DECISION AND ORDER
I. BACKGROUND
By Order dated August 4, 2006, Magistrate Judge Debra Freeman, to whom this matter had been referred for pretrial supervision, issued a Report and Recommendation (the “Report”), a copy of which is attached and incorporated herein, recommending that the Court deny both the motion of defendant National Medical Card systems, Inc. to enforce a purported *331 settlement agreement in connection with this action, and the cross-motion of plaintiff Benicorp Insurance Company for an award of costs regarding this proceeding. Neither party filed objections to the Report, although the time to do so expired on August 21, 2006. For the reasons stated below, the Court adopts the Report in its entirety.
II. STANDARD OF REVIEW
A district court evaluating a Magistrate Judge’s report may adopt those portions of the report to which no “specific, written objection” is made, as long as the factual and legal grounds supporting the findings and conclusions of the recommendations are not clearly erroneous or contrary to law.
See
Fed.R.Civ.P. 72(b);
Thomas v. Arn,
III. DISCUSSION
The Court finds that the facts set forth in the Report are supported by the record, and thus incorporated herein by reference, and that there is nothing clearly erroneous or contrary to law in any of the Report’s factual findings or legal conclusions. Accordingly, the Court adopts the Report in its entirety.
IY. ORDER
For the reasons discussed above, it is hereby
ORDERED that the Report and Recommendation of Magistrate Judge Debra Freeman dated August 4, 2006 (Docket No. 41) is adopted in its entirety. The motion of defendant National Medical Health Card Systems to enforce a purported settlement of this action (Docket No. 29) is denied, and the cross-motion of plaintiff Benicorp Insurance Company for an award of costs in connection with this matter is similarly denied.
SO ORDERED.
REPORT AND RECOMMENDATION
This matter is before the Court on a motion by defendant, National Medical Health Card Systems, Inc. (“NMHC”), 1 to enforce its purported out-of-court settlement agreement with plaintiff Benicorp Insurance Company (“Benicorp”). Benicorp has opposed the motion and cross-moved for costs. For the reasons discussed below, I recommend that both the motion and cross-motion be denied.
BACKGROUND
A. Benicorp’s Complaint
Plaintiff Benicorp is a health and life insurance company providing, inter alia, *332 prescription drug coverage to individuals employed by small businesses. (See Complaint, dated August 24, 2005 (“Compl.”), ¶ 9; see also VanPuymbrouck Decl. ¶ 3.) According to the Complaint, defendant NMHC “holds itself out as a procurer of prescription drugs through a network of pharmacies and mail order facilities with which it has contractual relationships.” (ComplV 8.) In 2002, the parties entered into a so-called “Managerial Agreement,” under which NMHC agreed to manage a prescription drug plan (the “Plan”) and thereby provide prescription drugs to Ben-icorp’s insureds. (Compl.Uf 10-11.) The Managerial Agreement specified how Beni-corp would be charged by NMHC for the drugs provided to insureds under the Plan (see id. ¶¶ 12-13), and obligated NMHC to pass on to Benicorp a specified percentage of drug manufacturer rebates that NMHC received in connection with its procurement of the drugs (see id. ¶ 20).
In August 2005, Benicorp commenced this action, claiming, inter alia, that NMHC had breached various obligations owed to Benicorp under the parties’ Managerial Agreement. In particular, Benicorp claimed that NMHC had systematically overcharged Benicorp for prescription drugs dispersed to Benicorp’s insureds through the network of pharmacies with which NMHC had preexisting contractual relationships. (Compl.lfíl 18-19.) Further (and of most relevance to this motion), Benicorp alleged that NMHC had “systematically and intentionally withheld rebate monies due and owing to Benicorp.” (Id. ¶ 21.)
B. The Parties’ Settlement Negotiations
It is undisputed that, shortly after commencing this action, Benicorp offered to settle the case for $1 million, an amount greater than the damages amount specified in its Complaint. (Robertson Decl. ¶ 1; see also Compl. ¶¶ 44, 49, 57, 64, and 69 (reiterating, for each Count of the Complaint, that Benicorp had suffered damages of “at least $700,000”).) When NMHC’s counsel, Mark A. Robertson, Esq. (“Robertson”) asked why Benicorp’s settlement demand exceeded its only pleaded damages claims, Benicorp’s counsel, Darren VanPuymbrouck, Esq. (“VanPuym-brouck”), apparently explained that a settlement would have to take into account Benicorp’s attorneys’ fees and also rebate amounts that Benicorp was owed. (Robertson Decl. ¶ 1; see also VanPuymbrouck Decl. ¶ 18.)
Robertson seems to suggest that, from this explanation, he was led to believe that Benicorp wished to settle all potential rebate claims by Benicorp, whether such claims were for rebates that NMHC had allegedly wrongfully withheld from Beni-corp in the past (as pleaded in the Complaint), or were claims that might arise in the future, in connection with rebate payments that had not yet become due to Benicorp because NMHC, itself, had not yet received the rebates from the drug manufacturers. (See Robertson Decl. ¶ 1; see also VanPuymbrouck Decl. ¶¶ 17-18.) VanPuymbrouck, however, states that, in his conversation with Robertson, he was explicit that he was referring to the previously withheld rebates that were the subject of the Complaint, and that the reason for increasing the settlement demand over the damages estimated in the Complaint was that, without discovery, Benicorp was not able to quantify the amounts that had been withheld. (VanPuymbrouck Decl. ¶ 18.) VanPuymbrouck also states that, at about the time that Benicorp filed its Complaint, he separately spoke to Robertson about NMHC’s ongoing obligation to pay future rebates as they became due, and that Robertson assured him that NMHC *333 would meet its contractual obligations in that regard. (Id. ¶ 13:)
Regardless of what was actually said between counsel in August 2005 or in the weeks thereafter, it is also undisputed that, on October 26, 2005, in connection with the parties’ settlement discussions, VanPuymbrouck followed up with a letter to NMHC, setting out Benicorp’s position as to NMHC’s potential exposure in the litigation. (Robertson Deck, Ex. 1.) The letter reflected Benicorp’s view that, factoring in the possibility of treble damages on Benicorp’s RICO claim, NMHC faced a potential total exposure in the litigation of over $3.5 million, including $375,000 (before any trebling) on Benicorp’s claim for “withheld rebates.” (Id.) In the letter, Benicorp urged NMHC to take this damages analysis into account “in formulating [its] settlement offers in this case.” (Id. at 2.) Benicorp’s letter contains no indication that any settlement of the case should also include an advance payment for future rebates, and NMHC offers no explanation as to why it may have believed that the “withheld rebates” referred to in this letter included rebate payments not yet due and not covered by the lawsuit.
After Benicorp laid out its damages analysis, the parties continued to discuss settlement, and, at some point, counsel appear to have agreed on a figure of $625,000 to settle the action. (Robertson Decl. ¶ 3; see also VanPuymbrouck Deck ¶ 25.) Benicorp asserts that this figure was never intended to include any claim for future rebates, as no such claim was included in the Complaint (or in Benicorp’s October letter assessing NMHC’s litigation exposure), and as it was Benicorp’s understanding that NMHC had separately agreed to pay such rebates when they eventually became due. (VanPuymbrouck Deck ¶¶ 13-14.) NMHC, however, takes the position that the agreed figure of $625,000 was in fact intended to settle all rebate claims, and that the parties also orally agreed that Benicorp would provide NMHC with a “general release,” meaning (according to NMHC) a release that would cover all such claims, whether past or future.
In any event, on January 4, 2006, Beni-corp’s counsel sent a “comfort letter” to NMHC’s counsel, seeking to confirm NMHC’s willingness to settle the case for $625,000. (Robertson Deck, Ex. 3.) The letter, which was signed by VanPuym-brouck, provided a space for it to be counter-signed by Robertson. (See id.) On January 23, 2006, VanPuymbrouck also sent NMHC a proposed written settlement agreement, which provided for a settlement amount of $625,000 and, inter alia, a release by Benicorp of all claims that Benicorp and its parent corporation “have asserted or could, shall, or may have asserted against [NMHC] arising from or related in any manner to the Parties July 1, 2002 Managerial Agreement .... ” (Robertson Deck, Ex. 4.) The proposed release did not specifically state whether it was (or was not) intended to cover future contract claims, as well as already-existing claims.
For about three weeks, NMHC apparently did not respond in writing to Beni-corp’s comfort letter or the proposed settlement agreement. At some point during this period, Lawrence H. Heftman, Esq. (“Heftman”), an attorney associated with VanPuymbrouck’s law firm, called Robertson and asked why NMHC had not signed and returned the comfort letter. (Declaration of Lawrence H. Heftman in Opposition to NMHC’s Motion To Enforce a Purported Settlement Agreement and in Support of Plaintiffs Cross-Motion for Costs, dated Apr. 28, 2006 (“Heftman Deck”), ¶ 3.) According to Heftman, “Robertson stated that [NMHC] had not *334 agreed to sign the comfort letter yet and could not sign it until [NMHC’s] financial disclosure period ended.” (Id.) In his Declaration, VanPuymbrouck similarly asserts that NMHC made “explicit and repeated statements to Benicorp, in late December 2005 and early January 2006, that NMHC could not — and would not — agree to any settlement with Benicorp because NMHC did not want to incur any disclosure obligations concerning Benicorp’s lawsuit or its settlement before NMHC finalized its upcoming SEC filing.” (Van-Puymbrouck Decl. ¶ 24.) 2
Finally, on the morning of January 26, 2006, at VanPuymbrouck’s direction, Heft-man sent Robertson an e-mail message “to follow up on the comfort letter and proposed settlement agreement.” (See Heft-man Decl. ¶ 5 and Ex. A.) The e-mail noted that Benicorp was “extremely anxious that [it] ha[d] not received the original signed comfort letter back” and asked that Robertson contact VanPuymbrouck or Heft-man “as soon as possible regarding the status of the comfort letter and any reactions to the settlement agreement.” (Robertson Deck, Ex. 5.) The e-mail further noted that Benicorp had instructed its counsel to refile Benicorp’s complaint against the individual defendants (see n. 1, supra), if Benicorp did not “have a funded settlement agreement by February 7, our agreed upon date” (see Robertson Deck, Ex. 5).
VanPuymbrouck states that, on January 26, 2006, after this e-mail was sent, he was advised by Benicorp that it had not received a rebate payment from NMHC that it had expected to receive that month, in accordance with NMHC’s ongoing contractual requirement to make rebate payments to Benicorp as the rebates were received from the drug manufacturers. (VanPuym-brouek Deck ¶ 30.) “Accordingly,” Van-Puymbrouck states, “Benicorp’s management provided me with a very conservative estimate of future rebates that it expected to receive and made clear that I should communicate to NMHC that Benicorp would require that all future rebates be paid at the time that Benicorp settled its lawsuit with NMHC for $625,000 rather than await NMHC’s receipt of those monies at some indeterminate time in the future.” (Id.)
According to VanPuymbrouck, he then called Robertson on the afternoon of January 26th, and told him that “Benicorp had conservatively estimated future rebates at $274,890 and insisted upon receiving these monies at the same time that NMHC paid Benicorp $625,000 to settle the lawsuit.” (Id. ¶ 31.) Based on VanPuymbrouck’s account of the call, Robertson reacted badly, telling VanPuymbrouck that NMHC had no intention of paying any additional rebate monies, and “angrily” hanging up the phone on VanPuymbrouck. (Id.) Robertson does not deny that this conversation took place, but provides a less colorful account of what transpired. Even according to Robertson, however, an issue was raised on the call as to whether the release contained in the proposed settlement agreement “covered rebate payments or not” (Robertson Deck at ¶ 8); Robertson concedes that he was told by VanPuym-brouek on the call that “Benicorp did not believe that the rebate payments were in- *335 eluded” (id). Nonetheless, taking the position that the draft release language was broad enough to cover all rebate payments, whether past or future, and finding that language to be consistent with his own belief as to the scope of the parties’ agreement, Robertson quickly signed the comfort letter and faxed it back to VanPuym-brouck about an hour later, together with the proposed settlement agreement, to which Robertson made only minor changes. {See id. ¶¶7-8 and Ex. 6; see also VanPuymbrouck Decl. ¶ 33 and Exs. G, H.)
Although no party or counsel signed the proposed settlement agreement (see Robertson Deck, Ex. 6 at 5-6; see also Plaintiff Benicorp’s Memorandum of Law in Opposition to NMHC’s Motion To Enforce a Purported Settlement Agreement and in Support of Plaintiffs Cross-Motion for Costs, dated Apr. 28, 2006 (“Benieorp Mem.”), at 18), NMHC now asserts that its counsel’s return of the signed comfort letter was itself sufficient to constitute a written “acceptance” of Benicorp’s outstanding “offer” to settle all claims, including both past and future rebate claims, for the sum of $625,000.
Benieorp, for its part, contends that, to the extent NMHC has asserted that future rebate payments were to be included in the parties’ settlement and release, then the parties did not have, and never had, a deal. On this point, VanPuymbrouck sent a letter to Robertson on January 31, 2006, stating:
By this letter, Benieorp hereby revokes and repudiates any prior proposed settlement agreement or comfort letter insofar as [NMHC] now claims that those documents were intended to settle the claims raised in the above litigation and relieve [NMHC] of its obligation under the parties’ Managerial Agreement to pay rebates that will come due in the near future. [NMHC’s] recent pronouncement that it will not pay rebates for the fourth quarter of 2004 and 2005 represents an anticipatory breach that was heretofore unknown by Beni-corp and which was not the subject matter of the above litigation. Therefore, Benieorp hereby demands that [NMHC] honor its obligation to pay these rebates as they become due.
(Robertson Deck, Ex. 7 (emphasis added).)
DISCUSSION
I. NMHC’S MOTION TO ENFORCE THE PURPORTED SETTLEMENT AGREEMENT
A “ ‘district court has the power to enforce summarily, on motion, a settlement agreement reached in a case that was pending before it.’ ”
Cruz v. Korean Air Lines Co.,
A. Choice of Law
As an initial matter, this Court must determine which jurisdiction’s law governs this dispute. A federal court sitting in diversity must apply the choice of law rules of the state in which it is located.
Schwimmer v. Allstate Ins. Co.,
“New York law is clear in cases involving a contract with an express choice-of-law provision: Absent fraud or violation of public policy, a court is to apply the law selected in the contract as long the state selected has sufficient contacts with the transaction.”
Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd.,
Where no choice-of-law clause governs, the next step under New York choice of law rules would be to “undertake ‘grouping of contacts’ analysis to determine the ... jurisdiction [that has] the ‘most significant relationship to the transaction and parties.’ ”
IBM v. Liberty Mut. Ins. Co.,
B. Enforceability of the Purported Agreement
To form a valid contract under New York law, there must be an offer, acceptance, consideration, mutual assent and intent to be bound.
See, e.g., Register.com, Inc. v. Verio, Inc.,
The question for the Court is whether NMHC has satisfied its burden of demonstrating that the parties had a “meeting of the minds” as to all material terms of a settlement agreement. In particular, the issue here is whether the parties had a common, mutual understanding as to the scope of the release that Beni-corp was prepared to offer in exchange for NMHC’s payment of $625,000.
See Forden v. Squibb,
NMHC argues that, by returning the counter-signed comfort letter on January 26, 2006, together with the proposed settlement agreement showing only minor *338 changes, NMHC “accepted” Benicorp’s settlement offer. {See Memorandum of Law in Support of Defendant’s Motion To Enforce Settlement, dated Apr. 21, 2006 (“NMHC Mem.”), at 5, 8.) Further, NMHC asserts that Benicorp’s e-mail of that morning made plain that the offer would remain open until February 7, 2006, and thus NMHC’s acceptance was prior to the expiration of the offer. {See id. at 5.) NMHC also asserts that its acceptance was prior to NMHC’s written “revocation” of its offer on January 31, 2006. {See id. at 6.) Accordingly, NMHC contends that its acceptance was valid and gave rise to an enforceable agreement. As for the terms of that agreement, NMHC argues that the “objective” evidence of the parties’ intent — ie., the proposed written settlement agreement itself — unequivocally shows that Benicorp agreed to a release of all rebate claims, including existing claims and claims that had not yet arisen, and that the parties thus had a “meeting of the minds” on that issue. {See id. at 8.)
These arguments by NMHC, however, ignore a critical point in the parties’ dealings. The single most telling aspect of the record is that, prior to NMHC’s return of the counter-signed comfort letter and the marked-up proposed settlement agreement, counsel had a conversation in which Benicorp’s counsel explicitly alerted NMHC’s counsel to the fact that, in Beni-corp’s view, the proposed release was not intended to cover all rebate claims. Despite counsel’s differing accounts as to what transpired between them both before and after that point, this key aspect of their January 26, 2006 conversation is not in dispute. In his own Declaration, NMHC’s counsel concedes that he was informed that “Benicorp did not believe the rebate payments were included [in the proposed release],” while he, himself, “believed] that the release language cover[ed] the rebate payments.” (Robertson Decl. ¶ 8.) NMHC thus admits that, before it purportedly “accepted” Benicorp’s “offer,” it was aware that the parties had very different understandings as to the scope of Benicorp’s proffered release, and hence lacked a common intent on a material term of the supposed agreement.
See Dittmann,
Moreover, despite NMHC’s argument to the contrary, there is nothing about the draft release language itself that, as an objective matter, demonstrates that Benicorp actually intended to relinquish future claims. As a threshold matter, although Benicorp’s proposed release does not contain language making explicit that it would only cover claims existing as of the date of the release, courts have ordinarily held a party’s release to be “inapplicable to conduct subsequent to the execution of the release.”
Info. Superhighway, Inc. v. Talk Am., Inc.,
NMHC appears to take the position that, because Benicorp’s proposed release refers to all contract-related claims, it should necessarily be read to cover both existing and future contract-related claims. This proposition, however, is not supported by any authority cited by NMHC; in fact, the only cases NMHC does cite with respect to the meaning of release language
(see
NMHC Mem. at 9-10), have nothing to do with the issue of future claims.
See Great American Trucking Co. v. Swiech,
NMHC is also not persuasive in its fallback argument that, regardless of the parties’ differing understandings of the written settlement proposal, they had reached an earlier oral settlement agreement that should be enforced by the Court. NMHC faces a particularly heavy burden to demonstrate the existence of an oral agreement,
see Highland Capital Mgmt., L.P. v. Schneider,
No. 02 Civ. 8098(PKL),
Finally, nothing in the written record makes it “objectively” clear that Benicorp ever orally agreed to forego future rebate payments as they became due. Benicorp’s October 26, 2005 letter, laying out its view of NMHC’s potential litigation exposure and suggesting that NMHC consider Beni-corp’s analysis in formulating settlement offers, referred only to NMHC’s exposure for “withheld rebates” (see Robertson Deck, Ex. 1 at 1), which, given its ordinary meaning, would not include payments that were not yet due. 3 Further, to the extent NMHC argues that Benicorp’s January 4, 2006 comfort letter was intended to “confirm” the parties’ earlier, oral agreement to settle the action (see Robertson Deck, Ex. 3), that comfort letter must be read in conjunction with Benicorp’s written settlement proposal that followed, in order to understand what it was that Benicorp was seeking to confirm. As discussed above, Benicorp’s written proposal does not establish that Benicorp ever intended to relinquish future claims. Moreover, as Beni-corp notes (see Benicorp Mem. at 14 n. 4), its proposed written agreement contained a merger clause, making plain that Beni-corp intended any prior oral agreements to be superceded by, and merged into, a written agreement.
On the record presented, this Court cannot find that NMHC has satisfied its burden to demonstrate that the parties mutually assented to all material terms of a settlement agreement, and I therefore recommend that NMHC’s motion to enforce the parties’ purported settlement agreement be denied.
II. BENICORP’S CROSS-MOTION FOR COSTS
In its cross-motion, Benicorp asserts that NMHC has “misrepresented numerous facts, omitted critical facts, and cited legal cases that are both inapposite and that directly contradict its argument.” (Benicorp Mem. at 17.) Although Beni-corp states that, “[d]ue to the constrained briefing schedule” on NMHC’s motion to enforce the purported settlement, it was “not in a position to file a separate motion for sanctions under Rule 11” (id.), it nonetheless argues that sanctions are appropriate, and requests that the Court award it the costs of responding to NMHC’s motion (see id. at 17-19.)
Rule 11 of the Federal Rules of Civil Procedure provides, inter alia, that, by submitting a signed pleading, motion or other paper to the Court, a party or attorney “is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, ... [the] legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law ... [and] the allegations and other factual contentions have evidentiary support.” Fed.R.Civ.P. 11(b)(3). Where the Court finds that a party, without reason *341 able inquiry, has made an unwarranted legal or factual contention in a signed submission to the Court, the Court may impose sanctions under the Rule. See Fed. R.Civ.P. 11(c).
A motion for sanctions under Rule 11, however, must “be made separately from other motions or requests” and must “describe the specific conduct alleged to violate subdivision (b)” of the Rule. Fed. R.Civ.P. 11(c)(1)(A). Moreover, the Rule contains a “safe harbor” provision, affording protection to a party that voluntarily withdraws its challenged statement after receiving notice of the specific grounds for a potential sanction. Specifically, the Rule provides that a sanctions motion under the Rule must be served “but shall not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.”
Id.
A movant is required to follow this procedure, and a Rule 11 motion that is not made in compliance with this procedural aspect of the Rule is subject to denial on this basis.
See Storey v. Cello Holdings, L.L.C.,
Here, Benicorp has suggested no basis for its sanctions cross-motion other than Rule 11, yet it concedes that it has not followed the procedure required by the Rule. Under the circumstances, I recommend that the cross-motion be denied.
CONCLUSION
For all of the foregoing reasons, I respectfully recommend that the Court deny both NMHC’s motion to enforce the purported settlement agreement between the parties and Benicorp’s cross-motion for costs.
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections.
See also
Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Victor Marrero, United States Courthouse, 500 Pearl Street, Room 660, New York, New York 10007, and to the chambers of the undersigned, United States Courthouse, 500 Pearl Street, Room 525, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Marrero. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW.
See Thomas v. Arn,
August 4, 2006.
Notes
. On October 26, 2005, plaintiff voluntarily dismissed the individual defendants from this action (Dkt. 16), in an apparent effort to facilitate settlement of the action with NMHC (see Declaration of Mark A. Robertson in Support of NMHC's Motion To Enforce Settlement Agreement, dated Apr. 21, 2006 ("Robertson Decl.”), Ex. 1 at 1; see also Declaration of Darren VanPuymbrouck in Opposition to NMHC's Motion To Enforce a Purported Settlement Agreement and in Support of Plaintiff's Cross-Motion for Costs, dated Apr. 27, 2006 ("VanPuymbrouck Decl.”), Ex. C).
. In response to this recounting of events by Benicorp's counsel, NMHC’s Chief Legal Officer and Corporate Secretary, Jonathan Friedman, Esq. ("Friedman”), acknowledges that he told VanPuymbrouck that NMHC "wanted to pay the settlement in February of 2006,” but states that this desire "had nothing to do with the disclosure of the settlement or the lawsuit and instead had to do with the date when the settlement payment would be entered on NMHC's financial books.” (Second Declaration of Jonathan Friedman in Support of NMHC’s Motion To Enforce Settlement Agreement, dated May 2, 2006.)
. Similarly; when Benicorp wrote to NMHC on October 6, 2005, agreeing to dismiss the individual defendants from the case (see n. 1, supra), it noted that the dismissal would be "[i]n the interest of fostering prompt return of funds owed to Benicorp” (VanPuymbrouck Deck, Ex. C), which logically refers to previously withheld amounts.