An Agreement to Settle is Not Binding on the Parties Until All Closing Documents Are In Writing and Properly Executed
December, 2004
The New York Court of Appeals recently refused to enforce a settlement that was not fully reduced to writing and properly executed between the parties, notwithstanding that all parties conceded there was an actual agreement to settle. In Bonnette v Long Island College Hospital, 2004 NY LEXIS 2443 (decided October 21, 2004), Plaintiff, a mother, sued Defendants on her own behalf and on behalf of her infant daughter for medical malpractice. After lengthy litigation, the parties entered into an agreement to settle the case for $3 million. Defendants sent closing documents to Plaintiff-mother, including a Stipulation of Discontinuance, general releases and other documents. Plaintiff-mother delayed returning the documents while she negotiated a lien for medical services provided to the child and sought an annuity plan. The child died before Plaintiff-mother executed and returned the closing documents. Plaintiff-mother informed Defendants of the child’s death and Defendants sent a letter back to the mother informing her that because she failed to finalize the settlement, they felt no settlement existed.
The mother filed a motion with the trial court seeking to enforce the settlement. Defendants conceded that they had an agreement to settle with Plaintiff for $3 million, but argued that the agreement was not binding because it was never reduced to writing. The trial court granted Plaintiff's motion; however, the Appellate Court reversed that decision, holding that Plaintiff's failure to obtain any writing with the complete settlement terms, or any recitation of the terms in open court on the record, did not satisfy Civil Practice Law and Rules § 2104, thereby preventing enforcement of the settlement agreement. Bonnette, 307 A.D.2d 902, 762 N.YS.2d 910 (2d Dep't 2003). The Court of Appeals affirmed.
CPLR § 2104 states in relevant part, that “[a]n agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney.” Plaintiff argued that the settlement should be enforced because the correspondence from the hospital forwarding the closing papers was a sufficient writing to bring the agreement within the scope of CPLR § 2104. The Court of Appeals rejected the Plaintiff's argument because the hospital’s letters, although acknowledging the existence of an agreement, did not incorporate all the material terms of the settlement (citing Galasso v Galasso, 35 N.Y.2d 319, 321, 320 N.E.2d 618, 361 N.Y.S.2d 871 (1974) (refusing to enforce a settlement that, although proposed in open court, did not reflect a complete agreement as to all material terms)). Bonnette, 2004 NY LEXIS 2443 at 4-5.
In holding that the settlement agreement was unenforceable because it did not meet the requirements of CPLR § 2104, the Court of Appeals eloquently reasoned that:
to allow the enforcement of unrecorded oral settlements would invite an endless stream of collateral litigation over the settlement terms. This would run counter not only to the statute, which on its face admits of no exceptions, but also to the policy concerns of certainty, judicial economy, flexibility to conduct settlement negotiations without fear of being bound by preliminary offers and the prevention of fraud…. If settlements, once entered, are to be enforced with rigor and without a searching examination into their substance, it becomes all the more important that they be clear, final and the product of mutual accord. These concerns obviously lie at the heart of CPLR 2104, a neutral statute enacted to promote certainty in settlements, which benefits all litigants.
Id. at 6-7.
Learning Point:
A settlement agreement is not binding under New York Law until all material terms of the settlement are either reduced to writing or recorded in open court, pursuant to the CPLR, as now enforced by New York’s highest court. It is important to remember to diligently follow-up on all closing documents as quickly as possible after an oral settlement agreement has been reached, regardless of whether you represent the plaintiff or defendant, to protect your client’s rights and enforce the terms of the settlement as negotiated. •
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