## Facts

- David Ellefson, a co-founder and bassist of Megadeth, owned 20% of Megadeth, Inc.; Dave Mustaine was the majority shareholder and frontman, and related corporate entities were involved in band business.
- Ellefson alleged corporate, tort, and intellectual property misconduct, including diversion of profits, improper registrations of the “Megadeth” name and music rights, defamation, and breach of fiduciary duties.
- Settlement negotiations began in October 2003 and proceeded through exchanged drafts of a “Settlement and General Release” for a buyout and release of claims.
- On May 14, 2004, Mustaine set a deadline of 5:00 p.m. for execution, stating that offers would be withdrawn if no signed agreement was received by then.
- Around 4:45 p.m. on May 14, defendants’ counsel sent what was represented as a final version; Ellefson signed and faxed the executed signature page shortly thereafter.
- The parties disputed whether Ellefson’s fax arrived before the 5:00 p.m. deadline; the court assumed it may have been late and treated it, at minimum, as a counteroffer.
- On May 20, 2004, defendants’ counsel mailed fully executed copies of the settlement agreement to Ellefson and his counsel.
- On May 24, 2004, Ellefson’s counsel emailed that Ellefson withdrew from negotiations and withdrew proposals; counsel received the mailed, signed agreement on June 2, 2004.
- In July 2004, Ellefson filed suit in the Southern District of New York; defendants moved to enforce the settlement and dismiss the action.

## Issues

1. Whether Ellefson’s faxed signature page on May 14 constituted acceptance, or at least a counteroffer capable of acceptance by defendants.
2. Whether defendants’ mailing of the fully executed agreement on May 20 constituted an effective acceptance under the mailbox rule.
3. Whether a binding settlement existed before Ellefson’s May 24 withdrawal, requiring enforcement and dismissal of the lawsuit.

## Decision

- The court granted defendants’ motion to enforce the settlement agreement and dismissed the complaint.
- Ellefson’s faxed, signed signature page objectively manifested willingness to be bound and operated, at minimum, as a counteroffer even if sent after the stated deadline.
- Defendants accepted by mailing the fully executed agreement on May 20; acceptance was effective upon dispatch under the mailbox rule.
- Because acceptance occurred before Ellefson’s May 24 withdrawal, the attempted withdrawal was ineffective.
- Regular U.S. mail was a reasonable method of acceptance where the offer/counteroffer did not restrict the mode of acceptance.

## Legal Principles

- Settlement agreements are enforced as contracts when objective manifestations show mutual assent to definite terms.
- A signed signature page transmitted by fax can evidence assent to an identified final draft; the fax need not include the contract’s full text if the executed document is clear from context.
- When an offer or counteroffer does not prescribe an exclusive means of acceptance, acceptance may be made by any reasonable method.
- Under the mailbox rule, acceptance by mail is effective on dispatch, not on receipt, and can bind the parties before a later attempted revocation or withdrawal.

## Conclusion

The court enforced the parties’ May 2004 settlement, holding that Ellefson’s faxed signature page at least constituted a counteroffer and that defendants accepted by mailing the executed agreement, making acceptance effective on dispatch and rendering Ellefson’s later withdrawal ineffective.


Ellefson v. Megadeth, Inc., No. 04 Civ. 5566 (NRB), 2005 WL 82022 (S.D.N.Y. Jan. 12, 2005)