USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 1 of 36

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 23-2031

SYLIVIA SMITH-PHIFER; LANCE PATTERSON,

Plaintiffs - Appellees,

v.

CITY OF CHARLOTTE,

Defendant - Appellant.

Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Robert J. Conrad, Jr., District Judge. (3:18-cv-00612-RJC-SCR)

Argued: May 8, 2024 Decided: September 25, 2024

Before KING and RICHARDSON, Circuit Judges, and Gina M. GROH, United States District Judge for the Northern District of West Virginia, sitting by designation.

Vacated in part, affirmed in part, and remanded by published opinion. Judge Richardson wrote the opinion, in which Judges King and Groh joined.

ARGUED: Tory Ian Summey, PARKER POE ADAMS & BERNSTEIN, LLP, Charlotte, North Carolina, for Appellant. Edward Theodore Hinson, Jr., JAMES, MCELROY & DIEHL, PA, Charlotte, North Carolina, for Appellees. ON BRIEF: Jeremy Daniel Locklear, PARKER POE ADAMS & BERNSTEIN LLP, Raleigh, North Carolina, for Appellant. Margaret Behringer Maloney, Mitchell Gene Davis, MALONEY LAW & ASSOCIATES, Charlotte, North Carolina, for Appellees. USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 2 of 36

RICHARDSON, Circuit Judge:

The City of Charlotte, North Carolina, appeals from the district court’s order

summarily granting Sylivia Smith-Phifer and Lance Patterson’s motions to enforce their

settlement agreements. The City argues that the district court erred in ordering the City to

treat its settlement payments to Smith-Phifer and Patterson as eligible for pension benefits

under the Charlotte Firefighters Retirement Systems Act.

We vacate in part and affirm in part. As to Patterson, the district court erred because

it couldn’t rule on Patterson’s motion without first holding an evidentiary hearing on

whether Patterson and the City ever reached a complete agreement. But as to Smith-Phifer,

the parties did reach a valid written settlement agreement. Their dispute about that

agreement comes down to whether the agreement required the City to make a retirement

deduction from its payment. We hold that the City was required to make the deduction.

So because the City did not, the district court correctly concluded that the City breached

the agreement.

I. Background

Smith-Phifer and Patterson served with the Charlotte Fire Department for over

twenty years. But, according to them, their decades-long service wasn’t smooth sailing.

They alleged that Fire Department discriminated against them because they are Black. As

a result, they jointly sued the City in a four-count complaint for violations of Title VII,

& 1983, and Article I of the North Carolina Constitution. 1

1 Smith-Phifer and Patterson originally brought their claim in North Carolina state court, but the City removed to federal court. 2 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 3 of 36

A jury trial on Plaintiffs’ claims was set for November 7, 2022. But Patterson got

sick, and the district court granted him a continuance. So Smith-Phifer proceeded to trial

alone, and the pair’s litigation paths diverged.

A. Smith-Phifer

On November 15, 2022—a week into Smith-Phifer’s case-in-chief—Smith-Phifer

and the City told the district court that they had reached a settlement. So the district court

dismissed the jury and ordered Smith-Phifer to dismiss her claims when she received her

settlement payment or within 30 days, whichever came sooner.

The same day, the parties signed a General Release and Settlement Agreement

(“General Release”). That agreement contained only the first part of their final settlement

agreement, because Smith-Phifer asked to work one last shift on November 18. The parties

agreed that they’d later execute another agreement to cover any claims that arose between

November 15 and the end of Smith-Phifer’s final shift. That second agreement became the

Supplemental Release and Settlement Agreement (“Supplemental Release”) that Smith-

Phifer and the City signed on November 19, 2022. Together, the releases form the

agreement.

Start with what terms the two releases share. Both state that the City “denies that it

is any way liable to Smith-Phifer” and that Smith-Phifer acknowledges that neither the

agreement nor the consideration was an admission of “wrongdoing.” J.A. 211, 216, 218,

222. Each also contains a merger clause stating that the agreement “sets forth the entire

agreement between the Parties . . . and fully supersedes any prior agreements or

understandings between the Parties.” J.A. 216, 223.

3 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 4 of 36

Now for the terms specific to each release. The General Release states that, as

consideration for Smith-Phifer’s retirement and her “release[] and forever discharge[] . . .

of and from any and all claims, known and unknown . . . as of the date of execution of” the

General Release, the City will pay $50,000 in a “check made payable to Maloney Law &

Associates.” 2 J.A. 212–13. The payment “is not payment for wages, and as a result, will

not be subject to normal withholdings and deductions, and will be reported on an IRS Form

1099 to Smith-Phifer and Maloney Law & Associates.” J.A. 212. The General Release

also specifies that the City would restore 400 hours of sick time that Smith-Phifer took in

2022.

The Supplemental Release picks up from there. It states that Smith-Phifer will

release any claims as of the date of that agreement (embracing any claims arising during

her last shift) and that she will retire. As for the City, the Release states that it will pay the

gross amount of $250,000 in two payments. The first—another payment to Maloney Law

for $176,829.94—was, like the payment in the General Release, “not payment for wages

. . . and will be reported on an IRS Form 1099.” J.A. 219. The remaining $73,170.06

payment is central to this appeal. For that payment, Term 1(b) requires that the City must

issue: “One (1) check made payable to ‘Sylivia Smith-Phifer’ in the amount of . . .

($73,170.06), minus all applicable deductions for which the City of Charlotte will issue

Smith-Phifer a tax form W-2.”

2 Maloney Law is the firm that represented both Smith-Phifer and Patterson. 4 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 5 of 36

Once the two releases were signed, the parties began performance. Neither party

raises any dispute about the two checks the City made payable to Maloney Law; the dispute

is solely over the check made payable to Smith-Phifer under Term 1(b). Pursuant to that

term, on December 9, 2022, the City issued Smith-Phifer a check for $26,768.68, which

the check described as “Earnings” for “Severance Pay.” J.A. 225. To arrive at that amount,

the check indicates that the City began with the agreed-upon $73,170.06 and then deducted

$11,401.38 in taxes and $35,000 for some before-tax deduction labeled “457 VO2.” 3

Yet the City did not deduct anything for the Retirement Plan. As we will see, the City’s

failure to make that deduction didn’t sit well with Smith-Phifer, so she refused to accept

the check. But first, let’s get back to Patterson.

B. Patterson

Patterson’s story has more twists and turns than Smith-Phifer’s. In November 2022,

his case was sent to mediation. What followed was an email rally. The back-and-forth

started on November 23, 2022, when the mediator sent the parties’ lawyers an email

stating: “I believe we have an agreement to settle.” J.A. 139. As for what that settlement

entailed, the email identifies only two things: (1) “$180,000, of which $79,000 is paid to

Patterson through payroll and $101,000 is paid to Maloney Law,” and (2) “Patterson is

provided 2,200 hours sick leave to bridge him to 25 years for retirement.”

4 The email

then asked the parties to “reply-all to confirm this agreement.”

3 The parties do not identify the nature of the $35,000 pretax deduction.

Some sources in the Joint Appendix that we quote throughout this opinion do not 4

use commas in numbers above 1,000. So we add missing commas for clarity. 5 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 6 of 36

Later that night, the City’s outside counsel, Kathleen Lucchesi, responded that the

City would like to add a term requiring Patterson to retire “immediately upon his execution

of the settlement agreement.” J.A. 296. Apart from that addition, Lucchesi said that she

would “put these terms in the same (or very similar given the differing terms) agreement

[they] used for [Smith-]Phifer . . . and send it over . . . if [she] c[ould] get approval from

the City.”

Maloney Law at first replied that it would watch for Lucchesi’s later email. But

then, only ten minutes later, Maloney Law sent another email seeking “to confirm” that

Patterson “want[ed] 522 hours sick leave paid out to him” and “[t]he remaining balance

. . . to bridge him to 25 years.” J.A. 294. Lucchesi responded that she’d send Patterson’s

request to the City “for confirmation.”

Three days later, the parties filed an amended status report with the district court. It

stated that they “ha[d] agreed to settlement terms and [we]re preparing a final settlement

agreement to be fully executed.” J.A. 126.

That execution never occurred because the parties reached an impasse. One source

of the conflict was Patterson’s November 26 visit to the office of the Charlotte Firefighters

Retirement System, which manages Charlotte firefighters’ retirement plan. There,

Patterson asked Sandra Thiry, the Retirement System’s Administrator, for an estimate of

his retirement benefits considering the fact “he would be receiving an additional $79,000

in pension-eligible compensation.” J.A 298. Thiry didn’t confirm with the City whether

what Patterson said was true. Instead, she took Patterson’s word and calculated the

monthly pension estimate based on an additional $79,000 in pension-eligible earnings.

6 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 7 of 36

Lucchesi included this estimate in an email she sent to Maloney Law on November

30. She also attached a draft settlement agreement that the City had approved. But it was

the two points Lucchesi put in the body of the email that ignited the parties’ disputes. The

first point stated that, “[i]n order to bridge Chief Patterson to 25 years of service, the City

needs to frontload him with 1,375 hours of sick leave,” rather than the previously discussed

2,200. J.A. 312. That was because, at the time of “the pre-trial settlement offer of

$180,000,” Patterson had needed 2,200 hours to get him to the twenty-five years of service

requisite for retirement.

Yet, since that offer, Patterson had continued to work for two

months. He thus no longer “require[d] as many frontloaded sick leave hours to reach 25

years of service.”

The second point was where Lucchesi invoked Thiry’s retirement-benefit estimate.

To assuage concerns about the decreased sick-leave hours, Lucchesi noted that “the City

will pay [Patterson] $79,000 in wages as part of this settlement, [so] his retirement benefit

will increase beyond what the frontloaded sick leave provides—going from about $7,100

per month to nearly $9,300 per month.”

This was the first mention of retirement

benefits in any of the settlement discussions (including with Smith-Phifer).

The conversation deteriorated from there. On December 1, Maloney Law rejected

the draft agreement as sent, explaining that “Patterson agreed to 2,200 hours and the City

needs to provide that to him per the previous Agreement.” J.A. 311. When the City

attempted to discuss the sick-leave issue, Maloney Law held its ground and demanded

2,200 hours. But the City stood steady, too, asserting that Patterson no longer needed that

many hours to reach twenty-five years of service. It also retracted its prior statement about

7 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 8 of 36

retirement benefits. It explained that it “learned that Chief Patterson told Sandy Thiry that

he was receiving $79,000 in wages and [that she] understood from Chief Patterson that

these were pensionable wages.”

But the City’s Human Resources Director later

clarified that “the $79,000 is not pensionable so with the 1,375 sick hours, [Patterson’s]

retirement benefit will be $7,100 per month.” J.A. 310. Maloney Law disputed that point

just as strongly—“Patterson accepted the City’s settlement offer with the understanding

that $79,000 would be paid through payroll . . . and as such, those wages are pensionable.”

J.A. 309.

After more back-and-forth on both sick-leave hours and pension eligibility, the

parties’ rally ended when the City sent another draft settlement agreement and Patterson

again refused to sign it.

C. Motions for Enforcement of Settlement Agreements

Plaintiffs’ stories reconverge with the two motions that led to this appeal. Each

motion sought to have the district court enforce the purported terms of the purported

settlement agreements. And each motion rested much of its argument on the Charlotte

Firefighters Retirement System Act. So, before getting to the motions themselves, we

review the statute that the motions put at issue.

1. Charlotte Firefighters Retirement System Act

The Charlotte Firefighters Retirement Systems Act was originally passed by the

North Carolina General Assembly in 1947 to provide retirement and disability benefits for

the uniformed employees of the Charlotte Fire Department. Act of Apr. 5, 1947, ch. 926,

8 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 9 of 36

§ 3,

, 1303. 5 To accomplish this objective, the Act created the

Charlotte Firefighters Retirement System. See

§ 1. That entity—which administers the

retirement fund and pays outs benefits upon members’ retirement—is distinct from the City

and is overseen by a Board of Trustees. See Act of Apr. 16, 2001, No. 22, sec. 1, § 27–41,

, 52–57; Oral Arg. 1:56–2:07. 6

The Act also establishes that the Retirement System is financed by contributions

that both members and the City must pay into the pension fund. Members’ contributions

come out of their paychecks, so the City must “deduct[] from each and every payroll of [a]

Member, an amount equal to the Member’s Compensation multiplied by . . . twelve and

sixty-five hundredths percent (12.65%).” Act of Apr. 16, 2001, No. 22, sec. 1, § 24, 2001

N.C. Sess. Laws at 51. Then, the City must match that amount—that is, contribute a

corresponding 12.65% of “the Member’s Compensation”—from its own coffers. Id. § 25,

2001 N.C. Sess. Laws at 51.

The Retirement System then uses these funds to pay each member a monthly benefit

upon his retirement. Those benefits, however, are not directly linked to a member’s

contributions. Instead, the Act requires the Retirement System to calculate the benefit

amount based on the member’s “Final Average Salary.” Id. § 17(a),

The Act has been amended several times, most significantly in 1992, when the General Assembly passed “an act to rewrite the law regarding the Charlotte Firefighters’ Retirement System.” Act of July 2, 1992, ch. 830,

, 289. The general structure of the Act as it exists still resembles that law. 6 The Act, though valid and effective legislation, is not codified in the General Statutes of North Carolina. Instead, the Act remains in scattered pieces strewn throughout the North Carolina Session Laws. 9 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 10 of 36

at 44–45. That salary, in turn, is based on his “Compensation.” Act of June 28, 2017, No.

71, sec. 1, § 2(11),

, 683.

Thus, the member’s contribution, the City’s contribution, and the member’s

eventual benefits all depend on the member’s “Compensation,” which the Act defines as:

the remuneration reportable on Form W-2 earned by a Member for services performed as an employee of the Charlotte Fire Department prior to any reductions pursuant to [certain sections] of the Internal Revenue Code. Compensation shall include payments for unused sick and vacation days, longevity payments, bonus payments, and merit increases.

Act of July 13, 2006, No. 117, sec. 1, § 2(9),

, 440. 7 The Act

doesn’t further define these definitional terms.

When administering the Act, the Board has specific duties as well as broad

discretion. As relevant here, this includes (1) the duty to “correct” any “error” in its records

7 Below, the parties debated whether the applicable definition for “Compensation” comes from a session law passed by the General Assembly in 1995 or from a session law passed in 2017. This debate largely stems from confusion over how session laws operate. The General Assembly most recently amended the Act in 2017, but it did not repeal all prior versions and reenact the Act. The 2017 session law instead made a targeted amendment to the provision defining “Final Average Salary.” See Act of June 28, 2017, No. 71, sec. 1, § 2(11), 2017 N.C. Sess. Laws at 683. It did not alter the provision defining “Compensation.” See id. So the 2017 session law does not bear on the definition of “Compensation.” But neither does the 1995 session law—which was the last law amending the Act passed before Smith-Phifer’s retirement benefits purportedly vested in 1997— amend the definition of “Compensation.” See Act of June 5, 1995, ch. 171,

, 318. It appears that we must choose between the definition of “Compensation” included in a 1992 session law (the law defining “Compensation” in force when Smith-Phifer’s benefits purportedly vested), see Act of July 2, 1992, ch. 830, sec. 1, § 2(9), 1992 N.C. Sess. Laws at 289, and the definition of “Compensation” included in a 2006 session law (the law defining “Compensation” in force today), see Act of July 13, 2006, No. 117, sec. 1, § 2(9), 2006 N.C. Sess. Laws at 440. But the parties do not identify how the differences between the two definitions would impact this case’s disposition. So, for simplicity’s sake, we cite only to the 2006 definition for “Compensation”—which, having never been amended or repealed, remains in effect today. 10 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 11 of 36

that “result[s] in any person receiving . . . more or less than he would have been entitled to

receive had the records been correct,” and “adjust[ing] the payment” to the person

accordingly, Act of Apr. 16, 2001, No. 22, sec. 1, § 54, 2001 N.C. Sess. Laws at 63; and

(2) the “discretion” to “adjust[]” “[t]he retirement benefits payable to a Retiree . . . based

upon the prevailing economic and funding conditions,” although the adjustment must be

ratified by the City, id. § 23(a), 2001 N.C. Sess. Laws at 50.

Now that we’ve laid out the basics of the Act, we can return to the motions that refer

to it.

2. Patterson’s Motion

Patterson’s motion came first—on December 7, 2022, the day after the City sent the

last draft settlement agreement. Though he refused to sign that draft, Patterson argued that

he and the City had already reached a complete, enforceable agreement as shown by the

mediator’s November 23 email. He also argued that the terms of the agreement required

the City to classify the $79,000 as pension-eligible wages because (1) the mediator’s email

stated the amount would be paid “through payroll,” (2) the City’s draft settlement

agreements said that the amount would be “wages,” and (3) wages are encompassed in the

Act’s definition of compensation. So Patterson requested that the district court enforce the

City’s agreement to pay Patterson $79,000 “through payroll as ‘wages.’” J.A. 138.

The City countered that there was no settlement agreement to enforce. While

recognizing that the parties reached tentative settlement terms via the mediator, the City

argued that they failed to reach a final agreement because there was no meeting of the

minds on sick leave or pension eligibility and because the parties understood that the

11 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 12 of 36

agreement would only be final when written and executed. According to the City, its

factual dispute with Patterson about the existence of an agreement meant that the district

court could “not ‘summarily enforce the settlement agreement’ and must instead[] conduct

a plenary hearing and make findings on the issues in dispute.” J.A. 285 (quoting Hensley

v. Alcon Lab’ys, Inc.,

(4th Cir. 2002)).

3. Smith-Phifer’s Motion

Smith-Phifer filed her motion two weeks later (eleven days after the City tendered

a check to her). That motion argued that the City breached the settlement agreement “when

it issued Smith-Phifer’s payroll payment coded as ‘severance’ and not as pensionable

wages in its payroll system and when it failed to make all applicable deductions,” including

a deduction for the retirement plan. J.A. 209. According to Smith-Phifer, the settlement

agreement requires that the City classify its payment to her as pension-eligible wages, not

severance, since both releases state that the payments to Maloney Law were “not payment

for wages,” whereas Term 1(b) lacks that qualifier. J.A. 207–08. This is bolstered, in her

view, since Term 1(b) requires the City to “issue Smith-Phifer a tax W-2,” a form used “to

describe an employee’s wages.” J.A. 208. Smith-Phifer then argued that wages are

“Compensation” under the Act, meaning the 12.65% retirement-plan deduction was an

“applicable deduction” that the City had to, but did not, deduct. So she asked the district

12 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 13 of 36

court to “enforce the terms of the settlement agreement” by requiring “the City [to] issue a

corrected payment . . . to Plaintiff through payroll as pensionable ‘wages.’” J.A. 210. 8

In opposition to this motion, the City argued that the agreement does not require the

$73,170.36 payment to be classified as pension-eligible wages because the agreement itself

does not address pension eligibility. The City also argued that the Act does not require that

payment to be pension eligible because “Compensation” under the Act excludes settlement

or severance payments on the ground that they’re not “for services performed as an

employee of the Charlotte Fire Department.” J.A. 380–81 (emphasis and quotation

omitted). And, like in its response to Patterson’s motion, the City noted that its dispute

with Smith-Phifer required the district court to hold an evidentiary hearing.

4. The District Court’s Order

The district court declined to hold an evidentiary hearing on either Patterson or

Smith-Phifer’s motion. Rather, it summarily granted both motions on August 30, 2023.

Smith-Phifer v. City of Charlotte, No. 18-CV-00612,

, at *5 (W.D.N.C.

Aug. 30, 2023).

The district court first found that both Patterson and Smith-Phifer reached complete

settlement agreements with the City.

. As for Smith-Phifer, the district court

pointed to the two executed releases, the parties’ representation to the district court that

they reached an agreement, and the fact that the parties began performance under the

8 She also requested, “if the corrected payment occurs after January 1, 2023, that the Court require Defendant to instruct the Charlotte Firefighters’ Retirement System to make all necessary recalculations and pay any back benefits due to Plaintiff Smith-Phifer to comply with the Act.” J.A. 210. 13 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 14 of 36

agreement.

As for Patterson, the district court found that “the email correspondence

makes clear that the Parties reached a complete agreement.”

The City, according to

the district court, “accept[ed] by email but provided additional terms.”

Then—although

not citing particular language from the emails—the district court stated that “Patterson’s

counsel accepted the counteroffered terms.”

Next, the district court found that it could determine the terms of both complete

agreements. Of note, it determined that the agreements required that the City’s $73,170.06

payment to Smith-Phifer and its $79,000 payment to Patterson be pension-eligible wages.

.

To reach that conclusion, the district court had to take various steps. First, the

district court noted that, while the settlement agreement expressly labeled other payments

as “not payment for wages,” the Term 1(b) payment made directly to Smith-Phifer included

no such caveat.

. Instead, Term 1(b) required the City to make “all applicable

deductions” and “issue Smith-Phifer a tax form W-2.”

9 Second, the district court found

that those contractual terms meant that the payments made directly to Patterson and Smith-

Phifer were “wages.”

. Third, by comparing the Black’s Law Dictionary’s

definition of “wage” and Act’s definition of “Compensation,” the district court determined

9 Though the district court largely based its analysis on the text of Smith-Phifer’s written agreements, it concluded that Patterson’s payment should be treated identically because “Plaintiff Patterson and the City similarly agreed by email that the City would pay . . . $79,000 to Patterson ‘through payroll,’ and, as noted, under the same or very similar terms as Smith-Phifer's settlement agreement.” Smith-Phifer,

, at *2. 14 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 15 of 36

that “these definitions together” show that “wages fall under the definition of compensation

under the Act.”

at *3–4.

In the end, the district court granted both motions to enforce the settlement

agreements. After the district court entered judgment, the City appealed.

II. Discussion

The City argues that the district court’s order was erroneous for three reasons:

(1) the district court was required to hold evidentiary hearings on both motions;

(2) Patterson and the City never reached a complete agreement; and (3) the terms of Smith-

Phifer’s complete agreement did not require the City to classify its payment to her as

pension-eligible wages. We agree with the City that an evidentiary hearing was required

to determine whether it and Patterson reached a complete agreement. But, for Smith-

Phifer, we hold that no evidentiary hearing was required and that the City breached its

agreement.

“[D]istrict courts have inherent authority, deriving from their equity power, to

enforce settlement agreements.” Hensley,

. Yet they can only enforce an

agreement that the parties reach—they cannot make an agreement anew. In other words,

their inherent authority depends on there being a complete settlement agreement. Id.;

Ozyagcilar v. Davis,

(4th Cir. 1983). That, in turn, requires “a meeting

of the parties’ minds.” Ozyagcilar,

. So to grant a motion to enforce a

settlement agreement, “a district court (1) must find that the parties reached a complete

agreement and (2) must be able to determine its terms and conditions.” Hensley, 277 F.3d

at 540–41. A district court’s determination that the parties reached a partial settlement

15 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 16 of 36

agreement won’t cut it; if the parties didn’t have a meeting of the minds on all the material

terms of the agreement, “any partial performance of the settlement agreement must be

rescinded and the case restored to the docket for trial.” Ozyagcilar,

;

Columbus-Am. Discovery Grp. v. Atl. Mut. Ins.,

, 299 (4th Cir. 2000).

Given the prerequisites for granting a motion to enforce, a district court cannot

always grant it summarily. It can only do so when the parties have reached a complete

agreement, the district court can determine that agreement’s material terms, and “the

excuse for nonperformance of the agreement is ‘comparatively insubstantial.’” Hensley,

(quoting Millner v. Norfolk & W. Ry. Co.,

(4th Cir.

1981)). Accordingly, “[i]f there is a factual dispute over the existence of an agreement,

over the authority of attorneys to enter into the agreement, or over the agreement’s terms,”

a district court “must conduct a plenary evidentiary hearing in order to resolve that dispute,

and make findings on the issues in dispute.”

(internal footnote and quotation omitted). 10

10 The City and Plaintiffs submit that North Carolina law governs the questions of whether a settlement agreement was reached and what the terms of that agreement mean. But questions of settlement-agreement enforceability are governed by federal common law, not state law. Gamewell Mfg. v. HVAC Supply,

, 115–16 & n.9 (4th Cir. 1983). And whether a complete settlement agreement was reached is a question of enforceability because it “implicate[s] federal procedural interests” in settling rather than litigating suits, making it “distinct from the underlying substantive interests of the parties.”

. So our cases apply federal common law derived from general contract principles in our discussion of agreement formation. See

(deriving federal common law from the Restatement of Contracts); cf. FDIC v. Jones,

, 232 n.10 (4th Cir. 1988). That said, we conclude that North Carolina law governs the interpretation of the agreement’s terms because, no matter which law would apply in the abstract, both North Carolina and federal common law recognize choice of law provisions. See Arnone v. Aetna Life Ins.,

(2d Cir. 2017) (federal law); Park v. Merrill Lynch, 582 S.E.2d (Continued) 16 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 17 of 36

We review a district court’s “decision whether to enforce a settlement agreement

for abuse of discretion.” Hensley,

. Whether parties reached a settlement

agreement is a question of fact we review for clear error. See Moore v. Beaufort County,

(4th Cir. 1991). But the interpretation of the meaning of a term in a

settlement agreement “is a question of law that we review de novo.” DeLoach v. Lorillard

Tobacco Co.,

(4th Cir. 2004).

A. Disputes Over the Existence of an Agreement Between the City and Patterson Require a Hearing

Patterson contended below, and insists on appeal, that the parties reached a complete

settlement agreement on November 23, 2022, when the mediator sent his email and the

parties responded. In contrast, the City maintains that the parties never reached a complete

agreement; the agreement referenced by the mediator was merely an unenforceable

preliminary agreement; and the email exchange that followed constituted multiple offers

and counteroffers on material terms, none of which were ever accepted. Whether

acceptance occurred and an enforceable agreement was reached are questions of fact. See

Charbonnages de France v. Smith,

, 415–16 (4th Cir. 1979).

Here, the parties’ “factual dispute over the existence of an agreement” required the

district court to hold an evidentiary hearing. Hensley,

. Indeed, the parties’

dispute closely mirrors that in Hensley v. Alcon Laboratories. As here, the parties in

Hensley came to a tentative agreement on the amount the defendant would pay the plaintiff

375, 378 (N.C. Ct. App. 2003) (North Carolina law). And Smith-Phifer’s agreement— which, as we explain infra, is an existing settlement agreement—states that North Carolina law governs. 17 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 18 of 36

to settle his case. 11

. And, as here, the parties later reached an impasse when they

tried to put the tentative agreement into writing, so nothing was ever signed.

The

defendant then moved to enforce the terms of the tentative agreement and the plaintiff

responded by arguing that no final agreement was ever reached. See

at 538–39. When

the district court granted the defendant’s motion without a hearing, we reversed.

Because the parties disagreed about whether an agreement existed or what its terms were,

and because the relevant evidence was “ambiguous,” “the district court was required to

hold a plenary evidentiary hearing” “[t]o resolve these factual questions.”

at 541–42.

Here too we have a dispute over the existence of an agreement and ambiguous

evidence to resolve it. Even putting the question of pension eligibility aside, there are

ample material factual issues unresolvable on the evidence presented in the parties’

briefing. For example, did the terms communicated by the mediator constitute a binding

contract? Or instead did one or both parties understand that there would be no enforceable

agreement until one was reduced to a final writing and executed? The evidence is unclear.

On one hand, the mediator’s email doesn’t say anything about a written agreement. On the

other hand, the parties’ later communications to each other and to the district court show

they were at least intending to reduce the agreement to writing, and the draft agreement the

parties exchanged contained a term stating that the City wouldn’t be obligated to perform

11 Patterson’s case isn’t a precise mirror image of Hensley. The parties in Hensley reached their tentative agreement during a settlement conference with the district judge rather than with a mediator.

. This shows that a district court may not summarily enforce a purported settlement agreement just because the parties told it they reached a tentative agreement—even if that tentative agreement was reached in the presence of the district court. 18 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 19 of 36

unless the written agreement was executed. These pieces of evidence leave an unresolved

factual question: whether, during their negotiations with the mediator, either party

demonstrated an intention to be bound only by a written agreement. And if either party

did, that fact has the legal consequence that there was no contract. 12

And even if the parties reached agreement about some terms, there remains a factual

dispute about whether the parties ever agreed on the sick-leave-hours term. The mediator’s

email said the parties agreed that “Patterson [would be] provided 2,200 hours sick leave to

bridge him to 25 years for retirement.” J.A. 139. But the following exchanges indicate

that the parties may have ascribed different meanings to that term. The Act provides that

someone Patterson’s age needs twenty-five years of qualifying service at the time of his

retirement in order to receive retirement benefits. Act of Apr. 16, 2001, No. 22, sec. 1,

§ 15(1)(b), 2001 N.C. Sess. Laws, at 44. The City’s emails indicate it believed the parties’

intention was not to obligate the City to provide Patterson with 2,200 hours sick leave full-

stop but rather to obligate the City to provide Patterson with whatever amount of sick leave

he needed to get him to twenty-five years of service at the time he actually retired.

Patterson, in contrast, appears to have thought the parties intended the term to mean the

City would have to provide him 2,200 hours of sick leave no matter when he actually

12 See Restatement (Second) of Contracts § 27 cmt. b (Am. L. Inst. 1981) (“[I]f either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are assented to or until the whole has been reduced to another written form, the preliminary negotiations and agreements do not constitute a contract.”); 1 Corbin on Contracts § 2.9 (rev. ed. 2024) (“If a party makes clear during negotiations that there will not be a legally operative contract unless and until the parties execute a more formal memorialization . . . there is no contract absent execution of a more formal document.”). 19 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 20 of 36

retired. Without mutual assent about this term, the parties had no contract. See

Restatement (Second) of Contracts § 17 (explaining that parties only form an enforceable

contract when they mutually assent to all material terms of the agreement); Quint v. A.E.

Staley Mfg. Co.,

, 14–15 (1st Cir. 2001). Nowhere in the email exchange or in

the draft agreements is it clear that the parties’ minds met on this essential term, so the

evidence does not permit summarily concluding that they formed an enforceable contract.

Cf. Charbonnages de France, 597 F.2d at 415–16.

In sum, the City and Patterson dispute whether a final agreement was reached. And

that factual question turns on other facts that are far from clear based on the evidence the

parties presented. It was thus “error for the district court to attempt to resolve th[e] question

based solely on affidavits and briefs.” Ozyagcilar,

n.*. Instead, the district

court needed to hold a hearing. So we vacate its order granting Patterson’s motion and

remand for it to do so.

; Hensley, 277 F.3d at 541–42.

B. Smith-Phifer’s Agreement with the City

Unlike in opposition to Patterson’s motion, the City hasn’t argued that it didn’t reach

a complete agreement with Smith-Phifer. And it would be hard for it to do so—the parties’

mutual assent to be bound was evinced by the two executed releases and by their

performance thereunder, namely the City’s payment to Smith-Phifer and Smith-Phifer’s

retirement. See Jones,

n.10 (“Performance completes a contract and

operates as an assent.”).

Rather, what the City and Smith-Phifer disagreed about below, and what they

continue to disagree about here, is whether the City breached the contract that both parties

20 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 21 of 36

concede exists. Smith-Phifer says that it did, because the contract required it to not only

pay her but also treat that payment as pension-eligible wages. The City disagrees, arguing

first that it was entitled to a Hensley hearing on the question and second that the payment

was not pension eligible.

Smith-Phifer is right that the City breached the contract, but both parties’ focus on

pension eligibility is slightly misplaced. This breach-of-contract dispute turns not on

pension eligibility but on what, if anything, the City had to do under the contract other than

simply pay Smith-Phifer. The answer lies within the agreement. The relevant section is

Term 1(b), which requires the City to do three things: (1) issue a check to Smith-Phifer,

(2) withhold “all applicable deductions” from the amount owed, and (3) issue a form W-2.

Two important observations about Term 1(b): First, it makes no mention of “pension

eligibility.” Second, it does require the City to do something other than pay. In addition

to paying, the City must withhold “all applicable deductions” and issue a W-2. The W-2

isn’t at issue here.

So the City breached Term 1(b) if it failed to make some “applicable deduction[]”

from Smith-Phifer’s payment. We hold that it did. But understanding why requires that

we read the parties’ agreement alongside the Act. As Smith-Phifer argues, the Act states

that if a payment is “Compensation,” the City must deduct 12.65% of that payment and put

it into a pension fund. So we must answer two questions to decide whether the City

breached: One, was the settlement payment “Compensation” within the meaning of the

Act? And two, if it was, was the required deduction “applicable” within the meaning of

the agreement? The answer to both questions is “yes.” Accordingly, we conclude that the

21 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 22 of 36

City breached by failing to make an applicable deduction. For that reason, the district court

rightly granted Smith-Phifer’s motion to enforce.

1. The Meaning of Smith-Phifer’s Agreement

Start with the City’s first argument: that an evidentiary hearing was required under

Hensley to sort out the parties’ disagreement. The City is mistaken. This contract-

interpretation dispute does not require an evidentiary hearing. Determining the meaning

of a contract term is familiar work for courts. “In construing contracts[,] ordinary words

are given their ordinary meaning.” Harris v. Latta,

(N.C. 1979). We

only depart from ordinary meaning where a contract defines a term or where “the context

clearly indicates another meaning was intended.” Singleton v. Haywood Elec. Membership

Corp.,

(N.C. 2003) (quotation omitted). Whether a contract term is

ambiguous or unambiguous in its context is a question of law to be decided by this Court

on review de novo. Morrell v. Hardin Creek, Inc.,

(N.C. 2018).

We need not venture beyond ordinary meaning to find the unambiguous answer

here. The settlement agreement does not define the phrase “all applicable deductions,” nor

does context clearly indicate that the phrase is intended as a piece of party-specific jargon.

And neither party has argued that we should give any special meaning to “all applicable

deductions.” With no reason to think otherwise, the ordinary meaning of the ordinary

phrase “applicable deductions” controls. See Ransom v. FIA Card Servs.,

(2011) (“Because the Code does not define ‘applicable,’ we look to the ordinary meaning

of the term.”).

22 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 23 of 36

The ordinary meaning of “applicable” is “fit, suitable, or right to be applied.” Id.;

see also Webster’s Third New International Dictionary 105 (2002); Applicable, Black’s

Law Dictionary (6th ed. 1990). It is not difficult to see that those deductions that legally

must be applied are “fit and right to be applied” and are therefore included as “applicable

deductions” that must be withheld under the settlement agreement. Indeed, if legally

mandated deductions were not “applicable,” it’s unclear what deductions would be

applicable. And since the settlement agreement requires “all applicable deductions,”

legally mandated deduction must be taken.

It is irrelevant that the parties may not have specifically and explicitly intended the

payment to be subject to any particular legally mandated deduction. They need only have

intended that the payment be subject to “all applicable deductions” as those words are

ordinarily used. That the parties did not hold in their minds the full list of all the particular

deductions mandated by law at the time of the settlement agreement does not constrain the

ordinary meaning of “applicable deductions.” See Restatement (Second) of Contracts

§ 5(2) (“A term of a contract is that portion of the legal relations resulting from the

promise . . . whether or not the parties manifest an intention to create those relations.”); see

also Morrell,

(a “plain reading” of the phrase “all claims and liabilities”

includes negligence claims even though negligence was not mentioned in the contract).

And the ordinary meaning of “all applicable deductions” is unambiguous in including all

deductions mandated by law.

Because we can determine the meaning of all material terms in the settlement

agreement between Smith-Phifer and the City, no evidentiary hearing is required.

23 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 24 of 36

2. Applicable Deductions Under the Charlotte Firefighters Retirement Systems Act

Now for the City’s second argument: it did not breach the agreement by not making

the retirement deduction. We disagree. The agreement requires the City to make “all

applicable deductions,” and the Act commands that the City must make a retirement

deduction on compensation. As we find that the City’s payment to Smith-Phifer was

compensation under the Act, we agree with the district court that the City breached the

agreement’s mandate to subtract “all applicable deductions” from the check.

Our conclusion turns on how the Act classifies the payment. The Act requires the

City to deduct 12.65% of a firefighter employee’s “Compensation” to place in the

retirement system. Act of Apr. 16, 2001, No. 22, sec. 1, § 24, 2001 N.C. Sess. Laws at 51.

So to determine whether the Act mandates a deduction from the City’s check to Smith-

Phifer, we must decide whether that payment is “Compensation.”

a. “Compensation” includes settlement agreements made to approximate wage-like payments

As a refresher, the Act defines “Compensation” as “the remuneration reportable on

Form W-2 earned by a Member for services performed as an employee of the Charlotte

Fire Department.” Act of July 13, 2006, No. 117, sec. 1, 2006 N.C. Sess. Laws at 440. At

first blush, one might be tempted to say that this payment was not “Compensation” because

a settlement payment is not made “for services performed as an employee of the Charlotte

24 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 25 of 36

Fire Department.” Caselaw interpreting nearly identical statutory language in similar

contexts, however, persuades us to conclude otherwise. 13

In Social Security Board v. Nierotko,

(1946), the Supreme Court was

asked to decide whether money received as back pay was considered “wages” under Title

II of the Social Security Act.

. That Title governed federal old-age benefits and

was meant “to provide funds through contributions by employer and employee for the

decent support of elderly workmen who have ceased to labor.”

. It defined

“wages” as “all remuneration for” “any service . . . performed . . . by an employee for his

employer.”

at 362–63 (quoting Social Security Act of 1935,

(a), (b),

, 625) The Social Security Board had concluded that back pay,

which is the amount a wrongfully terminated employee “would have earned with the

employer but for the unlawful discharge . . . less any net earnings during the time between

discharge and reinstatement,” was not wages because the employee, during his period of

wrongful termination, did not actually perform any services for his employer.

.

But the Supreme Court rejected that position, finding the Board’s interpretation of

“services” too “limited.”

Instead, the Court concluded that the “words ‘any service . . .

performed . . . for his employer’ . . . import breadth of coverage. They admonish us against

holding that ‘service’ can only be productive activity.”

(first two alterations in original).

To that end, the Court interpreted “service” to mean “not only work actually done but the

entire employer-employee relationship for which compensation is paid to the employee by

13 We see no reason to believe that North Carolina courts would not interpret this language in the same manner as federal courts have. 25 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 26 of 36

the employer.”

at 365–66. Thus, under Nierotko, payments for back pay are

“remuneration for” “any service . . . performed . . . by an employee for his employer.”

The Court reached a similar conclusion about severance pay in United States v.

Quality Stores, Inc.,

(2014). Relying on Nierotko, the Court found that

severance pay was a part of an employee’s “wages.”

. Because “[s]everance

payments are made to employees only,” such payments stem directly from the employment

relationship.

So, the Court concluded, “[s]everance payments are made in

consideration for . . . a ‘service . . . performed’ by ‘an employee for the person employing

him.’”

(second alteration original) (quoting I.R.C. § 3121(b)).

Settlement agreements meant to approximate wage-like payments such as back pay

and severance are also considered “remuneration for” “any service . . . performed . . . by

an employee for [his employer],” as this Court held in Hemelt v. United States,

(4th Cir. 1997). There, the plaintiffs sought a refund for FICA taxes they had

paid on a settlement payment.

. Central to their argument was the claim that the

settlement award did not constitute “wages” under the Internal Revenue Code. 14

.

We disagreed.

After quoting Nierotko’s language that “service” refers to “the entire

employer-employee relationship,”

(quoting Nierotko,

), we pointed out

that the claims that had led to the settlement—unlawful termination claims under § 502 of

the Employee Retirement Income Security Act of 1974 (“ERISA”)—“related directly to

14 In Hemelt, “wages” was defined as “all remuneration for” “any service, of whatever nature, performed (A) by an employee for the person employing him.”

(quoting I.R.C. § 3121(a), (b)). 26 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 27 of 36

taxpayers’ employment relationship with” their employer. Id. Additionally, because the

claims the employees released under the settlement could only have resulted in “recovery

for lost wages and other economic harms,” as opposed to “tort-like damages,” payments

made under the settlement retained that same character. Id.

Under Norietko, Quality Stores, and Hemelt, therefore, payments made under a

settlement agreement that releases an employer from claims that arose from the employee’s

employment relationship with her employer and that approximate recovery for lost wages

and other economic, nonpersonal harms are “wages” under Federal tax law. Notably, the

definition of “wages” in those cases was “remuneration for” “any service . . . performed

. . . by an employee for his employer.” That is strikingly similar to the Act’s definition of

“Compensation,” which is “remuneration . . . for services performed as an employee of the

Charlotte Fire Department.” See Act of July 13, 2006, No. 117, sec. 1, § 2(9), 2006 N.C.

Sess. Laws at 440. So to determine whether the settlement payment was “Compensation”

under the act, it suffices to determine whether the settlement payment to Smith-Phifer was

“wages” under existing caselaw.

b. This settlement-agreement payment to Smith-Phifer approximated wage-like pay

Two inquiries guide whether a payment under a settlement agreement was meant to

approximate recovery for lost wages and other economic, nonpersonal harms, rather than

personal harms such as emotional distress. First, we consider “the nature of the claim that

led to the settlement, together with the remedies available under the law on which the claim

giving rise to the settlement is based.” Gerstenbluth v. Credit Suisse Sec. (USA) LLC, 728

27 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 28 of

(2d Cir. 2013); see also Comm’r v. Miller,

(4th Cir. 1990)

(“[T]he nature of the cause of action and the injury to be remedied must be identified.”

(quoting Thompson v. Comm’r,

(4th Cir. 1989)). Second, we consider

“the intentions of both parties to the settlement, and in particular the purpose of the payor,

as reflected in any written settlement agreement or other evidence.” Gerstenbluth, 728

F.3d at 144. At bottom, both inquiries ask what the “‘basic reason’ for the payment” was.

Id. at 145. The basic reason for the payment is a finding of fact that we review for clear

error. See Hensley,

; Green v. Comm’r,

, 866–68 (5th Cir.

2007).

When a plaintiff settles claims that provide only certain forms of relief, the first

inquiry into the nature of the claims and their remedies can be dispositive. In Hemelt, for

example, the plaintiffs sued under ERISA, which categorically barred “‘extracontractual’

or tort-like damages.”

. Instead, it only permitted “recovery for lost wages

and other economic harms.”

So, even though the plaintiffs attempted to characterize

their settlement payment as “damages for emotional distress” based on the parties’ “belie[f]

. . . that the Settlement Plan would award personal injury damages to compensate for the

plaintiffs’ anxiety and emotional distress,” we rejected that characterization because the

claims the settlement resolved would not support such damages.

.

In this case, we lack the clarity we found in Hemelt. Smith-Phifer brought four

claims that she eventually settled: one claim under Title VII of the Civil Rights Act of

1964, one claim under

, one claim under

, and one claim

directly under the North Carolina Constitution. As for the first, Title VII authorizes

28 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 29 of 36

“compensatory and punitive damages,” plus “such affirmative action as may be

appropriate, which may include, but is not limited to, reinstatement or hiring of employees,

with or without back pay . . . , or any other equitable relief as the court deems appropriate.”

42 U.S.C. §§ 1981a(a)(1); 2000e-5(e)(B), (g)(1). As for § 1983, 15 the statute broadly

permits remedies available through “action[s] at law, suit[s] in equity, or other proper

proceeding[s] for redress.” And when plaintiffs can bring actions directly under the North

Carolina Constitution, state courts have broad remedial powers to provide “for adequate

redress of such grievance.” Corum v. Univ. of N.C.,

(N.C. 1992)

(quoting Midgett v. N.C. State Highway Comm’n,

(N.C. 1963)).

Taken together, the claims Smith-Phifer brought are not limited in their remedies to

damages that approximate recovery for lost wages and other economic, nonpersonal harms.

So settlement payments for those claims cannot be categorically treated either. Cf. Hemelt,

122 F.3d at 209–10.

Accordingly, we turn to the second inquiry, which looks at what the parties, and

particularly the payor, intended the payment to be for. Gerstenbluth, 728 F.3d at 144–45.

The parties’ purpose can be ascertained from the written settlement agreement itself, as

well as any other evidence that is relevant.

Taking all facts into consideration, the trial

15 Which encompasses the § 1981 claim, as the City is a state actor. See Jett v. Dallas Indep. Sch. Dist.,

, 731–32 (1989). 29 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 30 of 36

court must characterize the payment and, if relevant, allocate the various portions of

settlement agreement to the various types of relief. 16 See Miller,

.

We conclude that the district court, though it might not have used these precise

terms, did not clearly err in finding that the entire Term 1(b) payment was meant to reflect

compensation for economic harms—like back pay and severance pay—when it found that

the settlement payment constituted “wages.” When the parties intended for payments to

be paid for different purposes, the agreement made that clear. Remember, the City issued

three checks pursuant to its agreement with Smith-Phifer, each governed by a separate

contractual term. The first two were made payable to “Maloney Law & Associates,

PLLC,” were specifically regarded as “not payment for wages,” and were to be “reported

on an IRS Form 1099 to Smith-Phifer and Maloney Law & Associates.” J.A. 212, 219.

And as the agreement clarifies, such payments make sense because the City was also

settling Smith-Phifer’s claims for attorneys’ fees.

The Term 1(b) payment, on the other hand, was made in one check to Smith-Phifer

directly, did not include the “not payment for wages” caveat, and was to be reported on a

W-2. J.A. 219. Taken together, those facts suggest that the Term 1(a) payments and the

16 Settlement payments, for tax purposes or otherwise, need not be treated as unitary wholes. See, e.g., Miller,

(noting that a single settlement payment of $900,000 that “did not provide for any allocation of the settlement proceeds between . . . the claims for compensatory damages and the claims for punitive damages” must still be divided, for tax purposes, to determine which part was and was not income). Instead, courts must evaluate the payment, both as a whole and as the sum of its constituent parts, “to ascertain what the payment fairly represents.” Gerstenbluth, 728 F.3d at 144. As we see below, however, this Term 1(b) payment is for one purpose, and no subdivision is necessary. 30 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 31 of 36

Term 1(b) payment were different kinds of payments made for different reasons. And as

the district court identified, the absence of the “not payment for wages” caveat in Term

1(b) implies that the “basic reason” of term was to pay Smith-Phifer “wages.” See

Expressio Unius Est Exclusio Alterius, Black’s Law Dictionary (12th ed. 2024).

Additionally, if the payment were meant to provide Smith-Phifer with more than

simply economic remedies and included personal and tort-like damages, then one would

not issue Smith-Phifer a W-2 for that entire payment. In the “Damages” portion of her

complaint, for example, Smith-Phifer specifically requested, inter alia, “damages for

emotional distress.” J.A. 115. But such damages are not reported on a W-2; they are

reported on Box 3 of IRS Form 1099. Dep’t of the Treas., Instructions for Forms 1099-

MISC and 1099-NEC 5 (2024). Instead, W-2s generally report “wages.” Dep’t of the

Treas., General Instructions for Forms W-2 and W-3, at 18 (2024). 17 Accordingly, by

treating the Term 1(b) payment as a unified whole reportable on a W-2, and by contrasting

that payment with the non-wage payments under Term 1(a) reportable on a 1099, the

agreement itself suggests that parties intended the entirety of the Term 1(b) payment to

compensate Smith-Phifer for her asserted economic, nonpersonal injuries. 18

17 Though some exceptions exist, the parties have not suggested any exception that would apply here. 18 Granted, the ultimate touchstone for whether the payment is wages is the actual purpose of the payment, not the parties’ characterization of the payment. The purpose of the payment must be compensation for economic harms, such as severance or back pay; simply labelling the payment as wages is not sufficient. Cf. Greer v. United States,

, 326–27 (6th Cir. 2000) (explaining that parties cannot avoid income taxes on settlement payments simply by characterizing the payment as being for personal injury). (Continued) 31 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 32 of 36

Outside the agreement itself, the actions of the City bolster this conclusion. Though

Smith-Phifer took umbrage with the fact that the City classified her payment as “Severance

Pay” instead of wages, J.A. 225, that umbrage is misplaced. As the Supreme Court has

held, severance pay is a form of wages. Quality Stores, Inc.,

. Thus, though

indirectly, the City itself admitted through its performance that the settlement payment was

meant to provide “wages.” 19

So, to sum up, the Term 1(b) payment appears to have been meant to compensate

Smith-Phifer for alleged economic harms by giving her “wages,” i.e., back pay and

severance. By giving her wages, the City gave her remuneration for services performed as

an employee. That, in turns, means that the payment was “Compensation” under the Act.

The City is mandated by law under the Act to make retirement deductions for all

“Compensation.” So the retirement deduction was an “applicable deduction” that the City

promised to make when it signed the settlement agreement. And because the City did not

do so, it breached the agreement, and the district court was right to grant Smith-Phifer’s

motion insofar as it asked the City to reissue her a check that complied with that obligation.

The City does not point to other evidence in the record that the payments were for

nonwage damages, such as emotional distress. Instead, it resists this conclusion in two

In this case, however, there is no sign that the parties’ characterization was different from the actual purpose of the payment. 19 For these reasons, we disagree with Smith-Phifer that the City also breached the agreement by classifying the payment on the check as “Severance Pay” instead of “wages.” Because severance pay is a form of wages, the City’s severance check complied with its obligation to issue Smith-Phifer “wages.” 32 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 33 of 36

ways. First, it argues that it was not required to treat its payment to Smith-Phifer as pension

eligible—i.e., make the retirement deduction—because the payment was not “intended to

be pension eligible compensation.” Opening Br. at 29 (emphasis added). Second, it argues

that, even if the Act does apply, this payment is not “Compensation.”

As support for its first argument, the City points toward a list of out-of-circuit

authority holding that certain settlement payments were not pension eligible when the

contracting parties “fail[ed] to make any reference in the [settlement agreement] to pension

rights.”

at 27 (quoting Licciardi v. Kropp Forge Div. Emps’ Ret. Plan,

(7th Cir. 1993)). So, according to the City, by failing to specifically mention pension

benefits, the agreement doesn’t require the City to treat the payment as pension eligible,

and Smith-Phifer’s current motion is merely an attempt to change the terms of the deal ex

post.

In reality, however, it is the City, not Smith-Phifer, who is attempting to alter the

terms of the agreement. The language of the contract requires the City to make “all

applicable deductions.” As explained above, the retirement deduction is “applicable” if,

under the Act, the City would be required by law to make that deduction from this payment.

That question is answered by determining the purpose of the payment, e.g., back pay for

lost wages or damages for emotional distress. And again, as explained above, it matters

not whether the parties explicitly intended the payment to be pension eligible.

The City’s second argument is similarly unavailing. In arguing that the settlement

payment to Smith-Phifer was not “for services performed as an employee of the Charlotte

Fire Department,” the City briefly attempts to distinguish cases like Nierotko. The City

33 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 34 of 36

claims that a more expansive view of “services performed” was appropriate in Nierotko

because that case was interpreting the Internal Revenue Code, which is designed “to

generate tax revenues for the United States,” whereas the Act here has the more limited

purpose of providing retirement benefits. Opening Br. at 31. Whatever force such an

atextual argument might have in another case, it falls flat here for two reasons. First,

Nierotko wasn’t interpreting the tax code: It was interpreting Title II of the Social Security

Act of 1935.

. Second, the point of Title II, as the Supreme Court

recognized, was “to provide funds . . . for the decent support of elderly workmen who have

ceased to labor”—i.e., retirement benefits.

.

As a fallback, the City points out that the applicable definition of “wages” in

Nierotko included the phrase “any service, of whatever nature, performed,” while

“Compensation” under the Act only covers “services performed.” Compare Social

Security Act of 1935, § 210(b), 49 Stat. at 625 (emphasis added), with Act of July 13, 2006,

No. 117, sec. 1, § 2(9), 2006 N.C. Sess. Laws at 440. But the Supreme Court did not rest

its interpretation in Nierotko on the phrase “of whatever nature.” On the contrary, the Court

omitted that phrase when doing its analysis. See Nierotko,

(“The very

words ‘any service . . . performed . . . for his employer,’ with the purpose of the Social

Security Act in mind import breadth of coverage.” (alterations in original)). So the Court’s

conclusion was that the word “service” in the retirement-benefit context, in and of itself,

must be interpreted expansively.

For these reasons, the district court did not clearly err when concluding that the

City’s payment to Smith-Phifer per the agreement’s Term 1(b) was “Compensation” under

34 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 35 of 36

the Act. By law, therefore, the City needed to make a retirement deduction. Because it

failed to do so, it breached the agreement. 20

* * *

“[P]ublic policy wisely encourages settlements.” McDermott, Inc. v. AmClyde,

(1994). Yet the cost savings and certainty that settlements provide litigants

and the judicial system do not give district courts license to enforce nonexistent

agreements. Here, the district court jumped the gun by ruling, without an evidentiary

hearing, on Patterson’s motion to enforce a settlement agreement resolving his four-count

complaint. But it correctly enforced the City’s agreement with Smith-Phifer, which was a

20 One clarification of the district court’s order is necessary. We do not read the district court’s order to grant Smith-Phifer’s alternative request that the City “instruct the Charlotte Firefighters’ Retirement System to make all necessary recalculations and pay any back benefits due to Plaintiff Smith-Phifer to comply with the Act.” J.A. 210. And for good reason. Under the Act, the City plays no primary role in the calculation of retirement benefits. On the contrary, the Board of Trustees and the System’s Administrator are in charge of the “administration and coordination of all System operations and activities.” Act of Apr. 16, 2001, No. 22, sec. 1, §§ 27, 36(e), 2001 N.C. Sess. Laws at 52, 56; see also id. § 39, 2001 N.C. Sess. Laws at 57 (noting that the City may alter contributions but may not reduce benefits under the Act). Further, such administration must be done in accordance with the Act, not the instructions of the City. Id. § 36(e), 2001 N.C. Sess. Laws at 56. So the relief Smith-Phifer sought here would essentially be a nullity. But even if the City did have the power to bind the System or its agents, the agreement itself does not obligate the City to exercise that power. As discussed above, all Term 1(b) required was the payment of a wage for a sum certain, minus “all applicable deductions,” reported on a W-2. J.A. 219. While determination of whether a deduction must be made and the calculation of pension benefits are conceptually linked (in that they both are based on “Compensation”), the two are not directly tied together. Instead, the calculation of benefits comes later in time and is not at all pegged to whether the City complied with its statutory obligations in making deductions; again, it is tied to “Compensation.” So the obligation to make a deduction does not include a concomitant obligation to recalculate benefits—at least by the terms of the settlement agreement. If Smith-Phifer is unhappy with the System’s calculations of her benefits (including the years in which the settlement payment is to be allocated), that should be taken up with the System, by litigation or otherwise. 35 USCA4 Appeal: 23-2031 Doc: 41 Filed: 09/25/2024 Pg: 36 of 36

complete agreement whose unambiguous terms required the City to make a deduction from

the pension-eligible “Compensation” created by Term 1(b). So we vacate and remand for

further proceedings the district court’s order granting Patterson’s motion to enforce a

settlement agreement. On the other hand, we affirm the district court’s order granting

Smith-Phifer’s motion.

VACATED IN PART, AFFIRMED IN PART, AND REMANDED

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