NYLJ “Merger Clauses in Draft Settlement Agreements as Expressions of Intent Not To Be Bound Absent a Writing”

By Thomas E.L. Dewey

Settlement agreements, like most contracts, often include merger clauses stating that the contract is the complete expression of the agreement between the parties, superseding any prior understandings between them.

Tom Dewey

While merger clauses may be considered boilerplate language by many, courts will consider such clauses when evaluating the “most important” factor in the familiar, four-factor Winston test to determine whether a party should be held to the terms of an unsigned settlement agreement: whether there was an express reservation of the right not to be bound in the absence of a writing. Lombardo v. JPMorgan Chase Bank, N.A., No. 20 CV 6813 (VB), 2025 WL 707500, at *6 (S.D.N.Y. Mar. 5, 2025) (quoting Brown v. Cara, 420 F.3d 148, 154 (2d Cir. 2005)); see Winston v. Mediafare Ent. Corp., 777 F.2d 78 80 (2d Cir. 1985).

Courts typically consider merger clauses in draft settlement agreements as evidence of the parties’ intent not to be bound without a signed agreement.

But two recent cases from the Southern District of New York—Aboutaam v. El Assad, No. 1:18-cv-08995 (ALC) (KHP), 2025 WL 547746 (S.D.N.Y. Feb. 15, 2025) and Lombardo v. JPMorgan Chase Bank, N.A., 2025 WL 707500 (S.D.N.Y. Mar. 5, 2025)—considered this very issue and reached different conclusions.

The reasoning of both courts illuminates the circumstances in which a merger clause constitutes a reservation of the right not to be bound absent a signed writing.

Effect of Merger Clause Depends on Existence of Effective Date Clause 

In Aboutaam v. El Assaad, plaintiff had agreed to purchase from the defendants a luxury apartment building in Lebanon for $810,000. No. 18-CV-8995 (ALC) (KHP), 2021 WL 6339583, at *1 (S.D.N.Y. Apr. 26, 2021), report and recommendation adopted, No. 1:18-cv-08995 (ALC) (KHP), 2025 WL 547746 (S.D.N.Y. Feb. 15, 2025). Plaintiff subsequently terminated the sales agreement and demanded that the defendant return the $810,000.

Magistrate Judge Katharine Parker held a settlement conference in June 2020. There, the parties appeared to reach an agreement and, after the conference, the court emailed the parties a congratulatory note and outlined the terms of their agreement.

According to that email, defendants would attempt to sell the apartment and, if a sale was completed by July 2021, defendants would pay plaintiff $800,000, along with interest. 

Defendants also pledged certain land in Lebanon as collateral with the understanding that, if a sale was not completed by July 2021, defendants could satisfy his obligation to plaintiff by transferring the pledged land to plaintiff. The court’s email also directed the parties to work on a written settlement agreement.

Consistent with the terms outlined in the court’s email, the parties exchanged draft settlement agreements. Plaintiff’s initial draft included a merger clause which stated: “There are no other enforceable agreements of any nature among or between the parties hereto and there are no prior or contemporaneous understandings or representations relied upon by any party in entering into this agreement that is not stated herein.”

The draft also included an effective date clause, stating that the effective date was “the date when all parties have signed this agreement.” Last, the draft also provided for an appraisal process for the pledged land, which would allow each party to retain an independent appraiser, and a mechanism for resolving differences between the two appraisals. While defendants heavily revised that draft, defendants’ draft “contained substantially the same material terms.”

Shortly thereafter, the parties told the court that the parties could not come to an agreement on all material settlement terms. In particular, the parties could not come to an agreement on the value of the proffered collateral due to unresolved issues concerning the ownership and boundaries of the pledged land in Lebanon.

The parties then resumed litigation and, as relevant here, the defendants moved to enforce the settlement agreement reached at the June 2020 settlement conference.

Magistrate Judge Parker applied the four-factor Winston test and issued a report and recommendation concluding that the parties did not intend to be bound by their agreement at the June 2020 settlement conference. The court’s most extensive analysis dealt with the first factor—whether the parties had made an express reservation not to be bound absent a written agreement.

The court recognized that neither party represented—either during the settlement conference or after the court sent its email following the conference—that they would be bound only upon execution of a written agreement.

However, the court relied upon “persuasive authority” from the Second Circuit, Kaczmarcysk v. Dutton, 414 F. App’x 354 (2d Cir. 2011), holding that an “effective date clause and merger clause included in plaintiff’s initial draft agreement demonstrate plaintiff’s intention not to be bound by the settlement until written execution.”

Defendants objected to the report and recommendation. They argued the case was distinguishable from Dutton because there was no finding in that case that the parties had actually agreed to a settlement before exchanging draft settlement agreements. Aboutaam, 2025 WL 547746, at *3. Judge Andrew Carter, Jr., however, rejected that argument, adopting the report and recommendation in full.

Compare this result to the conclusions reached in another case from the Southern District, issued a few weeks after the decision in Aboutaam and also concerning a motion to enforce a settlement agreement.

In Lombardo v. JPMorgan Chase Bank, N.A.¸ Judge Vincent L. Briccetti concluded the parties had not expressly reserved their right not to be bound absent a written agreement, even though the draft settlement agreement included a merger clause. 2025 WL 707500, at *6-7.

There, plaintiff had sued defendants, including JPMorgan Chase Bank (“Chase”), for breaches of federal and state statutes and for breaching the terms of an automobile lease agreement. After plaintiff settled with the other defendants, the Court granted and denied in part Chase’s motion for summary judgment.

Following the court’s ruling, the parties engaged a retired state court judge to mediate their dispute privately. At the mediation, plaintiff told her lawyers that Chase’s offer to settle the case was acceptable, and the parties appeared to reach an agreement.

Following the mediation, Chase exchanged draft settlement agreements with plaintiff’s lawyers and agreed on a final draft. Yet, when plaintiff was asked to review and sign the agreement by her lawyers, she declined to do so because she had learned that, due to taxes on her portion of the settlement after accounting for a split with her lawyers, she was likely to “incur more debt than value.”

Chase then moved to enforce the settlement reached at the mediation and, like the court in Aboutaam, the Lombardo court applied the four-factor Winston test. In particular, the court considered whether the merger clause in the draft settlement agreement signaled the parties’ intent not to be bound until their agreement was reduced to a signed writing.

The court concluded it did not and distinguished other cases where merger clauses were considered reservations of the right not to be bound before signing on the ground that those cases involved “provisions that specifically stated that the settlements were not effective until signed by both parties.”

In other words, the merger clause was not, standing alone, an expression of the parties’ intent not to be bound absent a signed agreement because the draft agreement did not also include an effective date clause.

Conclusion

The safest course for a lawyer concerned about inadvertently binding a party to a settlement agreement before the agreement is signed is simple—clearly state that the agreement is not effective until it has been executed in a written agreement.

However, practitioners should also be aware of the effect of seemingly boilerplate language, like merger and effective date clauses, on a court’s analysis of whether a party intended to be bound absent a signed settlement agreement.

A party seeking maximum protection from committing itself to a settlement agreement before a signed writing should take care to include both merger clauses and effective date clauses in draft settlement agreements.

This article first appeared in the New York Law Journal on May, 16 2025.

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