H&R Block Tax Services, LLC v. Judy Strauss

Filing 83

MEMORANDUM-DECISION AND ORDERED, that Plaintiffs Settlement Motion (Dkt. No. 64) is DENIED. Signed by Senior Judge Lawrence E. Kahn on September 20, 2016. (sas)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
H&R BLOCK TAX SERVICES, LLC,
Plaintiff,
-against-

1:15-CV-0085 (LEK/CFH)

JUDY STRAUSS,
Defendant.

MEMORANDUM-DECISION AND ORDER
I.

INTRODUCTION
Plaintiff H&R Block Tax Services, LLC commenced this breach of contract action

against Defendant Judy Strauss. Dkt. No. 1 (“Complaint”). Presently before the Court is
Plaintiff’s Motion to Enforce the Parties’ Settlement Agreement. Dkt. No. 64 (“Settlement
Motion”). Plaintiff seeks to enforce the settlement agreement that it purportedly entered into with
Defendant. Defendant opposes the Settlement Motion. Dkt. No. 74 (“Response”). Plaintiff filed a
reply. Dkt. No. 78 (“Reply”).1 For the reasons that follow, the Settlement Motion is denied.
II.

BACKGROUND
A. The Underlying Dispute
The Court presumes the parties’ familiarity with the facts and history of this case, and

recites only those facts necessary to the resolution of the pending motion.

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In its Reply, Plaintiff asks the Court to reject Defendant’s Response because it was
ultimately filed after the Court had granted Defendant numerous extensions on the filing
deadline. Reply at 8–10. However, as Plaintiff acknowledges, Defendant submitted her Response
in compliance with the November 13, 2015 deadline set by the Court. Dkt. No. 73. Plaintiff does
not suggest that the Court lacked authority to grant the extensions in question. Therefore, the
Court will consider Defendant’s Response.

For many years, Plaintiff has engaged “in the business of licensing others to operate tax
return preparation offices under the H&R Block service mark.” Compl. ¶ 5. In September 1984,
Defendant entered into a Satellite Franchise Agreement (the “SFA”) with Plaintiff’s predecessorin-interest2 to enable Defendant to operate a tax return preparation office in Cobleskill, New
York under the H&R Block service mark. Id. ¶ 1. The SFA automatically renewed every five
years, and the parties continued their contractual relationship until 2014. See id. ¶ 2; see also Dkt.
No. 1-1 (“Exhibit 1”) ¶ 4. The SFA provided that, for one year after termination of the
agreement, Defendant would be forbidden from soliciting clients of her former H&R Block
office and could not compete in the tax preparation business with Plaintiff in or within forty-five
miles of Cobleskill, New York. Compl. ¶ 9. Prior to the expiration of the most recent five-year
term, Plaintiff informed Defendant that it would not be renewing the 1984 version of the SFA;
instead, Plaintiff offered Defendant a “current form” of the franchise agreement. Id. ¶ 2.
Defendant declined to renew the SFA in its current form, and the franchise relationship expired
on September 1, 2014. Id. ¶¶ 2,12.
On January 26, 2015, Plaintiff filed a Motion for a Temporary Restraining Order alleging
that Defendant was in breach of the SFA. See Dkt. No. 5 (“TRO Motion”). The Court held a
hearing and subsequently ordered, in relevant part, that Defendant “(1) refrain from directly or
indirectly offering tax return preparation and related services in or within forty-five miles of
Cobleskill, New York; [and] (2) refrain from solicitation of clients of the former H&R Block
office in Cobleskill.” Dkt. No. 20 (“February Order”) at 12.

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The succession of rights and liabilities under the SFA is not in dispute.
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On March 3, 2015, Plaintiff moved to hold Defendant in contempt of the February Order,
alleging that she violated the order by (1) preparing income taxes at a new location in Freehold,
New York, which is less than forty-five miles from Cobleskill, New York; and (2) continuing to
solicit clients in Cobleskill. See Dkt. No. 24-13 (“Contempt Motion”) at 1. On July 7, 2015, the
Court granted Plaintiff’s motion, holding Plaintiff in contempt of the February Order, ordering
that the covenants against competition and solicitation outlined in the February Order be
extended to July 7, 2016, and awarding Plaintiff $17,200 in compensatory damages for revenues
received by Defendant from her tax preparation business and $15,616.40 in attorneys’ fees and
costs. Dkt. No. 54 (“July Order”) at 19.
B. The Alleged Settlement Agreement
Prior to issuing its July Order, the Court had sent this case to mandatory mediation in
order to encourage settlement. Dkt. No. 42. The parties chose Professor Michael J. Hutter to
serve as the mediator. Dkt. No. 44. At the July 21, 2015 mediation session, which was attended
by Plaintiff’s counsel, Defendant, and Gregory Schaaf, Defendant’s counsel at the time, the
parties agreed on the general terms that would be included in any settlement agreement.
Settlement Mot. at 3. The elements of the potential settlement included:
(1) an extension of the duration of the covenants against competition
and solicitation contained in the SFA; (2) payment of royalties and
attorneys’ fees by Ms. Strauss to Block; (3) dismissal of the
counterclaim that Ms. Strauss filed in this action; and (4) provision
for liquidated damages and attorneys’ fees in the event of Ms.
Strauss’s future violation of the consent judgment.
Id. Following the mediation session, the parties agreed to exchange settlement proposals
specifying the precise terms of the agreement. Id.

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About one week after the mediation session, on July 29, 2015, Plaintiff’s co-counsel
emailed Plaintiff’s final settlement proposal to Schaaf. Id. Plaintiff’s proposal largely tracked the
general settlement terms to which the parties had agreed at the mediation session; the only
difference was that Plaintiff’s counsel asked for $13,000 in additional royalties from Defendant
based on tax return preparation revenue she had received after termination of the SFA. Id. After
requesting and receiving clarification from Plaintiff’s counsel concerning the additional royalties,
Schaaf called Plaintiff’s counsel on August 3, 2015, leaving a telephone message that Defendant
was accepting the settlement terms. Id. at 4. Schaaf also asked Plaintiff’s counsel to prepare
formal settlement documents that Defendant would then sign. Id. Later that day, Schaaf spoke to
Plaintiff’s counsel on the phone, confirming Defendant’s acceptance of the settlement terms
contained in the email Plaintiff’s counsel sent to Schaaf. In this conversation, the parties also
agreed that the settlement would include “mutual general releases” of claims, and Schaaf again
asked Plaintiff’s counsel to prepare the formal settlement documents. Id.
On August 5, 2015, Schaaf filed a letter with the Court stating that Defendant had agreed
to Plaintiff’s settlement terms and that Plaintiff’s counsel would prepare the settlement
documents. Id.; Dkt. No. 58. The next day, the Court noted that it had received Schaaf’s letter
and asked the parties to finalize the settlement agreement. Dkt. No. 60.
On August 12, 2015, Plaintiff’s counsel emailed Schaaf the formal settlement documents,
which included a written settlement agreement. Settlement Mot. at 5; Dkt. No. 64-10 at 2–9
(“Draft Settlement Agreement”). The Draft Settlement Agreement set out the terms that Schaaf
had agreed to on behalf of Defendant. Settlement Mot. at 5. In addition, it contained a merger
clause stating that “[t]his Settlement Agreement constitutes the entire, full, and complete
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agreement of the Parties concerning its subject matter and supersedes all prior negotiations,
understandings, and agreements between the Parties concerning the same subject matter.” Draft
Settlement Agreement ¶ 12.
Despite Schaaf’s statement to Plaintiff’s counsel that Defendant was willing to accept the
settlement, Defendant never signed the formal settlement documents. Settlement Mot. at 5. On
August 24, 2015, Schaaf informed Plaintiff’s counsel that he had been discharged by Defendant,
who now took the position that she had never authorized Schaaf to agree to the settlement on her
behalf. Id.
As a result of Defendant’s failure to sign the settlement documents, Plaintiff filed the
Settlement Motion, asking the Court to enforce the settlement purportedly reached between the
parties. Id. at 1. Plaintiff argues that Defendant authorized Schaaf to accept Plaintiff’s settlement
terms, and that the settlement agreement allegedly reached by the parties is contractually binding.
Id. Defendant responds by arguing that she never gave Schaaf authorization to settle on her
behalf, and that the settlement to which he, without authorization, agreed is unenforceable as a
matter of contract law. Resp. at 2, 7–10.
III.

DISCUSSION
“A district court has the power to enforce summarily, on motion, a settlement agreement

reached in a case that was pending before it.” Comm’n Express Nat’l, Inc. v. Rikhy, No. 03-CV4050, 2006 WL 385323, at *2 (E.D.N.Y. Feb. 17, 2006) (quoting 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). The
Court must therefore decide whether, despite the failure to execute formal settlement documents,
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the parties’ communications with each other, including Schaaf’s telephone calls to Plaintiff’s
counsel regarding Defendant’s alleged acceptance of the settlement, were sufficient to create a
binding settlement agreement.
The Second Circuit has outlined four factors to be considered in determining whether the
parties intended to be bound by an oral agreement despite the failure to execute formal settlement
documents. Winston v. Mediafare Entm’t Corp., 777 F.2d 78, 80 (2d Cir. 1985). The factors are:
(1) whether there has been an express reservation of the 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. No single factor is dispositive, Ciaramella v. Reader’s Digest Ass’n, Inc., 131 F.3d 320, 323
(2d Cir. 1997), but the first factor is particularly important, because where “there is a writing
between the parties showing that [one party] did not intend to be bound . . . a court ‘need look no
further than the first factor,’” RKG Holdings, Inc. v. Simon, 182 F.3d 901, 901 (2d Cir. 1999)
(quoting Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989)).
In its Settlement Motion, Plaintiff claims that the agreement allegedly reached between
the parties satisfies the four Winston factors. Plaintiff argues that Defendant, through Schaaf,
unequivocally conveyed her acceptance of all material terms of the settlement agreement as
outlined in the July 29, 2015 email sent by Plaintiff’s counsel to Schaaf. Settlement Mot. at 8.
This acceptance occurred, according to Plaintiff, when Schaaf called Plaintiff’s counsel on
August 3, 2015, and indicated his client’s assent to the settlement. Id. Plaintiff stresses that
neither Defendant nor Schaaf ever expressly reserved the right to reject or modify the settlement

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before the execution of the formal settlement agreement, thereby showing Defendant’s intent to
be bound by the oral acceptance communicated to Plaintiff’s counsel. Id. at 8–9; Resp. at 6. The
Court will address each of the Winston factors in turn.
A. Express Reservation
While Plaintiff is correct that the neither Defendant nor Schaaf ever explicitly reserved
the right not to be bound in the absence of a writing, this does not end the inquiry. The Second
Circuit has given great weight to the terms of a draft settlement agreement in determining
whether the drafting party intended to be bound absent a signed writing. See Ciaramella, 131
F.3d at 324 (“We must give . . . statements [in proposed settlement agreements] considerable
weight, as courts should avoid frustrating the clearly-expressed intentions of the parties.”). In its
discussion of this Winston factor, Plaintiff never mentions the terms of the Draft Settlement
Agreement that its own lawyers drafted, and yet these terms plainly show Plaintiff’s intention not
to be bound by oral agreements reached prior to the execution of formal settlement documents.
As noted above, the Draft Settlement Agreement prepared by Plaintiff’s counsel
contained a merger clause, which stated that “[t]his Settlement Agreement constitutes the entire,
full, and complete agreement of the Parties concerning its subject matter and supersedes all prior
negotiations, understandings, and agreements between the Parties concerning the same subject
matter.” Draft Settlement Agreement ¶ 12. In Ciaramella, the Second Circuit found a similarly
worded merger clause to be “persuasive evidence that the parties did not intend to be bound prior
to the execution of a written agreement.” 131 F.3d at 324. Courts in this circuit have consistently
found the existence of such a merger clause in a draft settlement agreement to be strong evidence
that the drafting party—here, Plaintiff—did not intend to be bound by agreements reached prior
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to the execution of formal settlement documents. See, e.g., Balaban-Krauss v. Exec. Risk Indem.,
Inc., No. 13-CV-282, 2014 WL 292728, at *3 (N.D.N.Y June 27, 2014). Thus, the merger clause
in Plaintiff’s Draft Settlement Agreement is persuasive evidence that Plaintiff did not view the
settlement as complete until both parties signed the written agreement.
Plaintiff’s Draft Settlement Agreement contained several other indications that Plaintiff
did not consider itself bound by an agreement reached prior to the execution of the settlement
documents. For example, the preamble of the draft agreement provided that “[t]his Settlement
Agreement and Mutual Release . . . is entered into as of this ______ day of August, 2015, by and
between [the parties].” Draft Settlement Agreement at 2. Presumably, the blank space in this
clause was to be filled in with the date on which the settlement agreement was signed by both
parties, and not the date on which Schaaf communicated Defendant’s acceptance of the
settlement to Plaintiff’s counsel. The court in Ciaramella found that a similar provision in a
settlement agreement was evidence of an intent not to bound before the execution of the written
agreement, see 131 F.3d at 324, and courts in this circuit have similarly construed preambles of
this type, see, e.g., Sprint Commc’ns Co. L.P. v. Jasco Trading, Inc., 5 F. Supp. 3d 323, 334–35
(E.D.N.Y. 2014).
Moreover, the Draft Settlement Agreement explicitly tied Defendant’s obligations under
the agreement to the date of its execution. Paragraph 12(b) of the agreement stated that
Defendant would be required to pay Plaintiff $46,264.04 “[w]ithin ninety (90) days of the entry
of the Consent Judgment.” Draft Settlement Agreement ¶ 12(b). In other words, Defendant’s
contractual obligations under the settlement agreement would not begin until the Court entered
the proposed consent judgment, which in turn would not happen until the parties executed the
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Draft Settlement Agreement. Plaintiff’s decision to link Defendant’s contractual obligations to
the date of execution of the formal settlement documents is a strong indication that Plaintiff did
not consider the agreement complete until the formal documents were signed. See Ciaramella,
131 F.3d at 324 (finding an intent not to be bound prior to the execution of the written settlement
agreement when “execution was necessary to trigger either parties’ obligations”); Sprint
Commc’ns Co. L.P., 5 F. Supp. 3d at 334 (the parties could not have bound themselves to the
settlement agreement before execution in part because of “the presence of substantive conditions
discussing rights and obligations that either materialize or disappear at a particular time that is
indexed to the date of execution”); EEOC v. Beauty Enterprises, Inc., No. 01-CV-378, 2007 WL
3231692, at *5 (D. Conn. Oct. 31, 2007) (“[T]he language of the draft [settlement agreement]
conditioned many of the parties’ duties and the timing of performance of those duties on the
court’s entry of the Consent Decree, which could not occur until the parties approved, signed and
presented a final draft Decree to the court.”).
Plaintiff argues that Defendant’s intent to be bound in the absence of a writing can be
inferred from Schaaf’s decision to inform the Court that the parties had reached a settlement.
Settlement Mot. at 9; see also Dkt. No. 58 (“Defendant’s Letter to Court Regarding Settlement”).
But Plaintiff offers no reason to construe Schaaf’s filing as a statement that the parties meant to
immediately bind themselves to the agreement without a formally executed writing. Indeed, the
Court, upon receiving Defendant’s notice that a settlement had been reached, noted that it had
been “advised by counsel that this action has been settled, or is in the process of being settled.”
Dkt. No. 60 (emphasis added). Thus, the Court cannot infer an intent to be bound to the oral
settlement agreement from Defendant’s notice to the Court.
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Accordingly, because the Draft Settlement Agreement prepared by Plaintiff indicates that
Plaintiff did not consider itself bound by any agreement reached prior to the execution of the
formal settlement documents, the first Winston factor weighs heavily against enforcement.
B. Partial Performance
“A second factor for consideration is whether one party has partially performed, and that
performance has been accepted by the party disclaiming the existence of an agreement.”
Ciaramella, 131 F.3d at 325. “Partial performance requires some actual performance of the
contract,” and the party attempting to enforce the agreement must have conferred something of
value on the party disclaiming the agreement. P.A. Bergner & Co. v. Martinez, 823 F. Supp. 151,
157 (S.D.N.Y. 1993). Plaintiff argues that this factor favors enforcement of the alleged
agreement because the parties have “ceased active litigation of the case . . . as the result of Mr.
Schaaf’s report to the Court on August 5, 2015 that Ms. Strauss had accepted the settlement.”
Resp. at 8.
While several courts in this circuit have found partial performance where both parties
stopped pursuing litigation in reliance on an alleged settlement agreement, those courts have also
held that this kind of partial performance “can be counterbalanced by a lack of any performance
of any of the terms of the settlement agreement, such as a payment of the settlement amount.”
Sprint Commc’ns Co. L.P., 5 F. Supp. 3d. at 335–36. Here, on the record before the Court,
neither Plaintiff nor Defendant has performed any of the terms of the settlement agreement.
Therefore, this factor weighs neither for nor against Plaintiff’s attempt to enforce the alleged
settlement agreement. See Conway v. Brooklyn Union Gas Co., 236 F. Supp. 2d 241, 250

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(E.D.N.Y. 2002) (finding that, where “no money exchanged hands” but active litigation ceased,
the second Winston factor “did not tip the balance in either direction”).
C. Terms of the Agreement
The third Winston factor requires the Court to determine whether the parties agreed on all
material terms of the settlement. Alvarez v. City of New York, 146 F. Supp. 2d 327, 336
(S.D.N.Y. 2001). The parties do not dispute that there were no material differences between the
settlement agreement outlined in the email sent by Plaintiff’s counsel to Schaaf on July 29, 2015
and the Draft Settlement Agreement prepared by Plaintiff. Moreover, the Court can find no
substantive differences between the two agreements. Compare Dkt. No. 64-3 (“July 29 Email”),
with Draft Settlement Agreement. Therefore, this factor militates in favor of enforcement.
D. Whether the Agreement is One Usually Committed to Writing
The final Winston factor asks whether the agreement at issue is of the type usually
committed to writing. Winston, 777 F.2d at 83. “Settlements of any claim are generally required
to be in writing or, at a minimum, made on the record in open court.” Ciaramella, 131 F.3d at
326; see also Gaul v. Chrysler Fin. Servs. Ams., LLC, No. 13-CV-433, 2014 WL 1466491, at *7
(N.D.N.Y. Apr. 15, 2014) (“[T]he type of document here involved, the release of legal claims
against one party in exchange for some valuable consideration, is the type of agreement normally
committed to writing.”). “Where . . . the parties are adversaries and the purpose of the agreement
is to forestall litigation, prudence strongly suggests that their agreement be written in order to
make it readily enforceable, and to avoid still further litigation.” Winston, 777 F.2d at 83.
Plaintiff argues that this factor favors enforcement because the terms of the settlement
were not so complex that one would expect them to be put in writing before they became
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binding. Reply at 7. Specifically, Plaintiff notes that the material terms of the settlement had
already been reduced to writing in the email sent by Plaintiff’s counsel to Schaaf on July 29,
2015. Id. Plaintiff also emphasizes that the settlement terms largely tracked the relief granted by
the Court in its July Order, id., and that therefore the “parameters of the settlement were straightforward and well understood by the parties,” id. at 8.
Plaintiff cites no case law to support its claim that the existence of emails embodying the
essential terms of the agreement shows that the agreement was not so complex that one would
expect it to be put in writing. The problem with this argument is that courts in this circuit have
regularly refused to enforce alleged settlement agreements without a signed writing, even where
the parties ultimately agreed on all material terms and those terms had been laid out in
communications between the parties. See, e.g., Balaban-Krauss, 2014 WL 2927289, at *4
(finding that the type of settlement agreement at issue is usually committed to writing even
though the parties had exchanged multiple emails regarding the terms of the agreement). Plaintiff
likewise fails to bring to the Court’s attention any authority for its assertion that the similarity
between the relief ordered by the Court in its July Order and the terms of the purported
settlement agreement tips in favor of enforcement.
Turning to the terms of the agreement itself, the Court finds that they are sufficiently
complex that they would typically be put in writing before becoming binding. In Winston itself,
the court was faced with a four-page long settlement agreement requiring one party to pay the
other $62,500 dollars over a period of several years based on a percentage of earnings. 777 F.2d
at 83. The court found that this agreement was of the type usually committed to writing. Id. In
this case, the Court is confronted with a settlement agreement in which Defendant would be
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required to pay Plaintiff $46,262.04 in addition to forty percent of any revenues she obtained if
she continued to violate the covenants against competition and solicitation. Draft Settlement
Agreement ¶ 2. Moreover, the Draft Settlement Agreement is eight pages long. The Court finds
that this agreement is no less complex than the one at issue in Winston. Accordingly, the fourth
Winston factor tips against enforcement of the settlement agreement.
E. Summary
Two of the Winston factors tip against enforcement of the settlement agreement, one is
neutral with respect to enforcement, and one favors enforcement. As discussed above, the first
Winston factor, which asks whether the parties expressly reserved the right not to be bound in the
absence of a writing, tips against enforcement. Because this factor is typically considered the
most important of the four, see RKG Holdings, Inc., 182 F.3d at 901, and because only one factor
militates against enforcement, the Court must deny enforcement of the settlement agreement.3
IV.

CONCLUSION
Accordingly, it is hereby:
ORDERED, that Plaintiff’s Settlement Motion (Dkt. No. 64) is DENIED; and it is

further
ORDERED, that the Clerk of the Court serve a copy of this Memorandum-Decision and
Order on all parties in accordance with the Local Rules.

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In her Response, Defendant argues that Schaaf, her lawyer during the settlement
negotiations, did not have authority to enter into the settlement agreement. Resp. at 2–3. Plaintiff
disputes this. Settlement Mot. at 10–12; Reply at 1–4. Because the Court finds that the settlement
agreement purportedly reached by the parties is unenforceable, it need not reach the question
whether Defendant’s lawyer was authorized to assent to the settlement on her behalf.
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IT IS SO ORDERED.

DATED:

September 20, 2016
Albany, New York

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