Lento v. Altman: The Third Circuit Confirms that a Draft “Settlement Agreement” with Material Blanks and No Signatures Is Not an Enforceable Contract under New Jersey Law

Court: United States Court of Appeals for the Third Circuit (Not Precedential)

Date: March 26, 2025

Case: Joseph D. Lento, Esq., et al. v. Keith Altman, Esq., et al., No. 24-1899

Panel: Restrepo, Montgomery-Reeves, and Scirica, Circuit Judges

Author: Judge Restrepo

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Introduction

This appeal arises from a professional breakup between two lawyers and their firms following an informal, evolving fee-sharing arrangement. After negotiations to unwind their relationship, one side circulated a “Settlement Agreement and Mutual Release” that mirrored a contemporaneous “Memorandum of Understanding” in key respects—most notably, compensating one party with $365,000 and featuring mutual releases—but left several material terms blank and was never signed. When litigation ensued, the alleged promisee counterclaimed for breach of contract, asserting that the draft sent by the other side was binding. The district court dismissed that counterclaim for failure to state a claim, holding that no enforceable contract existed. The Third Circuit affirmed.

The court’s decision underscores two primary points of law under New Jersey contract doctrine and federal procedure:

• Unsigned drafts that leave essential terms unresolved—here, multiple performance deadlines and the escrow funding amount—are not enforceable contracts because the performance due from each party cannot be ascertained with reasonable certainty.
• New Jersey’s strong policy favoring enforcement of settlements negotiated during active litigation does not extend to pre-litigation business separation drafts merely labeled as “settlements,” even if they include mutual releases.

The opinion also briefly addresses and rejects jurisdictional challenges, affirming the district court’s discretion to retain supplemental jurisdiction after federal claims drop out and confirming appellate jurisdiction via the merger rule.

Summary of the Opinion

Keith Altman and his law firm (the appellants) argued that the document titled “Settlement Agreement and Mutual Release” that Joseph Lento and his firm (the appellees) sent following negotiations constituted a binding contract. The draft promised $365,000 to Altman and mutual releases but contained four highlighted blanks: three dates governing key performance deadlines (returning client files, jointly drafting client communications, and sending new fee agreements) and the total amount to be funded into an escrow account to cover potential client chargebacks. Neither side signed this draft (or the earlier MOU Altman had sent).

Reviewing de novo the district court’s Rule 12(b)(6) dismissal of the breach-of-contract counterclaim, the Third Circuit held that Altman failed to plausibly plead the existence of a binding contract under New Jersey law. The highlighted blanks reflected unsettled essential terms—both timing and financial exposure—rendering performance indeterminate. The court distinguished cases that enforce litigation settlements negotiated on the record or during active cases, noting that the document here was part of a business separation, not a settlement of pending litigation. The court therefore affirmed dismissal. It also rejected challenges to subject-matter and appellate jurisdiction, noting the district court’s discretion under 28 U.S.C. § 1367(c)(3) to retain supplemental jurisdiction and the merger of interlocutory orders into the final judgment for appeal.

Analysis

Precedents and Authorities Cited

• Pleading Standards:
  • Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007): A counterclaim must state a claim that is plausible on its face.
  • Ashcroft v. Iqbal, 556 U.S. 662 (2009): Conclusory allegations are not entitled to the assumption of truth.
  • Santiago v. Warminster Twp., 629 F.3d 121 (3d Cir. 2010): Three-step analysis—identify elements, disregard conclusory assertions, and evaluate well-pleaded facts for plausibility.
  • Barefoot Architect, Inc. v. Bunge, 632 F.3d 822 (3d Cir. 2011): Same Rule 12(b)(6) standard applies to counterclaims as to complaints.
  • Schmidt v. Skolas, 770 F.3d 241 (3d Cir. 2014): Court may consider exhibits attached to the pleading when evaluating plausibility.
• New Jersey Contract Law:
  • Globe Motor Co. v. Igdalev, 139 A.3d 57 (N.J. 2016): Elements of breach of contract under New Jersey law—(1) contract, (2) performance, (3) breach, (4) damages.
  • Weichert Co. Realtors v. Ryan, 608 A.2d 280 (N.J. 1992): Essential terms must be sufficiently definite so that each party’s performance is ascertainable with reasonable certainty; no contract if essential terms are unsettled.
  • W. Caldwell v. Caldwell, 138 A.2d 402 (N.J. 1958): Foundational articulation of definiteness of material terms.
• Settlement-Enforcement Cases (Distinguished):
  • Dep’t of Pub. Advocate v. N.J. Bd. of Pub. Util., 503 A.2d 331 (N.J. Super. Ct. App. Div. 1985): Enforcement of a settlement resolving pending litigation.
  • Lahue v. Pio Costa, 623 A.2d 775 (N.J. Super. Ct. App. Div. 1993): Courts compel compliance with oral settlements achieved during litigation.
  • Bistricer v. Bistricer, 555 A.2d 45 (N.J. Super. Ct. Ch. Div. 1987): Effect given to oral agreement reached during a settlement conference despite later disputes over drafting.
  • Mid-Monmouth Realty Assocs. v. Metallurgical Indus., Inc., No. 0503-14, 2016 WL 6776115 (N.J. Super. Ct. App. Div. Nov. 16, 2016): Enforcement where essential settlement terms were agreed and imminent consummation was reported to the court.
• Jurisdictional Principles:
  • 28 U.S.C. § 1367(c)(3): Discretionary decision whether to retain supplemental jurisdiction after dismissal of all claims with original jurisdiction.
  • In re Westinghouse Sec. Litig., 90 F.3d 696 (3d Cir. 1996): Merger rule—interlocutory orders merge into the final judgment and are reviewable on appeal.
  • H.E. v. Walter D. Palmer Leadership Learning Partners Charter Sch., 873 F.3d 406 (3d Cir. 2017), citing Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996): Finality where the district court dissociates itself from the case entirely.

Legal Reasoning

The court applied the Twombly/Iqbal framework to the breach-of-contract counterclaim. First, it identified the elements of a New Jersey breach-of-contract claim (Globe Motor). Second, it disregarded conclusory assertions that merely recited those elements—such as the counterclaim’s assertions that “the parties entered into an agreement,” “both parties agreed” to $365,000 “as a fair resolution,” and “Lento breached.” Third, it evaluated the well-pleaded facts and the exhibits attached to the counterclaim (the draft agreements) to determine whether Altman plausibly alleged that a binding contract existed.

The court held that the draft “Settlement Agreement and Mutual Release” was not a binding contract because essential terms were left unsettled:

• Performance deadlines for three critical obligations—returning client files, drafting joint communications, and sending new fee agreements—were absent. These deadlines are functional linchpins for disentangling co-counsel arrangements and ensuring orderly client transitions. Without them, the timing and sequence of performance—and thus whether a party is in breach—cannot be ascertained with reasonable certainty.
• Escrow funding amount to cover client chargebacks was left blank. That figure defines the parties’ financial exposure and is therefore material. Absent a number, a formula, or an objective method of calculation, the obligation is indefinite.
• Unsigned draft: Although the absence of signatures is not dispositive in every case, the presence of signature lines and the highlighting of blanks signaled that negotiations were ongoing and that the parties contemplated further agreement on material terms. The court did not rest its holding on a signature requirement; rather, the combination of highlighted material blanks and lack of signatures supported the conclusion that no meeting of the minds had occurred.

These features rendered the alleged contract insufficiently definite under Weichert and W. Caldwell, which require that the performance to be rendered by each party be ascertainable with reasonable certainty. The court therefore affirmed the district court’s conclusion that Altman had not pleaded an enforceable contract and thus failed the first element of his breach-of-contract claim.

The court also rejected Altman’s reliance on New Jersey decisions enforcing settlements of active litigation. Those cases—Department of Public Advocate, Lahue, Bistricer, and Mid-Monmouth—reflect a strong policy favoring enforcement of litigation settlements, including oral ones reached on the record or at settlement conferences where essential terms are agreed. The Third Circuit found those authorities “tangential” because the document here was part of a business separation, not the settlement of an existing lawsuit before a court. The presence of a mutual release clause did not convert the business separation draft into a litigation settlement subject to the settlement-enforcement line of cases.

Finally, on jurisdiction, the court noted:

• District court discretion under § 1367(c)(3): Even assuming only supplemental jurisdiction remained over the counterclaim after federal claims were dismissed, the district court did not abuse its discretion by retaining and deciding it.
• Appellate jurisdiction: Although the March 2024 order dismissing the counterclaim was interlocutory at the time, it merged into the district court’s final judgment, which dismissed all remaining claims and closed the case. Appellate jurisdiction under 28 U.S.C. § 1291 was therefore proper.

Impact

While designated “not precedential,” the opinion is a practical reminder of several recurring principles in commercial and law-practice disputes governed by New Jersey law:

• Drafts with material blanks are risky: When drafts leave essential terms—such as performance deadlines or financial commitments—blank or to be filled in later, they generally will not be enforceable as contracts. Parties who intend preliminary documents to be binding should ensure all essential terms are included and ascertainable.
• Labels do not control enforceability: Calling a document a “Settlement Agreement and Mutual Release” will not trigger the robust settlement-enforcement policy that applies to resolutions of pending lawsuits. The context matters; settlement-enforcement cases largely concern agreements forged during active litigation, often reflected on the record or reported to the court.
• Pleading strategy matters: Attaching the operative draft to a pleading invites the court to examine whether essential terms are definite. Conclusory assertions of agreement will be discounted; the document speaks for itself.
• Partial conduct is not a cure-all: Even if one party begins to act consistently with a draft, conduct will not create a contract when essential terms remain unsettled or indeterminate. New Jersey law may sometimes infer assent from conduct, but only where the essential terms are already definite.
• Jurisdictional housekeeping: Litigants cannot assume federal courts must dismiss state-law counterclaims once federal claims fall out. District courts retain discretion to decide such claims. And for appeal, interlocutory orders merge into the final judgment—parties should structure their litigation strategy with that in mind.

Complex Concepts Simplified

• Essential terms and “reasonable certainty” (contract definiteness): A contract must include the key points so that each party’s duties are clear. If critical details (like dates by which things must be done or amounts to be paid) are missing, the law typically will not enforce the deal because courts cannot determine what performance was promised or when a breach occurred.
• “Agreement to agree” vs. enforceable contract: If a document shows the parties still need to agree on important points later, that is usually an “agreement to agree,” which is not enforceable. An enforceable contract requires a meeting of the minds on essential terms now, not later.
• Settlement-enforcement policy: New Jersey courts strongly favor enforcing settlements that resolve lawsuits already in court, especially when the terms are stated on the record or communicated to the judge. That policy does not automatically apply to pre-litigation business deals simply labeled “settlements.”
• Pleading plausibility (Twombly/Iqbal): To survive dismissal, a claim must include enough factual detail to allow a reasonable inference of liability. Mere conclusions—like saying “we had a contract” without facts showing a definite agreement—won’t do. Courts also consider documents attached to the pleading; if a document contradicts a conclusory allegation, the document controls.
• Supplemental jurisdiction (§ 1367(c)(3)): When all federal claims are dismissed, a district court may—but need not—decline to hear remaining state-law claims. It’s a discretionary decision based on fairness, judicial economy, convenience, and comity.
• Merger rule for appeals: Non-final orders (like a partial dismissal) “merge” into the final judgment, so they can be reviewed on appeal of that final judgment without needing an immediate appeal when first issued.

Conclusion

The Third Circuit’s decision in Lento v. Altman delivers a clear message rooted in familiar New Jersey contract doctrine and federal pleading standards: a draft “Settlement Agreement and Mutual Release” that is unsigned and contains highlighted blanks for key deadlines and a core financial term does not reflect a meeting of the minds and is not enforceable. The opinion cautions practitioners that courts will not transform incomplete business separation drafts into binding contracts, and will not stretch New Jersey’s strong settlement-enforcement policy beyond the context of settlements of active lawsuits.

For litigators and transactional lawyers alike, the takeaways are practical:

• If you intend to be bound, ensure all essential terms—especially timing and financial exposure—are complete, definite, and ascertainable.
• Consider explicit language stating whether a draft is binding or only a proposal pending signatures and completion of blanks.
• Recognize that conclusory pleading cannot overcome the text of attached drafts that reveal unresolved material terms.
• Expect district courts to exercise discretion in retaining supplemental jurisdiction and that interlocutory rulings will be reviewable after final judgment through the merger rule.

Although not precedential, the opinion crisply applies settled principles to a common law-practice scenario, providing a cautionary exemplar: highlighted blanks in a putative agreement are usually a red flag that the parties have not finished negotiating—and courts will not finish the negotiation for them.