Opinion
Case No. 1:02-CV-628
September 9, 2003
ORDER
In accordance with the Opinion filed this date,
IT IS HEREBY ORDERED that Defendants' Motion To Enforce Settlement Agreement (docket no. 27) is DENIED.
IT IS FURTHER ORDERED that the final pretrial conference and jury trial are adjourned without date.
IT IS FURTHER ORDERED that a Rule 16 scheduling conference is set for October 23, 2003, at 4:00 PM. The parties shall submit a joint status report three business days prior to the conference.
OPINION Background
Plaintiff, Big Jon, Inc. ("Big Jon"), filed its complaint in this case on August 30, 2002, against Defendants Jean Schick ("Schick") and SW Plastics, Inc. ("SW"), seeking equitable and declaratory relief regarding an asset purchase agreement between the parties. In response, Schick and SW denied that Big Jon was entitled to relief and filed a counterclaim for damages against Big Jon for Big Jon's breach of the asset purchase agreement. At some point before or after Big Jon filed this case, SW and/or Schick filed suit in Wisconsin state court against Brian Girard ("Girard"), Big Jon's president, based upon Girard's personal guaranty of Big Jon's obligations under the asset purchase agreement.The parties agreed to voluntary facilitative mediation under the local rules of this District, and on November 8, 2002, the Court entered an Order of Reference for Facilitative Mediation. A mediation session was held on December 18, 2002. Although the parties did not reach a settlement at the conclusion of the mediation session, they continued to explore settlement with the assistance of the mediator. The parties agreed that the Wisconsin litigation would be held in abeyance pending the settlement negotiations in this case.
In late April or early May of 2003, the parties reached an agreement on the essential terms of a settlement of the claims in this case and the claims in the Wisconsin litigation. On April 3, 2003, Steven Turner ("Turner"), counsel for Schick and SW, wrote to Kenneth Petterson ("Petterson"), counsel for Big Jon and Girard, to confirm the terms of the settlement. Those terms included, among other things: (1) payment of $325,000 by Big Jon to Schick in installments; (2) execution of a consent judgment by Big Jon and Girard to be entered in this case; and (3) a blanket lien by Big Jon to Schick on all of Big Jon's assets, "subject only to a subordination agreement(s) of Big Jon's commercial banks." (Letter from Turner to Petterson of 4/3/03, at 1 — 2, Defs.' Br. Supp. Ex. 1.) Petterson was to be responsible for preparing the subordination agreements, the terms of which were to be subject to Schick's approval as a condition precedent to finalizing the settlement agreement. (Id. at 2.) On April 9, 2003, Petterson wrote to Turner, stating: "Big Jon and Girard are in agreement with the terms outlined in your letter which are based on our discussions in the mediation process as facilitated by Doug Wagner." (Letter from Petterson to Turner of 4/9/03, Defs.' Br. Supp. Ex. 2.) Petterson requested that Turner prepare the necessary documents and indicated that he, Petterson, would be preparing the subordination agreement. (Id.)
On May 1, 2003, Turner sent drafts of the settlement documents to Petterson and requested information about Girard that was necessary to complete the agreement. (Letter from Turner to Petterson of 5/1/03, Defs. 1Br. Supp. Ex. 3.) On May 12, 2003, Turner wrote to Petterson regarding the status of his review of the settlement documents as well as Petterson's preparation of the subordination agreement. (Letter from Turner to Petterson of 5/12/03, Defs.' Br. Supp. Ex. 4.)
Petterson responded by letter dated May 19, 2003, in which he provided the information Turner had previously requested regarding Girard and stated that he was in the process of preparing the subordination agreement. (Letter from Petterson to Turner of 5/19/03, Defs.' Br. Supp. Ex. 5.) Petterson also stated, "I have reviewed the Settlement Agreement, Consent Judgment and Security Agreement and they all meet with my approval." (Id.) Turner wrote to Petterson on May 29, 2003, and again on June 11, 2003, regarding the status of the settlement. (Letter from Turner to Petterson of 5/29/03, Defs.' Br. Supp. Ex. 6; letter from Turner to Petterson of 6/11/03, Defs.' Br. Supp. Ex. 7.) In his June 11 letter, Turner demanded that Petterson have his clients sign all of the settlement documents that Turner had previously sent and wire the first installment payment of the settlement amount to Schick no later than the close of business on June 20, 2003. (Letter from Turner to Petterson of 6/11/03.) On June 16, 2003, Petterson wrote to Turner, stating:
I regret to inform you that while I was awaiting receipt of the original settlement documents from your office and attempting to obtain an acceptable subordination agreement from the bank, circumstances changed dramatically for my client. Fifth-Third Bank has called it's [sic] loan with Big Jon and is demanding immediate payment. In addition, the Bank has frozen Big Jon's cash account.
Understandably, my client has been consumed with trying to solve this immediate problem which threatens the very existence of the business. We are in the process of attempting to reach a resolution with the Bank that will provide the business with the current financing needs and allow it to continue. The discussions with the Bank are ongoing and until we have an understanding with them, it will be impossible to finalize our matter.
. . . Unfortunately, our agreement cannot be finalized until we determine our ability to work with the Bank.
(Letter from Petterson to Turner of 6/16/03, Defs.' Br. Supp. Ex. 8.) In response, Schick and SW filed the instant motion to enforce the settlement agreement.
Discussion
The Sixth Circuit "has long recognized the broad, inherent authority and equitable power of a district court to enforce an agreement in settlement of litigation pending before it." Bostick Foundry Co. v. Lindberg. 797 F.2d 280, 282-83 (6th Cir. 1986). "Once concluded, a settlement agreement is as binding, conclusive, and final as if it had been incorporated into a judgment and the actual merits of the antecedent claims will not thereafter be examined." Id. at 283. A court may enforce a settlement agreement only if it concludes that the parties have reached agreement on all material terms. Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988). A trial court has the power to summarily enforce a settlement agreement, without an evidentiary hearing, when the parties do not dispute the material facts pertaining to the existence or terms of the settlement agreement. Kukla v. Nat'l Distillers Prods. Co., 483 F.2d 619, 621-22 (6th Cir. 1973). However, the court must enforce the terms of the settlement as agreed to by the parties and is not permitted to alter the terms of the agreement.Brock. 841 F.2d at 154.In this case, the parties agree that Michigan law governs. In determining whether parties to a suit have reached a binding settlement agreement, Michigan courts apply legal principles applicable to the construction and interpretation of contracts. Walbridge Aldinger Co. v. Walcon Corp., 207 Mich. App. 566, 571, 525 N.W.2d 489, 491 (1995). Michigan courts apply an objective test to determine whether there has been mutual assent to a contract. Rood v. Gen. Dynamics Corp., 444 Mich. 107, 119, 507 N.W.2d 591, 598 (1993). In applying this standard, a court must look "`to all the relevant circumstances surrounding the transaction, including all writings, oral statements, and other conduct by which the parties manifested their intent,'" id (quotingRowe v. Montgomery Ward Co., 437 Mich. 627, 641, 473 N.W.2d 268, 273 (1991)), "and ask whether a reasonable person could have interpreted the words or conduct in the manner that is alleged," Id. See also Goldman v. Century Ins. Co., 354 Mich. 528, 535, 93 N.W.2d 240, 243 (1958) (stating that courts determine a meeting of the minds by "looking to the expressed words of the parties and their visible acts").
In this case, the correspondence between the parties affirmatively establishes a meeting of the minds between the parties on each of the essential terms of the settlement agreement. Turner's April 3, 2003, letter to Petterson outlined in detail the terms of the settlement, including the settlement amount and the payment schedule, entry of a consent judgment against Big Jon and Girard, security for payment, a subordination agreement with Big Jon's commercial banks, and Schick's approval of the subordination agreement. Petterson's April 9, 2003, letter to Turner clearly and unambiguously indicated Petterson's clients' assent to the terms of the settlement set forth in Turner's April 3 letter. Thus, there is no dispute that the parties reached an agreement on all of the essential terms of a settlement agreement.
Big Jon and Girard do not dispute that they agreed to the terms outlined in Turner's April 3 letter, nor do they assert that Petterson did not have the authority to accept those settlement terms. They argue, however, that there was no contract because "[t]he approval of documents by the bank as well as the parties was a condition precedent to the formation of a binding settlement." (Pl.'s Resp. Br. at 3.) In other words, Big Jon and Girard assert that Big Jon's lender's approval of the subordination agreement was a necessary condition to finalizing the settlement agreement. Schick and SW respond that Big Jon's and Girard's condition precedent argument fails, because "Schick's approval" was the only condition precedent to the settlement, and Schick could waive that condition by agreeing to forego a subordination agreement.
At oral argument, counsel illuminated the circumstances regarding the subordination agreement. Counsel informed the Court that Schick has a preexisting purchase money security interest in the assets Big Jon purchased under the asset purchase agreement, but that as part of the settlement, Schick demanded a blanket lien on all of Big Jon's assets. Because the lien of Big Jon's lender is prior in time, it would have priority over Schick's subsequent lien. This would be true even in the absence of the subordination agreement. The subordination agreement would merely confirm that Schick's lien is junior to the bank's lien and would therefore be immaterial to Schick, as it would not affect her secured creditor position relative to the bank. However, the subordination agreement was important to Big Jon, because it was key to Big Jon's efforts to refinance with its current lender or to seek new financing. It is standard in many commercial loan agreements for the borrower to covenant that it will not permit liens on its assets (even if junior to the lender's) without the lender's prior consent. For this reason, the subordination agreement would be a material part of the settlement agreement to Big Jon and Girard, because it would be important for Big Jon to obtain its lender's consent to an additional lien, even if that lien was junior to the lender's lien. Moreover, it appears that the subordination agreement was an issue throughout the parties' negotiations.
Schick is correct in contending that she may waive the condition of her approval of the subordination agreement, but the fact "that she is willing to forego a subordination agreement," (Defs.' Reply Br. at 2), cannot extinguish the requirement of the subordination agreement to complete the settlement. Schick correctly notes that the settlement terms set forth in Turner's April 3, 2003, letter do not expressly require the lender's approval of the subordination agreement as a condition precedent to the agreement. However, Turner's letter states that "Big Jon will give Schick a blanket lien on all of its assets subject only to a subordination agreement(s) of Big Jon's commercial banks." (Letter from Turner to Petterson of 4/3/03 at 2 (italics added).) This language shows that a subordination agreement, executed by Big Jon's lender, is a condition to granting the lien to Schick. While approval by Big Jon's lender is not expressly required, it is an implied condition, because there can be no lien, and thus, no settlement, without a subordination agreement signed by Big Jon's lender. Of course, Schick could waive the requirement of a blanket lien, which would negate the need for the subordination agreement, but she has not indicated that she is willing to do so. Thus, if Big Jon's lender will not sign a subordination agreement, there can be no settlement. Accordingly, the Court will deny the motion.
Conclusion
For the foregoing reasons, the Court will deny Defendants' motion to enforce the settlement agreement and will schedule a Rule 16 conference for the purpose of reopening discovery and issuing a new Case Management Order.