their own attorney resulted in a release of claims that benefited only Cahoon, even though the parties clearly had intended that the settlement include mutual releases.

The defendants successfully moved for a bifurcated trial on their counterclaim for reformation after a motion judge denied their motion for summary judgment.

Following a two-day bench trial, Judge Christopher K. Barry-Smith entered judgment for the defendants on their counterclaim, finding both that the parties intended mutual releases and that equity demanded reformation in light of evidence that Cahoon’s attorney, Scott Ford, became aware of the mistake during the drafting process but failed to alert opposing counsel after rationalizing that the omission of mutual releases may have been purposeful.

“Even if Attorney Ford’s decision was reasonable, however, the precedent provides clear direction that reformation is still warranted: attorneys are obligated to raise a mistake with the other side,” Barry-Smith wrote. “They may not remain silent and take advantage of the mistake, even in pursuit of their client’s interest. This rule governs even if an attorney, after recognizing a mistake, also formulates a credible explanation for why the mistake, after all, might not be a mistake.”

The 22-page decision is Cahoon Capital Strategic Income Fund, LLC v. Ross, et al., Lawyers Weekly No. 09-178-25.

Ethical dilemma?

The defendants are represented by Boston attorneys Megan C. Deluhery and Christian G. Kiely. Because Deluhery was a fact witness concerning the drafting of the settlement agreement, a partner in her firm, David H. Rich, represented the Ross parties at the bench trial before Barry-Smith.

“What this decision teaches is that an opposing attorney can’t knowingly seize upon an innocent mistake by opposing counsel and weaponize it for his or her client’s advantage,” Rich said.

Plaintiff Cahoon’s attorney, Scott A. Birnbaum, declined to comment on the decision.

But Andover business litigator Andrew Botti said he agreed with Barry-Smith’s decision that there were sufficient grounds for reformation.

“There was an innocent mistake by one attorney who overlooked the mutual release that should have been included in the final document,” Botti said. “And then there was another attorney who was basically looking out for his clients’ interests, as he was obligated to do. What the court ultimately found as a matter of equity was that attorneys are obligated to raise a mistake with the other side when they spot it.”

Botti said he viewed the case as exemplifying the “power of equity” versus the power of law per se.

“Equity gives judges a tremendous amount of power to rule in a way that they perceive under equitable principles is fair,” Botti said.

The question this decision answers for attorneys is what to do when you’re drafting a document with opposing counsel and recognize that they made a mistake in the drafting. Do you raise it or do you stay silent?

— Charles M. Waters, Boston

Boston business litigator Charles M. Waters said because of the heightened standard for relief, it is rare for a party to obtain a reformation remedy in a business dispute involving sophisticated parties represented by counsel.

“Here, the mistaken party met the standard for reformation because the lawyer documented in writing all aspects of the settlement negotiations and then relied on those communications to establish the parties’ intent,” Waters said.

He added that the case addresses an important question for practitioners.

“The question this decision answers for attorneys is what to do when you’re drafting a document with opposing counsel and recognize that they made a mistake in the drafting,” Waters said. “Do you raise it or do you stay silent? To me, this is an interesting ethical dilemma. An attorney has obligations to their client to do what’s in their best interest. But then they have conflicting obligations to opposing counsel to point out a clear mistake. The question is which obligation does the attorney elevate over the other?”

Waters cautioned against judging the defense attorney who made the drafting error at issue in the case.

“This decision is a reminder to practitioners that mistakes can happen to any of us, even excellent lawyers and law firms,” Waters said.

Christian R. Jenner, a business litigator in Providence, said he cannot recall a case involving a mistake of the magnitude of the drafting error in Cahoon that resulted in a reformation.

“The judge’s decision was borne out by applying the facts to the law of reformation,” Jenner said. “Certainly, the facts of this case were unique, and it doesn’t appear that the parties disputed that, at the time the initial settlement draft was circulated, the document contained a mistake.”

Business dispute

According to court records and as found by the court, Cahoon is in the business of soliciting capital from investors and investing that capital in private loans. Cahoon’s sole member and manager is another LLC whose manager and member is Ronald Mis.

QS Private Lending is in the business of originating, underwriting and servicing private money loans. The sole member and manager of QS is Steven Ross, a Massachusetts lawyer.

Up until April 2022, Cahoon and QS were engaged in a business relationship in which Cahoon invested in loans originated, underwritten and serviced by QS. In April 2022, a dispute arose between Cahoon and QS and their individual principals, with each side accusing the other of improperly starting a private lending investment fund that threatened to undermine their joint enterprise.

As the dispute escalated, the attorney for Ross and QS, Megan Deluhery of Todd & Weld, and the attorney for Cahoon and Mis, Scott Ford of Mintz, fired off demand letters accusing the other side of wrongful conduct.

Beginning in May 2022, the two sides began settlement negotiations with the aim of terminating their business relationship.

Unable to reach an agreement, QS and Ross sued Cahoon in June 2022, asserting claims by QS as well as investor claims by Ross and his family.

After the filing of the QS/Ross lawsuit, the parties recommenced settlement negotiations in earnest with the parties — through counsel Deluhery and Ford — agreeing in principle that a settlement between the parties would include mutual releases.

Thereafter, Deluhery took on the task of preparing the first draft of a settlement agreement.

However, despite the parties having reached an understanding that their settlement agreement would include mutual releases, the first draft of the settlement agreement prepared by Deluhery mistakenly failed to include mutual releases. Rather, the first draft included a general release of claims from QS/Ross in favor of Cahoon/Mis but failed to include a general release from Cahoon/Mis in favor of QS/Ross.

As later found by Judge Barry-Smith, when Ford received a copy of the draft settlement, he was surprised it did not include mutual releases and thought that Deluhery had made a mistake.

Following the later bench trial on reformation, Barry-Smith would find “Attorneys Ford and Deluhery reached agreement on July 11, 2022, that the parties’ settlement would include mutual releases; that Attorney Deluhery’s failure to include mutual releases was a mistake; and that Attorney Ford recognized Attorney Deluhery’s mistake when he first reviewed the draft Settlement Agreement provided by Attorney Deluhery on July 15, 2022.”

Nonetheless, Ford did not raise the lack of mutual releases with Deluhery.

“This silence persisted: At no point between Attorney Deluhery’s communication of the first draft of the Settlement Agreement on July 15, 2022, and the parties’ execution of the Settlement Agreement on August 12, 2022, did Attorney Ford raise the perceived mistake with Attorney Deluhery,” the judge found.

However, Ford did raise the mistake with his client. In an email to Mis, Ford wrote that it was “tempting” to accept the settlement as is because the agreement contained no releases from the Cahoon/Mis parties.

“This communication to his client confirms Attorney Ford’s testimony that he expected the settlement to include mutual releases and his initial impression was that the absence of mutual releases was a mistake by Attorney Deluhery,” the judge wrote.

The mistake was carried through subsequent drafts of the settlement to the agreement’s final execution in mid-August 2022.

In September 2023, Cahoon sued Ross and Ross’ company, QS Private Lending, for breach of contract, breach of fiduciary duty, wrongful interference with contract, and unfair and deceptive trade practices.

It was only after Cahoon filed its lawsuit that Deluhery realized the settlement agreement failed to include releases of claims protecting her clients. Accordingly, QS and Ross responded with a counterclaim seeking reformation of the settlement agreement due to mutual mistake.

After a motion judge denied the defendants’ motion for summary judgment on their counterclaim for reformation, Barry-Smith allowed QS/Ross’s motion to bifurcate trial on their claim for reformation. The judge conducted a bench trial on Oct. 15 and Oct. 28, 2025, hearing final argument in November.

Reformation ordered

In his Dec. 10 findings of fact and conclusions of law, Barry-Smith noted that as of that date Ross had not asserted a legal malpractice claim against Todd & Weld concerning the omission of the mutual releases in the settlement agreement. Nonetheless, the judge further noted that the law firm in early 2025 gave notice to its professional liability insurance carrier of a potential claim.

Turning to the merits of the defendants’ counterclaim, the judge observed that reformation is an “exceptional remedy and requires a heightened standard of proof.” He wrote that under the Supreme Judicial Court’s 1993 decision in Polaroid Corp. v. Travelers Indemnity, a party seeking reformation must present “full, clear, and decisive proof of mistake,” in particular that the language of a written instrument fails to reflect the true intent of both parties and that the mistake was either mutual or made by one party and known to the other party.

Barry-Smith concluded that the defendants by “full, clear and decisive proof” established entitlement to reformation of the settlement agreement to include a release of claims by Cahoon and Mis in favor of QS and Ross that was equivalent to the release of claims running from QS/Ross to Cahoon/Mis.

In reaching that conclusion, Barry-Smith cited his findings that: (1) Deluhery and Ford had agreed to mutual releases in a term sheet exchanged during the course of negotiations; (2) Deluhery had omitted the mutual release by mistake; (3) Ford recognized the mistake when he reviewed the first draft of the settlement; and (4) Ford never raised the mistake with Deluhery.

“The parties agreed to mutual releases and, given the negotiating history, the parties’ dispute at the time and the other terms of Settlement Agreement, a one-way release made no sense,” Barry-Smith wrote. “The absence of mutual releases plainly was a mistake, which Attorney Ford chose not to raise. Equity supports reformation here.”

In the aftermath of the court’s ruling on the defendants’ counterclaim, the parties requested a continuance of a trial on Cahoon’s claims that had been scheduled to begin on Jan. 12. The court set an April 27 date for the commencement of a jury trial on those claims.