Adam R. Shaw
Adam R. Shaw ()

This column addresses recent decisions of the U.S. District Court for the Northern District of New York. This installment discusses a case evaluating when a settlement is final for enforcement, and a decision exploring how service of process affects the timeliness of removal of a case to federal court.

‘Coffee Mania’

In Coffee Mania v. Coffeemania Bryant Park, 2017 WL 3396534 (N.D.N.Y. Aug. 8, 2017), Senior District Judge Fredrick J. Scullin Jr. explained the parameters of when a settlement is final and binding on the parties. Like many courts, the Northern District promotes negotiated settlements through an early mandatory mediation program. As this case illustrates, even through those efforts, litigation is not over until it is finally over.

Plaintiff Coffee Mania, an upstate coffee shop, sued defendant Coffeemania Bryant Park, a New York City coffee shop, for trademark violation over their similar names. Following some procedural maneuvers, the parties held a few mediation sessions.

After the first session, they reported to the court that they were “close to settlement.” After the second session, they reported “settled” and were preparing a final agreement. The court closed the case due to the purported settlement. Despite that report, during a following status conference, the parties said they were at an impasse regarding the settlement. Coffee Mania then moved to reopen the case, arguing that no settlement terms were ever finalized, and defendant Coffeemania Bryant Park cross-moved to enforce the “material terms” of the settlement, even though they were not written down in a final agreement.

The court analyzed when a settlement agreement is final and binding. According to the court, settlement agreements are construed according to general contract principals. Binding agreements can be formed without a fully executed contract and, even then, the parties’ intent to eventually write down their agreement does not preclude an enforceable unwritten settlement. Instead, the court explained, it must determine if there was a “meeting of the minds on all the terms” of the settlement with “literally nothing left to negotiate.” Where the parties have exchanged multiple settlement agreement drafts, the court’s role is not to retrospectively determine which changes were minor or technical. Citing Winston v. Mediafare Entm’t, 777 F.2d 78, 80 (2d Cr. 1985), the court reasoned that because the parties are free to negotiate and create a settlement that satisfies them both, if it were to hold that one of the draft settlements were binding, “it would have ‘deprive[d] the parties of their right to enter into only the exact contract they desired.’”

Coffee Mania and Coffeemania Bryant Park had exchanged several draft lists of settlement terms. And despite Coffee Mania’s contention that the parties agreed to one of those draft lists and reported to the court that they had settled, the court found that the list did not demonstrate “that there should be nothing left to negotiate” as their later changes to the terms and email exchanges “make clear.” Ultimately, “[a]pplying the applicable legal principles to the facts of this case leads the court to the inescapable conclusion that there is no binding settlement agreement to enforce.”

‘Linium’

In Linium, LLC v. Sean Bernhoit, 2017 WL 2599944 (N.D.N.Y. June 15, 2017), Judge Lawrence E. Kahn explored the intersection of personal service and removal to determine if a case has been timely removed to federal court.

Technology consulting firm Linium sued its former vice president Sean Bernhoit in New York state court after he joined a competitor and allegedly solicited Linium’s clients in violation of a non-compete agreement. Linium’s process server allegedly served Bernhoit on Nov. 5, 2016 at his home in California. Bernhoit claims he was never served in California and was not home the day of the service alleged by Linium. Instead, Bernhoit eventually learned of the lawsuit by other means, and his lawyers contacted Linium’s lawyers who mailed a copy of the complaint. Later, on Jan. 24, 2017, Bernhoit’s lawyers agreed to accept service of the complaint and negotiated an extension of time to answer the complaint. Instead of filing an answer, however, Bernhoit hired new lawyers who, on Feb. 22, 2017 filed a notice of removal to federal court based on diversity of the parties’ citizenship (Bernhoit being from California and Linium being a limited liability company organized and headquartered in New York). Linium moved to remand the case arguing that Bernhoit’s removal was beyond 30 days from service and was too late.

The court first dealt with the issue of whether it had subject matter jurisdiction based on diversity of citizenship. In order for there to be diversity, the court explained, “there must be ‘complete’ diversity among the parties, meaning that each defendant must be a citizen of a different state from each plaintiff.” Bernhoit’s removal notice stated that Linium is an LLC, but it did not properly allege the LLC’s citizenship. Because Linium is an LLC, its citizenship is different than that of a regular corporation. “While a corporation takes the citizenship of the states in which it is incorporated and the state containing its principal place of business, 28 U.S.C. §1332(C)(1) … an LLC takes the citizenship of each of its members (i.e., its owners).”

The court explained that because the notice of removal did not list any allegations concerning Linium’s members, but nonetheless asserted diversity jurisdiction, it would allow Bernhoit a chance to amend the notice to clarify Linium’s citizenship or to seek jurisdictional discovery.

As to the timeliness of the removal, the court noted that “federal law requires that a notice of removal be filed within thirty days after the defendant is served.” Accordingly, the timeliness of the removal depends on whether Bernhoit was properly served in November 2016 in California or later, in January 2017, when Bernhoit’s lawyers accepted service.

Linium argued that its mailing of the compliant to Bernhoit in late 2016 started the time for removal because 28 U.S.C. §1446(b)(1) requires removal within 30 days “after the receipt by the Defendant, through service or otherwise, of a copy of the initial pleading.” (emphasis added). According to the court, in Murphy Bros. v. Michetti Pipes Stringing, 526 U.S. 344 (1999), the Supreme Court held that the 30-day period under §1446(b) does not begin to run until “at the earliest—formal service of process is made or the defendant waives service.” Such a strict service requirement is needed, explained the court, because service of process is fundamental to the procedural impositions made on the defendant, such as deadlines to remove a case to federal court. The court reasoned that because mailing a complaint is not enough for formal service under New York law, the timeliness of the removal depends on whether Bernhoit was in California in November 2016.

The court was unable to make that factual determination, however: Linium’s process server swore he served Bernhoit; Bernhoit swore he was not home to be served. Because the court found that it was “then left with a factual dispute, one in which at least one of the affiants appears to be lying,” it referred the matter to the magistrate judge for further discovery and to recommend “the proper outcome of this motion, as well as any discipline of the parties or affiants.”