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October 5, 2000


The opinion of the court was delivered by: Mukasey, District Judge.


Defendants Henkel Corporation and Cognis Corporation ("Henkel/Cognis") have moved for specific enforcement of what they allege is a written settlement agreement between them and plaintiff Horphag Corporation. Horphag manufactures Pycnogenol, a trademarked anti-aging nutritional supplement derived from the bark of French pine trees. Henkel/Cognis has distributed the product. The parties' underlying dispute arose when Horphag cancelled its distribution agreement with Henkel, and refused to provide product to Henkel's successor in interest, Cognis, based on Henkel's alleged failure to comply with certain minimum purchase requirements. The case was removed to this court in January 2000, from Supreme Court, New York County, based on diversity of the parties' citizenship. Soon afterward, the parties began the process of arbitrating their disputes before the American Arbitration Association ("AAA"). In June 2000, they met and sought to settle their differences, an attempt that gave rise to this motion. For the reasons set forth below, the motion for specific enforcement of the alleged settlement agreement is denied.


The writing that is alleged to embody the settlement accord in question — a letter written to Horphag by an executive of Cognis — recites agreements reached between the parties, "[s]ubject to the signing of a full and definitive settlement agreement (the `Agreement')." (Hoevelmann Decl. Exh. A) The principal basis for the nascent settlement was Horphag's agreement to buy Cognis's inventory of Pycnogenol, and to pay for it in installments, the last of which would have been due September 30, 2000. (Id.) Apparently in aid of permitting Horphag to arrange to have funds available for the purchase, the letter required Henkel/Cognis to project its closing inventory of the product within five days of the letter, but the letter itself estimated the value of that inventory at "$15 to $16 million." (Id.)

Other agreements set forth in the letter include Cognis's undertaking to stop distribution of Pycnogenol as of July 1, 2000. (Id.) The letter solicited the written approval of Horphag, upon receipt of which "we will instruct our people in the U.S. to work out a definitive agreement." (Id.) That letter stated as well that the parties "will refrain from any communication to the market on the subject matter till the date of signing of the Agreement."

Henkel/Cognis cites also the covering letter from Horphag memorializing the return of a signed copy of the above-cited letter, in which Horphag's principal, Charles Haimoff, accepted "your outline of the agreement between Cognis and Horphag Research," and wrote that Horphag "will do its utmost to comply with our agreement in the short time available." (Id. Exh. B) Henkel/Cognis argues that, in reliance on the existence of a binding agreement, Cognis disclosed its inventory of Pycnogenol, and ceased distributing the product from approximately June 11 or 12, until the settlement fell apart on or about June 30, 2000, when Horphag notified Henkel/Cognis that it had been unable to secure financing to support the settlement. (Id. ¶ 19)

The record includes also correspondence from counsel for Henkel/Cognis to the AAA, notifying that forum on June 22 that "[t]he parties . . . are currently circulating a proposed settlement agreement," and stating that this court had "extended its time to issue a decision [on the parties' motions for preliminary relief] to July 12 in order to allow the parties to complete a settlement." (Tabio Decl. Exh. A)

On July 17, counsel for Henkel/Cognis notified the AAA that it was then "necessary to reactivate the arbitration proceedings" and that the court had "denied the parties' cross motions for preliminary injunctions." (Id. Exh. B) Counsel followed up that letter with one on July 20 to press urgency of the case, as follows: "Now that the District Court has denied the cross motions for preliminary injunctions, a prompt hearing is of utmost importance." (Id. Exh. C) Neither letter mentioned that a settlement had been reached.

It bears mention as well that the parties appeared in court on July 13, 2000, at which time I read into the record an opinion denying both sides' applications for preliminary injunctive relief. Neither party advised the court at that time, or at any time prior thereto, that a settlement had been concluded. It was not until a conference on August 3 that Henkel/Cognis disclosed to the court its assertion that Horphag had reneged on a concluded settlement.


The standard for determining whether a settlement has been reached may be derived from cases dealing generally with the issue of when parties in negotiation have reached a binding agreement. "In any given case it is the intent of the parties that will determine the time of contract formation." Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1985). In Winston, a case in which parties to litigation exchanged drafts of settlement agreements but never signed the same document, the court listed the following factors for a court to consider in determining whether the parties intended to be bound:

(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 alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.


A refinement of that standard may be found in Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989), where the Court applied a framework devised by Judge Leval in Teachers Ins. & Annuity Ass'n. v. Tribune Co., 670 F. Supp. 491, 498-99 (S.D.N.Y. 1987). Judge Leval identified two kinds of preliminary agreements to which courts could find that parties intended to be bound. The first was one in which the parties had reached complete agreement on all issues that required negotiation, but had not yet formalized their agreement. The second was one in which they had reached agreement on major terms, but still had to negotiate others. In the latter case, the ...

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