Balaban-Krauss et al v. Executive Risk Indemnity Inc.

Filing 25

MEMORANDUM-DECISION and ORDER - That Magistrate Judge Christian F. Hummel's February 6, 2014 22 Report-Recommendation and Order is ADOPTED in its entirety. That ERII's 15 Motion to Enforce Settlement is DENIED. Signed by Chief Judge Gary L. Sharpe on 6/27/2014. (jel, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________
JUDY BALABAN-KRAUSS et
al.,
Plaintiffs,

1:13-cv-282
(GLS/CFH)

v.
EXECUTIVE RISK INDEMNITY,
INC.,
Defendant.
________________________________
APPEARANCES:
OF COUNSEL:
FOR THE PLAINTIFFS:
Office of David R. Sheridan
33 Grantwood Road
Delmar, NY 12054
FOR THE DEFENDANT:
Cozen, O’Connor Law Firm
45 Broadway Atrium
16th Floor
New York, NY 10006

DAVID R. SHERIDAN, ESQ.

MELISSA F. BRILL, ESQ.

Gary L. Sharpe
Chief Judge
MEMORANDUM-DECISION AND ORDER
I. Introduction
Pending before the court is a motion by defendant Executive Risk
Indemnity, Inc. (ERII), to enforce a settlement agreement allegedly entered

into with plaintiffs Judy Balaban-Krauss, Robert Callaghan, Ronald Field,
and Laura Donaldson. (Dkt. No. 15.) In a Report-Recommendation and
Order (R&R) dated February 6, 2014, Magistrate Judge Christian F.
Hummel recommended that the motion be denied. (Dkt. No. 22 at 9.) ERII
has filed objections to the R&R. (Dkt. No. 23.) For the reasons that follow,
the R&R is adopted in its entirety and ERII’s motion is denied.
II. Background
This declaratory judgment action arose when plaintiffs sought
insurance coverage by ERII for legal defense in an underlying state court
action brought against them, in which they were accused of breaching their
duties as trustees of an insurance trust. (Compl., Dkt. No. 1, Attach. 1 at 38.) When ERII disclaimed coverage, plaintiffs commenced this action
seeking a declaration that ERII must cover the costs of their defense in that
underlying state court action. (Id.)
While this action remained pending, the parties engaged in
settlement negotiations by way of various emails between their respective
attorneys: David Sheridan, for the plaintiffs, and Melissa Brill, for ERII. On
July 22, 2013, Sheridan, via email, notified Brill that his clients “will settle
this case today for $17,621.26.” (Dkt. No. 15, Attach. 4 at 2.) Brill
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responded, “I got the $17,621.26. Done.” (Id.) The next day, Sheridan
responded by sending a one-page form release, and asking that Brill inform
him “promptly” if she had “any proposed revisions.” (Dkt. No. 17, Attach. 1
at 2-3.) Brill responded the following day, on July 24, and indicated that
she “w[ould] have proposed revisions” once she heard back from her client.
(Dkt. No. 17, Attach. 2 at 2.) On July 25, Brill emailed Sheridan, requesting
proposed changes, and attaching a five-page “Settlement Agreement and
Release.” (Dkt. No. 17, Attach. 3 at 2-7.) That same day, Sheridan
responded, attaching a “revised version” of the agreement, and noting a
potential issue regarding the release of a possible indemnification claim.
(Dkt. No. 17, Attach. 5 at 2, 4-8.)
The next communication between the parties is an August 2 email
from Brill to Sheridan, indicating that the prior deal was “still on the table”;
Sheridan replied that his clients “will take the $17,621.26 in settlement of
both defense and indemnity,” attached a “slightly revised version of the
agreement,” and requested that Brill insert any additional language she
wanted in the agreement, so that Sheridan could “send one copy to each
client for signature.” (Dkt. No. 15, Attach. 5 at 2.) Brill responded,
attaching what she “hope[d] is the final version of the settlement agreement
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and release,” and asking that plaintiffs sign the attached agreement. (Dkt.
No. 15, Attach. 6 at 1.) Sheridan replied to that email, noting a concern
about the scope of the release, and proposing additional changes to the
agreement. (Id.) The parties exchanged additional proposed changes and
revisions. (Dkt. No. 15, Attach. 7 at 2-9; Dkt. No. 15, Attach. 8 at 2.)
Finally, on August 22, Brill sent Sheridan a “new version, with [his] changes
accepted, and no other changes made,” and asking Sheridan to “let [her]
know if this will do.” (Dkt. No. 15, Attach. 9 at 2.)
This final version provided that ERII would make a settlement
payment of $17,631.26 to plaintiffs “within twenty[-]one business days of
ERII’s receipt of th[e] Agreement, duly executed by [p]laintiffs.” (Id. at 5.)
Then, within five days of receipt of the payment, Sheridan would be
required to execute and file a stipulation of discontinuance with the Clerk of
the court. (Id. at 7-8.) Additionally, the agreement contained a merger
clause which stated that the agreement “contains the entire understanding
of the [p]arties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, whether written or oral,” and
indicated that “[t]he [p]arties have executed this [s]ettlement [a]greement
without reliance upon any promise, representation or warranty other than
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those expressly set forth herein,” and “they have executed this [s]ettlement
[a]greement of their own free will.” (Id. at 7.) Plaintiffs never signed the
agreement.
There were no further communications between the parties
regarding settlement. Ultimately, on October 10, ERII filed the instant
motion, seeking to have the court enforce the allegedly binding settlement
agreement reached by the parties. (Dkt. No. 15.)
III. Standard of Review
Before entering final judgment, this court reviews report and
recommendation orders in cases it has referred to a magistrate judge. If a
party properly objects to a specific element of the magistrate judge’s
findings and recommendations, this court reviews those findings and
recommendations de novo. See Almonte v. N.Y. State Div. of Parole, No.
Civ. 904CV484GLS, 2006 WL 149049, at *3, *5 (N.D.N.Y. Jan. 18, 2006).
In those cases where no party has filed an objection, only vague or general
objections are made, or a party resubmits the same papers and arguments
already considered by the magistrate judge, this court reviews the findings
and recommendations of the magistrate judge for clear error. See id. at *45.
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IV. Discussion
ERII has specifically objected to the recommendation in the R&R that
its motion be denied. (Dkt. No. 23 at 1-2; Dkt. No. 23, Attach. 1 at 3-13.)
The court therefore has conducted a de novo review of this issue and, for
the reasons that follow, the R&R is adopted in its entirety and ERII’s motion
is denied.
“A district court has the power to enforce summarily, on motion, a
settlement agreement reached in a case that was pending before it.”
Meetings & Expositions, Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir.
1974). “An agreement to end a lawsuit is construed according to contract
principles.” United States v. Sforza, 326 F.3d 107, 115 (2d Cir. 2003).
Therefore, the disposition of this motion turns on whether the parties here
in fact reached a binding agreement or enforceable contract.
As relevant here, the Second Circuit has “articulated several factors
that help determine whether the parties intended to be bound in the
absence of a document executed by both sides.” Winston v. Mediafare
Entm’t Corp., 777 F.2d 78, 80 (2d Cir. 1985). The four factors a court is to
consider in making this determination are:
(1) whether there has been an express reservation of the
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right not to be bound in the absence of a 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.
Id.
In its objections, ERII asserts that Judge Hummel erred in treating the
parties’ final version of the settlement agreement, sent on August 22, 2013,
as the formation of the parties’ contract to settle. (Dkt. No. 23 at 1-2.)
Instead, ERII argues that contract formation occurred via the parties’ initial
email communication on July 22, 2013, and that this contract satisfies the
four Winston factors such that it should be enforced. (Id.) Even if the
August 22 exchange is considered the parties’ final written agreement,
however, ERII asserts that it also satisfies the four Winston factors. (Dkt.
No. 23, Attach. 1 at 6-13.) The court will address each of these factors in
turn below.
A.

Reservation of the Right Not to be Bound in the Absence of a
Writing
As to the first factor, ERII argues that plaintiffs never reserved the

right not to be bound absent an executed agreement, and therefore “the
parties’ email correspondence formed a valid, binding, and enforceable

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settlement agreement.” (Id. at 6-11.) ERII additionally argues that the
presence of the merger clause in the agreement “does not necessarily . . .
indicate that the parties lacked the intent to settle.” (Id. at 9-10.)
Here, it is apparent that no final agreement to settle the claims
existed, and that the parties clearly intended to complete the agreement
only with the execution of a signed release. The final version of the
proposed settlement agreement sent by ERII on August 22 makes clear
that the parties did not consider the agreement complete until the
agreement was signed by plaintiffs. (Dkt. No. 15, Attach. 9 at 4-10.) ERII’s
consideration for the agreement was plaintiffs’ promise to release any
claims against ERII. (Id. at 5-6.) The proposed agreement provides that
“[t]he Settlement Payment shall be made within twenty[-]one business days
of ERII’s receipt of this Agreement, duly executed by plaintiffs.” (Id. at 5.)
Then, within five days of receiving the payment, plaintiffs were to file with
the court a stipulation to discontinue this action. (Id. at 7-8.) Thus, the
language of the agreement indicates that ERII was to provide its
consideration for the agreement only after plaintiffs returned a signed copy
of the agreement to ERII, which never occurred here. Accordingly, the
language of the final agreement dictates that plaintiffs’ execution of the
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agreement was necessary in order to trigger either party’s obligations. See
Gaul v. Chrysler Fin. Servs. Ams., LLC, No. 1:13-cv-433, 2014 WL
1466491, at *5 (N.D.N.Y. Apr. 15, 2014).
Further, while, as ERII argues, the presence of the merger clause
may not be dispositive of this factor, “the presence of a merger clause ‘is
persuasive evidence that the parties did not intend to be bound prior to the
execution of a written agreement.’” Kaczmarcysk v. Dutton, 414 F. App’x
354, 355 (2d Cir. 2011) (quoting Ciaramella v. Reader’s Digest Ass’n, Inc.,
131 F.3d 320, 324-25 (2d Cir. 1997)); see Winston, 777 F.2d at 80 (“[I]f
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.”). This
factor therefore leans against enforcing the parties’ unsigned agreement.
See Ciaramella, 131 F.3d at 324 (“[W]ording in a settlement agreement
that place[s] great significance on the execution date evince[s] an intent not
to create a binding settlement until some formal date of execution.” (citing
Davidson Pipe Co. v. Laventhol & Horwath, Nos. 84 Civ 5192, 84 Civ 6334,
1986 WL 2201, at *4 (S.D.N.Y. Feb. 11, 1986)).
B.

Partial Performance of the Contract
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With respect to the second factor, ERII argues in its objections that
emailing the final written agreement to plaintiffs on August 22 constituted
partial performance of the parties’ settlement agreement. (Dkt. No. 23,
Attach. 1 at 11-12.) ERII asserts that “[e]xchanging a final written
agreement, even if it is never formally executed, strongly evidences that a
valid and enforceable settlement was reached,” and generally constitutes
partial performance of a contract. (Dkt. No. 23, Attach. 1 at 11-12.)
However, the case ERII cites in support of this argument cannot be read as
broadly as ERII suggests, and further, deals with an instance where the
parties had first entered into a settlement agreement on the record in open
court, and subsequently one party refused to sign a written agreement that
had been delivered. (Id.); see Jackson v. Heidelberg L.L.C., 296 F. App’x
102, 103 (2d Cir. 2008). Such circumstances are not present here. In the
instant case, the parties exchanged proposals of a settlement agreement
which was not to take effect until an executed copy was returned to ERII.
(Dkt. No. 15, Attach. 9 at 5, 7-8.) As Judge Hummel noted in his R&R,
there is no partial performance “where ‘the . . . basic elements of
consideration that would have been due to [the parties] under the
settlement agreement’ were not yet provided.” (Dkt. No. 22 at 7 (quoting
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Ciaramella, 131 F.3d at 325).) As further discussed above, the
consideration due to the parties here, namely a settlement payment in
exchange for a release and stipulation of discontinuance, was triggered
only by delivery of an executed agreement from plaintiffs to ERII, which
never occurred. See supra Part IV.A. Therefore, there has been no partial
performance, and this factor suggests against enforcement of the
settlement agreement.
C.

Agreement as to All Terms
Here, the parties appeared to ultimately agree on all terms, as ERII

accepted plaintiffs’ final transmitted version of the agreement without
making additional changes. (Dkt. No. 15, Attach. 9 at 2.) Judge Hummel
therefore found that this factor leaned in favor of enforcing the agreement,
(Dkt. No. 22 at 8), and ERII does not object to this finding.
D.

Whether the Agreement at Issue is the Type of Contract that is
Usually Committed to Writing
As to the final factor, it is clear that this type of agreement is one that

is generally committed to writing. See 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.”); Gaul, 2014 WL 1466491, at

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*7 (“[A]greements to settle lawsuits are generally in writing.”). ERII argues
that this factor is satisfied here because the parties’ email agreement was
in fact reduced to a final writing on August 22, when ERII accepted
plaintiffs’ final changes to the agreement. (Dkt. No. 23, Attach. 1 at 12-13.)
However, what ERII ignores is that, although the final version of the
agreement was technically written, as opposed to oral, it was not executed.
While the parties may have worked out some preliminary agreement to
settle the case, and, while this is the type of agreement that is typically
reduced to writing, here the parties were not able to reach a final written,
and executed, agreement, and “the requirement that the agreement be in
writing and formally executed ‘simply cannot be a surprise to anyone.’”
See Ciaramella, 131 F.3d at 326 (quoting R.G. Grp., Inc. v. Horn & Hardart
Co., 751 F.2d 69, 77 (2d Cir. 1984)). Because the parties here do not have
an agreement in writing that is formally executed, this factor weighs against
enforcement.
In conclusion, the balance of the Winston factors, under these
circumstances, does not dictate enforcement of the purported settlement
agreement here, which was never formally executed by the parties. See,
e.g., Kaczmarcysk, 414 F. App’x at 355-56 (finding that a settlement
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agreement was not binding until the writing memorializing that agreement
was actually signed). The court therefore adopts Judge Hummel’s
recommendation and denies ERII’s motion to enforce the settlement.
V. Conclusion
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that Magistrate Judge Christian F. Hummel’s February 6,
2014 Report-Recommendation and Order (Dkt. No. 22) is ADOPTED in its
entirety; and it is further
ORDERED that ERII’s motion to enforce settlement (Dkt. No. 15) is
DENIED; and it is further
ORDERED that the Clerk provide a copy of this MemorandumDecision and Order to the parties.
IT IS SO ORDERED.
June 27, 2014
Albany, New York

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