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Shernoff v. Hewlett-Packard Co.

December 4, 2006


CHAMBERS OF JOEL A. PISANO JUDGE Clarkson S . Fisher Building & U.S . Courthouse 402 East State Street Trenton, NJ 08608 (609) 989-0502



Dear Parties,

On April 21, 2005, counsel for Plaintiff Mia Shernoff and Defendant Hewlett-Packard Company ("HP") appeared before Magistrate Judge Madeline Cox Arleo for a settlement conference. Plaintiff was represented by local counsel, Anna M. Stathis, Esq., and by her husband, Frank L. Shernoff, Esq., admitted pro hac vice. Both parties were available by telephone. Plaintiff, a former employee of HP, had filed suit against HP alleging breach of contract, negligence, and breach of the implied covenant of good faith and fair dealing. Plaintiff alleged that HP provided her with incorrect information regarding the exercise price for an option to purchase HP stock that was issued to her during her employment. The parties agreed to settle Plaintiff's claims against HP: HP would pay Plaintiff $37,500 in exchange for her surrender of the stock option and the parties also agreed to certain non-economic terms.

Accordingly, on April 25, 2005, the Court entered a 60-day Order dismissing the case due to the settlement. Over the course of the next several weeks, the parties attempted to embody the terms of the agreement in a formal written document. On May 10, 2005, Defendant forwarded Plaintiff a draft of the settlement agreement. Plaintiff refused to sign the agreement, and instead, sent Defendant a new version on May 16, 2005. On June 1, 2005, Defendant responded to Plaintiff's changes, accepting some and rejecting others. Subsequently, some time between June 1, 2005 and June 14, 2005, without providing notice to the Court or to HP, Plaintiff unilaterally decided to exercise her HP stock options rather than surrender them to HP pursuant to the settlement. Plaintiff received a net amount of $28,595.69.

On June 21, 2005, counsel for HP alerted the Court of Plaintiff's breach of the settlement agreement and requested a hearing. In response, Plaintiff moved to rescind the settlement agreement. On July 18, 2005, HP opposed Plaintiff's motion and indicated that it would permit Plaintiff to retain the proceeds of the option exercise, but sought to enforce the agreed-upon non-economic terms. The Court referred these motions to Judge Arleo for a Report and Recommendation ("R&R"). Judge Arleo conducted an evidentiary hearing wherein the parties were permitted to present and cross-examine witnesses on July 27, 2005.

I. The Magistrate Judge's Findings

Judge Arleo issued an R&R on July 17, 2006 recommending that the Court deny Plaintiff's motion to rescind the settlement and grant Defendant's cross-motion to enforce the settlement as to the non-economic terms. This R&R is memorialized in a letter to the parties.

In summary, Judge Arleo found that a voluntary binding contract was formed between the parties, despite the fact that they had not executed the written settlement agreement. Judge Arleo found that Plaintiff, through her attorneys, and Defendant agreed to the material terms of the settlement: that Plaintiff would forego her claims against Defendant in exchange for $37,500, and that the option held by Plaintiff would be surrendered to HP. Additionally, Judge Arleo found that the agreed-to "non-economic" terms of the Agreement included the following: 1) non-admission of liability on the part of HP; 2) a general release of all claims from Plaintiff; 3) a confidentiality agreement regarding the terms of the settlement; 4) a mutual non-disparagement provision; and 5) no future re-employment unless waived at Defendant's option.

II. Plaintiff's Written Objections

Plaintiff filed timely written objections to Judge Arleo's R&R pursuant to Local Civil Rule 72.1(c)(2). Plaintiff argues that the Court should decline to adopt Judge Arleo's recommendations, setting forth 21 objections to the R&R. Essentially, Plaintiff claims that the Magistrate Judge erred in concluding that the parties entered into a binding settlement agreement for several reasons, which the Court will consider in turn below.

III. Legal Discussion

Pursuant to Rule 72.1(c)(2), the Court must "make a de novo determination of those portions to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate Judge." Because an order enforcing a settlement is dispositive of a case, the Court will conduct a de novo review in this matter. The Court need not conduct a new hearing or take new evidence in making this de novo review. L. Civ. R. 72.1(c). Rather, the Court may consider the record developed before the Magistrate Judge and make a determination on the basis of that record. L. Civ. R. 72.1. The Court has reviewed the R&R, Plaintiff's objections to the R&R, and the record before the Magistrate Judge. For the following reasons, the Court adopts Judge Arleo's R&R as the opinion of this Court.

The construction and enforcement of settlement agreements in federal court is governed by state law. Excelsior Ins. Co. v. Pennsbury Pain Center, 975 F. Supp. 342, 349 (D.N.J. 1996). An agreement to settle a lawsuit is a contract, which, like all contracts, may be freely entered into and which a court, absent a demonstration of fraud or other compelling circumstances, should honor and ...

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