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Krajewski v. Urgo

2006 WL 337087 (N.J. Super. Ch. Div. 2006) (Unpublished)

AGREEMENTS — Where a subsequent settlement agreement includes a provision that the parties will base their agreement on a prior one, it is understood that the terms of the prior agreement will be used without amendment, other than technical conforming changes.

Before trial was to begin on an earlier dispute between the parties, they reached a settlement. It was reduced to writing and placed on the record. A settlement agreement between litigants is a contract. Absent a demonstration of fraud or other compelling circumstances, a court will honor and enforce the settlement agreement as it does with other contracts. A party’s second thoughts carry no weight and it is contrary to New Jersey’s public policy favoring settlement for courts to amend settlement agreements based on these second thoughts. It is not the function of a court to make a better contract for the parties than the one they themselves have made, or to alter a agreement to favor one party to the detriment of another.

In this case, the settlement agreement required the parties to enter into a limited liability company operating agreement. The operating agreement was to be modeled after an existing operating agreement between two of the three parties to the litigation. The existing operating agreement required return of initial capital contributions before distribution of profits. One of the parties to the settlement argued the parties did not discuss this provision during settlement negotiations and therefore she should not be bound by this provision. The other parties to the settlement agreement argued the provision must be included. The non-complaining party argued that other than including the complaining party as a member of the limited liability company, all terms of the existing operating agreement would be incorporated into the new operating agreement. The complaining party maintained she would not accept anything less than a certain stated percentage equity interest and the provision requiring return of capital investment before distribution of profits would dilute her equity interest. The Court held that the complaining party was suggesting that all of the other parties implicitly understood that nothing should dilute the amount of one complainant’s equity interest. The Court rejected the complainant’s argument that her implicit position should be upheld contrary to the explicit settlement text. According to her voir dire by her own counsel when the complainant accepted the settlement agreement, she understood that the existing operating agreement would be amended only to include her as a member of the limited liability company. There was no discussion about changing any other provision of the operating agreement. The Court found that the intentions of the parties was only to amend the operating agreement as testified during voir dire and that the complainant’s objections should have been raised prior to finalization of the settlement. It ruled that the provision mandating return of the capital investments prior to distribution of profits was to remain in the operating agreement.

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