Opinion
No. 01-2133 GV
June 21, 2002
ORDER GRANTING DEFENDANT'S MOTION TO ENFORCE SETTLEMENT AGREEMENT
Plaintiffs Anglo-Danish Fibre Industries, Ltd. ("ADFIL") and Cemfiber A/S ("Cemfiber") initiated this patent infringement action against defendant Columbian Rope Co. ("Columbian") on February 22, 2001. Columbian asserts that the parties reached a settlement agreement on October 31, 2001. In contrast, ADFIL and Cemfiber contend that no enforceable settlement agreement exists. On March 11, 2002, Columbian filed a motion to enforce the alleged settlement agreement. The court now considers Columbian's motion.
Although the parties now disagree about whether an enforceable settlement agreement exists, the facts are undisputed. Shortly after the scheduling conference on July 11, 2001, counsel for the parties began negotiations to attempt to settle the present action. On August 13, 2001, David Harlow, plaintiffs' counsel, and Dale Lischer, defendant's counsel, had a telephone conversation regarding settlement. On August 14, 2001, Lischer wrote Harlow a letter in which he set forth the proposal they had discussed the day before, involving Columbian's use of two different fibers to avoid infringement of the patent at issue. (Def.'s Mot. to Enforce Settlement Agreement Ex. D.) On September 11, 2001, Harlow responded to this proposal with a counterproposal. Id. Ex. G. Specifically, Harlow disapproved of the two methods Lischer proposed to enable Columbian to avoid infringing the patent, and instead offered three alternative design options. Id. On September 14, 2001, Lischer wrote a letter to Harlow informing him that, since they were unable to agree on alternative design methods, "Columbian Rope Company intends to abandon its concrete fiber business," and proposing a settlement based on this concession. Id. Ex. I. In this same letter, Lischer proposed to settle the litigation by (a) immediately ceasing all manufacture and sales of the fibers subject to the litigation; (b) agreeing to a consent order of validity and infringement of the patent, including an injunction against future manufacture and sale of the subject fibers; and (c) paying plaintiffs $20,000 for attorneys' fees.
On September 28, 2001, Harlow wrote Lischer a letter setting forth in detail a new proposal for settlement. (Def.'s Mot. to Enforce Settlement Agreement Ex. A.) Columbian asserts that this letter contains all of the material terms which ultimately became the completed settlement agreement. This proposal included a consent order of validity and infringement, specific restrictions on the future activities of Columbian, and the payment of ADFIL's reasonable attorneys fees in an amount to be determined by the court. Id. Paragraph 2(a) of the proposal stated that Columbian would discontinue the sale of any fibers for making concrete and would not re-enter the concrete fiber business for a period of at least thirty-six months. Specifically, paragraph 2(a) of Lischer's September 28 letter provides:
That Columbian Rope Company will (i) immediately cease all manufacture and sales of fibers for concrete having a diameter of 30 millimeters or less, (ii) within 90 days of the entry of this order cease all manufacture and sale of fibers for concrete, and (iii) not reenter the business of the manufacture or sale of fibers for concrete for a period of at least 36 months after the entry of the order.
(Def.'s Mot. to Enforce Settlement Agreement Ex. A.) Columbian asserts that, by September 28, 2001, it had ceased the manufacture of any concrete fibers, had sold its fiber manufacturing machinery to an unrelated third party, and, thus, had only a small inventory of the accused fibers.
In response to Harlow's September 28 letter, Lischer wrote a letter to Harlow agreeing to adopt paragraphs 1 and 2(a) of plaintiffs' proposed agreement, but expressing Columbian's concern about the uncertainty of submitting the issue of reasonable attorneys' fees to the court. On October 19, 2001, Harlow responded to Lischer's letter and addressed the unresolved issue of the determination of attorneys' fees, noting that "[i]t appears that we are in agreement as to the basic outline of settlement of above-referenced matter, saving only the issue of reasonable attorneys fees" and that "[c]learly, our clients are far apart on this one issue, but have the matter settled on the substantive issues." On October 29, 2001, the parties resolved the issue of attorneys' fees by agreeing to let the court determine what amount was reasonable. Harlow wrote to Lischer on October 31, 2001, stating that "this will confirm our telephone conversation of Monday, October 29, 2001 that we have reached agreement in principle to settle the above-referenced matter in that we will allow the Judge to be the final arbiter of the amount of attorney fees to be awarded in this matter." Id. Ex. B. Later in the letter, Harlow stated that he would "prepare a draft of settlement documents and forward same on to [Lischer] for review." Id.
On November 28, 2001, Ted Corvette, plaintiffs' counsel, submitted a draft for reducing the settlement agreement to a formal writing. Columbian asserts that although paragraph 4 of this proposed draft was intended to track paragraph 2(a) of Harlow's September 28, 2001 letter, Corvette added language to bind additional third parties to the agreement, including successors of Columbian. Specifically, paragraph 4 of Corvette's November 28, 2001 draft provides that:
Columbian, its predecessors, successors, subsidiaries, affiliates, directors, officers, representatives, employees and agents, agree and covenant that they will (i) immediately cease all manufacture and sale of fibers for concrete having a diameter of 30 microns or less and a length of 30 millimeters of less; (2) within 90 days of the entry of the Final Judgment cease all manufacture and sale of fibers for concrete, and (iii) not reenter the business of the manufacture or sale of fibers for concrete for a period of at least 36 months after the Final Judgment's entry.
(Def.'s Mot. to Enforce Settlement Agreement, Ex. H.) Columbian claims that the issue of successors, with respect to the provision set forth in paragraph 2(a) of the September 28, 2001 letter, had never been discussed prior to Corvette's November 28, 2001 letter, despite Harlow's knowledge that Columbian intended to abandon its concrete fiber business.
On January 7, 2002, Lischer wrote to Harlow and enclosed Columbian's revisions to the draft agreement. The revised agreement removed Corvette's addition of extending the restriction to Columbian's successors, stating in relevant part that:
In lieu of damages for past infringement, Columbian will (i) immediately cease all manufacture and sale of fibers for concrete having a diameter of 30 microns or less and a length of 30 millimeters or less; (ii) within 90 days of the entry of the Interlocutory Consent Judgment cease all manufacture and sale of fibers for concrete, and (iii) not reenter the business of the manufacture of sale of fibers for concrete for a period of at least 36 months after entry of the Interlocutory Consent Judgment.
(Def.'s Mot. to Enforce Settlement Agreement, Ex. C-1.)
On February 20, 2002, during a phone conversation, Corvette informed Lischer that plaintiffs would not finalize the drafts of the settlement agreement unless the restriction regarding ceasing all concrete fiber business was extended to cover other parties, including successors of Columbian; he memorialized this position in a letter dated February 22, 2002. Id. Ex. J. On March 1, 2002, Lischer sent Corvette a letter asserting the existence of a completed and enforceable settlement agreement based on Harlow's September 28, 2001 and October 31, 2001 letters. Id. Ex. K. On March 6, 2002, Corvette responded that Columbian had not been negotiating in good faith because when it stated that it would "abandon" its business, it failed to inform plaintiffs that it had entered into an agreement to sell the assets of its concrete fiber business on September 5, 2001. Id. Ex. L. No official notice of settlement was ever filed with the clerk of this court.
"It is well established that courts retain the inherent power to enforce agreements entered into in settlement of litigation pending before them." Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988) (quoting Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1371 (6th Cir.), cert. denied, 429 U.S. 862 (1976)). This power exists even if the parties' agreement has not been reduced to writing. Therma-Scan Inc. v. Thermoscan Inc., 217 F.3d 414, 419 (6th Cir. 2000) (citations omitted). In enforcing a settlement agreement, a court "must enforce 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. Furthermore, before enforcing the settlement agreement, "the district court must conclude that agreement has been reached on all material terms." Id. If substantial factual disputes exist about the enforceability of settlement agreements, the court must conduct an evidentiary hearing. Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150, 153 (6th Cir. 1992).
Applying these principles to the present case, the court must determine whether Columbian reached an agreement with ADFIL and Cemfiber. If they did reach an agreement, the court must determine the terms of the agreement. Both of these inquiries require an examination of the legal status of settlement agreements. Because settlement agreements are a type of contract, they are governed by contract law. Bamerilease, 958 F.2d at 152. Here, since the settlement agreement that the parties purportedly reached dealt with litigation arising in this court and since neither party contends that the law of any state other than Tennessee should apply, the court determines that Tennessee contractual law governs.
Under Tennessee law, the requirements for a valid contract are well-established:
While a contract may be either expressed or implied, or written or oral, it must result from a meeting of the minds of the parties in mutual assent to the terms, must be based upon a sufficient consideration, free from fraud or undue influences, not against public policy and sufficiently definite to be enforced.
Johnson v. Cent. Nat'l Ins. Co., 356 S.W.2d 277, 281 (Tenn. 1962). The two requirements that are primarily at issue in this case are the necessity for mutual assent, or "meeting of the minds," and the insistence on explicit, decipherable terms. With regard to the first requirement, "[t]he contemplated mutual assent and meeting of the minds cannot be accomplished by the unilateral action of one party, nor can it be accomplished by an ambiguous course of dealing between the two parties from which differing inferences regarding continuation or modification of the original contract might reasonably be drawn." Jamestowne on Signal, Inc. v. First Fed. Say. Loan Assoc., 807 S.W.2d 559, 564 (Tenn.Ct.App. 1991). With regard to the second element, an agreement is not legally enforceable unless the court is able to discern the central terms of the agreement. Higgins v. Oil, Chem. Atomic Workers Int'l Union, Local # 3-677, 811 S.W.2d 875, 880-81 (Tenn. 1991). In Higgins, the Tennesee Supreme Court explained that "even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain." Id. at 881 (quoting Restatement (Second) of Contracts § 33(1)). Terms are not "`reasonably certain' unless they `provide a basis for determining the existence of a breach and for giving an appropriate remedy.'" Id. (quoting Restatement (Second) of Contracts § 33(2)).
In certain situations, determining whether the parties to a settlement agreement reached an agreement on all material terms is a factual issue that requires an evidentiary hearing. Re/Max Int'l, Inc. v. Realty One. Inc., 271 F.3d 633, 646 (6th Cir. 2001). "However, no evidentiary hearing is required where an agreement is clear and unambiguous and no issue of fact is present." Id. Here, since neither party has requested an evidentiary hearing, and since there is substantial written documentation of the parties' communications regarding the settlement agreement, the validity and accuracy of which the parties do not dispute, it is unnecessary for the court to conduct a hearing.
In this case, plaintiffs first argue that Harlow's September 28, 2001 and October 31, 2001 letters do not form the basis of an enforceable settlement agreement because the parties had not reached a definite agreement on the central terms of the agreement. Instead, plaintiffs claim that the included terms in the two letters were "meant to be only a general guideline for settlement." (Pls.' Mem. in Opp. to Def.'s Mot. to Enforce Settlement Agreement at 4.) Upon examination of the written correspondence between the parties' counsel, the court finds that, as of October 31, 2001, the parties had reached an agreement on the central terms of the settlement. In his September 28, 2001 letter, Harlow listed the material terms of settlement, including a consent order of validity and infringement, specific restrictions on the future activities of Columbian, and the payment of ADFIL's reasonable attorneys' fees in an amount to be determined by the court. In response to the September 28, 2001 letter, Lischer wrote a letter to Harlow agreeing to adopt paragraphs 1 and 2(a) of plaintiffs' proposed agreement, but expressing Columbian's concern about the uncertainty of submitting the issue of reasonable attorneys fees to the court. On October 19, 2001, Harlow responded to Lischer's letter and addressed the unresolved issue of the determination of attorneys' fees, noting that "[i]t appears that we are in agreement as to the basic outline of settlement of above-referenced matter, saving only the issue of reasonable attorneys fees" and that "[c]learly, our clients are far apart on this one issue, but have the matter settled on the substantive issues." On October 29, 2001, the parties resolved the issue of attorneys fees by agreeing to let the court determine what amount was reasonable. During this conversation, Columbian agreed to the proposed agreement set forth in the September 28, 2001 agreement without change. Harlow wrote Lischer a letter on October 31, 2001, stating that "this will confirm our telephone conversation of Monday, October 29, 2001 that we have reached agreement in principle to settle the above-referenced matter in that we will allow the Judge to be the final arbiter of the amount of attorney fees to be awarded in this matter." Id. Ex. B. Later in the letter, Harlow stated that he would "prepare a draft of settlement documents and forward same on to [Lischer] for review." Id. It is clear from the language used by Harlow in these communications that, as of October 31, 2001, the parties had reached an agreement as to the substantive terms of the agreement. Since the terms agreed upon by the parties are sufficiently definite to be enforced, the court rejects plaintiffs' argument that the communications between Harlow and Lischer were merely preliminary negotiations.
Plaintiffs next argue that, as of October 31, 2001, no enforceable settlement agreement existed because there was no meeting of the minds on the terms of the agreement. Specifically, plaintiffs contend that, with respect to paragraph 2(a) of the proposed settlement agreement as set forth in Harlow's September 28 letter, they intended the concrete manufacture and sale restriction to extend to Columbian's successors in interest. Since Columbian did not intend the restriction to include successors in interest, plaintiffs reason that there was no mutual assent as to that material term, and, thus, there exists no enforceable settlement agreement. Paragraph 2(a) provides:
That Columbian Rope Company will (i) immediately cease all manufacture and sales of fibers for concrete having a diameter of 30 millimeters or less, (ii) within 90 days of the entry of this order cease all manufacture and sale of fibers for concrete, and (iii) not reenter the business of the manufacture or sale of fibers for concrete for a period of at least 36 months after the entry of the order.
Although plaintiffs concede that the language of the provision does not explicitly extend the restriction to Columbian's successors, they argue that they did not include such language because Columbian had informed them in its September 14, 2001 letter that it would "abandon its concrete fiber business." Plaintiffs claim that, as a result of this statement, they assumed that Columbian would not be selling its business to a third party. Thus, they claim that they failed to include language explicitly extending the restriction to successors because they thought it was unnecessary. Despite the absence of an express provision, plaintiffs assert that their intention was to include any successors; since Columbian did not intend to include successors, they argue that there was no mutual assent on this material term of the settlement agreement.
The court finds plaintiffs' argument unpersuasive. The language of the proposed settlement agreement as set forth in Harlow's September 28, 2001 clearly and unambiguously states that "Columbian Rope Company will . . . not reenter the business of the manufacture or sale of fibers for concrete for a period of at least 36 months from the entry of the order." (Def.'s Mot. to Enforce Settlement Agreement, Ex. A.) This explicit language does not permit an inference that plaintiffs intended to extend this restriction to Columbian's successors. Although plaintiffs argue that Columbian should have known that they intended to bind Columbian's successors, the court finds this contention unconvincing in light of the express language written by plaintiffs' own lawyer in addition to the fact that Columbian had informed plaintiffs in a letter dated September 14, 2001 of its "inten[t] to abandon its concrete fiber business." Id. Ex. I. Accordingly, the court finds that, as memorialized by Harlow's September 28, 2001 and October 31, 2001 letters, there was a meeting of the minds between the parties on the central terms of the settlement agreement.
The court now turns to plaintiffs' contention that, even if Harlow's September 28, 2001 and October 31, 2001 letters gave rise to a settlement agreement, Harlow did not have the authority to bind plaintiffs to any agreement which did not extend the agreed upon restrictions to Columbian's successors. The court finds this argument to be without merit. In their response to Columbian's motion to enforce the settlement agreement, plaintiffs offer no evidence or even clarification to support their general assertion that "Mr. Harlow had no express authority to agree to a settlement that did not bind Defendant's successors in interest." (Mem. of Law in Opp. to Def.'s Mot. to Enforce Settlement Agreement at 9.) Significantly, plaintiffs do not contend that Harlow lacked authority to enter into a settlement agreement on their behalf, but rather assert only that he could not enter into an agreement that did not include a specific term. Since plaintiffs have failed to point to any evidence that Harlow had limited authority to enter into a settlement agreement on behalf of his client, the court rejects their argument that Harlow lacked authority to bind them to the settlement agreement with Columbian.
Finally, plaintiffs assert that this court lacks authority to enforce the settlement agreement because plaintiffs have withdrawn any assent to the settlement. To support their position, plaintiffs direct the court to the Tennessee Court of Appeals' holding in Environmental Abatement, Inc. v. Astrum R.E. Corp., 27 S.W.3d 530, 539 (Tenn.Ct.App. 2000). Environmental Abatement holds that a court may not enter judgment based on a settlement agreement when it has notice that one of the parties has withdrawn its assent to the agreement. However, the Court of Appeals emphasized that its holding applies only to an entry of a consent judgment, stating that its analysis "is not to say that the compromise agreement may not be a binding contract, subject to being enforced as other contracts. . . ." Id. In the present case, since Columbian asks the court to enforce the settlement agreement rather than to enter a consent judgment, the withdrawal of plaintiffs' assent to the terms of the agreement does not affect the enforceability of the settlement agreement.
For these reasons, the court finds that the parties reached a valid settlement agreement, as memorialized by Harlow's October 31, 2001 letter, and that the agreement does not include restrictions on Columbian's successors. In accordance with the preceding discussion and analysis, Columbian's motion to enforce the settlement agreement as set forth in Harlow's September 28, 2001 and October 31, 2001 letters is granted.
IT IS SO ORDERED.