Colburn Family Found. v. Chabad's Children of Chernobyl

739 F.Supp.2d 614

COLBURN FAMILY FOUNDATION, Plaintiff,

v.CHABAD'S CHILDREN OF CHERNOBYL, Tzeirei Chabad, and Friends of Tzeirei Chabad In Israel, Inc., Defendants.

No. 06 Civ. 2351 PKL.

United States District Court, S.D. New York.

Sept. 8, 2010.

Wanda Borges, Borges & Associates, LLC, Syosset, NY, for Plaintiff.

Elliot Wales, Elliot Wales Law Offices, New York, NY, for Defendants.

OPINION AND ORDER

LEISURE, District Judge:

Plaintiff, Colburn Family Foundation ("Colburn"), moves this Court for an Order of Default Judgment against defendants, Chabad's Children of Chernobyl ("CCOC"), Tzeirei Chabad ("TC"), and Friends of Tzeirei Chabad In Israel, Inc. ("FTCI"), (collectively, the "Chabad defendants"), for failure to comply with the terms of a settlement agreement. For the reasons set forth below, Colburn's motion is GRANTED.

BACKGROUND

Colburn is a not-for-profit organization with a principal place of business in the Commonwealth of Virginia. (Compl. ¶ 1.) Defendant TC is an Israeli not-for-profit organization with a principal place of business in Israel. ( Id. ¶ 3.) Defendants CCOC and FTCI are not-for-profit corporations incorporated in New York with principal places of business in New York. ( Id. ¶¶ 2 & 4.) FTCI is a subsidiary of TC and CCOC is an independent organization under the umbrella of TC. ( Id. ¶¶ 7-8.) Rabbi Joseph Aronov, a non-party to this action, is the CEO of the three Chabad defendants. (See Affirmation of Rabbi Joseph Aronov ("Aronov Aff.") ¶ 1.)

On or about October 15, 2004, Colburn lent $500,000 to CCOC in consideration for a promissory note whereby CCOC, its parent, and/or any subsidiaries promised to pay Colburn on December 14, 2004, the sum of $500,000 with interest of 2% per annum accruing from October 15, 2004. (Compl. ¶¶ 9-10.) After the Chabad defendants failed to remit any payment to Colburn by December 14, 2004, Colburn agreed to extend the due date of the outstanding loan and the parties executed a replacement promissory note on July 27, 2005. ( Id. ¶¶ 11-12.) The replacement promissory note required CCOC, its parent, and/or subsidiary to pay to Colburn by September 15, 2005, the principal amount and interest from July 27, 2005 at the rate of 2% per annum. ( Id. ¶ 13.) Rabbi Aronov signed both the October 15, 2004 and July 27, 2005 promissory notes on behalf of the Chabad defendants and agreed that they "would pay any and all costs associated with the due enforcement of the two promissory notes, including, but not limited to, attorneys fees and costs." ( Id. ¶ 16.) The Chabad defendants did not remit any payment to Colburn by September 15, 2005. ( Id. ¶ 14.)

Colburn initiated this action on March 27, 2006, seeking entry of judgment against the Chabad defendants in the sum of $500,000 plus 2% interest from July 27, 2005, and costs and attorneys fees associated with the enforcement of the two promissory notes. ( Id. 3-4.) Without submitting any responsive pleading and without retaining counsel to appear in this action, on May 31, 2006, the Chabad defendants entered into a Stipulation of Settlement ("Settlement Agreement") directly with Colburn, which was so-ordered by this Court on October 3, 2006.¹ ( See Settlement Agreement, dkt. no. 8; Wanda Borges Affirmation in Supp. of Mot. for Default J. ("Borges Aff.") ¶ 6.) Pursuant to the Settlement Agreement, the Chabad defendants agreed to pay the outstanding principal amount of $500,000 plus $20,050 ² for the costs associated with enforcing the two promissory notes, including but not limited to attorneys' fees and costs, pursuant to a payment schedule: (1) $50,000 by June 9, 2006; (2) $25,000 by June 29, 2006; (3) $25,000 by July 19, 2006; and (4) $10,000 per month by the fourth of each subsequent U.S. calendar month until the remaining balance (including the $20,050) was paid in full. (Settlement Agreement, § 2, ¶ 1(a)-(d).) The Settlement Agreement also contains a provision defining an event of default as, among other things, "[f]ailure to pay any installment of the within settlement, when due." ( Id. § 3, ¶ 1.) The Settlement Agreement further provides the following instruction should a default occur:

In the event of default in payment, notice of such default shall be mailed by ordinary mail to the Defendants, and should such default remain uncured for five (5) business days from the date of mailing of such notice as provided above, then Plaintiff may enter judgment against the Defendants without further notice for the full sum of $500,000, plus interest to the date of default, $20,050.00 in costs associated with the due enforcementof the two promissory notes, including, but not limited to, attorneys' fees and costs, and statutory costs, crediting Defendants upon execution for any payments made hereunder.

( Id. § 3, ¶ 3 (emphasis in original).) The Settlement Agreement also permits Colburn to "recover, from any and all of the Defendants, the reasonable attorney's fees and costs it incurs in the enforcement of the terms of this Agreement." Id. § 3, ¶ 5.

Pursuant to the Settlement Agreement, Colburn received payments from the Chabad defendants until December 18, 2008, after which the payments ceased. (Colburn's Mem. of Law ("Colburn Mem.") 2.) Colburn now moves for default judgment under section three of the Settlement Agreement, on the grounds that the Chabad defendants paid only $294,000 and failed to cure their default within five business days after Colburn's June 8, 2010 notice of default. ( Id.; James Lintott Decl. in Supp. of Mot. for Default J. ("Lintott Decl.") ¶ 14 & Ex. C.) Colburn seeks judgment for the remaining principal balance of $206,000, plus $20,050 in costs under the Settlement Agreement, 2% interest per annum from July 25, 2005 to the date of entry of judgment, and attorneys' fees of $10,719, representing the fees incurred by Colburn in enforcing the Settlement Agreement. (Colburn Mem. 4-5.)

DISCUSSION

The Court first addresses the law governing the enforcement of settlement agreements. Then the Court analyzes the parties' arguments and holds that the Settlement Agreement is valid and enforceable.

I. Law Governing Settlement Agreements

"A settlement agreement is a contract that is interpreted according to general principles of contract law." Powell v. Omnicom, 497 F.3d 124, 128 (2d Cir.2007); see also Universal Outdoor, Inc. v. City of New Rochelle, 286 F.Supp.2d 268, 274 (S.D.N.Y.2003) ("In New York, the meaning of a settlement agreement is construed according to general principles of contract law."). " '[A] stipulation is generally binding on parties that have legal capacity to negotiate, do in fact freely negotiate their agreement and either reduce their stipulation to a properly subscribed writing or enter the stipulation orally on the record in open court.' " Katel Ltd. Liab. Co. v. AT & T Corp., 607 F.3d 60, 65 (2d Cir.2010) (quoting McCoy v. Feinman, 99 N.Y.2d 295, 302, 755 N.Y.S.2d 693, 785 N.E.2d 714 (2002)); see also Powell, 497 F.3d at 128 ("Once entered into, [a settlement agreement] is binding and conclusive."). "[C]ourts should not disturb a valid stipulation absent a showing of good cause such as fraud, collusion, mistake or duress[,] or unless the agreement is unconscionable or contrary to public policy[,] or unless it suggests an ambiguity indicating that the words did not fully and accurately represent the parties' agreement." Katel, 607 F.3d at 65-66 (quoting McCoy, 99 N.Y.2d at 302, 755 N.Y.S.2d 693, 785 N.E.2d 714).

"Stipulations of settlement are favored by the courts and not lightly cast aside." Hallock v. State, 64 N.Y.2d 224, 230, 485 N.Y.S.2d 510, 474 N.E.2d 1178 (1984) (Kaye, J.) (upholding stipulation of settlement over plaintiff's objection, made more than two months after the settlement was executed, that counsel did not have authority to enter into settlement on the terms embodied in the stipulation). A party seeking to void a contract bears the burden of proving that the contract is invalid. See Int'l Halliwell Mines, Ltd. v. Cont'l Copper & Steel Indus., Inc., 544 F.2d 105, 108 (2d Cir.1976) ("[U]nder New York law a party seeking to avoid hiscontractual obligations on grounds of economic duress shoulders a heavy burden."); Sun Forest Corp. v. Shvili, 152 F.Supp.2d 367, 393 (S.D.N.Y.2001) ("Under New York law, a party claiming that it was unduly influenced to enter a contractual relationship must prove that it contracted under circumstances indicating that a relationship of control existed and that the stronger of the two parties had exerted influence over the other to destroy the weaker party's free will and substitute for it the will of the [other]." (citation and internal quotation marks omitted)). " 'Only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved from the consequences of a stipulation made during litigation.' " Matter of Estate of Rosenhain, 597 N.Y.S.2d 782, 783, 193 A.D.2d 903 (App.Div.1993) (quoting Hallock, 64 N.Y.2d at 230, 485 N.Y.S.2d 510, 474 N.E.2d 1178). "If the releasing party does not promptly repudiate the contract or release, he will be deemed to have ratified it." VKK Corp. v. Nat'l Football League, 244 F.3d 114, 122-23 (2d Cir.2001). Accordingly, "[t]he burden on a party seeking to avoid contractual obligations on the grounds of economic duress 'increases proportionately with the delay in ... repudiating the contract in question.' " Id. at 123 (quoting Int'l Halliwell, 544 F.2d at 108); see also DiRose v. PK Mgmt. Corp., 691 F.2d 628, 634 (2d Cir.1982) (collecting cases where delays ranging from six months to two years constituted waiver).

II. Analysis

The Chabad defendants do not dispute that they are in default and acknowledge "the importance of resolving this matter and satisfying Colburn," although they claim that they paid Colburn $340,000 rather than $294,000. (Aronov Aff. ¶ 7; see also Affirmation of Defs.' Counsel Elliot Wales ("Wales Aff.") ¶ 9.) ³ The Chabad defendants...