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Dieudonne Abel v. Town Sports International Holdings

December 23, 2010


The opinion of the court was delivered by: Denise Cote, District Judge:


The defendants, Town Sports International Holdings, Inc. and Town Sports International, LLC ("Town Sports"), have moved to enforce an oral settlement agreement with the plaintiff, Dieudonne Abel ("Abel"), or in the alternative, to allow only the plaintiff's deposition and no further discovery. For the following reasons, the motion to enforce the settlement is denied.

BACKGROUND The plaintiff commenced this action on December 22, 2009, seeking injunctive relief and damages for violations of 42 U.S.C. § 1981; Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. ("Title VII"); the New York City and New York State human rights laws; and New York common law. The plaintiff alleged that the defendants defamed him and subjected him to unlawful employment discrimination on the basis of his race, color, and national origin. At the initial pretrial conference on March 5, 2010, the parties were directed to contact Magistrate Judge Freeman by July 16 to pursue settlement talks.*fn1 Fact discovery was scheduled to close on November 24.

On August 23 and September 3, the parties participated in settlement conferences by telephone with Magistrate Judge Freeman. After the parties discussed their positions further, they contacted Magistrate Judge Freeman on September 9 to schedule an in-person conference. On October 4, the parties met with Judge Freeman for a four-hour settlement negotiation. The defendants made an offer of $75,000, which was more than double their initial offer. In return, the defendants were to receive a dismissal of the action with prejudice, a general release of all claims, and confidentiality of the terms of the settlement.

Plaintiff asked that the offer be kept open for twenty-four hours, and the defendants agreed. The plaintiff's attorney said that if his client agreed to the settlement offer, a writing "finalizing the agreement and likely including further terms would have to be worked out." Magistrate Judge Freeman asked the parties if they wanted to put the settlement on the record, but in light of the request to keep the settlement offer open for twenty-four hours, the parties declined.

On October 5, plaintiff's counsel called defense counsel and accepted the offer. During the telephone call, the parties agreed to the following details: that the settlement amount of $75,000 would be broken into thirds: $25,000 for back-pay damages to be paid to the plaintiff via a Form W-2; $25,000 for emotional distress damages to be paid to the plaintiff pursuant to a Form 1099; and $25,000 for plaintiff's attorney pursuant to a Form 1099 to plaintiff's law firm. The parties also agreed that the defendants would draft the settlement agreement. At the end of the telephone call, the attorneys expressed their happiness that their clients were able to reach a deal. Defense counsel followed up with an email that stated: "I assume you are okay with our informing Judge Freeman that we have reached an agreement in principle as she requested we do yesterday?" to which the plaintiff's counsel replied: "Yes please feel free."

As a result of the October 5 telephone call, the defendants cancelled the plaintiff's deposition, which had been scheduled for October 6. By letter dated October 7, the defendants informed Magistrate Judge Freeman: "We are pleased to report that the parties have now reached a settlement agreement in principle. . . . The parties wish to thank the Court for its diligent efforts in helping the parties reach a mutually agreeable resolution to this case." On October 8, Magistrate Judge Freeman informed the Court that "the parties reached an agreement." On October 9, the Court issued an Order discontinuing the case without prejudice to restoring it to the Court's calendar within thirty days. Thirty days from October 9 was November 8.

During the week of October 11, the plaintiff made a number of requests for terms to be included in the settlement agreement. First, the plaintiff asked that the defendants ask Town Sports's general counsel to investigate the alleged conduct of the Town Sports employees that the plaintiff accused of wrongdoing. The defendants stated that because that condition was not a part of the deal, they would not be willing to include that term in the settlement agreement, but that they would make the request. On October 18, defense counsel made the request to Town Sports's general counsel and informed the plaintiff that he had done so. Second, the plaintiff requested that, for tax reasons, the settlement payment be identified as compensation for physical sickness. On October 20, the defendants refused to make the identification. Finally, on October 20, the plaintiff asked about "having his name cleared in TSI's records." Defense counsel agreed to ask his clients about clearing Abel's name in Town Sports' records, but advised that he did not think they were likely to agree. Instead, he offered to include a term in the settlement agreement that the defendants would provide a neutral employment reference for the plaintiff.

Plaintiff's counsel received the draft settlement agreement for the first time on October 22. He states that several provisions included "new terms" and that several agreed-upon terms had been fleshed out in greater detail. The terms of the draft agreement are more or less as described above: $75,000 split into three parts -- $25,000, less taxes, as lost compensation on a Form W-2 to the plaintiff; $25,000, less taxes, for emotional distress pursuant to a Form 1099 to plaintiff; and $25,000 by check to plaintiff's law firm conditioned on receipt of a fully executed Form W-9. In exchange, the draft agreement contains a "complete release and waiver" of all of the plaintiff's existing and potential claims against Town Sports and a waiver of any claim under the Family and Medical Leave Act ("FMLA"). The draft also contains an agreement by the plaintiff to cooperate with Town Sports in any future litigation relating to the period of his employment, and a confidentiality provision.

On or about October 26, plaintiff's counsel wrote to defense counsel asking whether the defendants would be willing to break the payments up between 2010 and 2011, suggesting "first payment whenever practicable and second on or as soon after Jan[.] 1, 2011?" The timing of the payments had not been previously discussed. Approximately two days later, the defendants agreed to this timing.

In the month of October, Town Sports reserved $75,000 to pay the plaintiff pursuant to the settlement agreement. Town Sports included this $75,000 reserve in the total expense column of its publicly available financial statements included in its quarterly report in a Form 10-Q filed with the Securities and Exchange Commission for the period ending September 30, 2010.

On November 5, plaintiff's counsel informed defense counsel that the plaintiff needed additional time to review the written settlement agreement with his attorney and accountant, and the defendants agreed to an extension of the thirty-day period in the October 9 Order for an additional thirty days. By letter dated November 5, plaintiff's counsel wrote to the Court and requested the extension due to "continuing issues delaying finalization of the contemplated settlement," specifically "the structuring of the settlement affecting the taxation of the settlement." By memo endorsed Order of November 8, the extension was granted.

On November 10, the plaintiff's attorney advised defense counsel that the plaintiff did not want to go forward with settlement and wanted to have a trial. Plaintiff's attorney told the defendants' attorney some of the terms and conditions to which the plaintiff objected and advised him that Abel "believed he was generally not getting the deal he wanted under the then terms and conditions of the draft agreement." By letter dated November 15, the plaintiff informed the Court that the plaintiff "no longer wishes to settle this action" and asked that the case be restored to the ...

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