When does a term sheet count as the actual settlement agreement?

Courts like settlements because they clear out the docket and provide finality to the lawsuits. At the end of a successful mediation, the parties close out the day with handshakes and everyone leaves in a decent mood, though a good mediator will tell you that a desirable settlement leaves both sides feeling they got the shaft. Still, the day ends on a positive note. Things sometimes go south when the parties start to negotiate the details, many of which may have nothing to do with money and instead focus on confidentiality and other things. This case became kind of a mess and shows how a settlement agreement can cause confusion and ultimately cause the judge to just adopt the terms of the term sheet and be done with the case.

The case is Tangtiwatanapaibul v. Tom & Toon, Inc., a summary order issued on December 12. Under the written settlement term sheet that the parties agreed to in this wage and hour case, the parties were to prepare a detailed settlement agreement to formalize the deal. Over the course of the following year, the parties went back and forth on the terms of the formal agreement, each side declining to sign off on the other side's language. The magistrate judge eventually closed out the case and approved the proposed settlement under the term sheet (and not the language in the drafts that went back and forth), as per the Second Circuit's procedures in Cheeks v. Pancake House (2015), which says that judges must approve any wage and hour settlement.

Plaintiffs appeal, claiming in part that the term sheet was not an enforceable agreement. But the Court of Appeals (Kearse, Park and Perez) disagrees, noting it has held in the past that term sheets can qualify as binding settlement agreements even if the parties contemplated formalizing the agreements at a later date. We have a totality fo the circumstances analysis in cases like this, considering whether the parties expressly said they would not be bound by the term sheet, whether there was partial performance of the contract, whether the parties agreed to the terms of the alleged contract, and whether the agreement is the kind that litigants will normally commit to writing. The case for these factors is Winston v Mediafore, 777 F.2d 78 (2d Cir. 1985). 

These factors allowed the magistrate judge to adopt the term sheet as the settlement, as the parties stipulated in the term sheet that it was in fact a binding agreement as to the material terms, the parties partially performed their obligations under the term sheet by requesting the magistrate to continue jurisdiction over the case and requesting dismissal of the case post-term sheet, and defendants made some payments to plaintiffs as per the agreement. This all means the term sheet is the final settlement agreement, and the case is over.