Finders v. BK 19 Inc.

Background

Gavin and Clair Villard-Finders brought a breach-of-contract action against Babak Khorrami, Peter Rabasco, BK 19 Inc., BK 17 Inc., BMS 1989 Inc., Green Devil 22 Inc., and BK 18 Inc. The plaintiffs alleged that Khorrami breached their shareholder agreement and moved shareholder funds through the corporate defendants. On January 24, 2023, the plaintiffs informed the court that the parties had reached a global settlement.

The plaintiffs later asked the court to enforce a settlement they claimed was binding based on text messages and emails exchanged by counsel. In the January 24 text exchange, counsel discussed a $20,000 settlement, installment payments, and a condition that the plaintiffs also settle with Rabasco. The exchange then raised a nondisclosure provision and payment of $1,500 in legal fees. Plaintiffs’ counsel sent a draft agreement, defense counsel returned edits, and plaintiffs’ counsel sent an updated version on January 31. Defense counsel did not sign the agreement or respond to the updated draft. On February 7, defense counsel said Khorrami did not want to be bound because of financial difficulties and proposed a settlement with lower financial terms, which plaintiffs’ counsel rejected. Khorrami did not oppose the enforcement motion.

Legal standard

The court treated the motion to enforce as a contract claim. Under the applicable New York-law principles, an enforceable settlement requires an offer, acceptance, consideration, mutual assent, and an intent to be bound. The parties must agree on all essential terms. When the parties have not signed a settlement, courts examine their objective communications and conduct using four factors: whether they reserved the right not to be bound without a signed writing, whether either side partially performed, whether all terms were agreed upon, and whether the type of agreement is normally put in writing.

Court’s analysis

Reservation of the right not to be bound. The court found that this factor strongly favored Khorrami and the corporate defendants. Although the draft did not expressly say that the parties would not be bound until signing, it stated that the agreement was the entire agreement, could be amended only in a writing signed by all parties, and could be executed in separate counterparts. It also contained blank signature lines. The court viewed these provisions as showing that the parties intended signing to be the point at which the settlement became binding.

Partial performance. The plaintiffs argued that they partially performed by settling with Rabasco, which they described both as partial performance and as a condition that had to occur before the other settlement became effective. The court found that these positions were difficult to reconcile but assumed, for purposes of its analysis, that the Rabasco settlement was some partial performance. The parties’ reports that a settlement had been reached and that the case would be paused also supported the plaintiffs’ position. However, the defendants did not sign the written agreement, make payments, or otherwise accept the plaintiffs’ alleged partial performance. The court therefore treated this factor as neutral at best.

Whether material terms remained open. The court rejected the plaintiffs’ claim that the January 24 text messages alone created a binding agreement. Although the messages addressed the settlement amount and the condition involving Rabasco, the lawyers had not objectively agreed to the nondisclosure provision or the legal-fee payment. The court found that the later January 31 draft contained no identified substantive disagreement and that the parties appeared to have agreed on its material terms. This factor therefore favored enforcement of the later written agreement.

Type of contract. The court found that settlement agreements are generally the type of contract committed to writing. Because the agreement had been reduced to writing, this factor favored enforcement. The court nevertheless concluded, after considering all the circumstances, that the agreement was not enforceable because the parties did not intend to be bound before execution by all parties.

Disposition

The court denied the plaintiffs’ request for a hearing and denied their motion to enforce the settlement agreement as to Khorrami and the corporate defendants. The court ordered the parties to file a joint status report about the status of the action by April 9, 2024. The opinion does not state a separate disposition concerning Rabasco.