Is Your Settlement Agreement Subject to Its “Subject to” Language?Print Article
- Posted on: May 12 2023
This Blog has previously discussed issues related to whether a binding agreement (a settlement agreement or otherwise) was formed by parties to a dispute. See, e.g., [here], [here], [here], [here] and [here]. In our prior articles we discussed, inter alia, the elements of contract formation and whether emails suffice to satisfy signing requirements.
Such issues were relevant to the Appellate Division, First Department’s, May 9, 2023, decision in Go New York Tours, Inc. v. Tour Central Park Inc. [Eds. Note: much of the information set forth herein was derived from the supreme court decision appealed from [here] available on the Court’s NYSCEF system, and from which most of the unascribed quotes are taken.] The parties both operate bicycle rental and tour businesses in New York City’s Central Park. Plaintiff commenced a trademark infringement action against defendant in the United States District Court for the Southern District of New York (the “Federal Action”). The Court in the Federal Action referred the matter for mediation. The mediation appeared successful as defendant’s counsel sent plaintiff’s counsel the following email:
It is hereby agreed by the parties that subject to a formalized Settlement Agreement, subsequent to Mediation, the parties have agreed to resolve the matter styled Go New York Tours Inc. v Tour Central Park Inc., SDNY Docket No. 19- cv-09803 (VEC)(KNF) as follows:
• Defendant shall not use the term “Bike Rental Central Park” in Defendant’s business capacity;
• Plaintiff shall not use the term “Bike Rent NYC” in Plaintiff’s business capacity;
• Both Plaintiff and Defendant may use the terms “Central Park Bike Rent” and “Central Park Rent Bike”;
• Both parties shall absolutely disavow any professional affiliation or relationship with the other;
• Tour Central Park shall pay Go New York Tours Ten Thousand Dollars ($10,000.00);
• Neither Plaintiff nor Defendant admits any liability or wrongdoing.
The parties agree that each side participated in the subject Mediation with the assistance of and representation by counsel. The parties understand and agree to the terms of the settlement as contemplated at Mediation and consent that said terms are subject to the execution of a formal Settlement Agreement.
Plaintiff’s counsel subsequently sent a confirmatory email as to the agreement’s terms. A joint letter was submitted to the Court in the Federal Action advising of the settlement and requesting the adjournment of an upcoming status conference “‘with the expectation that the above settlement will be finalized in the interim and the action discontinued.’”
Shortly thereafter, defendant sought to open the Federal Action due to its principal’s “misunderstanding” as to the meaning of a settlement term that his own attorney included in the settlement email. Defendant’s principal claimed he did not agree that both parties “may use the terms ‘Central Park Bike Rent’ and ‘Central Park Rent Bike’”. After an additional mediation session failed to resolve the outstanding issue, the Court in the Federal Action issued an order indicating that is did not have subject matter jurisdiction to determine whether the parties “settlement agreement” was enforceable. Accordingly, the plaintiff in the Federal Action commenced an action in supreme court to enforce the settlement. Defendant moved for summary judgment dismissing the action and plaintiff cross-moved for summary judgment.
Essentially, defendant argued that there was no meeting of the minds because its principal, whose first language was not English, understood that defendant would retain exclusive rights to the use of the names “Central Park Bike Rent” and “Central Park Rent Bike.” Supreme court found defendant’s position “utterly contradicted” by the settlement email language, which “cannot plausibly” be deemed ambiguous.
Defendant also contended that because the settlement email indicated that it was “subject to the execution of a formal Settlement Agreement,” no settlement agreement was reached by the parties. Supreme court then discussed the law in this area. [Eds. Note: the court’s discussion in this regard is fulsome, informative and collects many cases on the topic.] The court explained that “the law distinguishes between “a preliminary agreement contingent on and not intended to be binding absent formal documentation, which is not enforceable, and a binding agreement that is nevertheless to be further documented, which is enforceable with or without the formal documentation.” (Citations and internal quotation marks omitted.) The former, the court noted, requires an explicit reservation that there would be no contract until the full formal document is completed and executed [but] the mere fact that the parties intended to draft formal settlement papers is not alone enough to imply an intent not to be bound except by a fully executed document.” (Citations and internal quotation marks omitted.)
Specifically, where agreements contain “subject to a signed writing” language, supreme court stated that “it may indicate that the writing is a condition precedent that must occur before obligations under the agreement become binding” but “in other instances, ‘subject to’ language has been held to fall short of an express reservation of the right not to be bound absent an executed agreement.” After analyzing numerous cases, supreme court concluded that:
“subject to” or other similar language in an agreement is not a talisman against enforceability, as the defendant suggests. Rather, it is one factor, among several, that the court must consider in determining whether the defendant intended to be bound. In this regard, courts assess whether the parties’ conduct evidenced an intent to be bound, whether all material terms of the contract have been agreed upon, whether the agreement at issue is the type of contract usually committed to writing, and whether there has been partial performance of the contract. [Citation omitted.]
Supreme court went on to explain, inter alia, that defendant’s “own counsel memorialized the material terms of the parties’ settlement, including the amount to be paid by the defendant and a clear agreement as to usage of disputed terms in the parties’ respective businesses, in an email sent during the [initial] mediation, with the subject line, ‘Go New York v. Tour Central Park – Term Sheet – For review.’” Further, plaintiff’s counsel confirmed the terms were “fine” and counsel to both parties agreed to the additional term that the “documentation be completed and payment made within 30 days.” Additionally, no writings suggested that the agreement was “proposed,” “preliminary” or otherwise “tentative”.
Finally supreme court noted that “the format of settlement agreements is governed by CPLR 2104” and the “email correspondence submitted here suffices to meet CPLR 2104’s requirements for enforceability.”
Thus, supreme court denied defendant’s motion for summary judgment and granted, in part, plaintiff’s motion for summary judgment as to liability on its sole cause of action (breach of contract). However, supreme court left plaintiff’s entitlement to specific performance and compensatory damages to be determined at trial.
On defendant’s appeal, the First Department unanimously affirmed and stated:
The court properly found that the parties entered into a binding settlement agreement at the conclusion of mediation, the terms of which were embodied in an email agreement. The email correspondence is sufficient to embody a settlement agreement since it was authentic and sets forth all material terms.
The settlement agreement specifically stated that it would be “subject to a formalized Settlement Agreement.” In analyzing these types of phrases, courts must determine whether the parties have merely come to a preliminary agreement to agree (which is not enforceable), or a binding agreement, by determining whether there has been an explicit reservation that there would be no contract until the full formal document is completed and executed.
Here, the parties’ use of the phrase “subject to,” standing alone, did not amount to an express reservation of the right not to be bound or a condition precedent to the formation of a binding contract. Under these circumstances, the court properly found that the “subject to” language was indicia of the parties’ expectation that they would come to a final agreement as a mere formality, not as a condition precedent to a binding settlement agreement. The parties’ subsequent actions — including their correspondence with each other, their cocounsel and the court — all indicate their respective understandings that the parties had come to a final settlement agreement resolving the related action in federal court. [Citations and some internal quotation marks omitted.]
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.