Second Department Disagrees with First Department Regarding W-9 in connection with a Settlement

In Klee v. Americas Best Bottling Co., Inc., the parties agreed to settle the matter for $400,000.  Along with a release, stipulation of discontinuance and a tax ID number, the defendants' attorney requested that the plaintiff's attorney provide an IRS Form W-9. The plaintiff's attorney refused.  After the defendants failed to pay the $400,000 settlement within 21 days of the tender of the release and stipulation of discontinuance, the plaintiff entered judgment for the settlement amount, plus interest, costs and disbursements, pursuant to CPLR 5003-a.  The defendants then moved to vacate the judgment arguing that the W-9 was a condition precedent to payment of the settlement.

While the motion was pending, plaintiff's attorney provided the defendants with the W-9 and the defendants paid the amount of settlement, but not interest, costs and disbursements.  The trial court, relying on the First Department's decision in Cely v. O'Brien & Kreitzberg (45 A.D.3d 368 [1st Dept. 2007]), vacated the judgment finding that plaintiff's attorney was required to provide the W-9 as a condition precedent to payment of the settlement proceeds.  The Second Department, however, reversed disagreeing with the First Department's decision in Cely.  

The Second Department held that neither CPLR 5003-a nor the parties' settlement required the completion of a W-9. Furthermore, the Court held that the defendants made no showing that the portion of the personal injury settlement which the plaintiff's attorney may be entitled to retain as a legal fee is actually "reportable payment" subject to the reporting requirements of the IRS.  The Court also held that, even assuming an insurance carrier is mandated to report payment of the settlement proceeds, the defendants did not show that a W-9 was the sole means by which a carrier could comply with that obligation.    

In contrast in Cely, the First Department held, "Although neither the open court settlement agreement nor CPLR 5003-a requires the submission of those documents as a condition of payment of the settlement amount, defendant's request for them is supported by statute and case law (see Internal Revenue Code [26 USC] § 3406 [a] [1] [A] [corporation required to deduct and withhold tax if payee failed to furnish name, address and taxpayer identification number, information requested on W-9 Form]; In re Emergency Beacon Corp., 52 BR 828, 830 n 3 [SD NY 1985]; see also Liss v Brigham Park Coop. Apts. Sec. No. 3, 264 AD2d 717 [1999] [general release and stipulation of settlement defective in not providing for release of plaintiff's Medicare lien])."