New York Law Journal "Trend of Strong Enforcement of Settlement Agreements" by Thomas Dewey

In a recent opinion, NSI International v. Mustafa, (1) the U.S. District Court for the Eastern District of New York reiterated the strong policy in favor of enforcing settlement agreements between litigants, absent a party establishing clear reasons to disregard it. The opinion reflects the continuation of the general trend in New York federal courts of incentivizing settlements by making their enforcement predictable and robust, also addressing interesting issues of whether various alleged breaches of the particular settlement agreement were (or were not) material.

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Magistrate’s Report

On March 26, 2014, Judge Joseph F. Bianco of the Eastern District issued an order enforcing a settlement agreement and denying a motion for sanctions in the case of NSI International. The plaintiff, NSI International, sought to enforce a settlement agreement against the defendant, Mona Mustafa, which the parties had entered into in a previous case.

In the underlying case, Mustafa, a former employee of NSI, had asserted claims against her former employer concerning her termination from the company. That case began in New York State Supreme Court in 2009, but was removed to the Eastern District. In July 2011, the parties settled all of Mustafa’s claims against NSI. In the settlement agreement, Mustafa was paid $60,000 in exchange for refraining from asserting her potential termination-related claims against NSI.

Over a year later, the parties again found themselves before the Eastern District. This time, however, NSI was the plaintiff, and Mustafa, living in Illinois, the defendant. NSI had sued Mustafa, alleging that she had breached their previously entered-into settlement agreement by continuing to litigate a discrimination claim against NSI before the Illinois Human Rights Commission (IHRC). Mustafa, in turn, claimed that NSI had breached the agreement by failing to provide a letter of reference. Plaintiff NSI filed a motion for summary judgment, which was opposed by Mustafa. The court referred the motion to Eastern District Magistrate Judge A. Kathleen Tomlinson. Mustafa then made a subsequent motion for sanctions against NSI’s counsel. That motion was also referred to Tomlinson.

Tomlinson issued a 36-page report and recommendation (R&R). The R&R recommended that NSI’s motion for summary judgment be granted and that Mustafa’s motion for sanctions be denied.

The R&R found that the parties had entered into a settlement agreement in July 2011. Under the terms of that agreement NSI had to pay Mustafa $60,000 (in three payments of $20,000) and provide Mustafa with a neutral letter of reference. In return, Mustafa agreed, among other things, to not commence, continue, assist or participate in any lawsuit, claim, or any proceeding against NSI; to settle all employment-related claims against NSI; and to withdraw her claims, including appeals, filed in Illinois.

Mustafa argued that the terms of the settlement agreement were ambiguous and that the agreement was void due to fraud. Tomlinson explicitly rejected all of Mustafa’s arguments, finding the terms of the signed, written agreement to be “clear, straightforward, and unambiguous” and not finding sufficient evidence of fraud. Mustafa’s argument that NSI was “generally ambiguous as to its intent in the agreement” was similarly rejected, with Tomlinson recognizing that a finding of ambiguity based on that argument would improperly “place form over substance.” (2)

Mustafa also argued that even if there were a valid agreement between the parties, NSI had materially breached the agreement by failing to provide her with a neutral letter of reference. (It was undisputed that NSI had made the three payments totaling $60,000.) Tomlinson rejected this argument as well, stating that “Mustafa ha[d] not sufficiently established that NSI’s failure to timely provide the neutral reference letter was ‘so substantial as to defeat the purpose of the entire transaction.’” (3) The R&R reflected that “‘the ratio of the performance already rendered’ [was] greater than that which [was] unperformed, and Mustafa ‘ha[d] already received the substantial benefit of the promised performance,’ i.e., the $60,000 to compensate her for the alleged employment discrimination.” (4) Further, Tomlinson found that NSI’s subsequent production of the letter, after Mustafa requested it over a year after entering into the settlement agreement, indicated that the default was not willful. (5)

Tomlinson continued on to find that Mustafa had breached the settlement agreement in many ways. The agreement “broadly prohibit[ed] Mustafa from participating in any ‘proceeding’ against NSI in any forum.” (6) And as the R&R documented, Mustafa affirmatively participated in several proceedings before both the Illinois Department of Human Rights (IDHR) and the IHRC: “Mustafa opposed every motion filed by NSI and filed several of her own motions, as outlined above.” (7)

The R&R also recognized that the parties agreed that Mustafa did not withdraw her request for review (i.e., administrative appeal) of her second charge of discrimination with the IDHR. (8) Tomlinson found that, contrary to Mustafa’s arguments, there was no law or regulation preventing her from withdrawing her claims from the IHRC, and she was not obligated to request that the IDHR file a complaint on her behalf. Nor did Mustafa present evidence of any fraud by NSI.

Finally, Tomlinson addressed Mustafa’s argument that she could not withdraw her claims because to do so would permit NSI to escape liability for unlawful discrimination. Tomlinson completely dismissed that argument, stating that “[w]hether NSI discriminated against Mustafa is not material to determining Mustafa’s alleged breach of the Settlement Agreement” and “does not excuse [Mustafa] from her obligations under the Settlement Agreement.” (9)

Bianco’s Opinion

After Tomlinson rendered her report and recommendation to the court, Mustafa objected, citing several reasons and purporting to identify several issues of fact. Bianco, reviewing the R&R de novo, refuted these objections and fully adopted the R&R—granting NSI’s motion for summary judgment and denying Mustafa’s motion for sanctions.

Mustafa raised four primary objections. First, she argued that NSI, by bringing its lawsuit, was retaliating against her for repudiating her waiver of her discrimination claims, which she waived in the settlement agreement. The court dismissed her objection, and denied the objection’s premise: “that victims of discrimination may not waive discrimination claims.” (10) The court held there was nothing restricting the waiver of discrimination claims—for example, a statute preventing waiver—and that such claims are commonly settled.

Second, Mustafa argued that the agreement was “unenforceable because it had an unlawful purpose, lacked mutual assent, and was executed by incompetent parties.” (11)The court, agreeing with the analysis in the R&R, found the words of the settlement agreement clear and that they manifested mutual assent. It further noted that Mustafa failed to specifically identify any indefinite provisions or any other facts suggesting lack of assent. Additionally, the court completely rejected the argument that the settlement was unlawful because “NSI entered it in order to avoid liability for unlawful discrimination.” (12) It held, “[s]imply put, that purpose is not unlawful. On the contrary, there is a ‘clear policy in favor of encouraging settlements’ in civil rights cases.” (13)

Third, Mustafa reiterated her argument that NSI had breached the settlement agreement by failing to provide her with a neutral letter of reference. The court summarily dismissed this objection, referring to the analysis of the R&R. Further, it specifically denied that there was an issue of material fact regarding whether the delay in issuing the letter affected the livelihood of Mustafa. The court found “no specific facts [to] support that argument.” (14)

Fourth, Mustafa again made her argument that NSI committed fraud. The court again endorsed the analysis in the R&R, finding that Mustafa “ha[d] identified no material facts suggesting that plaintiff committed fraud.” (15) And it further found that, in any event, Mustafa would have ratified any alleged fraud by accepting the three settlement payments from NSI. (16)

‘NSI International’s’ Guidance

The R&R and opinion in NSI International provide useful guidance to litigants who are determining whether to engage in a settlement, or are determining a course of action after having previously entered into a settlement agreement. Courts will not take lightly blunderbuss arguments that settlement agreements should be disregarded or loosely enforced, even if a sympathetic plaintiff presents compelling facts in the underlying case. Litigants seeking to avoid the terms of an agreement must point to specific facts or points of law that justify the inapplicability of the settlement agreement. Absent such justifying conditions, courts will readily enforce settlement agreements.

The opinion also confirms what most good drafters of settlement agreements already know: Counsel must take care to draft contractual terms that lack ambiguity. This is particularly true for a settlement agreement’s most important terms, the violation of which would constitute a material breach of the agreement. As NSI Internationaldemonstrates, the enforceability of a settlement agreement will sometimes depend on both whether the terms of the agreement are ambiguous, and whether a potential breach of the agreement is so important that it justifies the other party’s non-performance. Litigators crafting settlement agreements, or rendering advice regarding the applicability of the terms of those agreements, must be aware of ambiguous terms and draft or advise accordingly.

Thomas E.L. Dewey is a partner of Dewey Pegno & Kramarsky. Joseph P. Mueller, an associate of the firm, assisted in the preparation of the article.

Endnotes:

1. No. 12-cv-5528, 2014 WL 1232941 (E.D.N.Y. March 26, 2014).

2. R&R at 14.

3. R&R at 20 (quoting Lipsky v. Commonwealth United Corp., 551 F.2d 887, 895 (2d Cir. 1976)).

4. R&R at 20 (quoting Barbagallo v. Marcum, 925 F.Supp.2d 275, 287 (E.D.N.Y. 2013)).

5. R&R at 21.

6. R&R at 25 (quoting settlement agreement attached to First Amended Complaint).

7. R&R at 25. See id. at 23-24 (listing all of Mustafa’s participatory actions).

8. Mustafa filed two claims with the Illinois Department of Human Rights. The first claim alleged discrimination with regards to her termination based on her alleged disabilities. The second alleged that NSI retaliated against her by filing the first lawsuit in New York Supreme Court, in which NSI sought to enforce the prior settlement agreement regarding her first claim.

9. R&R at 28-29.

10. NSI Int’l., 2014 WL 1232941 at *2.

11. Id. at 3.

12. Id. at 3 (citing defendant’s brief).

13. Id. at 3 (emphasis added) (quoting Patterson v. Newspaper & Mail Deliverers’ Union of N.Y. & Vicinity, 514 F.2d 767, 771 (2d Cir. 1975)..

14. Id. at 4.

15. Id.

16. Id. (citing Agristor Leasing-II v. Pangburn, 557 N.Y.S.2d 183, 185 (4th Dept. 1990).