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DK Holdings v. Miva, Inc.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
Sep 28, 2017
Case No.: 16-CV-0580 W (AGS) (S.D. Cal. Sep. 28, 2017)

Opinion

Case No.: 16-CV-0580 W (AGS)

09-28-2017

DK HOLDINGS, dba DOTCOM HOST, Plaintiff, v. MIVA, INC., et al., Defendants.


FILED UNDER SEAL

ORDER:

(1) GRANTING MOTIONS TO FILE UNDER SEAL [DOCS. 96, 99, 102]; AND

(2) DENYING PLAINTIFF'S MOTION TO ENFORCE A SETTLEMENT AGREEMENT [DOC. 66]

Pending before the Court is Plaintiff's motion to enforce a settlement agreement, ostensibly reached in private communications with Magistrate Judge Schopler in the days leading up to January 13, 2017. [Doc. 66.] Judge Schopler has filed a Report and Recommendation ("R&R") urging the Court to deny Plaintiff's motion. (R&R [Doc. 95].) Plaintiff objects to Judge Schopler's R&R. (Pl.'s Objs. [Doc. 97].) For the reasons that follow, the Court adopts Judge Schopler's conclusion and DENIES Plaintiff's motion. // // I. BACKGROUND

On December 12, 2016, parties held a settlement conference before Judge Schopler. (See R&R [Doc. 95] 1:27-2:5; Dec. 12, 2016 Settlement Conference Transcript [Doc. 58].) As part of this conference, Judge Schopler laid out a number of terms that formed a proposed settlement—including migrating Plaintiff's customers to Defendant. Defense counsel corrected Judge Schopler, adding additional terms:

Mr. Walt just wanted to note that there will be a purchase agreement. Obviously, part of the contingency of the purchase of the business is that there will be a purchase agreement similar to the one that was exchanged in 2011.

So when you talk about how the money will be paid for the business, it's going to be subject to a purchase agreement obviously that will accompany the settlement agreement . . . .

To be negotiated, obviously.

That's the framework for the economic terms of the purchase.

In other words, this recital that the judge has put [sic] is not simply the entirety of the terms. There was collecting a certain amount with a certain period of time. There is a duty to migrate clients within a certain period of time. There is [sic] some details of which were already in the agreement from [2011].
(Dec. 12, 2016 Settlement Conference Transcript [Doc. 58] 4-5 (emphasis added).) This original 2016 settlement attempt later broke down. (R&R [Doc. 95] 2:5.)

On January 11, 2017, Judge Schopler submitted to parties a mediator's proposal that he hoped would settle the case. According to this proposal, the matter would settle for a figure of $795,000, a release of all claims, and, again, a transfer of Plaintiff's customers to Defendant. (See R&R [Doc. 95] 1:17-18, 2:6-10.) However, this mediator's proposal did not address the manner in which the customers would be transferred to Defendant—the purchase agreement to be negotiated later, which defense counsel had explicitly mentioned would be "part of the contingency of the purchase of the business" in a previous settlement conference a month earlier. (See Status Conference Transcript [Doc. 61].) Parties accepted the proposal in private over the phone with Judge Schopler. (R&R [Doc. 95] 2:6-10.) Parties then conducted the telephonic conference on January 13. (Status Conference Transcript [Doc. 61].) Throughout the conference, defense counsel and the Court consistently spoke as though the agreement "on the number"—the settlement amount specified in the mediator's proposal—were merely the first step "in the process of resolving the case[,]" which would be complete upon the later negotiation and drafting of the asset purchase agreement. (See id. [Doc. 61] 3-8.) Negotiation over this purchase agreement later broke down. (R&R [Doc. 95] 3:12-4:10.) After the January 13 conference, Judge Schopler entered a minute order that stated, among others, "[t]he case has settled." (Minute Order [Doc. 47].)

In February, Plaintiff moved to enforce the mediator's proposal, as though it were a complete settlement. (Pl.'s Mot. [Doc. 66].) Judge Schopler issued an R&R recommending denial of the motion. (R&R [Doc. 95].) Plaintiff objects to the R&R. (Pl.'s Objs. [Doc. 97].) For the reasons that follow, the Court will adopt Judge Schopler's conclusion and deny Plaintiff's motion. II. LEGAL STANDARD

A. Motion to File Documents Under Seal

Federal law creates a strong presumption in favor of public access to court records. But this right of access is not absolute. San Jose Mercury News, Inc. v. U.S. Dist. Court-N. Dist. (San Jose), 187 F.3d 1096, 1102 (9th Cir. 1999). "Every court has supervisory power over its own records and files[,]" and may provide access to court documents at its discretion. See Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995) (quoting Nixon v. Warner Communications, Inc., 435 U.S. 589, 598 (1978)). District courts therefore have authority to seal and unseal court records, a power that derives from their inherent supervisory power. See Hagestad, 49 F.3d at 1434. // // //

When a party seeks to seal a dispositive motion, it must overcome the strong presumption of public access by identifying " 'compelling reasons supported by specific factual findings . . . [that] outweigh the general history of access and the public policies favoring disclosure." Pintos v. Pac. Creditors Ass'n, 605 F.3d 665, 679 (9th Cir. 2010) (quoting Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178-79 (9th Cir. 2006)). "Under the 'compelling reasons' standard, a district court must weigh 'relevant factors,' base its decision 'on a compelling reason,' and 'articulate the factual basis for its ruling, without relying on hypothesis or conjecture.' " See id. (quoting Hagestad, 49 F.3d at 1434).

B. Motion to Enforce a Settlement Agreement

"It is well settled that a district court has the equitable power to enforce summarily an agreement to settle a case pending before it." Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987). "However, the district court may enforce only complete settlement agreements." Callie, 829 F.2d at 890. "The construction and enforcement of settlement agreements are governed by principles of local law which apply to interpretation of contracts generally." Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989).

Per California law, the essential elements of a contract are: (1) parties capable of contracting; (2) their consent; (3) a lawful object; and (4) a sufficient cause or consideration. Cal. Civ. Code § 1550; Lopez v. Charles Schwab & Co., 118 Cal. App. 4th 1224, 1230 (2004). III. DISCUSSION

A. Motion to File Documents Under Seal

Parties have filed three motions to file three documents under seal—the objection to the R&R, the response to these objections, and a subsequent notice of errata. [Docs. 96, 99, 102.] The reasoning behind all three motions is the same. The issues discussed in depth throughout the R&R and subsequent briefing concern confidential settlement negotiations as to a mediator's proposal and a subsequent January 13, 2017 status conference. These issues focused on a planned settlement. (See id.) As no complete and enforceable settlement of this matter ever materialized for the reasons discussed below, parties will likely attempt to resolve the matter again in the future. Denying the pending motions to seal and allowing public access to settlement negotiations would complicate these efforts, making it more difficult and expensive to find common ground. See Pintos, 605 F.3d at 679; Microsoft, 2012 WL 5476846, at *2 (W.D. Wash. Nov. 12, 2012) (discussing the policy behind confidentiality of settlement negotiations); United States v. Contra Costa Cty. Water Dist., 678 F.2d 90, 92 (9th Cir. 1982) (same).

The three pending motions to file under seal will be granted. For the same reason, this order will be filed under seal.

B. Parties Never Settled this Case.

The issue pending before the Court is whether any settlement agreement reached between the parties is complete, according to California law. See Callie, 829 F.2d at 890; Andrus, 899 F.2d at 759. Per California law, the most salient question is the second Cal. Civ. Code § 1550 factor—consent. For the settlement to be enforceable, there must be objective manifestations of both parties' consent to be immediately bound. See Donovan v. RRL Corp., 26 Cal. 4th 261, 271 (2001), as modified (Sept. 12, 2001).

In California, an omitted term of a contract may be material in one of two ways. First, it may be a necessary term, in which case omission renders the contract an unenforceable nullity. See Facebook v. Pacific Northwest Software, 640 F.3d 1034, 1037-38 (9th Cir. 2011) (citing Citizens Utils. Co. v. Wheeler, 156 Cal. App. 2d 423, 432-33 (1958)). Second, the omitted term may be merely important to the contract—relevant to the value of the bargain, but not necessary to the existence of the agreement. Id. In the second case the contract "is enforceable under California law, so long as the terms the contract does include are sufficiently definite for a court to determine whether a breach has occurred, order specific performance[,] or award damages." Id. (citing Elite Show Servs. v. Staffpro, 119 Cal. App. 4th 263 (2004)).

In a December 12, 2016 settlement conference, defense counsel corrected Judge Schopler after the latter had laid out terms of a then-existing, but not yet enforceable settlement framework. Counsel explicitly stated that a purchase agreement was "part of the contingency of the purchase of the business"—i.e., a necessity of any complete resolution. (See Dec. 12, 2016 Settlement Conference Transcript [Doc. 58] 4-5.) See Facebook, 640 F.3d at 1037-38; Callie, 829 F.2d at 890. There is no reason to believe that Defendant's position changed in the month following that prior conference. Indeed, the diction of both defense counsel and the Court in the January 13, 2017 conference is consistent with this approach—and inconsistent with the case having already reached a complete resolution without the asset purchase agreement.

The Court began the January 13, 2017, telephonic settlement conference with the following after a brief introduction:

So the first matter of business is the parties did call in with their responses to the Court's proposed settlement proposal . . . . And both parties agreed to the settlement amount I had proposed. So it sounds like we have an agreement on $795,000 for Miva to pay DotCOM Host.

I know that the next order of business then is trying to figure out some of the other details that are required of the -- of the settlement.

And I know that Miva had a couple of caveats[] that they wanted to raise; is that correct?
(Status Conference Transcript [Doc. 61] 3:2-6 (emphasis added).) The word "required" is important, as it implies that the parties had not yet consented to be bound, having omitted from assent to the proposal details that would be necessary to settle the case. See Facebook, 640 F.3d at 1037-38; Cal. Civ. Code § 1550. David Cardone, attorney for Defendant Miva, responded: // // //
Yeah, I think that's good. I'm glad that everyone has agreed on the number.

I don't think that they are caveats. I think that Plaintiff['s] counsel understand that all of this - you know, the concerns I have are the same ones we've had along the way when we were having sort of our bilateral discussions, which is we need to reduce to writing the parties' respective positions on the asset purchase agreement and the settlement agreement. And that's really it.

So it's just a matter of finalizing that.
(Id. [Doc. 61] 3:7-16 (emphasis added).) Several factors are important here. First, Mr. Cardone characterized the agreement as one "on the number"—not with respect to to the whole case. Second, the word "need" appears in the transcript, along with a reference to "the same [concerns]" parties "had along the way[.]" (Id.) This would appear to be a reference to the same necessary settlement condition raised in the previous conference, the purchase agreement, which counsel described as "part of the contingency[.]" (See Dec. 12, 2016 Settlement Conference Transcript [Doc. 58] 4-5.) The fact that the mediator's proposal omitted this agreement implies that accepting the proposal was not Defendant's consent to a complete settlement of this case. See Cal. Civ. Code § 1550.

The Court responded:

And I apologize for using the term "caveat." That probably was a poor word choice.

I think it's fair to say, in my conversations with both parties, that that was a source of concern, that both parties wanted to make sure that you came to an agreement with regard to finalizing the language regarding the -- that sale.
(Id. [Doc. 61] 3:17-23.) Mr. Cardone responded:
Yeah. I don't think that's going to be a problem. We are using the agreement the parties agreed to in the past as a template for that agreement.

The Plaintiff's attorneys were kind enough to take a stab at drafting revised versions of those, and they sent over a draft proposed settlement agreement late last week; so I have those.

Since we have an agreement on the money , in essence, Mr. Walt, who is corporate counsel for the Defendant, is going to take those agreements, those draft agreements that the Plaintiff's attorneys put together, he's going to spend some time revising them and talking with the clients about them.
And I think - Unless the Court orders otherwise, our view would be that very early next week, probably no later than midday or close of business on Tuesday, I'll be in a position to circulate to Plaintiff's counsel our response and red-line changes to those documents. And I think that will sort of be the next step in the process of resolving the case.
(Id. [Doc. 61] 3:24-4:18 (emphasis added).) Parties then spent several pages of the transcript discussing the process that would take place over the next week for drafting and negotiating the purchase agreement, and even for resolving disputes that arose during that process. (See id. [Doc. 61] 4-8.) They set a status conference for the following week—January 19, 2017. (Id. [Doc. 61] 7:19, 8:17.) Mr. Cardone stated:
And it kind of dovetails with what my next question was going to be, which is, given where we are on the big issue, the money, do we want to - or, your honor, are we in a position to talk about stay or taking dates off calendar so the parties are focused on the settlement documents and not worrying about, you know a motion to compel and the Plaintiffs producing their documents.

And I think we have a written discovery cutoff date next week, and I don't want to blow that deadline if we're not going to settle the case.
(Id. [Doc. 61] 7:20-8:4 (emphasis added).) Defense counsel contemplated the eventuality of not settling the case. This is irreconcilable with the concept of a previous, complete settlement. The Court stayed the relevant deadlines, responding, "[i]t sounds to me like there is a very high likelihood that this case is going to settle." (Id. [Doc. 61] 8:8-11.) Again, gauging the likelihood of a future settlement is not consistent with the idea of an already-settled matter.

Despite Plaintiff's repeated contentions in both its initial motion and its objection to Judge Schopler's R&R that Miva "[a]gree[d] on the [r]ecord to [p]ay $795,000 to [s]ettle the [c]ase," (Pl.'s Mot. [Doc. 69] 10:19-20; see also Pl.'s Objs. [Doc. 69] 6:20-21 (same)), it is apparent that this $795,000 figure was part of a contemplated future settlement package that necessarily included an asset purchase agreement yet to be either drafted or negotiated at the time.

C. The R&R's Conclusion is Sound.

Plaintiff does not identify any legal error underlying Judge Schopler's analysis recommending denial of its motion. It devotes Part D of its objections brief to two contentions that Judge Schopler erred on the law. (Pl.'s Objs. [Doc. 97] 19:4-21:9.) First, it contends that he applied an inappropriate focus on an absent written instrument. This is without support in the R&R's text. (See R&R [Doc. 95] 5-9.) Second, it argues that the R&R improperly focused on defendant's subjective intent rather than outward manifestations of that intent. This, too, is inconsistent with the language used in the R&R. (See R&R [Doc. 95] 6:24 (discussing "outward manifestations"), 6:26 (discussing "objective manifestations"), 7:16 (same).) Furthermore, even if Plaintiff were correct on either or both of these points, any error would be harmless—its argument as to the existence of a settlement fails on a de novo review.

The R&R is thorough in its consideration of Plaintiff's arguments. Plaintiff spends pages of its motion factually analogizing to the Facebook case, 640 F.3d at 1034. (Defs.' Mot. [Doc. 69] 21-24.) The R&R discusses this notion. (R&R [Doc. 95] 5:20-6:14.) Facebook provides useful legal guideposts, but its facts are not comparable.

In Facebook, the Winklevosses and Facebook entered into a brief, handwritten settlement agreement that obligated Facebook to "determine the form and documentation of the acquisition of ConnectU's shares . . . consistent with a stock and cash for stock acquisition." See 640 F.3d at 1038. The Winklevosses later challenged the settlement, arguing that the missing terms rendered it unenforceable. See id. at 1037-38. The Court disagreed, finding this a valid contractual delegation of important (rather than necessary) terms pursuant to California law. It reasoned that the delegation was not necessary to the agreement and was sufficiently definite because Facebook still had the obligation to act within the covenant of good faith and fair dealing. See id. at 1038. There was never any dispute as to whether parties had purported to enter into a settlement agreement.

Here, by contrast, as described in Part III.A., supra, there was never a settlement. Defense counsel's word choice during the January 13, 2017 conference makes that much transparent. (See Status Conference Transcript [Doc. 61] 3:7-8 ("I'm glad that everyone has agreed on the number."), 4:6 (". . . we have an agreement on the money . . . ."), 4:16-18 ("And I think that will sort of be the next step in resolving the case."), 7:21-22 ("given where we are on the big issue, the money, do we want to -- or, your honor, are we in a position to talk about a stay . . . ."), 8:3-4 ("I don't want to blow that deadline if we're not going to settle the case.") (emphasis added).) Parties that have already settled a case do not contemplate the possibility of not settling it in the future. Plaintiff would have the Court interpret the omission of a purchase agreement as merely a missing important term rather than one necessary to the existence of a settlement, as did the Ninth Circuit looking at the Winklevoss' delegation to Facebook. See Facebook, 640 F.3d at 1038. This is not consistent with the foregoing language. Unlike in Facebook, objective manifestations of defense counsel's understanding of what had taken place demonstrate that he did not perceive that his client had bound itself to a complete resolution as of January 13. See Callie, 829 F.2d at 890; Andrus, 899 F.2d at 759; Cal. Civ. Code § 1550. Plaintiff does not show otherwise. IV. CONCLUSION & ORDER

The three pending motions to file under seal are GRANTED. [Docs. 96, 99, 102.]

Plaintiff's motion is DENIED. [Doc. 66.]

IT IS SO ORDERED. Dated: September 28, 2017

/s/_________

Hon. Thomas J. Whelan

United States District Judge


Summaries of

DK Holdings v. Miva, Inc.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
Sep 28, 2017
Case No.: 16-CV-0580 W (AGS) (S.D. Cal. Sep. 28, 2017)
Case details for

DK Holdings v. Miva, Inc.

Case Details

Full title:DK HOLDINGS, dba DOTCOM HOST, Plaintiff, v. MIVA, INC., et al., Defendants.

Court:UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

Date published: Sep 28, 2017

Citations

Case No.: 16-CV-0580 W (AGS) (S.D. Cal. Sep. 28, 2017)