Opinion
3:18-cv-02280-DMS-AHG
07-11-2022
PRUCO LIFE INSURANCE COMPANY, Plaintiff, v. CALIFORNIA ENERGY DEVELOPMENT INC., et al., Defendants
REPORT AND RECOMMENDATION REGARDING EX PARTE MOTION TO ENFORCE SETTLEMENT, DISBURSE FUNDS DEPOSITED IN COURT REGISTRY, VACATE ALL PRETRIAL AND TRIAL DATES, DISMISS ACTION WITH PREJUDICE AND FOR SANCTIONS [ECF NO. 373]
Honorable Allison H. Goddard, United States Magistrate Judge.
Before the Court is the ex parte Motion filed by Life Advance, LLC (“Life Advance”) on June 30, 2022 seeking (1) to enforce the settlement agreement reached by the remaining parties to the case on April 19, 2022 as a result of their acceptance of the undersigned's Mediator's Proposal; (2) to disburse the funds deposited in the Court's registry consistent with the terms of the Mediator's Proposal; (3) to vacate all pretrial and trial dates; (4) to dismiss the action with prejudice; and (5) to sanction all other remaining interpleader Defendants in this action-California Energy Development, Inc. (“CEDI”), Jason Voelker, and Mickey Nicholson (collectively, the “CEDI parties”)-pursuant to the Court's inherent authority, based on their bad-faith settlement conduct.
Having considered the briefing, and for the reasons explained more fully below, the undersigned recommends that the Court GRANT in part and DEFER in part Life Advance's Motion. In particular, the undersigned recommends that the Court grant all requested relief other than the request for sanctions, because while much of the CEDI parties' conduct in settlement negotiations evidences bad faith, the undersigned recommends that the Court defer ruling on the request for sanctions until after the CEDI parties have been given sufficient opportunity to be heard.
I. BACKGROUND
As noted, Life Advance's motion to enforce the settlement agreement is premised on the acceptance of the undersigned's April 12, 2022 Mediator's Proposal by all parties then remaining in the case. This matter was filed nearly four years ago on October 1, 2018, and the procedural and substantive history of the case is extensive. The Court will thus not recite the full case history preceding the issuance of that Mediator's Proposal, but will provide an abbreviated outline of the background events pertinent to the present motion before proceeding to a more detailed description of the events since the Mediator's Proposal was accepted.
A. Background Procedural History
Plaintiff Pruco Life Insurance Company (“Pruco”) initially filed this action for declaratory relief against Defendants CEDI, John J. Walsh, Life Advance, Timothy Bryson, Mickey Nicholson, and Edward Spooner, trustee of the Living Trust of Edward Spooner. ECF No. 1. On January 11, 2019, Pruco was granted leave to file a First Amended Complaint (“FAC”) for declaratory relief against the same Defendants, with the additional named Defendant Jason Voelker substituted in for Doe Defendant 1. ECF No. 21. Pruco filed the action based on a dispute regarding the proceeds of a $1 million life insurance policy on the life of James Roberts, the former CEO of CEDI, and asked the Court to declare the rights of the parties with respect to the owner of the policy and proper beneficiary of the policy proceeds. Roberts was still living at the time the FAC was filed.
After Roberts died on April 30, 2019, Pruco sought and was granted leave to file a Second Amended Complaint (“SAC”) for interpleader, requesting that the remaining Defendants CEDI, Bryson, Nicholson, Walsh, Life Advance, and Voelker “be ordered to settle amongst themselves their respective rights and claims to the Policy benefits due and owing as a result of [Roberts's] death” and that, upon Pruco's deposit of the policy proceeds into the Court registry, that Pruco be discharged from any and all liability related to the policy and be dismissed from the case. See ECF No. 102. On November 27, 2019, Pruco separately filed a Motion to Deposit Funds and Dismiss Plaintiff (ECF No. 107) seeking similar relief, which the Court granted in part and denied in part on February 5, 2020. ECF No. 119. Specifically, the Court granted Pruco's request to deposit the funds and be dismissed from the case, but denied Pruco's request to be discharged from further liability and to enjoin Defendants from instituting any further proceedings against it related to the policy. Id. The Court directed Pruco to deposit the benefit of the policy with the Registry of the Court, which Pruco did on February 24, 2020, sending a check in the amount of $1,013,288.77 to the Clerk of Court. ECF No. 123. Pruco was dismissed from the case without prejudice. ECF No. 119 at 2.
Pruco voluntarily dismissed Defendant Edward Spooner on May 31, 2019. ECF No. 73.
Life Advance and John Walsh reached a settlement at the Early Neutral Evaluation Conference before the undersigned on March 5, 2020, eventually leading to the dismissal of Walsh from the case on June 10, 2020. ECF No. 157. Bryson, who never answered any pleading in the case or otherwise participated in the action, died on July 7, 2021. ECF Nos. 355, 363.
Following protracted litigation and a number of previous failed settlement efforts, the undersigned issued a Mediator's Proposal on April 12, 2022 via email to the remaining parties in the case: Life Advance, CEDI, Nicholson, and Voelker. Below is the full text of the email containing the Mediator's Proposal:
CONFIDENTIAL SETTLEMENT COMMUNICATION; INADMISSIBLE FOR ANY PURPOSE
RE: Pruco v. CEDI et al., No. 18cv2280
Dear Counsel, Mr. Nicholson, and Mr. Voelker:
I am making the following Mediator's Proposal to resolve this case.
As a preliminary matter, I note the following:
This Proposal is not my evaluation of the case, and I expect it is a number that neither side will like. It is my best shot at ascertaining “the number” that I believe is the most that one side may be willing to pay, and the least that the other side would be willing to accept. This Proposal reflects our discussions, the information exchanged at our settlement conferences, and the practical realities of continued litigation.
This Proposal is “double blind.” What that means is you will each tell me (via email by the deadline set forth below) confidentially Yes or No. If you say Yes, you will know if the other side said Yes, because the case will be settled per the below proposed amount and terms. If you say Yes, you will likewise know if the other side said No, because there will be no settlement. If you say No, you will not be told whether the other party said Yes or No. This approach ensures that everyone is protected from there being a psychological floor or ceiling established in the event the case does not settle.
If any party changes this Proposal, that is the equivalent of a No.
This Proposal is intended to fully and completely resolve and settle all claims that have been asserted, or could have been asserted, in this case.
With the above in mind, the Proposal is as follows:
• The parties will jointly file a Notification of Death Upon the Record and Joint Motion to Dismiss Timothy Bryson pursuant to Rule 25(a)(2), noting Mr. Bryson's death on the record and requesting that he be dismissed from the case because his claim to the policy proceeds, if any, is through CEDI, and because he was in default prior to his death.
• After filing the Notification of Death and Joint Motion to Dismiss Timothy Bryson, the parties will file a joint motion with the Court that requests the following:
o 70% of the funds interpleaded with the Court from the Pruco insurance policy shall be distributed to Life Advance, subject to the dismissal of Timothy Bryson;
o 30% of the funds interpleaded with the Court from the Pruco insurance policy shall be distributed to California Energy Development, Inc., Mickey Nicholson, and Jason Voelker, subject to dismissal of Timothy Bryson. CEDI, Nicholson, and Voelker will agree in their discretion on the proper allocation of these funds among themselves;
o Each party shall bear its own attorney fees and costs; and o Requesting dismissal of the interpleader action with prejudice.
• The parties shall execute a formal settlement agreement setting agreeing to the matters in the joint motion. Other terms of the formal settlement agreement shall include:
o The parties shall execute a full release of all claims, known and unknown, against all other parties, including a California Civil Code section 1542 waiver;
o The parties covenant not to sue each other in the future regarding any claims related to the Pruco life insurance policy at issue in this case; and
o The agreement shall attach a formal resolution by CEDI confirming that it has full authorization to enter into the settlement and that the person signing the settlement agreement and joint motion on behalf of CEDI has full authority to do so.
Deadline to respond: Both sides have until 4:00 pm PT on April 19, 2022, to email (to efilegoddard@casd.uscourts. gov) their Yes or No response to this Proposal.
Important Note: Please let me know ASAP if either side feels that I have failed to include one or more material terms, or if they have questions about the Proposal.
Best regards,
Hon. Allison H. Goddard
Life Advance, CEDI, Mr. Voelker, and Mr. Nicholson all expressly stated to the Court via email that they accepted the Mediator's Proposal, and the Court notified the parties of the acceptance on April 19, 2022. The emails reflecting the acceptance of the Mediator's Proposal are attached hereto as Exhibit A.
B. Background of Events Since Acceptance of the Proposal
After all parties accepted the April 12 Mediator's Proposal, the parties agreed that CEDI's counsel would prepare the filings related to the dismissal of deceased Defendant Timothy Bryson from the case, and that Life Advance's counsel would prepare the joint motion to disburse the interpleaded funds and to dismiss the case, as well as the formal written settlement agreement.
From there, finalization of the settlement stalled due to the conduct of the CEDI parties. Counsel for Life Advance Russell De Phillips first provided a draft of the joint motion to disburse funds to counsel for CEDI Benjamin Gale via email on April 27, 2022, and provided a draft settlement agreement to counsel for CEDI via email on April 28, 2022. Mr. De Phillips also emailed the proposed settlement agreement to all the CEDI parties, with a copy to the Court, on April 29, 2022. See Exhibits B and C attached hereto.
Thereafter, the Court held several settlement disposition conferences (“SDC”). At the first SDC on May 10, 2022, counsel for CEDI Mr. Gale represented that he had received the agreement but had not yet had an opportunity to discuss it with Mr. Nicholson and Mr. Voelker. Mr. Nicholson and Mr. Voelker also confirmed receipt of the agreement and but stated that they needed to discuss it with Mr. Gale. Mr. Gale further stated that he was in New Orleans and driving to the airport, but that he had several hours before his return flight to California, and he stated to the undersigned's law clerk that he would immediately call Mr. Voelker and Mr. Nicholson following the SDC to go over the settlement agreement with them that day.
In stark contrast to these representations at the first SDC, during the second SDC 15 days later on May 25, 2022, all three men stated that they had only just received the settlement agreement approximately four days prior, and that they had not yet had an opportunity to discuss it amongst themselves. The undersigned then set a third SDC for June 3, 2022, requiring the parties to appear via videoconference and to go through the written agreement with the Court. ECF No. 362. Additionally, the CEDI parties were required to provide a responsive draft of the settlement agreement to counsel for Life Advance by June 1, 2022, “with comments and edits in tracked changes” and were required to copy the Court on the email. Id. at 1-2. Although the CEDI parties did provide a responsive draft settlement agreement to counsel for Life Advance on June 1, it was not a redline version as ordered by the Court, nor was the Court copied on the email. Mr. Gale stated that he could not provide a redline version because the proposed agreement was sent in Wordperfect format, but he provided a redline at 1:01 p.m. on June 3, 2022, just before the SDC was scheduled to begin. See Exhibit D attached hereto.
The CEDI parties raised an issue regarding the scope of the release in the settlement agreement during the June 3 SDC, with Mr. Voelker stating that CEDI wished to bring additional claims against Pruco and attorney Ben Thomas-Hamilton, who signed a previous settlement agreement on behalf of CEDI in connection with an earlier action concerning the same policy. Therefore, Mr. Voelker stated that the CEDI parties would not include Pruco in the release, nor would they agree to a release encompassing all claims that were brought or could have been brought in this action. Neither Mr. Voelker, Mr. Gale, nor Mr. Nicholson ever raised that issue during either of the first SDCs, despite having had a copy of the draft settlement agreement from Mr. De Phillips since April 29, 2022, and despite having expressly agreed to the terms of the Mediator's Proposal, including that the parties would request “dismissal of the interpleader action with prejudice,” on April 19, 2022.
Settlement discussions continued notwithstanding the scope-of-release dispute. The undersigned issued a second Mediator's Proposal on June 6, 2022, which consisted of a complete proposed draft settlement agreement based on the parties' discussions of Life Advance's draft agreement during the June 3 conference. The parties were given until 4:00 p.m. on June 13, 2022 to respond to the proposal, but none of the CEDI parties timely responded. Ultimately, the second proposal was not accepted. See Exhibit E attached hereto.
On June 14, 2022, the presiding District Judge in this case, Chief Judge Dana M. Sabraw, issued an Order to Show Cause why the case should not be dismissed because the docket reflected that the case had settled. ECF No. 365. The Court directed the parties to respond to the Order to Show Cause at the Final Pretrial Conference scheduled for June 17, 2022. Id.
At the June 17 hearing, all parties agreed on the record before Chief Judge Sabraw that they had reached a binding settlement agreement, but that they disagreed regarding the scope of the release to be included in the written agreement. See June 17, 2022 H'rg Tr., ECF No. 369, at 8:21-9:11 (Mr. Gale stating that “California Energy's position is that we have a settlement agreement, a settlement agreement that is not all that difficult to enforce[,]” and requesting that the Court construe the meaning of certain “collateral terms” in the Mediator's Proposal); 11:5-11 (Mr. Gale stating that the parties have a written settlement agreement comprising the emails, including the April 12 Mediator's Proposal); 11:15-17 (Mr. De Phillips stating Life Advance's position that “there is a settlement and that it is binding and it is enforceable, and it is embodied in Judge Goddard's Mediator's Proposal”); 12:8-10 (Mr. Voelker stating that “we do in fact have a binding settlement agreement, but there is a dispute as to the language involving the parties and claims”); 12:17-18 (Mr. Nicholson stating his agreement with Mr. Gale and Mr. Voelker that the parties “have an agreement”); 13:10-19 (Mr. Gale, Mr. Nicholson, and Mr. Voelker all confirming Chief Judge Sabraw's statement that “the only remaining issue” is “the scope of the releases.”); 15:11-20 (Chief Judge Sabraw noting for the record, after confirming with the parties, that “there is complete agreement by all parties as to the substance of the interpled funds and how they will be disbursed between Plaintiffs, Defendants, Counterclaimants, Third-Party Plaintiffs and the like. The sole issue, then, would be the scope of the release and the language specifically relating to the provision that Judge Goddard set out [in the April 12 Mediator's Proposal] that the release includes all claims . . . ‘that have been asserted or could have been asserted in this case'”). Mr. Gale, Mr. Voelker, and Mr. De Phillips all agreed on the record that the sole remaining issue was the scope of the release and, more specifically, how to construe the portion of the Mediator's Proposal referring to the undersigned's intention for the proposal “to fully and completely resolve and settle all claims that have been asserted, or could have been asserted, in this case.” H'rg Tr. 15:11-16:11.
Following the hearing, Chief Judge Sabraw ordered the parties to meet and confer in good faith by June 27, 2022, with counsel for Pruco included, and to notify the Court by June 27 whether they had been able to execute a written settlement agreement. ECF No. 368. If there was no written settlement agreement in place by that date, the Court stated that it would issue a follow-up order setting out the remaining trial-related deadlines for motions in limine and other matters. Id. at 2.
To assist the parties in their meet-and-confer efforts, the undersigned set a meet-and-confer session on the Court's official Zoom conference account on June 24, 2022, and required Mr. De Phillips, Mr. Gale, Mr. Voelker, Mr. Nicholson, and counsel for Pruco to attend. ECF No. 370. Although Judge Goddard did not preside over the conference due to being out of district, her law clerk attended to take notes and help steer the discussion. Mr. Voelker initially failed to appear for the conference but eventually joined more than 90 minutes into the session, after Judge Goddard's clerk emailed him to remind him of his Court-ordered obligation to attend.
Relevant to the CEDI parties' later conduct, when asked during the meet-and-confer session on June 24 which portion of the Mediator's Proposal constituted the binding, enforceable settlement agreement in CEDI's view, the CEDI parties confirmed their stance that every bulleted portion of the Mediator's Proposal was binding, i.e., the portion immediately following “With the above in mind, the Proposal is as follows:” and immediately preceding “Deadline to respond. . . .” Therefore, consistent with their position at the June 17 conference before Chief Judge Sabraw, the parties explained that the key disagreement animating the scope-of-release dispute was whether Judge Goddard's statement in the “preamble” portion of the Mediator's Proposal referring to the intention for the proposal “to fully and completely resolve and settle all claims that have been asserted, or could have been asserted, in this case” was a binding term of the agreement. If not, because Pruco was no longer a party to the case at the time of the proposal, the CEDI parties argued they were not obligated to release their claims against Pruco pursuant to the bullet-point provisions stating that “[t]he parties shall execute a full release of all claims, known and unknown, against all other parties” and that “the parties covenant not to sue each other in the future regarding any claims related to the Pruco life insurance policy at issue in this case” (emphasis added). On the other hand, if that portion of the preamble was a binding part of the agreement, Pruco should be included in the release because CEDI's claims against Pruco “could have been asserted[] in this case.”
After more than three hours, the parties left the June 24 meet-and-confer session with an agreement on the scope-of-release dispute. Namely, Life Advance agreed to expressly carve out Pruco and Mr. Hamilton from the release, in exchange for CEDI's agreement to indemnify Life Advance against any future claims brought by Pruco or Mr. Hamilton, and an agreement to collateralize the indemnification clause with a set-aside security amount from the settlement funds of $50,000. Counsel for Life Advance provided an updated draft of the settlement agreement containing these newly agreed-upon terms to the CEDI parties later that evening on June 24, 2022.
As already discussed, the CEDI parties had repeatedly represented that the scope of the release was the sole outstanding dispute to be resolved before the settlement agreement could be executed. Yet despite putting that dispute to rest at the June 24 conference, the CEDI parties continued to try to make late-game changes to the agreement. The following day, counsel for CEDI raised another new issue for the first time. Specifically, Mr. Gale emailed counsel for Life Advance on the afternoon of Saturday, June 25, 2022, stating that there was “one small issue that will not affect the substance of the agreement but will require us to keep this case open even after the proceeds are distributed.” Mr. Gale explained that there was case law indicating that “Rule 13 of the FRCP says we have to bring our counterclaim [against Pruco] in this action[,]” and that he had made “some small changes to the settlement agreement” to address the issue. See Exhibit F attached hereto.
Although the proposed change to keep the case open directly conflicted with one of the bullet-point terms of the April 12, 2022 Mediator's Proposal that all parties agreed was binding, i.e., that they would “request[] dismissal of the interpleader action with prejudice[,]” Mr. De Phillips continued to engage in good faith to accommodate the request, representing to Mr. Gale that Life Advance did not oppose the request. See Id. However, Mr. Gale failed to include any changes related to that issue in the redline he provided to the other parties (with a copy to the Court) on the morning of June 27. Indeed, the redline he proposed included the following provision:
After the Settlement Proceeds are received by the respective Parties, the Parties shall execute and cause to be filed with the Court in the Interpleader Action a joint motion to dismiss the Interpleader Action with prejudice as to all parties and all claims, with the Court to retain jurisdiction over the Parties to interpret and enforce the Settlement and this Agreement.See Exhibit G attached hereto, at 28.
Mr. De Phillips noted the absence of any such term in response to Mr. Gale's new redline, stating:
Saturday, you mentioned a counterclaim against Pruco in this action. I interpreted that to mean you wanted the settling parties' crossclaims and third party claim dismissed with prejudice but try to keep the action pending to bring a claim against Pruco. You made no change in that regard so please confirm that is no longer an issue to address in this settlement agreement.See Exhibit H attached hereto, at 2-3. Mr. Gale then clarified that “CEDI cannot agree to dismiss the underlying interpleader case because it is likely that any claim we might bring against Pruco would have to be brought as a counterclaim under that case number.” Id. at 2. Yet he did not provide a new redline to reflect this change.
Then, at 1:59 p.m. on June 27, Mr. Voelker raised another new issue for the first time, erroneously insisting that the settling parties “had all agreed” that Life Advance would assign its claims to the CEDI parties. Exhibit I. While the CEDI parties had agreed to indemnify Life Advance against any claims brought by Pruco or Ben-Thomas Hamilton against any of the Life Advance released parties, which would give rise to subrogation rights of the indemnitors, the parties had never discussed (let alone agreed to) the assignment of all of Life Advance's claims to the CEDI parties.
Nonetheless, Mr. De Phillips continued to seek a resolution that would address Mr. Voelker's concerns that the CEDI parties might not be permitted to defend against any subsequent suit on Life Advance's behalf without an outright assignment of claims. Specifically, Mr. De Phillips first responded by explaining that the settlement agreement, as drafted, already contained language to capture the subrogation rights of the CEDI parties “with respect to any claims which arise or inure to the benefit of any of the Life Advance Released Parties as the result of any claim or action by Pruco, Ben-Thomas Hamilton, or any other third party, giving rise to an indemnity obligation hereunder.” See Exhibit J attached hereto, at 2. When Mr. Voelker continued to insist on an assignment of claims, Mr. De Phillips proposed adding language to the indemnification clause expressly stating that “Life Advance will execute an assignment of such subrogation rights at the time and to the extent they exist.” Id. at 7, 10. Mr. Voelker never responded to that suggested compromise, nor did any other CEDI party respond to Mr. De Phillips's revised draft agreement circulated via docusign at approximately 4:41 p.m. Id. at 12-13.
Instead, the CEDI parties continued to raise issues well into the evening of June 27, the day of the Court's deadline to execute a written settlement agreement or else proceed to trial. At 6:51 p.m. the same day, Mr. Gale raised a new issue regarding the language of the indemnity provision, asking that it contain the statement that “Life Advance has disclosed to CEDI all writings evidencing communications between Pruco and Life Advance or its agents that could reasonably support a cause of action against Life Advance,” and further asking that the agreement include a clause allowing the immediate release of the $50,000 security if CEDI drops all of its claims with prejudice before filing suit. See Exhibit K attached hereto. Then, at 11:40 p.m. on June 27, Mr. Voelker resurrected the issue regarding whether the case would be dismissed with prejudice, stating:
I am prepared to sign the agreement; however, I note that the agreement states that the entire case and all parties will be dismissed with prejudice.
This is actually incorrect.
While Life Advance, Nicholson, and I will be dismissed from the case with prejudice my understanding from our negotiations is that CEDI will remain in the case in the event the upcoming suit against Pruco is brought in the same court[.]
Please make that slight modification and I will promptly sign.See Exhibit L attached hereto (emphasis added). Mr. De Phillips continued to engage in good faith with the CEDI parties' evolving requests, sending a new redline on June 28, 2022 at 3:26 p.m. that (1) added language to clarify that Life Advance will execute an assignment of the subrogation claims, despite his position that such language is not necessary because subrogation rights of indemnitors are statutory in California; (2) changed the language to reflect that the parties would only be filing a joint motion to dismiss the claims of the parties against each other, rather than to dismiss the entire action, and added CEDI's intent to file a motion for leave to file a counterclaim against Pruco; (3) clarified the language related to the release of the $50,000 security if the CEDI parties do not pursue their claims against Pruco; and (4) added to the representations and warranties by all parties that they have produced all documents responsive to document requests except for documents withheld pursuant to objections to the requests. See Exhibit M attached hereto.
Despite his previous representation, neither Mr. Voelker nor any other CEDI party “promptly sign[ed]” the new draft agreement, even though it contained the requested modification to keep the case open to allow CEDI to bring a counterclaim against Pruco in this case. Indeed, to date, no party has signed any of the numerous drafts of the settlement agreement circulated by Mr. De Phillips, prompting Life Advance to file the instant motion on June 30, 2022.
II. DISCUSSION
A. Motion to Enforce Settlement Agreement, Disburse Funds, and Dismiss Action with Prejudice
As an initial matter, the CEDI parties have failed to file an opposition to Life Advance's motion to enforce the settlement agreement by the deadline of July 6, 2022 set forth in this Court's briefing schedule. See ECF No. 376. Civil Local Rule 7.1 provides “[i]f an opposing party fails to file [an opposition] in the manner required by Civil Local Rule 7.1.e.2, that failure may constitute a consent to the granting of a motion or other request for ruling by the court.” CivLR 7.1(f)(3)(c). Since the CEDI parties have failed to oppose the motion to enforce the settlement agreement, on this ground alone, the Court could grant the motion. See Ghazali v. Moran, 46 F.3d 52, 54 (9th Cir. 1995) (affirming dismissal for failing to oppose a motion to dismiss, based on a local rule providing that “[t]he failure of the opposing party to file a memorandum of points and authorities in opposition to any motion shall constitute consent to the granting of the motion”); Heston v. GB Capital Holdings, LLC, No. 16cv912-WQH-RBB, 2016 WL 4468254, at *2 n.1 (S.D. Cal. Aug. 23, 2016) (noting that a “court may properly grant an unopposed motion pursuant to a local rule where the local rule permits, but does not require, the granting of a motion for failure to respond”). However, the undersigned will proceed to the merits of the motion to provide the Court with a full understanding of the rationale underlying the recommendation herein.
i. Jurisdiction
Although there must be an independent basis for federal jurisdiction to address a dispute arising under a settlement agreement after a case has been dismissed, the Court has jurisdiction to enforce the settlement agreement embodied by the April 12, 2022 Mediator's Proposal, because the case remains pending before this Court. Colbert v. Leininger, No. 2:13-CV-0382-KJM-KJNP, 2017 WL 4534417, at *1 (E.D. Cal. Oct. 11, 2017), report and recommendation adopted, 2018 WL 1413137 (E.D. Cal. Mar. 21, 2018) (noting that “courts [] have the authority to enforce a settlement agreement while the litigation is still pending”) (citing In re City Equities Anaheim, Ltd., 22 F.3d 954, 957 (9th Cir. 1994) and Kelly v. Wengler, 822 F.3d 1085, 1094 (9th Cir. 2016)). See also Dacanay v. Mendoza, 573 F.2d 1075, 1078 (9th Cir. 1978) (“courts have inherent power summarily to enforce a settlement agreement with respect to an action pending before it”); York Int'l Corp. v. RVD Heating & Air Conditioning, No. CV F 08-0480 LJO DLB, 2009 WL 33423, at *1 (E.D. Cal. Jan. 5, 2009) (“If a dismissal is not final, a district court has continuing jurisdiction to enforce, modify or vacate the settlement agreement. Where an action is still pending, . . . a party may seek to enforce a settlement agreement.”) (internal citations omitted).
ii. Choice of Law
A district court's power “to enforce summarily an agreement to settle a case pending before it” is a federal equitable power. Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987). “However, the district court may enforce only complete settlement agreements. Where material facts concerning the existence or terms of an agreement to settle are in dispute, the parties must be allowed an evidentiary hearing.” Id. (internal citations omitted) (emphasis in original).
Regardless of whether the underlying claim is state or federal, “the construction and enforcement of settlement agreements are governed by principles of local law which apply to interpretation of contracts generally.” O'Neil v. Bunge Corp., 365 F.3d 820, 822 (9th Cir. 2004) (quoting United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir. 1992)). See also York Int'l Corp., 2009 WL 33423, at *2 (explaining that “disputes concerning a settlement agreement are governed by applicable state contract law”). Thus, although the power to enforce the settlement agreement is a federal equitable power that is constrained by the threshold requirement that the agreement be complete, the Court must look to California law to aid in making that initial determination, as well as to construe and enforce the agreement from there if it is determined to be enforceable.
iii. Whether the Agreement is Complete
Here, the parties are in full agreement that they have a binding, enforceable settlement agreement embodied by at least the following portion of the April 12, 2022 Mediator's Proposal:
• The parties will jointly file a Notification of Death Upon the Record and Joint Motion to Dismiss Timothy Bryson pursuant to Rule 25(a)(2), noting Mr. Bryson's death on the record and requesting that he be dismissed from the case because his claim to the policy proceeds, if any, is through CEDI, and because he was in default prior to his death.
• After filing the Notification of Death and Joint Motion to Dismiss Timothy Bryson, the parties will file a joint motion with the Court that requests the following:
o 70% of the funds interpleaded with the Court from the Pruco insurance policy shall be distributed to Life Advance, subject to the dismissal of Timothy Bryson;
o 30% of the funds interpleaded with the Court from the Pruco insurance policy shall be distributed to California Energy Development, Inc., Mickey Nicholson, and Jason Voelker, subject to dismissal of Timothy Bryson. CEDI, Nicholson, and Voelker will agree in their discretion on the proper allocation of these funds among themselves;
o Each party shall bear its own attorney fees and costs; and o Requesting dismissal of the interpleader action with prejudice.
• The parties shall execute a formal settlement agreement setting agreeing [sic] to the matters in the joint motion. Other terms of the formal settlement agreement shall include:
o The parties shall execute a full release of all claims, known and unknown, against all other parties, including a California Civil Code section 1542 waiver;
o The parties covenant not to sue each other in the future regarding any claims related to the Pruco life insurance policy at issue in this case; and o The agreement shall attach a formal resolution by CEDI confirming that it has full authorization to enter into the settlement and that the person signing the settlement agreement and joint motion on behalf of CEDI has full authority to do so.Exhibit A at 2-3.
The threshold question before the Court is whether the parties' agreement to the above terms constitutes a complete-and thus an enforceable-contract.
The essential elements of an enforceable contract under California law are (1) parties capable of contracting, (2) the consent of those parties, (3) a lawful object, and (4) adequate consideration. Cal. Civ. Code § 1550. The consent of the parties to a contract must be free, mutual, and communicated by each to the other. Cal. Civ. Code § 1565. Consent is not mutual unless the parties all agree “upon the same thing in the same sense.” Cal. Civ. Code § 1580. “The existence of mutual consent is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe. Accordingly, the primary focus in determining the existence of mutual consent is upon the acts of the parties involved.” Monster Energy Co. v. Schechter, 444 P.3d 97, 102 (Cal. 2019) (internal quotations and citations omitted).
Notably, the Mediator's Proposal anticipates that the parties will execute a formal settlement agreement in the future. Under California law, a mere “agreement to agree” is not enforceable as a contract. In re Ankeny, 184 B.R. 64, 71 (B.A.P. 9th Cir. 1995) (citing Store Properties v. Neal, 164 P.2d 38, 40 (Cal.Ct.App. 1945)). See also Harris v. Rudin, Richman & Appel, 87 Cal.Rptr.2d 822, 828 (Cal.Ct.App. 1999). (“[W]here the writing shows it was not intended to be binding until a formal written contract is executed, there is no contract.”). On the other hand, “[w]here the writing at issue shows no more than an intent to further reduce the informal writing to a more formal one[,] the failure to follow it with a more formal writing does not negate the existence of the prior contract.” Id. (internal quotations and citation omitted). The parties' expectations regarding whether they intended their agreement to be binding “may be inferred from the conduct of the parties and the surrounding circumstances. In looking at the instrument as a whole, if the parties agreed to the essential terms in writing, there is an enforceable contract between them even if they may have contemplated that a more formal agreement would be signed later.” In re Ankeny, 184 B.R. at 71 (internal quotations and citations omitted).
Here, the undersigned recommends the Court find, based on the conduct of the parties and the surrounding circumstances, that the parties' agreement to the Mediator's Proposal was more than a mere “agreement to agree,” and that the above terms of the April 12, 2022 Mediator's Proposal constitute a binding, enforceable contract.
All parties stated in writing that they agreed to the above terms. Even after the undersigned's June 6, 2022 Mediator's Proposal of a complete formal written settlement agreement was rejected, the CEDI parties all confirmed via email that they believed the parties had a binding, enforceable contract on the basis of their acceptance of the April 12, 2022 Mediator's Proposal. See Exhibit N attached hereto. All parties further confirmed on the record during the June 17 hearing that they believe there is a binding, enforceable contract as a result of their acceptance of the April 12 Mediator's Proposal, despite their disagreement regarding the enforceability of the “preamble” terms and the scope of the releases to be included in the formal writing. Thus, based on the parties' outward manifestations of consent, the undersigned concludes that all parties agreed “upon the same thing in the same sense” with respect to the above terms of the Mediator's Proposal, even if they disagreed about whether the preamble portion of the email was itself part of the agreement. Cal. Civ. Code § 1580.
The undersigned further finds that there is at least ambiguity regarding whether the “preamble” portion of the Mediator's Proposal, which included the statement that the proposal was “intended to fully and completely resolve and settle all claims that have been asserted, or could have been asserted, in this case[,]” was itself part of the settlement agreement reached by the parties. For that reason, the Court finds there was no meeting of the minds with respect to whether the preamble constituted a material term of the agreement.
However, there was no ambiguity regarding the scope of the release as set forth in the substantive portion of the Mediator's Proposal. Among the bullet-point items, the proposal provided that “[t]he parties shall execute a full release of all claims, known and unknown, against all other parties, including a California Civil Code section 1542 waiver” and that “[t]he parties covenant not to sue each other in the future regarding any claims related to the Pruco life insurance policy at issue in this case[.]” Pruco was not a party to the case, and it is not a party to the settlement agreement. Therefore, there is no enforceable agreement among the parties to release Pruco (or any other person or entity other than the settling parties).
In sum, all parties agreed on the record during the June 17 hearing that they have a binding settlement agreement on all substantive, material terms. Therefore, it is of no import whether the parties had a meeting of the minds with respect to whether the preamble portion of the Mediator's Proposal was part of the agreement. The question before the Court is whether there was a meeting of the minds on all material terms. The undersigned finds that there was. The parties' outward manifestations of acceptance of the written April 12, 2022 Mediator's Proposal, as well as their oral representations made on the record during the June 17 hearing that they all agreed there was a binding, enforceable settlement agreement with respect to all substantive terms, compel the conclusion that the parties have assented to all bulleted terms of the April 12, 2022 Mediator's Proposal. See Doi v. Halekulani Corp., 276 F.3d 1131, 1139 (9th Cir. 2002) (finding a settlement agreement was enforceable without a need for an evidentiary hearing on whether an agreement existed because “the parties dispelled any such questions in open court”) (citing Vari-O-Matic Machine Corp. v. N.Y. Sewing Machine Attachment Corp., 629 F.Supp. 257, 259 (S.D.N.Y. 1986) (“[I]n this case since both parties made representations to the court that agreement had been reached, there can be no factual dispute that a settlement had been consummated, and the court is empowered summarily to require the parties to comply with their representations without holding a hearing.”)). As to the scope of release among the settling parties, the language of the proposal is clear and unambiguous. The proposal requires a general release of all claims, known and unknown. That plenary release covers all claims that were brought or could have been brought in this case against any other settling parties, and indeed any claim at all.
Accordingly, the undersigned finds that there is a complete settlement agreement that the Court has the equitable power to enforce.
iv. Enforcement of the Settlement Agreement
California law provides: “If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.” Cal. Civ. Proc. Code § 664.6(a).
Additionally, “[t]he statutory procedure for enforcing settlement agreements under section 664.6 is not exclusive. Thus, even when the summary procedures of section 664.6 are not available, a party can still seek to enforce a settlement agreement by, among other things, prosecuting an action for breach of contract.” Harris, 87 Cal.Rptr.2d at 827-28 (citations omitted).
Here, Life Advance seeks to enforce the settlement agreement based on principles of state contract law rather than section § 664.6(a). ECF No. 373-1 at 14-15.
The Court's enforcement power includes authority to compel specific performance, authority to award damages for failure to comply with the settlement agreement, or authority to award unliquidated damages, as appropriate. TNT Mktg., Inc. v. Agresti, 796 F.2d 276, 278 (9th Cir. 1986).
The Ninth Circuit “is firmly committed to the rule that the law favors and encourages compromise settlements. There is an overriding public interest in settling and quieting litigation. It is well recognized that settlement agreements are judicially favored as a matter of sound public policy. Settlement agreements conserve judicial time and limit expensive litigation.” Camacho v. City of San Luis, 359 Fed.Appx. 794, 796 (9th Cir. 2009) (quoting Ahern v. Cent. Pac. Freight Lines, 846 F.2d 47, 48 (9th Cir. 1988) (internal citations and quotation marks omitted)).
Based on these principles, the undersigned recommends that the Court grant Life Advance's request to compel the CEDI parties' specific performance of the contract and order CEDI, Mr. Voelker, and Mr. Nicholson to comply with the settlement agreement embodied by the bulleted portions of the April 12, 2022 Mediator's Proposal. Namely, the Court should (1) order the disbursement of 70% of the interpleaded funds from the Court's registry to Life Advance; (2) order the disbursement of 30% of the interpleaded funds to California Energy Development, Inc., Mickey Nicholson, and Jason Voelker, and ordering the CEDI parties to decide amongst themselves how to properly allocate the funds amongst themselves and to file a Notice on the docket within 3 days of the date of the Court's Order stating their preferred allocation to allow the disbursement to proceed; and (3) dismiss the case with prejudice, with each party to bear its own attorney fees and costs.
Notably, these terms do not include any reference to release of non-parties, and they do include dismissal of the action with prejudice, despite the parties' later agreement to keep the case open to preserve CEDI's ability to bring compulsory counterclaims against Pruco in this action.
To explain further, first, because the Mediator's Proposal provided only that the parties would execute a mutual general release as to “all other parties,” the Court should not require the parties to expand the scope of the release to anyone but the other parties to the case at the time the Mediator's Proposal was accepted, i.e., Life Advance, CEDI, Mr. Nicholson, Mr. Voelker, and any of their agents, representatives, affiliates, shareholders, officers, partners, members, directors, successors, assigns, etc. In other words, the parties' later agreements during ongoing settlement negotiations to specially carve out Pruco and Mr. Hamilton in exchange for an indemnification clause are not binding terms, because they were not embodied in the initial Mediator's Proposal that constitutes the settlement agreement the Court has authority to enforce. But nor was there a binding agreement by the settling parties to release Pruco or any other person or entity who was not a party to the case at the time the Mediator's Proposal was accepted. However, as counsel for CEDI has acknowledged, once the case is dismissed with prejudice, there are likely no viable claims that could be brought against Pruco (or anyone else) concerning the insurance policy at issue in this interpleader action.
Second, unlike the question regarding whether all parties manifested an intent to adopt the “preamble” portion of the Mediator's Proposal as part of their agreement, there is no ambiguity as to whether the CEDI parties agreed to dismiss this action with prejudice. They did. The term providing that the parties would dismiss the interpleader action with prejudice was clearly set forth in the bullet points making up the “proposal” portion of the email, which the CEDI parties have always agreed was binding. It was not until after that June 24 meet-and-confer session that CEDI's counsel first brought up their request not to dismiss this action with prejudice, after apparently having discovered through additional research that the claims the CEDI parties still want to bring against Pruco might be compulsory counterclaims in this action. However, if the Court enforces the settlement agreement embodied by the April 12, 2022 Mediator's Proposal, it should order dismissal of the action with prejudice, as clearly agreed upon by all parties. “The objective intent as evidenced by the words of the instrument, not the parties' subjective intent, governs our interpretation.” Harris, 87 Cal.Rptr.2d at 828.
Therefore, the undersigned recommends that the Court GRANT Life Advance's request to enforce the settlement agreement, GRANT the request to disburse the funds deposited in the Court's registry in accordance with that agreement, and GRANT the request to dismiss this action with prejudice. \\
B. Motion for Sanctions
The undersigned agrees that the CEDI parties' conduct throughout settlement negotiations suggests they are engaging in the negotiations in bad faith.
To date, the parties have still not signed any written agreement. Nor have the CEDI parties even filed a response to Life Advance's motion to enforce the agreement. The undersigned finds that the CEDI parties' conduct of repeatedly requesting new changes to the written agreement for months after accepting the Mediator's Proposal and weeks after appearing to have reached resolution on all outstanding disputes at the June 24 conference, as well as their repeated defiance of Court orders related to settlement negotiations, as outlined in great detail in Section I.B. above, provides ample evidence that they are not engaging in the settlement negotiations in good faith.
In addition to the bad-faith settlement negotiation conduct described in Section I.B, Mr. Voelker made misrepresentations to the Court regarding the status of settlement. When the parties were given notice that this Report and Recommendation would be issued imminently on Friday, July 8, 2022, Mr. Voelker sent an email to the Court at 4:07 p.m. that day stating, “I have signed the agreement. My understanding was I am the last and final person to sign, which means we have a binding agreement.” See Exhibit O attached hereto, at 3. However, Mr. De Phillips informed the Court at 4:25 p.m. that the parties had still not executed the final agreement, and that the version of the agreement signed by Mr. Voelker was a previous version circulated on June 20, 2022 that had gone through several revisions since that date, and which Life Advance would not agree to sign. Id. at 2. Although the Court recognizes that Mr. Voelker is a pro se party, when considered along with the pattern of his previous settlement conduct, Mr. Voelker's eleventh-hour misrepresentation to the Court that the parties “have a binding agreement” could reasonably be viewed as a bad-faith attempt to delay the issuance of the Report and Recommendation on Life Advance's motion to enforce the settlement agreement, or perhaps as an attempt to force through a version of the agreement that he favored.
However, it would be improper to issue sanctions against the CEDI parties without first giving them adequate notice and an opportunity to be heard. The undersigned thus recommends that the Court DEFER ruling on the request for sanctions until after the Court allows a full hearing on the issue. The undersigned further recommends that the Court refer the issue of sanctions to the undersigned for a Show Cause hearing, to take place after the funds have been disbursed and the case dismissed.
III. CONCLUSION AND RECOMMENDATION
Based on the foregoing, IT IS HEREBY RECOMMENDED that the Court issue an Order GRANTING in part and DEFERRING in part Life Advance's Motion to Enforce Settlement, Disburse Funds Deposited in Court Registry, Dismiss Action with Prejudice, and for Sanctions (ECF No. 373). In particular, the undersigned recommends that the Court issue an Order:
(1) approving and adopting this Report and Recommendation;
(2) GRANTING Life Advance, LLC's Motion to Enforce the Settlement Agreement;
(3) GRANTING Life Advance's Motion to Disburse Funds Deposited in the Court Registry;
(4) DIRECTING the Clerk of Court to disburse 70% of the interpleaded funds to Life Advance, LLC;
(5) ORDERING California Energy Development, Inc., Mickey Nicholson, and Jason Voelker to jointly file a Notice on the docket within 3 days of the date of the Court's order stating their preferred allocation of the funds amongst themselves, and DIRECTING the Clerk of Court to disburse the remaining 30% of the interpleaded funds to those three parties in accordance with the allocation specified in their Joint Notice;
(6) DISMISSING this action with prejudice; and
(7) DEFERRING ruling on Life Advance's Motion for Sanctions based on the bad-faith settlement conduct of the CEDI parties throughout settlement negotiations following acceptance of the Mediator's Proposal, and referring the issue to the undersigned for a Show Cause Hearing to take place after the funds have been disbursed and the case dismissed.
The Court submits this Report and Recommendation to United States District Judge Dana M. Sabraw under 28 U.S.C. § 636(b)(1). Any party to this action may file written objections with the Court and serve a copy on all parties no later than July 18, 2022 . The document should be captioned “Objections to Report and Recommendation.”
Although § 636(b)(1) provides for a 14-day objections period, “[t]he court may require a response within a shorter period if exigencies of the calendar require.” United States v. Barney, 568 F.2d 134, 136 (9th Cir. 1978). The trial in this matter is scheduled to commence on July 25, 2022. Accordingly, exigencies of the calendar require resolution of this motion to enforce settlement agreement prior to trial.
IT IS SO ORDERED.