Ciaramella v. Reader's Digest Ass'n, Inc.

• Decision Date: 15 December 1997
• Docket Number: No. 337,D,337
• Citation: 131 F.3d 320
• Parties: 22 Employee Benefits Cas. 1046, 7 A.D. Cases 1035, 11 NDLR P 162 Bernard P. CIARAMELLA, Plaintiff-Appellant, v. READER'S DIGEST ASSOCIATION, INC., Defendant-Appellee. ocket 96-9638.
• Court: U.S. Court of Appeals — Second Circuit

Page 320

131 F.3d 320

22 Employee Benefits Cas. 1046, 7 A.D. Cases 1035,

11 NDLR P 162

Bernard P. CIARAMELLA, Plaintiff-Appellant, v. READER'S DIGEST ASSOCIATION, INC., Defendant-Appellee.

No. 337, Docket 96-9638.

United States Court of Appeals Second Circuit.

Argued Sept. 23, 1997.

Decided Dec. 15, 1997.

Susan Ritz, New York City (Miriam F. Clark, Laura Nelsen, Steel Bellman Ritz & Clark, P.C., of counsel), for Plaintiff-Appellant.

Joseph Baumgarten, New York City (Gregory Reilly, Proskauer Rose LLP, of counsel), for Defendant-Appellee.

Before OAKES, MESKILL and CALABRESI, Circuit Judges.

OAKES, Senior Circuit Judge:

Plaintiff filed suit against Reader's Digest Association ("RDA") alleging employment discrimination under the Americans with Disabilities Act, 42 U.S.C. §§ 12101-12213 (1994) ("ADA"), and article 15 of the New York State Executive Law, N.Y. Exec. Law §§ 290-301 (McKinney 1993), and also violations of the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (1994) ("ERISA"). Shortly after the commencement of the action, the parties negotiated a settlement which Ciaramella later refused to sign. RDA moved for an order to enforce the settlement agreement. The United States District Court for the Southern District of New York (Charles L. Brieant, J.), granted the motion and dismissed the plaintiff's complaint with prejudice. Ciaramella argues that enforcement of the settlement agreement was improper because he had never signed the written agreement and the parties had specifically agreed that the settlement would not become binding until signed by all the parties. We agree, and reverse.

I. BACKGROUND

In November 1995, Ciaramella filed suit against his former employer, RDA, alleging that RDA failed to give him reasonable accommodations for his disability of chronic depression and subsequently terminated his employment in violation of the ADA and article 15 of New York State Executive Law. Ciaramella also raised a claim under ERISA for failure to pay severance benefits.

Before the exchange of any discovery, the parties entered into settlement negotiations. The negotiations resulted in an agreement in principle to settle the case in May, 1996. RDA prepared a draft agreement and sent it to Ciaramella's then attorney, Herbert Eisenberg, for review. This draft, as well as all subsequent copies, contained language indicating that the settlement would not be effective until executed by all the parties and their attorneys. Eisenberg explained the terms of the settlement to Ciaramella, who authorized Eisenberg to accept it. Eisenberg then made several suggestions for revision to RDA which were incorporated into a revised draft. After reviewing the revised draft, Eisenberg asked for a few final changes and then allegedly stated to RDA's lawyer, "We have a deal." RDA forwarded several execution copies of the settlement to Eisenberg. However, before signing the agreement, Ciaramella consulted a second attorney and ultimately decided that the proposed settlement agreement was not acceptable to him and that he would not sign it. Eisenberg then moved to withdraw as plaintiff's counsel.

RDA, claiming that the parties had reached an enforceable oral settlement, filed a motion to enforce the settlement agreement on September 3, 1996. At a hearing on September 13, the district court granted Eisenberg's motion to withdraw, and stayed proceedings on the motion to enforce the settlement for thirty days to give Ciaramella time to obtain another attorney. On October 25, the district court heard RDA's motion to enforce the settlement agreement. Ciaramella had not yet obtained substitute counsel and appeared pro se at the hearing. The district court, after considering RDA's unopposed motion papers and questioning Ciaramella about the formation of the settlement agreement, granted RDA's motion to enforce the settlement by order dated October 28, 1996. The district court entered a judgment of dismissal on October 29, 1996. This Court has jurisdiction under 28 U.S.C. § 1291.

II. DISCUSSION

A. Choice of Law

An initial question presented is whether New York or federal common law determines whether the parties reached a settlement of claims brought under the ADA, ERISA, and state law. The district court analyzed the issue using federal common law and concluded that the parties had intended to enter into a binding oral agreement. We review the district court's findings of law under a de novo standard, and its factual conclusions under a clearly erroneous standard of review. See Hirschfeld v. Spanakos, 104 F.3d 16, 19 (2d Cir.1997).

Because we find that there is no material difference between the applicable state law or federal common law standard, we need not decide this question here. See Bowden v. United States, 106 F.3d 433, 439 (D.C.Cir.1997) (declining to decide whether state or federal common law governs the interpretation of a settlement agreement under Title VII where both sources of law dictate the same result); Davidson Pipe Co. v. Laventhol & Horwath, Nos. 84 Civ. 5192(LBS), 84 Civ. 6334(LBS), 1986 WL 2201, at * 2 (S.D.N.Y. Feb. 11, 1986) (finding no federal rule that would differ critically from New York's rule governing the validity of oral settlement agreements). New York relies on settled common law contract principles to determine when parties to a litigation intended to form a binding agreement. ¹ See Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80-81 (2d Cir.1985) (applying principles drawn from the Restatement (Second) of Contracts to determine whether a binding settlement agreement existed under New York law); see also Jim Bouton Corp. v. William Wrigley Jr. Co., 902 F.2d 1074, 1081 (2d Cir.1990) (describing the New York rule of contract formation as "generally accepted"). Under New York law, parties are free to bind themselves orally, and the fact that they contemplate later memorializing their agreement in an executed document will not prevent them from being bound by the oral agreement. However, if the parties intend not to be bound until the agreement is set forth in writing and signed, they will not be bound until then. See Winston, 777 F.2d at 80; V'Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.1968). The intention of the parties on this issue is a question of fact, to be determined by examination of the totality of the circumstances. See International Telemeter Corp. v. Teleprompter Corp., 592 F.2d 49, 56 (2d Cir.1979). This same standard has been applied by courts relying on federal common law. See Taylor v. Gordon Flesch Co., 793 F.2d 858, 862 (7th Cir.1986) (enforcing an oral settlement of a Title VII case where the parties had not specified the need for a final, signed document); Board of Trustees of Sheet Metal Workers Local Union No. 137 Ins. Annuity & Apprenticeship Training Funds v. Vic Constr. Corp., 825 F.Supp. 463, 466 (E.D.N.Y.1993) (adopting the Winston analysis as based on "general contract principles" to uphold an oral settlement of an ERISA case); see also 1 Samuel Williston & Walter H.E. Jaeger, A Treatise on the Law of Contracts § 28 (3d ed. 1957) ("It is ... everywhere agreed that if the parties contemplate a reduction to writing of their agreement before it can be considered complete, there is no contract until the writing is signed.").

RDA urges us to fashion a federal rule of decision that would disregard this longstanding rule of contract interpretation and would hold parties to an oral settlement whenever their attorneys arrive at an agreement on all material terms. ² We reject this suggestion. Even in cases where federal courts can choose the governing law to fill gaps in federal legislation, the Supreme Court has directed that state law be applied as the federal rule of decision unless it presents a significant conflict with federal policy. See Atherton v. FDIC, 519 U.S. 213, ----, 117 S.Ct. 666, 670, 136 L.Ed.2d 656 (1997); O'Melveny & Myers v. FDIC, 512 U.S. 79, 87, 114 S.Ct. 2048, 2055, 129 L.Ed.2d 67 (1994) (noting that "cases in which judicial creation of a federal rule would be justified .... are ... 'few and restricted' ") (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651, 83 S.Ct. 1441, 1445, 10 L.Ed.2d 605 (1963)).

We can find no federal objective contained in the ADA or ERISA that would be compromised by the application of the common law rules described above. RDA is correct that at least one of the federal statutes at issue expresses a preference for voluntary settlements of claims. See 42 U.S.C. § 12212 (1994) (encouraging the use of alternative means of dispute resolution, such as settlement, to resolve claims arising under the ADA). However, the common law rule does not conflict with this policy. The rule aims to ascertain and give effect to the intent of the parties at the time of contract. Such a rule promotes settlements that are truly voluntary. See, e.g., Winston, 777 F.2d at 80 ("Because of this freedom to determine the exact point at which an agreement becomes binding, a party can negotiate candidly, secure in the knowledge that he will not be bound until execution of what both parties consider to be final document [sic].").

In fact, it is the rule suggested by RDA that would conflict with federal policy. Enforcing premature oral settlements against the expressed intent of one of the parties will not further a policy of encouraging settlements. People may hesitate to enter into negotiations if they cannot control whether and when tentative proposals become binding. We therefore decline to adopt a federal rule concerning the validity of oral agreements that is in conflict with federal policy and the settled common law principles of contract law.

B. Existence of a Binding Agreement

This court has articulated four factors to guide the inquiry regarding whether parties intended to be bound by a settlement agreement in the absence of a document executed by both sides. Winston, 777 F.2d at 80. We must consider (1) whether...