Lack of Signatures Can Doom Contract Enforceability

If your contract isn’t fully executed by all parties, you should be prepared to provide other evidence that any non-signatories still intended to be bound...

If your contract isn’t fully executed by all parties, you should be prepared to provide other evidence that any non-signatories still intended to be bound. In a recent decision, a New York district court refused to enforce a settlement agreement where the parties’ attorneys reached a settlement but several plaintiffs later refused to sign the agreement. According to the court, the parties had intended to be bound only by a written agreement.

The Parties’ Settlement Agreement

In Fernandez v. HR Parking Inc., several current and former employees of HR Parking Inc. (HR Parking) filed suit against HR Parking and its owner, Nelson Rodriguez (collectively, the “HR Parking Defendants”), and three other defendants: Open Road Audi of Manhattan, Michael Morais, and Rodman Ryan (collectively, the “Open Road Defendants”). Plaintiffs claimed that defendants failed to pay them overtime as required by the Fair Labor Standards Act (FLSA), and the New York Labor Law.

On June 17, 2021, several days before the trial was scheduled to commence, the plaintiffs’ attorney, John M. Gurrieri, filed a letter to the court stating that the plaintiffs had settled in principle with all defendants and, therefore, wanted to adjourn the trial. The parties also sought three weeks to submit a written settlement agreement and a fairness letter to the court seeking approval of the agreement.

In the period after the letter was sent, several draft settlement agreements were circulated among the parties. The draft agreement delineated the defendants’ payment obligations and included a clause under which plaintiffs would release the defendants for any claims relating to wages. The parties made minor changes before arriving at what all attorneys called the “Final Version” of the settlement agreement.

While all the defendants signed this document, the plaintiffs did not. On July 29, 2021, Gurrieri filed a letter to the court in which he stated that “the parties cannot submit the settlement agreement and fairness letter . . . because two plaintiffs are refusing to sign the settlement agreement.” According to Gurrieri, one plaintiff was unwilling to sign because he did not agree with payment provisions, while another was unwilling to sign because he was not willing to agree to the release.

At the request of the court, Gurrieri filed an affirmation in which he stated: “On June 17, 2021, when I agreed to settle this action with defendants, and then reported the settlement in principle to the Court, I had actual authority granted from all five plaintiffs to settle this action for the amounts agreed to and currently memorialized in the partially executed settlement agreement.” The defendants subsequently moved the enforce the settlement agreement.

Applying the “Winston Factors”

Under New York law, a contract may be formed absent memorialization in a fully executed document because “the mere intention to commit the agreement to writing will not prevent contract formation prior to execution.” Winston v. Mediafare Ent. Corp., 777 F.2d 78, 80 (2d Cir. 1985). Conversely, if either party communicates an intent not to be bound until he achieves a fully executed document, “no amount of negotiation or oral agreement to specific terms will result in the formation of a binding contract.”

To determine whether the parties intended to be bound in the absence of a document executed by both sides, a court considers four factors: “(1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.”  These four factors are commonly referred to as the “Winston Factors.”

In this case, the court found that all four Winston factors weighed against enforcement. Accordingly, it further concluded that the parties intended to be bound only by a written agreement.

With regard to the first factor, the court cited the fact that the parties’ draft agreement included several provisions indicating that the parties did not intend to be bound prior to the document’s execution. It also found that the parties’ correspondence further reinforced the conclusion that the parties did not intend to be bound prior to and in the absence of such execution, citing attorneys’ from both sides referencing the need to send the document to their clients for execution.

As for the second factor, the court acknowledged that seeking an adjournment could support the notion that the parties thought they had reached an enforceable agreement. However, it found that any such adjournment would be relevant only to the agreement “in principle” described in the June 17 Letter. According to the court, it had no bearing on whether an enforceable agreement was reached with respect to the “Final Version” of the settlement agreement.

The court went on to find that the third factor also weighed against enforcement. It specifically concluded that because there was nothing in Gurrieri’s affirmation indicating that he was given authority to settle with respect to the non-monetary terms, there was no agreement as to the release provision. “The defendants made clear at the October 22 conference that no defendant will agree to a settlement that does not include the release provision and that does not include all the parties in this case,” the court wrote. “Accordingly, we conclude that the release provision is of sufficient importance ‘such that the parties would not wish to be bound’ in the absence of a signed writing expressing agreement as to that term.”

Finally, as to the fourth factor, the court found that it is the usual practice to either put complex settlements on the record or reduce them to a writing. “That the parties believed this to be the case is further demonstrated by the efforts all parties made to draft the settlement agreement,” the court wrote.

Key Takeaway

The court’s decision highlights the importance of a fully-executed contract. Without the signatures of all parties, it will be left to the court to decide their intentions, which can be both costly and time-consuming.

If you have questions, please contact us

If you have questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.