Steinfeld v. IMS Health Incorporated
7:10-cv-03301
S.D.N.Y.Feb 14, 2014Background
- Plaintiff Robert H. Steinfeld sued IHS/IMS Health over benefits allegedly owed under an Employment Agreement and an Amended Change‑in‑Control Agreement; the litigation raised whether his employment terminated before or after an October 20, 2009 potential change in control.
- On August 23, 2013 counsel exchanged emails (the “Preliminary Agreement”) providing IMS would pay Steinfeld $315,000 annually for seven years, and the parties would execute mutual general releases and file a stipulation discontinuing the case; counsel jointly notified the court the matter was settled and the case was administratively closed.
- IMS circulated a draft formal settlement agreement containing the agreed payment schedule plus boilerplate provisions (merger, choice‑of‑law, confidentiality, 7‑day rescission), and a broad general release form.
- Steinfeld refused to sign the draft, asserting the payment schedule would trigger adverse tax consequences (under Treasury Regulation 26 C.F.R. §1.409A‑3(g) and §409A penalties) and that IMS’s proposed release would extinguish ongoing contractual obligations (health premiums, fee reimbursement, tax indemnities).
- IMS moved to enforce the Preliminary Agreement as binding; the magistrate judge concluded the Preliminary Agreement was binding but recommended denying enforcement because the parties entered into it under a mutual mistake about the tax consequences; alternatively, the magistrate recommended that even if enforced the contemplated general release would not discharge IMS’s future contractual obligations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the August 23, 2013 email exchange created a binding settlement | Steinfeld: emails were a nonbinding outline; parties intended a formal written agreement; open/boilerplate terms remained to negotiate | IMS: email exchange reflected offer, acceptance, consideration and joint notice to court; parties intended to be bound despite later formalization | Court: parties objectively intended to be bound by the Preliminary Agreement (binding preliminary agreement of the first type) |
| Whether the Preliminary Agreement is voidable for mutual mistake (tax treatment) | Steinfeld: both sides mistakenly believed the multi‑year structure would avoid immediate taxation on the full amount; §1.409A‑3(g) actually could trigger taxation/penalties in the year of settlement | IMS: Steinfeld alone bore tax risk; IMS did not share his tax understanding and disclaimed indemnification | Court: found by clear and convincing evidence a mutual mistake about tax consequences; rescission is available and the agreement is voidable — recommendation to deny enforcement on that basis |
| Whether Steinfeld’s counsel lacked authority to bind him to the Preliminary Agreement | Steinfeld: counsel only authorized to confirm preliminary understanding, not to sign a final enforceable agreement | IMS: counsel’s confirmation constituted acceptance and binding authority | Court: Steinfeld’s own affidavit conceded counsel was authorized to confirm the preliminary deal; attorney had authority to bind for the Preliminary Agreement |
| Effect of the contemplated general release on ongoing contract rights | Steinfeld: release was intended to cover only existing claims and not to terminate ongoing contractual obligations (health premiums, fee reimbursements, indemnities) | IMS: general release eliminates all contractual obligations and liabilities, including future obligations under the Employment and Change‑in‑Control Agreements | Court: general release covers claims existing at execution, not prospective contractual obligations; release would not terminate IMS’s future obligations under those agreements |
Key Cases Cited
- Meetings & Expositions, Inc. v. Tandy Corp., 490 F.2d 714 (2d Cir. 1974) (district court has power to summarily enforce settlement reached in case pending before it)
- Winston v. Mediafare Entertainment Corp., 777 F.2d 78 (2d Cir. 1985) (four‑factor test for whether preliminary agreement is binding)
- Adjustrite Sys., Inc. v. GAB Bus. Sys., Inc., 145 F.3d 543 (2d Cir. 1998) (distinction between fully binding preliminary agreements and those that only obligate good‑faith negotiation)
- Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481 (2d Cir. 1999) (settlement agreements are contracts governed by general contract principles)
- Chimart Assoc. v. Paul, 66 N.Y.2d 570 (N.Y. 1986) (requirements and burden for establishing mutual mistake to rescind a deliberately prepared written instrument)