The Full Faith and Credit Clause of the United States Constitution provides that “Full Faith and Credit shall be given in each State to the public acts, records, and judicial proceedings of every other state.” In terms of stipulations of settlement, New York courts favor such stipulations and will rarely set them aside absent the presence of “fraud, collusion, mistake or such other factors as would undo a contract.” Heimuller v Amoco Oil Co., 92 AD2d 882, 884 (2d Dept 1983). Recently, Suffolk County Commercial Division Justice Elizabeth Hazlitt Emerson issued a decision in F.W. Sims, Inc. v Simonelli, which examined whether a stipulation of settlement entered into in a related federal action can be enforced in a separate action under the Full Faith and Credit Doctrine.
In F.W. Sims, Inc. plaintiffs Camile Shea (“Camile”), Patrick Simonelli (“Patrick”), Lilly Ann Wiswall (“Lilly Ann”), Arthur Seeberger (“Arthur”) and F.W. Sims, Inc. (“F.W. Sims”) (collectively, the “Plaintiffs”) commenced an action against Deborah Simonelli and Dana Grimaldi, as Executors of the Estate of Joseph Simonelli (“Joseph”) and several contractors, including Prospective, LLC (“Prospective”) and its principal Dorothy Covelli a/k/a Williams (“Dorothy”) (“State Court Action”). Plaintiffs alleged that Joseph embezzled approximately $25 million dollars from F.W. Sims, a family-owned heating, ventilation, and air-conditioning systems business, by directing the defendant contractors to submit fraudulent invoices for work that was never performed. On November 12, 2014, Joseph was arrested by the FBI for his involvement in the fraudulent billing scheme, which resulted in the government commencing an in-rem forfeiture action (the “EDNY Action”) against his property in the United States District Court for the Eastern District of New York. The EDNY Action was eventually settled pursuant to a “Stipulation and Order of Settlement and Discontinuance” (the “Stipulation”). The Stipulation provided that:
[F.W.] Sims, its officers and shareholders, [Deborah] Simonelli-Grimaldi, [Dana] Grimaldi, the Simonelli Estate, Serendipity [Farm LLC] and British Betty Racing Stables LLC agree to release each other for all claims made in or which could be made in or could arise from the State Court Action [this action] and agree to consent to the dismissal of the State Court Action by the filing, therein, of a Notice of a Stipulation of Discontinuance with Prejudice.
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This Stipulation, and the validity, performance, construction and enforceability thereof shall be governed, and construed, in accordance with the laws of the State of New York, without regard to its choice-of-law rules. The United States District Court for the Eastern District of New York shall retain exclusive jurisdiction and shall be the exclusive venue for the resolution of any dispute arising under, and concerning the interpretation and enforcement of, this Stipulation.
Following the execution of the Stipulation, defendants Dorothy and Prospective moved to dismiss Plaintiffs’ complaint in the State Court Action, arguing (1) dismissal was required pursuant to the terms of the Stipulation in the EDNY Action; and (2) the causes of action were barred by the statute of limitations. In opposition, Plaintiffs argued that defendants Dorothy and Prospective did not have standing to enforce the Stipulation since the defendants were neither parties to the EDNY Action nor signatories to the Stipulation itself.
In its decision, the Court denied the branch of Dorothy and Prospective’s motion for dismissal of the action pursuant to the terms of the Stipulation for three reasons. First, the Court clarified that “the Stipulation is not a judgment that is entitled to full faith and credit,” but rather, is governed by general contract principles for its interpretation. Second, the Court held that Dorothy and Prospective did not have standing to enforce the Stipulation because (a) neither Dorothy nor Prospective were parties to the Stipulation; and (b) the terms of the Stipulation did not contain any language to “evince an intent to permit enforcement” by Dorothy or Prospective. Third, the Court found that it did not have jurisdiction to resolve this issue, since the parties to the Stipulation agreed that all disputes concerning the interpretation and enforcement of the Stipulation were to be resolved by the United States District Court for the Eastern District of New York.
This decision is a strong reminder of the distinctions between the enforcement of judgments and stipulations. In the case of non-parties and/or non-signatories, counselors should closely analyze the terms of a stipulation to determine whether their client has standing to enforce the stipulation in any future / related proceedings.