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finding that an agreement that included, inter alia, a settlement sum, a letter of apology, a confidentiality clause and a mutual release from liability was "not particularly complex" and therefore not of the type usually reduced to writing
Summary of this case from Galanis v. Harmonie Club of N.Y.Opinion
12-CV-05638 (DLC)(SN)
10-15-2013
RENAISSANCE SEARCH PARTNERS, Plaintiff, v. RENAISSANCE LIMITED, L.L.C. et al., Defendants.
REPORT AND RECOMMENDATION SARAH NETBURN, United States Magistrate Judge.
TO THE HONORABLE DENISE COTE:
On July 24, 2012, Renaissance Search Partners (the "plaintiff" or "Renaissance Search") commenced this action against Renaissance Limited L.L.C. ("Renaissance Limited"), Darryl Miller, Colin Cumberbatch, and Robert McCloud (collectively, the "defendants"), alleging claims related to breach of contract and copyright infringement.
On November 27, 2012, the parties, except for Miller, appeared before me for a settlement conference at which they reached an agreement to resolve the case. After the Court issued an Order of Discontinuance, the Court reopened the case upon receiving the plaintiff's February 6, 2013 letter in connection with the plaintiff's counsel's motion to withdraw and ongoing negotiations to settle with Miller.
On August 5, 2013, the plaintiff filed this Motion to Enforce the Settlement Agreement ("motion"), which the defendants did not oppose. Because I find that the parties who participated in the settlement conference entered into a binding and enforceable agreement on November 27, 2012, I recommend that the plaintiff's motion be GRANTED as to Renaissance Limited L.L.C., Colin Cumberbatch, and Robert McCloud (the "Settling Defendants"), and DENIED as to Darryl Miller. I further recommend that default be entered against Miller with respect to the plaintiff's individual claims against him.
BACKGROUND
I. Factual Background
The plaintiff Renaissance Search is an executive search firm that was started pursuant to a 2010 operating agreement among the three principals, Andrea Henderson, Tony Brown, and Darryl Miller. The plaintiff alleges that, on September 30, 2011, Miller violated the operating agreement by launching a new executive search firm, Renaissance Limited, and falsely informing potential customers that Renaissance Limited was the new business name for Renaissance Search.
II. Procedural Background
Plaintiff brought this action on July 24, 2012, alleging claims against all the defendants for tortious interference with contract, copyright infringement, trademark infringement, and unjust enrichment; against Miller individually for breach of contract, breach of fiduciary duty, and tortious interference with contract; and against Renaissance Limited, McCloud, and Cumberbatch for breach of the covenant of good faith and fair dealing. On November 27, 2012, all parties, except for Miller, appeared before me for a settlement conference. Counsel appeared for Renaissance Limited, McCloud, and Cumberbatch, who themselves appeared by telephone. The plaintiff and the Settling Defendants reached an agreement whereby the defendants would pay the plaintiff a specified sum in five installments over the course of one year. (See November 27, 2012 Settlement Conference Transcript at 2:10-15.) In addition, the plaintiff and the Settling Defendants agreed that, "within 90 days from today Renaissance Limited LLC will cease to exist and will exist in a new entity which will continue the operations of Renaissance Limited LLC but without the use of that name." (Id. at 2:24-3:2.) Upon reciting the terms of the agreement on the record and asking the parties if there was anything missing, both parties responded in the negative. (Id. at 3:18-25.) Henderson, McCloud, and Cumberbatch stated their agreement to the recited terms and their intent to be bound by the settlement agreement. (Id. at 4:13-6:4.) Henderson further stated her authority and intent to bind Renaissance Search Partners, and McCloud stated his authority and intent to bind Renaissance Limited. (Id. at 4:21-5:14.) The day after the settlement conference, I issued an order instructing the parties to file a stipulation of dismissal with the Honorable Denise Cote within 60 days.
After reaching the settlement agreement on November 27, 2012, the defendants made one of the five scheduled payments to the plaintiff but then discontinued payment. (See Affirmation of James A. DeFelice ("DeFelice Aff.") ¶¶ 6-7.) The parties also did not file a stipulation of dismissal. Accordingly, the Court issued an Order of Discontinuance on February 4, 2013, allowing 30 days for applications to restore the action. On February 8, 2013, Judge Cote ordered the case reopened in light of the plaintiff's application regarding her counsel's motion to withdraw and ongoing negotiations to settle with Miller. A final settlement conference was held on June 7, 2013, where all parties were represented by counsel and all parties but Miller attended.
On August 5, 2013, Plaintiff filed this Motion to Enforce the Settlement Agreement, along with an affirmation of counsel James A. DeFelice, which attached (1) the Complaint; (2) the Docket Report; (3) the Settlement Conference Transcript; and (4) a single signature page signed by Miller. Despite affording time to do so, defendants never responded.
LEGAL STANDARD
"A district court has the power to enforce summarily, on motion, a settlement agreement reached in a case that was pending before it." Mtgs & Exp'tns Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir. 1974) (internal citations omitted). Indeed, "[s]uch power is 'especially clear where the settlement is reported to the court during the course of a trial or other significant courtroom proceedings.'" Omega Eng'g, Inc. v. Omega, S.A., 432 F.3d 437, 444 (2d Cir. 2005) (quoting Janus Films, Inc. v. Miller, 801 F.2d 578, 583 (2d Cir. 1986)).
A settlement agreement is a "contract that is interpreted according to general principles of contract law." Omega Eng'g., 432 F.3d at 443. Once a court finds that parties reached a settlement agreement, the prevailing view is that such agreement is binding on all parties, "even if a party has a change of heart between the time of the agreement . . . and the time it is reduced to writing." Elliot v. City of New York, 11 Civ. 7291 (RWS), 2012 WL 3854892, at *2 (S.D.N.Y. Sept. 5, 2012); accord U.S. v. Bank of New York, 14 F.3d 756, 759 (2d Cir. 1994) ("When a party makes a deliberate, strategic choice to settle, she cannot be relieved of such a choice merely because her assessment of the consequences was incorrect.") (citing Ackermann v. U.S, 340 U.S. 193, 198 (1950) (litigants cannot be relieved of the consequences of their strategic decisions merely because hindsight indicates that a decision was wrong)); Omega Eng'g., 432 F.3d at 445 ("It is an elementary principle of contract law that a party's subsequent change of heart will not unmake a bargain already made."); U.S. Fire Ins. Co. v. Pierson & Smith, Inc., 06 Civ. 382 (CM)(LMS), 2007 WL 4403545, at *3 (S.D.N.Y. Dec. 17, 2007) (where a party has entered into an agreement to settle, "the party cannot avoid the settlement by refusing to sign the papers that would memorialize the terms of the agreement that were reported to the court"); Rivera v. State, 115 A.D.2d 431, 432 (1st Dep't 1985) (refusing to vacate a settlement because the court found "nothing but afterthought and change of mind") (citations omitted).
A presumption in favor of enforcement reflects the value that courts place on negotiated settlement agreements. Willgerodt v. Hohri, 953 F. Supp. 557, 560 (S.D.N.Y. 1997), aff'd sub nom. Majority Peoples' Fund for 21st Century, Inc. v. Hohri, 159 F.3d 1347 (2d Cir. 1998) ("Settlement agreements are strongly favored in New York and may not be lightly cast aside."); Hallock v. State, 64 N.Y.2d 224, 230 (1984). It is also consistent with basic contract principles, which maintain that reformation of a settlement agreement is an extraordinary remedy. 27 Richard A. Lord, Williston on Contracts § 70:33 (4th ed. 2012) (reformation is appropriate only to correct a material, mutual mistake); Beecher v. Able, 441 F. Supp. 426, 429-30 (S.D.N.Y. 1977) aff'd, 575 F.2d 1010 (2d Cir. 1978).
Mutual assent of the parties to the terms of a settlement is the essential component of a settlement agreement. Register.com , Inc. v. Verio, Inc., 356 F.3d 393, 427 (2d Cir. 2004) ("Mutual assent is essential to the formation of a contract and a party cannot be held to have contracted if there was no assent or acceptance.") (citing Maffea v. Ippolito, 247 A.D.2d 366, 367 (2d Dep't 1998). While a written document is the most traditional evidence of mutual assent, parties may enter and be bound by an agreement without signing a fully executed contract. Winston v. Mediafare Entm't Corp., 777 F.2d 78 (2d Cir. 1986); Bonnette v. Long Island Coll. Hosp., 819 N.E.2d 206 (2004) (recognizing that the court may enforce a settlement agreement that is not reduced to writing). "Preliminary agreements" that address all negotiated terms are enforceable, even if they are oral, Ciaramella v. Reader's Digest Ass'n, Inc., 131 F.3d 320, 322 (2d Cir. 1997), or written in an email, Hostcentric Tech., Inc. v. Republic Thunderbolt, LLC, 04 Civ. 1621 (KMW)(AJP), 2005 WL 1377853 (S.D.N.Y. June 9, 2005), and even if they contemplate a subsequent memorialization in an executed document, Teachers Ins. & Annuity Ass'n v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987).
Where there is no final document on which to rely, the controlling factor in determining whether parties are bound by an agreement is whether a court has evidence of the parties' intent to be bound. Powell v. Omnicom, 497 F.3d 124, 129 (2d Cir. 2007); Winston, 777 F.2d at 80. Because a court cannot decipher the "secret or subjective intent" of the parties, "it is the objective intent . . . that controls." Klos v. Polskie Linie Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997); accord 22 N.Y. Jur. 2d, Contracts § 29 (2013) ("In the formation of a contract, only the overt acts of the parties may be considered in determining mutual assent.")).
This Circuit has not resolved the question of whether a district court should apply federal or state law to decide a motion to enforce a settlement, where the jurisdiction of the district court rests on a federal question. See, e.g., Powell, 497 F.3d at 129 n.1; Ciaramella, 131 F.3d at 322 n.1. In Ciaramella, however, the Court of Appeals noted that there was "no material difference" between New York law and federal common law on this issue. See Ciaramella, 131 F.3d at 322. See also Figueroa v. New York City Dep't of Sanitation, 475 F. App'x 365, 366 (2d Cir. Apr. 12, 2012) (recognizing that "the question of whether federal or state law controls the enforceability of a settlement agreement in this context is an open one" and declining to decide that question). The majority of district courts have applied only federal common law in federal question cases when a motion is filed to enforce an oral settlement agreement. See, e.g., Pierre v. Chase Inv. Servs Corp., 10 Civ. 1740 (SAS), 2013 WL 709055 (S.D.N.Y. Feb. 25, 2013) reconsideration denied, 2013 WL 1287330 (S.D.N.Y. Mar. 28, 2013); Alvarez v. City of New York, 146 F. Supp. 2d 327, 335 n.6 (S.D.N.Y. 2001).
The Court of Appeals for the Second Circuit has adopted a four-factor test to evaluate disputes around parties' settlement intentions in the absence of a formalized writing. Courts consider whether (1) there has been an express reservation of the right not to be bound in the absence of a writing; (2) there has been partial performance of the contract; (3) all of the terms of the alleged contract have been agreed upon; and (4) the agreement at issue is the type of contract that is usually committed to writing. Winston, 777 F.2d at 80. The factors "may be shown by oral testimony or by correspondence or other preliminary or partially complete writings." Id. at 81 (internal quotation omitted). No single factor is dispositive. Ciaramella, 131 F.3d at 323.
DISCUSSION
The plaintiff argues that all parties entered into a settlement agreement on November 27, 2012. The Court first assesses whether a binding agreement was executed at the conference by the Settling Defendants, and second decides whether, if such an agreement were executed, it binds defendant Miller, who did not attend the settlement conference.
I. Whether a Binding Agreement Was Executed at the November 27, 2012 Settlement Conference
A. Federal Law
The purported agreement in this matter was placed on the record but not reduced to a final writing. The Court thus analyzes the Settling Defendants' overt acts as they relate to the four Winston factors to determine whether they intended to be bound by the terms of the oral agreement.
1. Express Reservation
No party expressly reserved the right not to be bound in the absence of a writing; rather, each individual party at the conference expressly stated his or her intent to be bound by the terms as recited on the record. After putting the proceedings on the record, I asked Henderson, McCloud, and Cumberbatch, "Do you understand the terms of this agreement?" and "[D]o you agree to be bound by it?" All replied either "I do" or "Yes" to both questions. (Tr. at 4:13-20; 5:4-8; 5:25-6:4.) Henderson and McCloud further stated their assent that Renaissance Search Partners and Renaissance Limited, respectively, would be bound by the terms of the agreement as recited on the record. (Id. at 4:21-5:1; 5:9-14.) At the conclusion of the conference, I confirmed the parties' intent by stating, "[J]ust to be clear here, we have now entered into an oral agreement and you all agree to be bound by that agreement. I understand that the parties contemplate memorializing this in a settlement agreement that will be written but you are now all bound by the terms of this agreement." (Id. at 6:19-24.) The Settling Defendants confirmed that they would "agree to be bound by these terms regardless" of whether Miller assented. (Id. at 7:15-19.)
Based on the excerpts of the record cited above, it is clear that McCloud and Cumberbatch intended to be bound and intended to bind Renaissance Limited to the terms of the oral agreement, irrespective of a later writing memorializing the terms. Cf. Delyanis v. Dyna-Empire, Inc., 465 F. Supp. 2d 170 (E.D.N.Y. 2006) (finding that the parties intended to be bound despite references to a future formalized agreement that had not yet been executed); Shape CD, Ltd. v. Quiksilver, Inc., 07 Civ. 2033 (PKC), 2008 WL 2009668, at *2 (S.D.N.Y. May 6, 2008) ("The absence of a fully executed settlement agreement need not be fatal to enforcement, even if one were originally contemplated by the parties." (citing Winston, 777 F.2d 78)). Accordingly, the first Winston factor weighs strongly in favor of enforcement.
2. Partial Performance
The settlement agreement called for the settlement amount to be paid in five scheduled installments, beginning on January 1, 2013, and ending on December 31, 2013. (Tr. at 2:10-15.) The defendants remitted the first of these payments to the plaintiff. This partial performance of a contractual term is more direct than that in most cases, where the partial performance often consists of discontinuing litigation, delivering settlement documents, or some other performance that is not a direct fulfillment of a material settlement term. See, e.g., Lopez v. City of New York, 242 F. Supp. 2d 392, 394, 394-95 (S.D.N.Y. 2003); Alvarez, 146 F. Supp. 2d at 366; United States v. U.S. Currency in the Sum of Six Hundred Sixty Thousand, Two Hundred Dollars ($660,200.00), More or Less, 423 F. Supp. 2d 14, 28-29 (E.D.N.Y. 2006). Because the defendants partially performed a material term of the agreement, the second Winston factor strongly demonstrates the defendants' intent to be bound by a binding and enforceable settlement agreement.
3. Terms Remaining to be Negotiated
At the November 27, 2012 settlement conference, I recited the material terms on the record, including the settlement amount and the dates on which specific amounts would be paid, and asked the parties if there was anything missing. Counsel for both parties replied there was not. (Tr. at 2:7-3:3:25.) Further, the plaintiff affirms that there was a written settlement agreement circulated after the settlement conference that was "identical as to payment amount, payment due dates and the additional terms placed on the record." (DeFelice Aff. ¶ 5.) The oral agreement contained all the material terms that had been identified up to that point, and no material terms have since been offered by the parties as remaining to be negotiated. This factor thus supports a finding that the parties fully integrated the terms of their agreement into the record and intended to be bound by them as of November 27, 2012.
4. Type of Agreement Usually Reduced to Writing
The final Winston factor considers whether the disputed agreement is the type of contract that is usually reduced to writing. This factor requires the Court to assess the "complexity of the transaction." Winston, 777 F.2d at 83.
Here, the terms of the contract were not particularly complex, consisting of (1) a settlement sum to be paid within one year; (2) a short joint letter to clients to clarify any confusion regarding the relationship between the two corporate parties; (3) the defendants' cessation of use of the plaintiff's corporate name; (4) a letter of apology; (5) a confidentiality clause; and (6) a mutual release from liability. Unlike, for example, in Ciaramella v. Reader's Digest Ass'n, Inc., where the Court of Appeals found that a writing was required for an 11-page settlement agreement that included terms that would apply in perpetuity, the terms here are relatively straightforward and comprise only two double-spaced pages of the transcript. 131 F.3d at 326; see also Winston, 777 F.2d at 83 (finding that a four-page agreement with a payment plan spanning years was sufficiently complex to require a writing). Thus, the transaction is not sufficiently complex such that a writing is required under Winston. This factor therefore weighs in favor of enforcement.
In any event, an "agreement on record in open court counts as a writing." Lopez, 242 F. Supp. 2d 392 at 394; accord Ciaramella, 131 F.3d at 326 ("Settlements of any claim are generally required to be in writing or, at a minimum, made on the record in open court."); Omega Eng'g, Inc., 432 F.3d at 444 (internal quotation marks omitted) (stating that a court's authority to enforce a settlement agreement is "especially clear where the settlement is reported to the court during the course of a trial or other significant courtroom proceedings"). Thus, even if the agreement is of the type that would ordinarily need to be reduced to writing before it was enforceable, the open court reporting and acceptance may constitute "a writing" for purposes of this Winston factor.
For these reasons, all four Winston factors favor enforcement of the settlement agreement. I therefore find that, under federal law, a binding and enforceable agreement was executed by the plaintiff, McCloud, Cumberbatch, and Renaissance Limited at the November 27, 2012 settlement conference.
B. New York Law
The Court of Appeals for the Second Circuit has found that federal law and New York law are "materially indistinguishable" with regard to the enforceability of oral settlement agreements and has applied New York and federal common law "interchangeably." Powell, 497 F.3d at 129 n.1 (citing Ciaramella, 131 F.3d at 322); see also Monaghan v. SZS 33 Assocs., 73 F.3d 1276, 1283 n.3 (2d Cir. 1996). Nevertheless, the Court assesses this matter here under the language of New York's CPLR 2104 ("Rule 2104"), which states:
An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered.
Rule 2104 contemplates that "open court" announcements of settlement are exempt from the writing requirement to enforce an agreement. Thus, the New York Court of Appeals has left open the possibility that a court may enforce a settlement agreement that does not comply with the writing requirements of Rule 2104. See Bonnette, 819 N.E.2d at 209 ("If there are rare occasions when [certain] doctrines can permit enforcement of a settlement agreement where the literal terms of CPLR 2104 are not satisfied (a question which we do not decide), this is not one of them."). See also Winston, 777 F.2d at 80 ("Under New York law, parties are free to enter into a binding contract without memorializing their agreement in a fully executed document."). Given the facts here - namely the court-supervised settlement and the recitation and acceptance of settlement terms on the record - I find that this matter is within the narrow category of cases to which Rule 2014's writing requirement need not apply. See Figueroa, 475 F. App'x at 367 (concluding that the case is "one of those rare occasions" where Rule 2104 permits enforcement of the settlement agreement despite the absence of a writing).
Therefore, I find that, under both federal common law and New York law, the parties entered into a binding and enforceable settlement agreement at the November 27, 2012 settlement conference.
II. Whether the Settlement Agreement Binds Darryl Miller
To show that a contract was validly executed under New York law, a party seeking enforcement must show that there was an offer, acceptance, consideration, mutual assent, and the intent to be bound by the contract. See Register.com, Inc, 356 F.3d at 427. "[A] party cannot be held to have contracted if there was no assent or acceptance." Id.
Here, Miller did not attend the November 27, 2012 settlement conference, and the parties were unable to contact him during the conference or immediately thereafter. The plaintiff argues that "Darryl Miller executed [a later version of the] Settlement Agreement which mirrors the terms of the Settlement Agreement placed on the record on November 27, 2012." (Mot. at 5.) To support this claim, the plaintiff submits the signature page of an unknown document bearing only Miller's signature. (See Mot., Ex. D.) The plaintiff does not submit any other pages of the purported settlement agreement or any other evidence indicating the terms to which Miller assented. A single page containing only a signature is insufficient for showing mutual assent. Because the plaintiff has not shown that Miller ever entered into a settlement agreement, I recommend that the plaintiff's motion be denied as it applies to Miller.
Because Miller is not a party to the settlement agreement, the plaintiff's claims against him individually for breach of contract, breach of fiduciary duty, and tortious inference with contract are not discharged by the settlement agreement. Miller has not complied with the Court's orders to attend the settlement conferences, and he has not opposed the plaintiff's motion to enforce the settlement agreement against him. In short, Miller has failed to defend this lawsuit. Accordingly, I recommend that default be entered against him with respect to the plaintiff's three individual claims. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011) (quoting Fed. R. Civ. P. 55(a)) (internal quotation marks omitted) ("[A] district court is . . . empowered to enter a default against a defendant [that] has failed to . . . 'otherwise defend.' We have embraced a broad understanding of the phrase 'otherwise defend.'"
CONCLUSION
For the reasons discussed above, I recommend that the defendants' Motion to Enforce the Settlement Agreement be GRANTED against McCloud, Cumberbatch, Renaissance Limited, and as it applies to the plaintiff's claims against all defendants; and DENIED against Miller and as it applies to the plaintiff's claims solely against Miller. I further recommend that a DEFAULT be entered against Miller. All other requests for relief are DENIED.
The terms of the settlement agreement should remain those represented on the record on November 27, 2012, and set forth in the transcript. Payment in full shall be made within 30 days of a decision by Judge Cote adopting this report.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS
TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a), (d) (adding three additional days when service is made under Fed. R. Civ. P. 5(b)(2)(C), (D), (E), or (F)). A party may respond to another party's objections within fourteen days after being served with a copy. Fed. R. Civ. P. 72(b)(2). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Denise Cote at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Cote. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(b), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).
SO ORDERED.
/s/_________
SARAH NETBURN
United States Magistrate Judge DATED: New York, New York
October 15, 2013