Opinion
4:20-cv-00087-SHL
2021-10-15
EMORY INDUSTRIAL SERVICES, INC., Plaintiff, v. Jeffrey STEWART, Joshua Stewart, and Galaxy Resources, Inc., Defendants
Christopher Allen Kreuder, Faegre Drinker Biddle & Reath LLP, Des Moines, IA, Sean R. Somermeyer, Pro Hac Vice, Faegre Drinker Biddle & Reath LLP, Minneapolis, MN, for Plaintiff. Matthew Sean Brick, Brick Gentry, P.C., West Des Moines, IA, Benjamin R. Merrill, Ryan Connor Shellady, Thomas D. Story, Brown Winick Law Firm, Des Moines, IA, for Defendant Jeffrey Stewart. Matthew Sean Brick, Brick Gentry, P.C., Benjamin R. Merrill, Thomas D. Story, Brown Winick Law Firm, Des Moines, IA, for Defendants Joshua Stewart, Galaxy Resources, Inc.
Christopher Allen Kreuder, Faegre Drinker Biddle & Reath LLP, Des Moines, IA, Sean R. Somermeyer, Pro Hac Vice, Faegre Drinker Biddle & Reath LLP, Minneapolis, MN, for Plaintiff.
Matthew Sean Brick, Brick Gentry, P.C., West Des Moines, IA, Benjamin R. Merrill, Ryan Connor Shellady, Thomas D. Story, Brown Winick Law Firm, Des Moines, IA, for Defendant Jeffrey Stewart.
Matthew Sean Brick, Brick Gentry, P.C., Benjamin R. Merrill, Thomas D. Story, Brown Winick Law Firm, Des Moines, IA, for Defendants Joshua Stewart, Galaxy Resources, Inc.
ORDER ON PLAINTIFF'S MOTION TO ENFORCE SETTLEMENT AGREEMENT
Stephen H. Locher, UNITED STATES MAGISTRATE JUDGE
I. INTRODUCTION
On April 28, 2021, the parties jointly reported to the Court that this case had settled. (ECF 66.) However, they never reduced the settlement to a final writing, and a dispute has now arisen over whether an enforceable agreement exists. Defendants argue the agreement they reached in April was, at most, an unenforceable "agreement to agree." Plaintiff, by contrast, contends the parties had a binding agreement as of April 13, 2021, and moves the Court to enforce it.
For reasons set forth below, the Court concludes the parties did not intend to have a binding agreement until it was reduced to a final writing—which never occurred. The Court therefore DENIES Plaintiff's Motion to Enforce Settlement Agreement.
II. BACKGROUND
As it relates to the underlying dispute between the parties, the background information in this Order comes from the allegations in Plaintiff's Amended Complaint and is meant solely to provide context—not as findings of fact.
Plaintiff Emory Industrial Services, Inc. ("Emory") is a Delaware corporation with its principal place of business in Des Moines, Iowa. (ECF 9 ¶ 4.) Emory provides dry ice blasting equipment cleaning service to oil and gas producers. (Id. ¶¶ 18-24.) In Fall 2018, Defendant Jeffrey Stewart reached out to Emory's Chief Operating Officer about purchasing blasting dry ice from the company so he could start his own dry ice blasting services company. (Id.) Instead of forming his own dry ice blasting company, Jeffrey and Emory came to an agreement for him and his son, Defendant Joshua Stewart, to join Emory's managerial staff. (Id.) Joshua and Jeffrey Stewart are both citizens of North Dakota. (Id. ¶¶ 5-6.) They were hired as Vice-President of Operations (Oil and Gas Division) and Vice-President of Business Development, respectively. (Id. ¶¶ 23-27.) Each of them signed an employment contract containing restrictive covenants. (Id. ¶¶ 28-37.) The restrictive covenants prohibited the Stewarts from competing with Emory for two years; using or disclosing Emory's confidential information; and soliciting Emory's employees, contractors, or its customers. (Id.)
In March 2019, Articles of Incorporation for Defendant Galaxy Resources ("Galaxy") were filed with the North Dakota Secretary of State. (Id. ¶¶ 52-55.) Galaxy's registered agent is Jeffrey Stewart's wife. (Id.) Emory alleges the Stewarts formed Galaxy while still employed with Emory and exploited their respective positions at Emory for the benefit of themselves and Galaxy. (Id. ¶¶ 56-66.) Emory alleges the Stewarts and Galaxy unfairly competed with Emory in several ways, including making false statements about Emory going out of business and/or changing its name to Galaxy; poaching Emory's current employees; and poaching Emory's clients. (Id. ¶¶ 82-95.) Emory demanded the Stewarts cease these actions and return confidential and proprietary information. (Id.) The Stewarts refused, which led to the filing of the present lawsuit. Emory brought claims for breach of contract; tortious interference with contract; breach of duty of loyalty; misappropriation of trade secrets; unfair competition; defamation/libel/slander; conversion; breach of agency duty; unjust enrichment; and civil conspiracy. (Id. ¶¶ 96-169.)
B. Litigation.
The Court denied a pre-answer Motion to Dismiss for Lack of Jurisdiction. (ECF 16, 19, 20.) Discovery then commenced. On February 19, 2021, Emory filed a motion to compel the production of documents and requested third-party imaging of Defendants' electronic devices. (ECF 46.) The Court granted Emory's motion in part on March 24, 2021. (ECF 54.) Defendants ultimately agreed to: (a) search their electronic devices by applying Emory's search terms and produce all responsive documents; (b) provide necessary consent for Emory to obtain their text messages from Verizon Wireless; (c) produce emails exchanged with specific email accounts; and (d) produce other specified documents. (ECF 61, ¶¶ 22-25.) During a discovery conference on April 8, 2021, the Court set deadlines of April 14 and April 16, 2021, for Defendants to fulfill certain discovery obligations. (ECF 62.)
On April 28, 2021, the parties filed a Joint Agenda and Motion to Adjourn Status Conference informing the Court the case had settled and describing certain settlement terms. (ECF 66.) The Joint Agenda stated, in part:
Following the Status Conference held April 8, 2021, the parties continued their settlement negotiations, and they have agreed to terms of settlement. In partial consideration for the dismissal of Emory's claims against the Defendants, the parties have agreed to the Court's entry of a Consent Decree restricting Defendants from soliciting or conducting business with certain customers of Plaintiff. The Consent Decree will only speak to the issue of the restriction on the Defendants from soliciting or conducting business with these previously identified customers.
(ECF 66, ¶¶ 1, 2.)
Due to the notice of settlement, the Court stayed all remaining case deadlines and ordered the parties to file closing documents by June 4, 2021. (ECF 67.) On three subsequent occasions, the Court granted unresisted motions for extensions of the closing document deadline. (ECF 70, 72, 74.) On July 9, 2021, the parties filed a joint motion for further extension of the closing document deadline. (ECF 76.) The joint motion stated, in part:
The parties have continued to work together to finalize their settlement agreement, which include[s] a consent decree to be entered by the Court, a confession of judgment, and the settlement agreement itself. As such, the parties must agree on specific language for each document. The parties have continued to work on the necessary settlement documentation, and though progress has been made, certain terms still remain to be negotiated and resolved.
(Id., ¶ 3.) The Court granted the joint motion, as well as another request for extension filed on July 21, 2021. (ECF 78, 79.)
By late July 2021, it became clear that an intractable dispute had arisen regarding settlement. On July 29, 2021, Defendants' original counsel moved to withdraw. (ECF 81.) On July 30, 2021, Emory filed a resistance to the motion to withdraw and asserted its position that the parties had a binding agreement. (ECF 85.) On August 18, 2021, Emory filed the instant Motion to Enforce Settlement Agreement (the "Motion to Enforce"). (ECF 91-94.) Defendants resist the Motion to Enforce. (ECF 103, 104.) The Court held a hearing on October 5, 2021 (ECF 116), during which both sides agreed there were no factual disputes that needed to be resolved. The Court agrees the dispute can be decided as a matter of law on the undisputed facts reflected in the parties' briefs and exhibits.
C. Settlement Negotiations.
The alleged settlement agreement arises out of emails between counsel for the parties in April 2021. The relevant communications began on April 5, 2021, when then-counsel for Defendants emailed Emory's counsel stating: "I have been in touch further with my clients today. They have asked me to re-engage you and your client for settlement discussions." The email went on to list three proposed terms of settlement :
The parties filed their respective settlement communications and briefs under seal on the basis that they contained confidential information. The unsealed (i.e., public) version of this Order will redact portions of these communications to the extent necessary to protect information the Court agrees is legitimately non-public. The sealed version of this Order will be unredacted.
[redacted]
(ECF 94, Ex. A, p. 5 (SEALED).) In a subsequent email, Defendants' counsel stated the duration of the non-compete would be three years "from the date of a settlement." (Id., Ex. A, p. 4.).
On April 7, 2021, Emory's counsel sent an email with a counteroffer containing six bullet-pointed items, the first of which was that the "36-month non-compete/non-solicitation described by your offer will be effectuated by consent decree." (ECF 94, Ex. A., p. 3.) The other five bullet points addressed mutual releases, the scope of the restrictive covenant and the size of the proposed cash payment, as well as Emory's demand for the cash payment to be secured by a confession of judgment that would accelerate in the event of non-payment. (Id.) This email prompted additional correspondence, starting with then-counsel for Defendants requesting clarification on April 8, 2021, regarding the scope of the non-compete and the identity of the customers who would be off-limits. (Id., pp. 1-3.) Plaintiff's counsel responded the same day to provide the requested clarification. (Id., p. 1.)
On April 12, 2021, Defendants' then-counsel sent the following email:
[redacted]
(ECF 86, Ex. A, pp. 3-4. (SEALED).) The following day, April 13, 2021, Emory's counsel sent an email stating: "Ben – The terms that you describe in your email, interpreted in light of our prior email correspondence, are acceptable to Emory." (ECF 86, Ex. A, p. 1.)
On April 14, 2021, Emory's counsel emailed Defendants' then-counsel again, stating: "Ben – Can you confirm your understanding that the parties have reached a settlement agreement, subject to the execution of a final written settlement agreement on the below terms, so that I can move forward with cancelling the depositions of Masset and McCormick? Thank you, Chris." (ECF 86, Ex. A, p. 1.) Defendants' counsel responded the same day: "Yes. Confirmed." (Id.)
In subsequent weeks and months, the parties endeavored to draft the final written settlement agreement, confession of judgment, and consent decree. (See generally ECF 104-2.) The draft documents consistently included the six bullet-point items from the email exchange between counsel on April 12 and 13, 2021. (E.g. , ECF 104-2, pp. 18-24, 32-38.) The drafts also, however, included many issues not addressed in the email correspondence; for example, proposed confidentiality and non-disparagement provisions were added to the draft Settlement Agreement and Release at some point in the process. (Compare ECF 104-2, p. 21 (no confidentiality or non-disparagement provisions), with ECF 104-2, p. 35 (including such provisions).) Similarly, a one-way attorney's fee provision was included in one draft of the Settlement Agreement and Release but not another. (Id.)
An email from Emory's counsel dated July 9, 2021, exemplifies the parties' ongoing negotiations over the language of the draft documents. (ECF 104-2, p. 5.) Emory's counsel explained that the newest versions "include several changes that we have already discussed," including modifications to the factual recitals, the scope of the non-disparagement and confidentiality provisions, and the scope of the prohibition on competition. (Id.) Emory's counsel said Emory would insist that the confession of judgment be "uncaptioned" so that "entry may be made in either federal or state court." (Id.) Emory also insisted "that it be entitled to attorneys' fees for enforcement of the confession of judgment." (Id.) Emory's counsel email explained that attorney's fees "are routine, if not universal, in confessions of judgment." (Id.) He concluded the email by stating: "I would like to discuss with you how close we are to an agreement, if possible, before requesting additional time from the Court." (Id.)
III. LEGAL ANALYSIS
A. Legal Standards and Principles.
The parties agree this case is governed by Iowa law. See Harper Enters., Inc. v. Aprilia World Serv. USA, Inc. , 270 F. App'x 458, 460 (8th Cir. 2008) ("[I]n a diversity case, the settlement agreement is construed according to state law."). Under Iowa law, questions surrounding the creation and interpretation of a settlement agreement are determined by general principles of contract law. Sierra Club v. Wayne Weber, LLC , 689 N.W.2d 696, 702 (Iowa 2004). "In order to be bound, the contracting parties must manifest their mutual assent to the terms sought to be enforced." Id. "[T]he burden of proof as to settlement is upon the party alleging same and such burden never shifts." Atl. Veneer Corp. v. Sears , 232 N.W.2d 499, 504 (Iowa 1975) (citing Iowa cases). As Emory seeks to enforce the purported settlement agreement, it bears the burden of proving a binding agreement exists. Id.
For a settlement agreement to be binding, there must be an offer, acceptance, and "a meeting of the minds regarding the terms of the agreement." Estate of Cox v. Dunakey & Klatt, P.C. , 893 N.W.2d 295, 302 (Iowa 2017) (quoting 15A C.J.S. Compromise and Settlement § 21, at 96 (2012) ). To establish a meeting of the minds, or mutual assent, "the contract terms must be sufficiently definite for the court to determine the duty of each party and the conditions of performance." Royal Indem. Co. v. Factory Mut. Ins. Co. , 786 N.W.2d 839, 846 (Iowa 2010) (citing Seastrom v. Farm Bureau Life Ins. Co. , 601 N.W.2d 339, 346 (Iowa 1999) ). "An ‘agreement to agree to enter into a contract is of no effect unless all of the terms and conditions of the contract are agreed on and nothing is left to future negotiations.’ " Scott v. Grinnell Mut. Reinsurance Co. , 653 N.W.2d 556, 562 (Iowa 2002) (quoting Crowe–Thomas Consulting Group, Inc. v. Fresh Pak Candy Co. , 494 N.W.2d 442, 444–45 (Iowa Ct. App. 1992) ).
This case rests on the border of two distinct, but related, issues: (a) whether the parties exchanged written or oral communications that establish the material terms of settlement; and (b) if so, whether the parties mutually intended those communications to create a binding agreement even before written documents were drafted, finalized, and executed. As the Iowa Supreme Court has explained, "[e]ven though the terms of an agreement may be definitely fixed, an oral contract will not be upheld if the parties did not intend to be bound until the agreement was reduced to writing." Recker v. Gustafson , 279 N.W.2d 744, 750 (Iowa 1979) ; see also First Am. Bank v. Urbandale Laser Wash, LLC , 874 N.W.2d 650, 657 n.4 (Iowa Ct. App. 2015). "A writing that clearly contemplates the subsequent execution of a formal agreement raises the inference that the parties to the writing did not intend to be bound until the subsequent formal agreement is finalized." First Am. Bank , 874 N.W.2d at 657 n.4. Accordingly, "an email that contemplates the subsequent execution of a written formal agreement would not be binding." Id.
Recker lists many factors for courts to consider in determining whether parties intended to be bound before an agreement was reduced to final writing, including: (1) whether the contract is of a type usually in writing; (2) whether it is of a type that needs a formal writing for its full expression; (3) whether it has few or many details; (4) whether the amount is large or small; (5) whether the contract is "common or unusual"; (6) whether all details have been agreed upon or some unresolved; and (7) whether the negotiations show a writing was discussed or contemplated. Recker , 279 N.W.2d at 750—51 (citing Severson v. Elberon Elevator, Inc. , 250 N.W.2d 417, 420 (Iowa 1977) ). (As shorthand, the Court will refer to these as the "enumerated Recker factors.")
Similar factors are found in the Restatement (Second) of Contracts, § 27 (1981), which courts applying Iowa law have sometimes cited and applied. See, e.g., Andersen Invs., LLC v. Factory Card Outlet of Am., Ltd. , 630 F. Supp. 2d 1030, 1038—41 (S.D. Iowa 2009).
Recker further makes clear that courts should consider whether the parties acted as if they had a binding agreement even before it was reduced to writing. See id. at 751 (analyzing whether a party's statements and behavior were "consistent with that of a man who believes he has [entered a binding agreement]"). (The Court will refer to this as the "extra Recker factor.") Subsequent cases applying Iowa and similar law reiterate the importance of the extra Recker factor in determining whether an agreement is enforceable despite not being reduced to a final writing. See, e.g., Horsfield Const., Inc. v. Dubuque Cty., Iowa , 653 N.W.2d 563, 572 (Iowa 2002) (finding binding agreement where one party's statements "left no doubt that it believed an agreement had been reached" and the other party took action indicating similar belief); Faught v. Budlong , 540 N.W.2d 33, 40 (Iowa 1995) (finding no binding agreement where the parties "continued to correspond in writing and by telephone well beyond the date the Faughts claim an agreement was reached. These continued negotiations belie the existence of a final binding agreement ..."); Schaller Tel. Co. v. Golden Sky Sys., Inc. , 298 F.3d 736, 745 (8th Cir. 2002) (finding no binding agreement where parties continued to exchange drafts and negotiate fundamental terms after oral agreement allegedly was consummated); Kopple v. Schick Farms, Ltd. , 447 F. Supp. 2d 965, 981 (N.D. Iowa 2006) (finding no binding agreement where correspondence between parties made no reference to an "oral contract" and neither party "took actions in reliance on the purported oral agreement").
B. Application of Law to Facts.
Although the April 2021 emails arguably establish the material terms of settlement, Emory has not presented sufficient evidence that either side intended to be bound before their agreement was reduced to writing. Instead, the undisputed facts show the contrary: the parties did not expect or intend to be bound until final documents were drafted and signed. The Court therefore concludes no binding and enforceable settlement agreement exists under Iowa law.
1. Most Enumerated Recker Factors Weigh in Favor of Concluding the Parties Did Not Intend to Be Bound Prior to Finalizing Written Agreements.
Most of the enumerated Recker factors demonstrate the parties did not intend to be bound until documents were finalized. For example, the terms of settlement included the drafting a confession of judgment, proposed consent decree, and joint motion to the Court for entry of the consent decree. These requirements obviously could not be effectuated except in a subsequent writing, and thus the parties' agreement is, by definition, of a class usually found to be in writing and needing a formal writing for its full expression. See, e.g., Andersen Invs. , 630 F.Supp.2d at 1039 (finding these factors to weigh against a binding agreement where both sides clearly contemplated a final agreement in writing); Cont'l Lab's, Inc. v. Scott Paper Co. , 759 F. Supp. 538, 540 (S.D. Iowa 1990) (same). Similarly, given the need for a written consent decree and confession of judgment to complete the settlement, the negotiations clearly show a writing was discussed or contemplated. See id. The first, second, and seventh enumerated Recker factors therefore weigh heavily in favor of concluding the parties did not intend to be bound until the agreement was reduced to writing. See id.
Although not quite as heavily, the sixth enumerated Recker factor, "whether all details have been agreed upon or some unresolved," also weighs against finding an enforceable agreement. The parties' email negotiations up to April 13, 2021, were fairly comprehensive and went into detail as to the terms of the parties' agreement in principle. However, communications subsequent to April 13, 2021, reflect at least five new issues not addressed in earlier negotiations: (1) an exception to the restrictive covenants to allow Defendants to contact otherwise-forbidden customers if Emory became unable to work with them (ECF 104-2, pp. 9—11); (2) the inclusion of a confidentiality provision in the Settlement Agreement and Release (id., p. 9); (3) the inclusion of a non-disparagement provision in the Settlement Agreement and Release (id.); (4) the inclusion of a one-way fee-shifting provision in the proposed consent decree (id., p. 5); and (5) the drafting of an "uncaptioned" confession of judgment that could be enforced in either state or federal court (id.). Emory characterizes issue (1) as an attempt by Defendants to "amend" the parties' agreement, but the raising of new issues was not an isolated occurrence or unique to Defendants. Both sides attempted to supplement the terms set forth in the April 2021 emails in subsequent correspondence. It follows that both sides believed the April 2021 emails to be merely preliminary, not binding and enforceable. See Faught , 540 N.W.2d at 40 ("These continued negotiations belie the existence of a final binding agreement ..."); Kopple , 447 F. Supp. 2d at 977 (finding no binding agreement where many terms and conditions were subject to subsequent negotiation).
With respect to the fifth enumerated Recker factor, whether the putative agreement is "common or unusual," the Court concludes that an agreement that includes a consent decree and uncaptioned confession of judgment (enforceable in state or federal court) is more "unusual" than "common." This factor therefore weighs slightly in favor of concluding that no enforceable agreement exists.
The remaining enumerated Recker factors are either neutral or difficult to apply in the current context. Whether the agreement "has few or many details," for example, does not lead the Court toward any particular conclusion as to whether an enforceable agreement exists. The putative agreement has "many details" (e.g., cash payments, restrictive covenants, mutual releases, and consent decree), but most of them were already addressed to some degree in writing by April 13, 2021. This factor therefore does not weigh for or against finding an enforceable agreement. Similarly, "whether the amount is large or small" is a difficult factor to apply and not worthy of significant weight. In comparison to other federal cases between private parties, the amount at issue in the parties' putative agreement is relatively small. To a small business like Defendant Galaxy Resources, however, the amount may be quite significant—not to mention that the restrictive covenants also presumably have substantial value. In the present context, the Court does not find this factor useful in determining whether an enforceable agreement exists.
In sum, the Court concludes that most of the enumerated Recker factors support Defendants' position that the parties did not enter a binding and enforceable agreement. The remaining enumerated Recker factors are essentially neutral.
2. The Extra Recker Factor Weighs in Favor of Concluding the Parties Did Not Intend to Be Bound Prior to Finalizing Written Agreements.
The extra Recker factor—whether the parties acted as if they had a binding agreement—reinforces the conclusion the parties did not intend to enter a binding agreement on April 13, 2021. On April 14, 2021, Emory's counsel emailed Defendants' then-counsel to ask for confirmation that the parties "have reached a settlement agreement, subject to the execution of a final written settlement agreement on the below terms ..." (ECF 86, Ex. A, p. 1 (emphasis added).) The "subject to" language undermines Emory's current position that the parties already had a binding agreement even before reducing it to writing; indeed, as noted above, the parties spent weeks negotiating the language of the settlement agreement, consent decree, and confession of judgment. See Waldner v. Carr , 618 F.3d 838, 851 (8th Cir. 2010) (applying Iowa law) ("[E]ven if the oral agreement contained terms that were sufficiently complete, the parties clearly anticipated further negotiations prior to finalizing the contract."); Andersen Invs. , 630 F.Supp.2d at 1034 (concluding oral agreement was not binding where parties agreed it was "subject to ... the negotiation and the execution of a mutually acceptable lease ..."); Kopple , 447 F. Supp. 2d at 977 (no binding agreement where letter of intent required deposit of earnest money "upon execution of the final contract").
Moreover, the draft documents prepared by the parties consistently proposed that the three-year covenants not to compete or solicit would run "from the date of the Consent Judgment," which, of course, had not been drafted or entered as of April 13, 2021. (See ECF 104-2, pp. 48, 61; id. , p. 77 (draft Consent Judgment and Injunction Order proposing an injunction "[f]or a period of three (3) years from the date of the entry of this Consent Judgment").) If the parties believed they already had a binding agreement as of April 13, 2021, they would have drafted three-year restrictive covenants running from that date, not the later date of entry of a Consent Judgment.
Emory's Motion to Enforce implicitly recognizes the problem with the effective date of the restrictive covenants. It asks the Court to enforce three-year restrictive covenants effective April 13, 2021, but this is, in effect, a request for the Court to enforce a settlement term that is different than what Emory and Defendants proposed in their draft agreements. The Court cannot enforce a provision different than what the parties themselves believed was the deal.
The parties' communications to each other and statements in Court filings further illustrate their belief they did not have a binding agreement prior to finalizing written documents. On July 9, 2021, Emory's counsel sent an email to Defendants' then-counsel attaching revised settlement documents and discussing many unresolved issues. (ECF 104-2, p. 5.) Counsel concluded the email by stating: "I would like to discuss with you how close we are to an agreement , if possible, before requesting additional time from the Court." (Id. (emphasis added).) Later the same day, the parties filed a joint motion to the Court stating they "have continued to work on the necessary settlement documentation, and though progress has been made, certain terms still remain to be negotiated and resolved ." (ECF 76, ¶ 3 (emphasis added).) These statements illustrate the parties' mutual belief there was not a binding agreement as of April 13, 2021. See Faught , 540 N.W.2d at 40 ; Waldner , 618 F.3d at 851 ; Andersen Invs. , 630 F.Supp.2d at 1034 ; Kopple , 447 F. Supp. 2d at 977.
3. The Cases Cited by Emory Do Not Support Its Conclusion that the Parties Reached a Binding and Enforceable Agreement.
Against the backdrop of facts and law described above, Emory cites a handful of cases in which courts found enforceable agreements to exist despite the parties' failure to prepare a final writing. These cases are distinguishable.
Emory relies, for example, on Matter of Guardianship & Conservatorship of Price , 571 N.W.2d 214, 216 (Iowa Ct. App. 1997), for the proposition that the "only required elements of a binding contract are mutual assent to the contractual terms manifested by an offer and acceptance." This is an incomplete statement of law. In Recker and Faught (among other cases), the Iowa Supreme Court made clear that offer and acceptance alone will not make a binding contract "if the parties did not intend to be bound until the agreement was reduced to writing." Recker , 279 N.W.2d at 750 ; accord Faught , 540 N.W.2d at 35 ("On the other hand, if 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."). Moreover, the Iowa Court of Appeals found a binding agreement in Price in part because the parties had already performed under the agreement's terms for roughly 15 months. 571 N.W.2d at 216 (finding binding agreement where both sides "performed their respective duties" from November 1993 to February 1995). No similar facts are present here.
Similarly, in McCarter v. Uban , 166 N.W.2d 910, 912—15 (Iowa 1969), a landlord and tenant reached an oral agreement for a ten-year lease, following which the tenant occupied the land for four-and-one-half years, paid the agreed-upon rent, and spent thousands of dollars installing tanks. The Court concluded the agreement was binding for the full ten years notwithstanding the fact it was never reduced to a final writing. See id. at 914 ("The only reasonable inference that can be drawn from the facts and surrounding circumstances is that a complete agreement was consummated the night before appellant placed his improvements in and on the premises, and that the reduction to writing was intended only as a memorial."); see also W. Thrift & Loan Corp. v. Rucci , 812 F.3d 722, 725 (8th Cir. 2016) (enforcing oral agreement because Defendant confirmed on the record that he "understood the agreement did not need to be memorialized to be enforceable"). Here, by contrast, there was no performance or indication from the parties that the agreements were binding before being reduced to writing; to the contrary, Emory and Defendants negotiated the draft agreements as if they would not become effective until finalized and signed. The Court must give effect to the parties' intent.
Gilbride v. Trunnelle , 620 N.W.2d 244 (Iowa 2000), also does not support Emory's position. In Gilbride , the primary issue in dispute was whether an attorney had authority from his client to settle a case, not whether the parties intended to be bound before a final writing. The situation here is the opposite: no one disputes the authority of Defendants' then-counsel to negotiate on their behalf, but those authorized negotiations did not reflect the parties' intent to be bound before a final writing. It follows that Gilbride is not on point.
The case cited by Emory that comes closest to hitting the mark is Wende v. Orv Rocker Ford Lincoln Mercury, Inc. , 530 N.W.2d 92, 95 (Iowa Ct. App. 1995), in which plaintiff's counsel communicated a settlement offer to defense counsel, which defense counsel accepted. Before final settlement documents were executed, plaintiff's counsel informed defense counsel the plaintiff "was withdrawing her settlement proposals." Id. at 94. The Iowa Court of Appeals held the settlement agreement was binding and enforceable despite the failure to complete a writing. Id.
The problem with Emory's reliance on Wende is twofold. First, although the Iowa Court of Appeals relied upon the "written motion, resistance, attachments, and a professional statement by [plaintiff's counsel]" in concluding that a binding agreement existed, the opinion contains very little information about the substance of those documents. It is therefore impossible for this Court to determine whether Wende is factually similar to the present case.
Second, even if it is factually similar, the Court could not follow Wende given the presence of on-point Iowa Supreme Court precedent on the same issue—i.e., cases holding that an enforceable agreement does not exist when parties intend not to be bound until a final writing is prepared. This Court, sitting in diversity, "must follow state law as announced by the highest court in the state." Caldwell v. TACC Corp. , 423 F.3d 784, 788 (8th Cir. 2005) (internal punctuation omitted). If there is inconsistency between decisions of the Iowa Supreme Court and Iowa Court of Appeals on an issue of Iowa law, this Court is "obliged to follow controlling decisions of the highest court of the State rather than inconsistent rulings of an intermediate appellate court." Dunne v. Libbra , 448 F.3d 1024, 1027 (8th Cir. 2006). As Recker , Faught , and similar cases make clear the Iowa Supreme Court will not enforce an agreement if the parties did not intend to be bound until it is reduced to writing, the Court cannot rely on the Iowa Court of Appeals' opinion in Wende to reach a contrary conclusion.
For these reasons, the authority cited by Emory does not support the conclusion that the parties had a binding and enforceable agreement prior to reducing it to a final writing. Instead, the on-point authority is clear: no binding and enforceable agreement exists. See Faught , 540 N.W.2d at 40 ; Waldner , 618 F.3d at 851 ; Andersen Invs. , 630 F.Supp.2d at 1034 ; Kopple , 447 F. Supp. 2d at 977.
4. The Court Cannot Enforce Parts of the Putative Settlement Agreement in the Absence of a Final Writing.
Emory's final argument, which it asserted during the hearing, is essentially that the Court should enforce certain aspects of the putative agreement but not the parts that required further writing. For example, Emory argues the Court should force Defendants to make cash payments and comply with restrictive covenants but not require the entry of a consent decree or confession of judgment to effectuate those obligations.
There is nothing in the April 2021 emails to suggest the parties intended a piecemeal settlement in which the payment obligation and restrictive covenants would become binding immediately, but the confession of judgment and consent decree would become part of the agreement only upon completion of additional negotiations. Instead, by Emory's own words and conduct, the confession of judgment and consent decree were essential terms of a single, fully integrated settlement. (See ECF 94, Ex. A., p. 3 ("The 36-month non-compete/non-solicitation described by your offer will be effectuated by consent decree ... Payment will be secured by a confession of judgment jointly and severally against each Defendant.").) There was no agreement without them.
Emory has not cited, and the Court is not aware of, any authority under Iowa law allowing a court to bind parties to isolated terms of a larger putative agreement in circumstances like those present here. The Court therefore rejects Emory's position that the Court should enforce the payment and restrictive covenant obligations.
IV. CONCLUSION AND FURTHER PROCEEDINGS.
For reasons explained above, the Court DENIES Emory's Motion to Enforce Settlement Agreement.
At the time of the settlement negotiations that eventually led to the instant motion practice, the parties were nearing the end of discovery, although there were certain issues with Defendants' production of documents and information that had not yet been resolved. (See generally ECF 61, ¶¶ 22-25; ECF 62.) Emory has expressed concerns, which the Court finds legitimate, that the delay caused by the parties' failure to reduce their agreement in principle to a binding and enforceable agreement may cause Emory prejudice. To help prevent or mitigate this prejudice, the Court ORDERS the following deadlines:
- October 25, 2021: Defendants must complete the process of providing clear answers to the questions and issues raised in Paragraph 24 of the Parties' Status Report and Joint Agenda for April 8, 2021 Status Conference (the "April 8 Status Report") (ECF 61.)
- October 27, 2021: Defendants must satisfy the obligations set forth in Paragraph 23 of the April 8 Status Report. (Id.)
- November 1, 2021: To the extent not already satisfied, Defendants must complete all obligations identified in Paragraphs 22 and 25 of the April 8 Status Report.
- December 17, 2021: Completion of discovery.
- January 21, 2021: Dispositive motions.
Chambers will contact counsel via email to discuss potential trial dates.
IT IS SO ORDERED.