Opinion
No. 97 C 5696
April 28, 2004
RULING ON MOTION TO ENFORCE SETTLEMENT AGREEMENT
Counterclaim plaintiff, Imperial Credit Industries, Inc. ("Imperial") has moved to enforce an agreement made on the record on March 2, 2004, to settle its case against counterclaim defendant, Steadfast Insurance Company ("Steadfast"). Steadfast responds that the "conditional settlement placed on the record on March 2, 2004 is unenforceable."
In 1997, Steadfast filed suit against Auto Marketing Network, Inc. ("AMN") and its successor, Imperial, alleging, among other things, fraud and breach of contract based on AMN's alleged failure to adhere to the terms of an insurance policy which AMN purchased from Steadfast in 1992. Imperial filed a counterclaim alleging that Steadfast had filed the complaint against Imperial in bad faith, in violation of Illinois law codified at 720 ILCS 5/46-5(b). In March of 2003, all claims were tried to a jury, and after the court directed a verdict on Steadfast's fraud claim, the jury returned defense verdicts on Steadfast's contract claim and on Imperial's counterclaim. In July of 2003, Imperial petitioned in the United States Bankruptcy Court for the Central District of California for protection under Chapter 11 of the Bankruptcy Code, title 11 U.S.C. § 1101 et seq. In October, 2003, this court granted Imperial's motion for a new trial on the counterclaim. On February 24, 2004, a second trial of Imperial's counterclaim commenced. On March 2, 2004, after 3:20 p.m. when the jury began its deliberations, the parties resumed settlement negotiations, which to that time had been sincere but unsuccessful. At some point, the parties notified the judge's staff that they were about to settle. At 4:28 p.m., the jury notified the court that it had reached a verdict. The court directed that the jury remain sequestered and soon thereafter the parties notified the court that they had a settlement which they wanted to place on the record. Proceedings resumed on the record as follows:
MR. [ALLEN] RUGG [COUNSEL FOR IMPERIAL]: Imperial is in bankruptcy. We'd like to put the settlement on the record. If the Court is so inclined, it may be helpful if the Court observes that it is a reasonable settlement.
I don't know how these things work, but we clearly have to go to the bankruptcy court. We have extremely high confidence that it will be approved. . . .
Our agreement is that Steadfast will pay Imperial $12,500,000. All claims will be released. Exchange mutual releases.
The settlement amount will accrue interest at the federal judgment rate from today until it is paid in consideration of the fact there may be a delay. And that both parties will exercise all reasonable efforts to secure the approval of the bankruptcy court.
THE COURT: All right. Do you agree with that, Mr. Yoder?
MR. [MICHAEL] YODER [COUNSEL FOR STEADFAST]: I think Mr. Rugg stated it correctly. The interest would be at the proposed judgment federal rate and that Steadfast will support application for bankruptcy court approval.
THE COURT: Okay. Well, if my opinion matters, I think that's eminently reasonable.
(Transcript of proceedings of Mar. 2, 2004, 940-41.) Thereafter, the court called the jury into court, took possession of the verdict, announced to the jury that the case had been settled, and discharged the jury. The Clerk has retained the unpublished verdict in his custody ever since.
Although not explicitly stated on the record, both parties anticipated that the agreement would be memorialized in a writing. On March 9, 2004 Imperial's counsel sent a draft Settlement Agreement and Release to Steadfast's counsel, which contained fifteen "whereas" clauses setting out historical facts in the litigation and ten paragraphs of terms. (Imperial's Draft Settlement Agreement, Exh. 3 to Yoder Declaration) Paragraph 1 of the terms provided for the timing and manner of payment of the agreed sum after entry of a final order by the bankruptcy court approving the settlement agreement. Paragraph 2 recited the parties' joint obligation to "unconditionally urge" and "use their respective best efforts" to obtain such approval. In paragraphs 3-6, Steadfast, Imperial and AMN, and all related persons and entities, generally released one another from all claims arising from the policy at issue and the litigation.
In paragraph 6, Imperial was to move the bankruptcy court for approval of the settlement, and conditioned upon that approval, the releases would become effective and the parties would move this court to dismiss this case, including all claims and the Counterclaim, with prejudice, each party to bear its own costs and fees. Paragraph 7 provided that if the bankruptcy court declined to approve the settlement agreement, then the parties would move this court to receive the verdict. Paragraph 8 recited that the agreement has been entered into voluntarily and with advice of counsel; paragraph 9 recited that it was the entire agreement between the parties and was to be interpreted under the laws of Illinois. Paragraph 10 provided that the settlement was not to be construed as an admission of liability on the part of either party and not to be offered into evidence in any other proceeding other than for the purpose of enforcement of the settlement.
On March 18, Steadfast's counsel responded with a revised draft that modified some of the whereas clauses and modified, as well as added, several paragraphs of terms, reaching 22 in all. Material here, Steadfast proposed the following language:
The parties agree that they and their counsel shall refrain from publicly discussing or commenting on the claims and allegations that were the subject of the Action including, without limitation, the Counterclaim, and shall refrain from discussing or disseminating this Agreement except as they may be compelled to do so by law, or except as necessary to carry out the terms (including the terms regarding the Bankruptcy Court's approval) of this agreement. Nothwithstanding the foregoing, any party may disclose the facts that (i) a lawsuit was filed, and (ii) the matter has been settled."
Lucille T. Sgaglione, Senior Vice President for Steadfast's parent, Zurich Insurance Company, declares that "we" added to Mr. Rugg's draft the "limited non-publicity provision aimed at preventing public disclosure of the settlement terms," explaining that Steadfast wants to prevent Imperial from disparaging Steadfast and from suggesting to the public that Steadfast had done something wrong. (Sgaglione Declaration ¶ 9.)
Mr. Rugg responded to Mr. Yoder, "As you know, and as the record reflects, we made no commitment whatsoever regarding public discussion of the settlement and Steadfast made no request in this regard until Ms. [Amy] Laurendeau [co-counsel for Steadfast] e-mailed the revised draft Settlement Agreement to me last evening. Our entire agreement was stated on the record in open court and is memorialized in the trial record at pages 940-41. . . ." Mr. Rugg further explained that, in his view, the parties understood that any settlement would have to be public because of the bankruptcy, and indeed the terms were already in the public record.
Thereafter, the parties were able to resolve all their differences concerning the written document save the non-publicity clause. (Yoder Declaration ¶ 14 and Exh. 6.)
Imperial contends that the agreement placed on the record was a contract and is thus enforceable. Steadfast argues that although an agreement "may have been reached" between the parties, "performance was subject to the occurrence of conditions precedent," namely the settlement agreement, including mutual releases, had to be reduced to a final executed writing, and the written settlement agreement had to be approved by the bankruptcy court. (Opposition Mem. at 8.)
The doctrines pertaining to enforcement of settlement agreements are resolved. "Voluntary resolution of litigation, through settlement, is favored by the courts. A settlement agreement is a contract, which cannot be unilaterally repudiated by any of the parties." Herron v. City of Chicago, 618 F. Supp. 1405, 1409 (N.D. Ill. 1985) (internal citations omitted). "`[T]he construction and enforcement of settlement agreements are governed by principles of local law applicable to contracts generally.'" Mattingly v. City of Chicago, 897 F. Supp. 375, 377 (N.D.Ill. 1995), quoting Laserage Technology v. Laserage Laboratories, 972 F.2d 799, 802 (7th Cir. 1992). Because Illinois law applied to the claims in the law suit, Illinois law controls this dispute. Wilson v. Wilson, 46 F.3d 660, 667 (7th Cir. 1995).
In Illinois, "`[o]ral settlement agreements are enforceable `as long as there is clearly an offer and acceptance of the compromise and a meeting of the minds as to the terms of the agreement.'" Mattingly, 897 F. Supp. at 377, quoting Wilson, 46 F.3d at 666. That the parties contemplated a written memorial of their agreement does not defeat enforcement so long as "the terms to be agreed upon in the future can be determined independent of a party's mere wish, will, and desire, either by virtue of the agreement itself or by commercial practice or other usage or custom." Mattingly, 897 F. Supp. at 377 (internal citations and quotation marks omitted). In other words, the contract is sufficiently definite if the court can ". . . ascertain what the parties intended to do." Wilson, 46 F.3d at 667, quoting Academy of Chicago Publishers v. Cheever, 144 Ill.2d 24, 578 N.E.2d 981, 983 (1991).
Courts consistently reject the notion that disputes over choice of language to express a material term can defeat the settlement. E.g., Wilson, 46 F.3d at 667 (that parties could not agree on whether to execute mutual releases or a covenant not to sue did not defeat a settlement announced on the record where "the parties had an objective basis for determining when either party had breached the oral settlement agreement."); Mattingly, 897 F. Supp. at 377-78 (rejected plaintiff's subsequent objections to defendant's draft stipulation to dismiss as "unfair, unbalanced and possibly illegal" where the document fairly stated the terms of settlement previously reached). Compare, Walker v. Commercial Recovery Systems, Inc., No. 99 C 5512, 2000 WL 1810066 (N.D. Ill. Dec. 7, 2000) (No settlement existed where agreement letter did not address many terms necessary to a class action settlement, and court would have been unable to enforce the settlement, "given that a class action settlement must encompass many provisions other than the payment of money.")
These principles applied here point unequivocally to a valid settlement agreement. The material terms of the agreement reached between the parties on March 2 were placed on the record in open court. There was offer, acceptance of a compromise, and a meeting of the minds as to four material terms: (1) payment of $12.5 million, (2) interest at the federal post-judgment rate accruing from March 2, 2004 until payment, and (3) exchange of mutual releases, (4) conditioned on obtaining approval of the bankruptcy court. This agreement could be enforced because one can objectively determine a breach, whether or not the parties could later agree on the precise wording of a release, the precise procedures to be followed in making the payment, or the precise procedures for seeking approval of the bankruptcy court. Furthermore, because Steadfast concedes that the parties were able to agree on all the terms but the confidentiality term, it cannot now persuasively argue that the draft settlement documents could not be crafted to fulfill the parties' orally expressed intentions. Thus, to the extent Steadfast maintains that Mr. Yoder's response to Mr. Rugg on March 2 using the word "support" the settlement reflected something materially different from Mr. Rugg's characterization to "exercise reasonable efforts" towards obtaining approval of the settlement by the bankruptcy court, this argument is rejected. Likewise, the argument that the parties did not contemplate including AMN within the mutual releases.
The court acknowledges Steadfast's analysis of Herron, Wilson and Walker, but is not persuaded that they support Steadfast's position here. In both Herron and Wilson, the oral settlement agreements were enforced despite arguments similar to those Steadfast raises here. Walker is readily distinguishable because of its class action context and the parties' failure to address a number of significant matters, such as what to do with unclaimed settlement proceeds. 2000 WL 1810066 at *4.
Steadfast's suppositions as to what the bankruptcy could or could not approve are disregarded. This court's own experience in a bankruptcy court suggests that where the parties in interest are in agreement, settlements can be announced on the record and approved rather unceremoniously.
Steadfast's principal argument is that performance of the contract was conditional on the occurrence of two conditions precedent. The oral agreement included a provision that the contract was conditional on the occurrence of one event, approval by the bankruptcy court. Neither Mr. Yoder nor Ms. Sgaglione mentioned during negotiations nor on the record a second condition, or for that matter any expectation that a confidentiality clause would be included in the agreement. See Laserage Technology Corp., 972 F.2d at 802 ("[I]n assessing [the parties'] intent, their `[s]ecret hopes and wishes count for nothing' because the `status of a document as a contract depends on what the parties express to each other and to the world, not on what they keep to themselves.'"). Quite the contrary, the situation suggested that the settlement was public because the terms, including the amount of money, were to be and in fact were made of record, and it was obvious that the terms of the agreement would have to be disclosed to the bankruptcy court and to Imperial's creditors. If Steadfast wanted a confidentiality clause, it should have made it known during the negotiations. See Herron, 618 F. Supp. at 1409 (Where the oral settlement agreement included attorneys' fees in the amount the defendant agreed to pay to the plaintiffs, plaintiffs could not include in the written agreement additional fees based on a theory not raised during the settlement negotiations.)
Because confidentiality was not a term of this settlement agreement, there is no need to address Steadfast's arguments that Imperial has a duty to be reasonable in framing a confidentiality clause. Nevertheless, confidentiality in the circumstances here is an elusive goal. Of course, Steadfast has a legitimate interest in not being accused of wrongdoing where no jury has concluded that wrongdoing occurred. The court has disregarded Imperial's counsel's speculation as to why Steadfast made a last minute settlement offer. It is sufficient that by the settlement, Steadfast avoided the risk of an adverse verdict, and the expense and risk of a possible appeal by either party, in light of the long history of this litigation, much of it carved by previous counsel, and the uncertainty of Illinois law regarding bad faith insurance litigation. The best rebuttal to "disparagement" is in a signed agreement that recites, as each of the drafts in this case does, that the settlement is not an admission of wrongdoing.
Moreover, the Seventh Circuit has repeatedly expressed its opposition to sealing, secrecy and anonymity in court proceedings. E.g., Jessup v. Luther, 277 F.3d 926 (7th Cir. 2002) (sealed settlement agreement retained in court files was public record and newspaper had right of access to it); Union Oil Co. of California v. Leavell, 220 F.3d 562, 568 (7th Cir. 2000) ("People who want secrecy should opt for arbitration. When they call on the courts, they must accept the openness that goes with subsidized dispute resolution by public (and publicly accountable) officials."); Doe v. Blue Cross Blue Shield United of Wisconsin, 112 F.3d 869, 872 (7th Cir. 1997) ("the privilege of suing or defending under a fictitious name should not be granted automatically even if the opposing party does not object. The use of fictitious names is disfavored. . . ."). Where, as here, the information was immediately made public on the record and creditors in the bankruptcy have an unquestionable right to know the terms of the settlement, imposing a gag, with its potential of leading to satellite litigation in this already exhausted case, is wholly impracticable and antithetical to public policy in favor of putting conflicts to rest.
For all of these reasons, the court grants Imperial's motion to enforce the settlement agreement and directs the parties to execute the last draft agreement, Exhibit 6 to the Yoder Declaration, omitting paragraph 14.