By Thomas E.L. Dewey and Daniel Shternfeld
Long time readers of this column know that not all enforceable settlements are reduced to formal agreements executed by all parties. A recent federal case in New York presents an instructive look at a court’s evaluation of whether an email, following months of settlement discussions and setting forth detailed settlement terms that the parties seemingly agreed upon, should be enforced.
Ultimately, the plaintiff’s claim that there was an enforceable settlement agreement was undermined by language in the email, the parties’ correspondence after the purported email agreement, and the parties’ conduct. Practitioners should carefully note the “most important” factor in the court’s detailed analysis—the language of the purported agreement—which was on these facts sufficient alone to deny enforcement.
The dispute in Unequal Techs. Co. v. Dynamic Apparel Design, LLC centered on defendant’s alleged failure to pay $487,000 for lacrosse shoulder pads. Plaintiff delivered the shoulder pads through a combination of defendant directly and defendant’s customers. The parties disputed whether defendant had actually ordered 6,220 shoulder pads from plaintiff. (1:23-cv-261, Dkt. # 55; 2024 WL 4802754 (Nov. 15, 2024)).
Following months of negotiations and an unsuccessful mediation two months earlier, the parties reached a settlement during a phone call on April 9, 2024. Plaintiff’s counsel sent an email to defendant’s counsel that same day setting forth the broad terms of the negotiated settlement, which Plaintiff’s counsel wrote would “be memorialized in a more fulsome written agreement.”
Among other terms, the parties agreed: 1) defendant would wire $425,000 to plaintiff’s counsel’s trust account by April 19; 2) defendant would ship 500 of plaintiff’s lacrosse shoulder pads to plaintiff’s headquarters, and plaintiff would designate the sizes of the pads in writing. Defendant would ship the pads within 10 business days of execution of the settlement agreement; 3) the litigation would not be dismissed until full performance by defendant;
4) in the event defendant breached the settlement agreement after execution, plaintiff would have the option to either revoke the settlement agreement and pursue its full claims, or seek to enforce the settlement agreement’s terms; 5) the parties would notify the court, by joint letter, that a settlement in principle was reached and, therefore, the parties would request that the court adjourn all deadlines and hearings while the parties memorialized the agreement in writing; 6) plaintiff’s counsel would prepare the initial draft of the settlement agreement; and 7) defendant’s counsel would prepare the initial draft of the letter to the court. Plaintiff’s counsel’s April 9th email concluded with a request to confirm the parties’ understanding of the settlement terms.
On the same date, the parties submitted a joint letter to the court reporting that they had “reached a settlement in principle” and that they were “in the process of preparing a settlement agreement setting forth the terms of that agreement for the parties’ execution.” The court promptly gave the parties until June 10, 2024 to either dismiss the case or, failing a settlement, file a status report.
Almost immediately, the parties began exchanging correspondence changing the terms of the agreement in the April 9, 2024 email. On April 11, Plaintiff’s counsel sent defendant’s counsel a first draft settlement agreement, which, among other things, accelerated some of the deadlines for performance, and the cover email expressly conditioned the agreement’s binding effect on “final client approval (and execution).”
On April 12, defendant’s counsel sent his own requested modifications to the proposed agreement, including changing the payment date from April 19 to “within 30 days of the full execution date of the agreement.” Defendant also proposed returning 500 “large” shoulder pads to plaintiff rather than the sizes specified by plaintiff.
Plaintiff’s counsel rejected these modifications on the same day, and then included a second, revised, proposed agreement. Plaintiff’s counsel noted that his client had yet to review the latest iteration of the proposed agreement “and therefore the proposal is subject to approval by my client.”
On April 17, plaintiff’s counsel emailed defendant’s counsel that plaintiff “intends to hold the settlement offer/agreement open through Friday [April 19]. However, if we do not receive a fully executed agreement by Friday, then the agreement shall be automatically withdrawn, the offer revoked” and they would request the court to restore its previous deadlines.
On April 19, defendant’s counsel rejected plaintiff’s proposed modified agreement and set forth alternate settlement terms. plaintiff’s counsel rejected defendant’s proposed modifications and proposed a third revised agreement, which again was subject to plaintiff's approval. Moreover, plaintiff’s counsel “reserve[d] the right to make additional changes.”
Plaintiff’s counsel sent another email on the same date advising that his client instructed him to request the court reinstate its prior deadlines “unless we have a signed agreement today.” Defendant’s counsel responded that defendant would not sign the agreement that day and proposed alternative settlement terms, which plaintiff rejected.
On April 23, defendant’s counsel advised his counterpart that defendant would not agree to plaintiff’s terms and plaintiff’s motion to enforce the settlement agreement soon followed.
The court (Mae A. D’Agostino, U.S.D.J.) began its analysis by noting that an enforceable settlement agreement requires “an offer, acceptance, consideration, mutual assent and intent to be bound” and the parties must agree “on all essential terms,” consisting of “all issues perceived to require negotiation.” The court observed that when a preliminary agreement is reduced to a writing signed by the parties or their representatives, the plain language of the agreement is the best evidence of the parties’ intent, and that this includes agreements written in an email.
Courts determine the parties’ intent—a question of fact—by examining the totality of the circumstances. The plaintiff seeking enforcement of the settlement agreement bears the burden of proving the existence of a contract by a preponderance of the evidence.
The court recited the Winston factors considered by courts in the Second Circuit (taken from Winston v. Mediafare Ent. Corp. 777 F.2d 78, 80 (2d Cir. 1985)) to determine whether the parties intended to be bound in the absence of a document executed by both sides: 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.
The court noted that the first factor—the language of the agreement—is the “most important.” In fact, if a writing showed that even one party did not intend to be bound, the court need not look beyond the first factor. Here, this factor heavily favored defendant. Plaintiff’s counsel’s April 11 email—the first email following the parties’ April 9th email—changed some of the terms of the parties’ “agreement in principle” and expressly conditioned its binding effect on “final client approval (and execution).” This alone strongly favored denying enforcement.
Moreover, the court found evidence that the parties did not intend to be bound before the execution of a written settlement agreement. The April 9th “agreement in principle” email begins with a statement that the parties’ agreement would “be memorialized in a more fulsome written agreement.”
Defendant’s obligation to return the shoulder pads started “within 10 business days of execution of the settlement agreement” and described plaintiff’s remedies if defendant “breaches the settlement agreement after execution.” The court found this language demonstrated that the parties did not intend to be bound until a formal, written agreement was executed.
Each proposed settlement agreement also contained a merger clause, stating that the written agreement set forth the parties’ entire agreement and fully superseded any prior agreements. These merger clauses and the parties’ ongoing revised terms after April 9th were persuasive evidence that the parties did not intend to be bound prior to the execution of a written settlement agreement.
The court determined that the other Winston factors pointed toward the same conclusion. The court rejected plaintiff’s argument that it had partially performed the settlement agreement by stipulating to adjourn the existing court deadlines and drafted and negotiated a formal settlement document. Neither party took any meaningful steps to implement the terms of the proposed settlement. The court concluded staying deadlines for 16 days until settlement talks broke down was an “exceedingly brief stay of deadlines” insufficient for partial performance.
The court then considered whether the parties had agreed to all material terms. It recited the standard that a settlement in principle is not final if material terms that form part of plaintiff’s consideration for dismissing claims are not agreed upon. The court disagreed with plaintiff’s conclusory statement that all material terms had been agreed upon.
Instead, it found that the parties disagreed about multiple material terms, including the payment terms, the size of the shoulder pads defendant would return and venue in the event of future disputes. Plaintiff itself had offered three different sets of settlement terms after April 9, including the express right to make additional changes. Both parties had rejected each other’s modified terms and negotiations ended without a mutually agreed upon settlement agreement. Thus, the court concluded there were open material terms.
Finally, the court observed that settlements are generally reduced to writing, or, at a minimum, made on the record in open court. The complexity of the terms of the agreement militated in favor of an executed settlement agreement as well. The court held the settlement terms were sufficiently complex that a writing would be expected, including the payment of $425,000.
The inspection procedure for the shoulder pads was sufficiently complex, as well as the presence of certain provisions, including mutual general releases, non-disclosure/confidentiality and a governing law provision. Moreover, CPLR § 2104 requires a settlement agreement in New York to be either made on the record in open court or reduced to a written agreement signed by the parties. Although this provision is not necessarily binding on federal courts in New York, district courts in the circuit have held that it is at least relevant to applying the fourth factor.
The lack of a signed writing settling this dispute or settlement in open court disfavored enforcement of the settlement. Thus, the court held that the plaintiff had failed to establish an enforceable settlement agreement.
Practice Tips
As we often do in this space, we caution practitioners to take care with oral and written correspondence concerning settlement negotiations. Plaintiff’s counsel ironically reserved his client’s right to review and approve any terms of settlement and to make additional changes. To avoid binding their clients to preliminary terms or an “agreement in principle,” practitioners should reserve their rights to not be bound absent a formal writing concerning settlement.
However, we also point out several lessons practitioners can draw if one does want to enforce a less formal writing, such as an email, as a settlement agreement. As this court cautioned, the language of the agreement is the “most important factor”—an enforceable writing should not reference the parties’ intention to execute a more formal agreement at a later time.
Nor should any enforceable writing reference the execution of a future settlement agreement triggering the parties’ obligations under the settlement, less a court determine such language evidences an intention to not be bound.
Aside from the writing itself, the parties’ subsequent conduct swayed this court as well. A party should not offer alternative or revised terms to an agreement it later seeks to enforce standing alone. Moreover, courts look to “partial performance” or, relatedly, reliance on the settlement as a factor in evaluating enforceability.
This court found an adjournment of court deadlines of two and a half weeks insufficient to constitute partial performance, and in another instructive example we explored in 2023, the Third Department found the cancellation of a deposition similarly insufficient detrimental reliance under CPLR 2104. See Matter of Estate of Eckert, 217 A.D.3d 1151, 1154 (3d Dep’t 2023).
Typically, by contrast, payment of settlement proceeds would demonstrate partial performance of a less formal writing setting forth settlement terms. See, e.g., HVN Clothing, Inc. v. Lomeway E-Commerce (Luxembourg) Ltd., 636 F. Supp.3d 451, 456 (S.D.N.Y. 2022) (enforcing email settlement under Winston where both parties partially performed by payment of settlement proceeds to plaintiffs and plaintiffs reporting parties’ agreement to third-party).
This article first appeared in the New York Law Journal on February, 9 2025.