Commercial Division Blog

Posted: April 17, 2015 / Categories EDNY, Attorney Fees, Settlements

Settlement Signed By Counsel Binding On Client

In Gordon v. The City of New York, 09 CV 04577 (E.D.N.Y. Mar. 31, 2015), Judge Edward R. Korman granted defendants’ motion to enforce a settlement agreement signed by plaintiff’s counsel but which plaintiff refused to sign. Judge Korman found that plaintiff was bound by the settlement agreement notwithstanding her change of heart after the settlement was reached but before it was reduced to writing. In so doing, Judge Korman rejected the report and recommendation of Magistrate Judge Marilyn D. Go, finding that no enforceable settlement agreement had been reached.
Plaintiff brought an action against the Administration for Children’s Services (“ACS”) and various ACS employees pursuant to 42 U.S.C. § 1983 for claims arising out of an ACS report, later found unsubstantiated, accusing plaintiff of mistreating her son.

In August 2011, defense counsel notified the court that the parties had reached an agreement in principle to resolve all of plaintiff’s claims, by which the City agreed to pay plaintiff $20,000 in compensatory damages and approximately $27,000 in attorney’s fees, the latter having been negotiated separately between the parties’ counsel. Plaintiff’s counsel prepared the settlement papers and sent them to plaintiff, who signed them with the notation “Under Duress” above her signature. Plaintiff’s counsel did not send the executed papers to defense counsel, instead indicting that his client was not happy with the settlement.

Plaintiff’s counsel and plaintiff agreed to demand $27,000 in damages from the City after plaintiff said that she would settle for $25,000, but the City responded that it would only increase its settlement offer to $21,500. Plaintiff’s counsel offered to reduce his fees by $5,500 and apply that amount to the damages paid to plaintiff to bring the total compensatory damages up to $27,000. The City accepted this offer and prepared a stipulation of settlement which plaintiff’s counsel executed.

Plaintiff told her attorney that she did not want to accept his money, but repeatedly promised that she would sign the release forms although she never did. At a court conference, plaintiff informed the court that she did not want to settle. Defendants then filed the motion before the Court. Based on depositions and other testimony, Judge Korman found that plaintiff’s attorney had actual authority to enter into a settlement in which plaintiff would receive $27,000.

Magistrate Judge Go had concluded that any allocation of attorney’s fees must be approved by the settling client, thus the plaintiff had the right to repudiate the stipulation her attorney signed. However, Judge Korman found that plaintiff had authorized her attorney to settle her claims for a specified amount of damages and had also authorized him to negotiate the amount of fees that he would receive. Judge Korman also found to be particularly significant the fact that plaintiff’s attorney fees were reduced in order to increase plaintiff’s recovery. Thus the settlement would be consistent with the underlying purpose of § 1988 and the Supreme Court’s decision in Evans v. Jeff D., which upheld a settlement agreement that conditioned relief on the waiver of all attorney’s fees. Judge Korman found that plaintiff’s objection to the settlement was based on a change of heart rather than any concern about attorney’s fees. Accordingly, Judge Korman found that plaintiff was bound by the settlement agreement signed by her attorney.

In the alternative, assuming that plaintiff was not bound by the stipulation of settlement because it had not been signed by defendants, Judge Korman found that the oral settlement agreement was binding, utilizing the four-prong test articulated by the Second Circuit in Winston v. Mediafare Entm’t Corp.: whether (1) an express reservation of the right not to be bound in the absence of a signed writing existed; (2) there had been partial performance of the contract; (3) all of the terms of the alleged contract had been agreed upon; and (4) the agreement at issue was the type of contract that is usually committed to writing.

Applying the Winston test to the facts, Judge Korman found that: (1) the merger clause indicated that the parties intended be by bound by a written agreement; (2) while Defendants’ sole obligation was to make payment, they could not be expected to do so while the issue of whether there was a valid settlement agreement was undecided; (3) there was no dispute that agreement was reached on all material terms; and (4) this agreement was memorialized in writing and signed by one party. In sum. Judge Korman found that the first factor weighed against enforcement; the third weighed in favor of enforcement, and that the second and fourth factors tipped in favor of enforcement. Thus, even if plaintiff were found not to be bound by the written agreement signed by her attorney, Judge Korman’s analysis of the Winston factors would lead him to uphold the oral agreement reached in the case.