New York Law Journal "District Court Denies Enforcement of 'Settlement' Deemed Preliminary and Non-binding" Thomas E.L. Dewey

August 2, 2018

In recent years, courts interpreting New York law have grappled with what distinguishes an enforceable agreement from an unenforceable preliminary agreement. An apparent split has emerged between state and federal decisions. Federal courts have applied a classification system of “Type I” and “Type II” preliminary agreements. “Type I” are preliminary only in form, and reflect agreement on all material terms subject to the mere formality of a final document; “Type II” are agreements only to negotiate further toward a final agreement. See, e.g., Teachers Ins. & Annuity Assoc. of Am. v. Tribune Co., 670 F.Supp. 491, 498 (S.D.N.Y. 1987). The Court of Appeals, however, has characterized the federal approach as “rigid” and not useful, and has focused instead on whether the agreement at issue “contemplated the negotiation of later agreements and if the consummation of those agreements was a precondition to a party’s performance.” IDT Corp. v. Tyco Grp., S.A.R.L., 13 N.Y.3d 209, 213 n.2 (2009).


The law of preliminary agreements—and the divergence between state and federal case law—has special resonance where settlement is concerned, as underscored by Hawkins ex rel. MedApproach, No. 13-cv-5434 (ALC) (SDA), 2018 WL 1371404 (S.D.N.Y. Jan. 9, 2018), adopted, 2018 WL 1384502 (S.D.N.Y. Mar. 15, 2018). In Hawkins, the defendants sought to enforce a purportedly binding settlement document that had been initialed and signed by the parties and their counsel following face-to-face settlement talks. Magistrate Judge Aaron recommended that the motion be denied because the settlement document was preliminary and non-binding.  District Judge Carter adopted Judge Aaron’s report and recommendation in full.

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