Opinion
99 Civ. 4990 (DFE).
November 27, 2001
OPINION AND ORDER
BACKGROUND
Plaintiff moves to enforce a settlement agreement. This case alleged pregnancy discrimination by an employer, and was brought under federal and New York law. The defendants moved for summary judgment, and I denied their motion in my Opinion and Order dated March 6, 2001. Throughout this litigation, plaintiff has been represented by Louis Ginsberg, and the two defendants by Kenneth Kutner.
By order dated April 30, I set a firm date for a jury trial commencing July 16. On July 9, Mr. Ginsberg and Mr. Kutner placed a telephone call to my law clerk Elyse Entin and told her that they had settled the case. They told her the exact dollar amount, which I will refer to as the "Settlement Amount." They requested her to cancel the request for a jury panel, and my Courtroom Deputy did so. On July 11, Mr. Kutner faxed me a letter saying (with my emphasis):
. . . . This will confirm my conversation with Ms. Entin of your chambers wherein I advised that the above captioned matter has been settled. A formal stipulation will be drafted and will be forwarded to the court within three weeks.
Mr. Kutner then drafted a formal stipulation and faxed it to Mr. Ginsberg's associate (Anthony Merlino) on August 8.
The August 8 document says, at ¶ 1: "Said Settlement Amount shall be paid by check within 30 days from the date of the execution of this Agreement; . . . ." Mr. Kutner says that he later sent a revised stipulation which changed the 30 days to 60 days. This was a unilateral revision by his client. Mr. Kutner has not told me the date of this revision, nor provided me with a copy. From August 20 through September 5 or 6, Mr. Kutner was in Europe and did not call in to his office. On September 11, the World Trade Center was attacked and destroyed. Within a few days, Mr. Kutner was contacted by his client Dr. Robert Haar, who is the individual defendant and the owner of the corporate defendant. Dr. Haar said he was no longer willing to pay the settlement, because the World Trade Center attack had caused him to have a change of heart. (There is no claim that the attack affected the defendants' business, which is located at 62 East 88th Street.)
On November 2, I held a tape-recorded hearing with Mr. Ginsberg, Mr. Kutner and Dr. Haar. Mr. Kutner stated as follows: (a) Dr. Haar agreed to the Settlement Amount on July 9, and told him the case was settled. (b) Mr. Kutner and Mr. Merlino had some discussion about the language of the confidentiality paragraph, but this issue was resolved. (c) The only other revisions were just in terms of the timing of the payment, namely, the defendants' request for an additional 30 days for payment, possibly in installments. (d) "It's really not an issue of the number or the timing. It's really an issue of settling versus not settling."
Also at the November 2 hearing, Dr. Haar stated as follows:
DR. HAAR: The events of September 11, 2001 . . . changed my perspective on this particular case and on a lot of things. . . . After the events of September 11th, I had a change of heart. I [now] feel very strongly in exercising principles which I think is right. . . . I feel very strongly about pursuing this, and allowing the jury to decide what the real truth to this matter is.
THE COURT: Well, as I understand it from you, this change of perspective really happened because of the World Trade Center bombing.
DR. HAAR: Correct.
THE COURT: And up until then, although no one likes to pay a settlement, you had told your attorney to do the settlement papers. And that was pretty much consistent all the way from July 9 until September 11, right?
DR. HAAR: Yes.
Near the end of the hearing, I set a schedule for letter briefs on plaintiff's motion to enforce the settlement agreement. I also told Dr. Haar that he could submit an affidavit if he wanted to mention anything additional. He has not done so.
ANALYSIS
It is undisputed that Dr. Haar agreed to the Settlement Amount on July 9, and that Mr. Kutner had actual authority from the defendants to enter into a binding pre-trial settlement. The next question is whether Mr. Kutner did so. The Second Circuit has said:
Under New York law, parties are free to enter into a binding contract without memorializing their agreement in a fully executed document. This freedom to contract orally remains even if the parties contemplate a writing to evidence their agreement. In such a case, the mere intention to commit the agreement to writing will not prevent contract formation prior to execution. On the other hand, if either party communicates an intent not to be bound until he achieves a fully executed document, no amount of negotiation or oral agreement to specific terms will result in the formation of a binding contract.Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1986) (citations omitted). Winston was a diversity case. The Second Circuit again dealt with a motion to enforce a settlement agreement in Ciaramella v. Reader's Digest Ass'n, 131 F.3d 320, 322 (2d Cir. 1997), a disability discrimination case brought under federal and New York law (and hence similar to the case at bar). The Second Circuit declined to decide whether, in such a case, New York law or federal common law ought to determine whether the parties reached a settlement; it said "there is no material difference" between those two bodies of law on the issue of whether "the parties had intended to enter into a binding oral contract." 131 F.3d at 322. The opinion went on to say:
This court has articulated four factors to guide the inquiry regarding whether parties intended to be bound by a settlement agreement in the absence of a document executed by both sides. We must consider (1) whether there has been an express reservation of the right not to be bound in the absence of a signed writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing. No single factor is decisive, but each provides significant guidance.Ciaramella, 131 F.3d at 323 (citations omitted). Turning to the case at bar, I shall now discuss these four factors.
1. Mr. Kutner did not make an express reservation of the right not to be bound in the absence of a signed writing. He told my chambers (orally on July 9 and by fax letter on July 11) that "the above captioned matter has been settled." His next sentence said, "A formal stipulation will be drafted and will be forwarded to the court within three weeks." Three weeks would run to August 1st; Mr. Kutner did not reserve the right not to be bound until such future date; instead, on July 9, he asked my chambers to cancel a firm trial date of July 16, on the ground that the case "has been" settled. By contrast, in Ciaramella the attorneys negotiated a settlement before taking any discovery, and then exchanged drafts which always contained the following language: "This Settlement Agreement and General Release shall not become effective ('the Effective Date') until it is signed by Mr. Ciaramella, Davis Eisenberg, and Reader's Digest." 131 F.3d at 324. No such language was contained in the complete and formal Stipulation of Settlement which Mr. Kutner drafted on August 8.
2. As to the second factor, there was partial performance of the agreement in the sense that plaintiff gave up her right to the imminent firm trial date.
3. As to the third factor, the parties had agreed upon all of the material terms of the contract. It is undisputed that the Settlement Amount was agreed to on July 9. Mr. Kutner says that at some point he and Mr. Merlino had some discussion about the language of the confidentiality paragraph, but he acknowledged that this issue was resolved. At the November 2 hearing, I asked Mr. Kutner, "What else was there to talk about?" and he replied "Whether there would be installments." But Mr. Kutner's August 8 draft made no mention of installments. It was complete and specific and said the "Settlement Amount shall be paid by check within 30 days from the date of the execution of this Agreement." It appears that the only reason the agreement was not executed was that the defendants stalled by making unilateral revisions, changing the 30 days to 60 days, and then seeking to change the payments to installments.
4. As to the fourth factor, a settlement agreement is the type of contract that is usually committed to writing. And here it was committed to writing, in Mr. Kutner's complete and formal draft Stipulation of Settlement of August 8.
Guided by these four factors, I find that the parties clearly intended to be bound by the July 9 oral settlement agreement. To be sure, they contemplated a writing to evidence their agreement. For the next two months, however, neither party communicated an intent not to be bound until there was a fully executed document. At the November 2 hearing, Dr. Haar made it quite clear that, throughout those two months, he consistently intended to pay the Settlement Amount — until he had a change of heart because of the September 11 attack on the World Trade Center. There is no need to question the sincerity of his change of heart; even if sincere, it is not a valid reason to break a contract.
The settlement agreement written by Mr. Kutner was "to be performed within one year from the making thereof," and hence New York's general statute of frauds (General Obligations Law § 5-701(a)) did not require that it be "subscribed by the party to be charged therewith." The defendants invoke Rule 2104 of the New York Civil Practice Law and Rules ("CPLR"), which makes the New York law of contracts more restrictive for one subset of contracts, namely those relating to a litigation pending in a New York court:
An agreement between parties or their attorneys relating to any matter in an action, other than one made by 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.
CPLR Rule 2104 (emphasis added).
The CPLR does not purport to govern litigation outside the courts of New York State. Nevertheless, some federal judges have applied Rule 2104, including Judge Hellerstein in a recent case where he wrote:
A settlement agreement is a contract. The enforceability of contracts generally is a question of state law, not federal law. Here, all relevant activity, including the communications leading to the settlement agreement, occurred in New York. Hence, New York law should be applied in order to determine the enforceability of the agreement. New York state law includes Section 2104 of the New York Civil Practice Law and Rules. Therefore, I conclude that Section 2104 is applicable to this settlement agreement.Rosenberg v. Inner City Broadcasting Corp., 2001 WL 995349, * 2 (S.D.N.Y. Aug. 30, 2001) (footnotes omitted) (a job discrimination case).
But see Kilcullen v. Metro North Commuter R. Co., 1998 WL 647171, * 7 n. 6 (S.D.N.Y. Sep. 22, 1998) (Haight, J.: "CPLR 2104 . . . is a New York procedural rule that I conclude is not applicable to this FELA action"); Wingerodt v. Hohri, 953 F. Supp. 557, 560, n. 1 (S.D.N.Y. 1997) (Cedarbaum. J.: "Federal rather than state law probably governs" in "the determination of whether the settlement agreement is valid and enforceable" in a civil RICO case).
I agree with the first four sentences of the six-sentence passage quoted above; I am not sure about its fifth and sixth sentences. I have already applied the New York law concerning "enforceability of contracts generally" — as set forth in Winston, and as set forth in General Obligations Law § 5-701(a). Rule 2104 is a special exception to New York's general rules of contract. The exception applies only to agreements "relating to any matter in an action," and the CPLR only "govern[s] the procedure in civil judicial proceedings in all courts of the state." CPLR § 101. (For example, Rule 2104 would not apply to a settlement agreement reached while a job discrimination charge was pending before the U.S. Equal Employment Opportunity Commission.)
Rule 2104 is a purely procedural rule. Accordingly, even if this were a case based solely on diversity of citizenship, I would question whether Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938), would require that Rule 2104 be applied. The case at bar is based primarily on a federal civil rights statute. Since Rule 2104 is a rather narrow, limited exception to New York's general rules of contract, I question whether its application is required by the Rules of Decision Act, 28 U.S.C. § 1652, which says (with my emphasis):
The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.
One question is whether our case is a case where Rule 2104 applies. If it is not, there is a second question: should federal common law choose to borrow the principle of Rule 2104?
The Second Circuit has so far avoided ruling on whether Rule 2104 must be applied by federal courts. In Ciaramella, footnote 1 states:
We note that New York Civil Practice Law and Rules 2104, N.Y. C.P.L.R. 2104 (McKinney 1997), which sets out technical requirements that must be met for a settlement agreement to be enforceable under New York law, may also apply. However, we need not address the issue whether section 2104 applies in federal cases or is consistent with federal policies favoring settlement. Cf. Monaghan v. SZS 33 Assoc., 73 F.3d 1276, 1283 n. 3 (2d Cir. 1996) (reserving decision on whether federal courts sitting in diversity must apply section 2104 when relying on New York law). Because we agree with Ciaramella that, under common law contract principles, Ciaramella never formed an agreement with RDA, we have no reason to rely on section 2104 in this case. See Sears, Roebuck and Co. v. Sears Realty Co., 932 F. Supp. 392, 401-02 (N.D.N.Y. 1996) (interpreting section 2104 as a defense to contract enforcement, and not as a rule of contract formation).Ciaramella, 131 F.3d at 322, n. 1.
In the case at bar, I find it unnecessary to rule on this issue. Even assuming that Rule 2104 does apply, I find that the settlement agreement is binding for three reasons.
First. Rule 2104 was construed in Stefaniw v. Cerrone, 130 A.D.2d 483, 515 N.Y.S.2d 66 (2d Dept. 1987), and an affirmative defense of the Statute of Limitations was stricken because of a stipulation "prepared by the defendant's attorney and proffered to the plaintiffs' attorney. . . . [T]he terms of the stipulation are binding upon the defendant despite the absence of the defendant's signature or that of his attorney . . . ." Stefaniw's attorney did sign the stipulation, but that did not seem to be crucial to the Second Department's decision. In the case at bar, the defendants' attorney prepared the Stipulation of Settlement and proffered it to plaintiff's attorney. It appears that the only reason plaintiff did not sign it was that the defendants stalled by making unilateral revisions.
Second. Rule 2104 is a rule "of convenience, designed to relieve the courts from having to resolve embarrassing factual disputes between counsel . . . ." Weinstein-Korn-Miller, New York Practice, ¶ 2104.4, quoted with approval by A. J. Tenwood Associates, Inc. v. U.S. Fire Ins. Co., 104 Misc.2d 467, 469, 428 N.Y.S.2d 606, 608 (Sup.Ct. N.Y. Cty. 1980). This purpose has no force in the case at bar, where, as in A. J. Ten wood, "the terms and fact of making a settlement were undisputed." Ibid.
Finally, and most importantly, it is well settled that a party can be estopped from invoking Rule 2104. Here, as in Monaghan v. SZS 33 Associates, L.P., 73 F.3d 1276, 1283 (2d Cir. 1996), "plaintiff reasonably relied on the parties' oral [settlement] agreement in permitting her trial date to pass." Similarly, in A. J. Tenwood, the plaintiff "relied on the oral settlement by . . . not proceeding to an immediately available trial." 428 N.Y.S.2d at 608. Mr. Kutner's November 7 letter cites Jacovitz v. Regency Maritime Corp., 1994 WL 455121, * 2-3 (S.D.N.Y. Aug. 22, 1994) (Duffy, J.), but there it was a defendant who was attempting to show detrimental reliance. As a general matter, passing up an available trial will prejudice a plaintiff but not a defendant, unless there is a significant counterclaim. In the case at bar, the defendants had no counterclaim.
Lowe v. Steinman, 284 A.D.2d 506, 728 N.Y.S.2d 56 (2d Dept. 2001); World Color, Inc. v. Collectors' Guild, Ltd., 181 A.D.2d 430, 580 N.Y.S.2d 345 (1st Dept. 1992); Conlon v. Concord Pools, Ltd., 170 A.D.2d 754, 565 N.Y.S.2d 860 (3d Dept. 1991).
CONCLUSION
For the reasons stated above, I grant plaintiff's motion to enforce the settlement agreement. I have taken Mr. Kutner's August 8 document and I have made the following handwritten changes:
a. I have changed the title from "Stipulation of Settlement" to "Stipulation of Settlement and Order."
b. Just before the document's Paragraph 1, I have inserted: "and it is ordered by the Court in this Stipulation of Settlement and Order (hereinafter "Stipulation"), that:"
c. In Paragraph 1, I have changed the typographical error "agrees" to "agree," and I have changed the second sentence to read: "Said Settlement Amount shall be paid by check delivered to Plaintiff's counsel within 5 business days from the receipt, by Defendants' counsel, of a general release provided by Plaintiff as set forth in Paragraph 9; and"
d. At the end of Paragraph 5, I have deleted the words "to the proper" because they are meaningless surplusage.
e. At the start of Paragraph 9, I have changed the phrase "Simultaneous with the execution of this Stipulation of Settlement" to "On or before December 10, 2001."
f. I have added "So Ordered," and my signature, and today's date. I have marked Paragraph 12 and the other signature lines as "Deleted by Judge Eaton as unnecessary." I find that they are unnecessary in light of the tape-recorded hearing of November 2.
To give the defendants one last chance to preserve the confidentiality of the Settlement Amount, I will hold the original of the Stipulation of Settlement and Order in my chambers file. However, I will publicly file it, along with a Judgment, if (a) plaintiff provides a general release and (b) five business days later, the defendants fail to send me proof that they have paid the Settlement Amount.
Plaintiff has requested attorney's fees. See 28 U.S.C. § 1927 and see Kilcullen, 1998 WL 647171, * 7. I deny this request, without prejudice to a renewal of the request if the defendants fail to comply with the Stipulation of Settlement and Order.