Opinion
No. 58333-6-I.
November 13, 2007.
The trial court enforced a purported agreement settling a very contentious intra-family business lawsuit. Because Civil Rule (CR) 2A applied to the alleged agreement and barred its enforcement, the trial court's decision was error. The intent of the parties to be bound prior to signing a formal contract was not established and the particular email exchange between the attorneys that was relied on does not satisfy the writing requirement of CR 2A. No evidentiary hearing should have been held. Finally, even if CR 2A had not barred enforcement, uncontroverted testimony showed that Ann Pryde's attorney did not have authority to enter a settlement on her behalf as to a material term. As a result, the agreement is unenforceable. We reverse and remand.
FACTS
Harry Pryde is a real estate developer in King County who eventually brought his sons, Marc and Curt, into the family business. Harry, Marc, and Curt were equal shareholders in the Pryde Corporation. They also formed several other limited liability companies for different real estate ventures. Unfortunately, the relationship between Curt and the rest of his family soured. Curt accused his father and brother of financial improprieties and mismanagement. In May 2004, Curt and his wife, Fawn, (Pryde plaintiffs) filed suit against Marc and his wife Lisa, Harry and Ann (the mother), the Pryde Corporation, several Pryde limited liability companies and the company's CPA, Jex Bjorn. The suit alleged various claims including forgery, fraud, financial mismanagement and misappropriation of funds. Marc, Lisa, Harry and Ann (Pryde defendants) counterclaimed for money that had been previously advanced to Curt, usurpation of corporate business opportunities, and mismanagement of one of their real estate developments.
Because the parties share the same last name, out of necessity, we will refer to them by their first names throughout this opinion. No disrespect is intended.
Jex Bjorn did not file briefing and is not a party to this appeal.
With the help of a court-appointed special master, the parties dissolved the corporations and disbursed most of the funds. The special master also created a hold back account of $1.45 million to address outstanding financial obligations. On December 12, 2005, the court ordered mediation with former King County Superior Court Judge Gerard Shellan. The mandatory mediation occurred on February 28, 2006 and ended without a settlement.
The parties engaged in ongoing negotiations with various settlement offers and counteroffers. After these negotiations stalled, the parties agreed to additional mediation with Shellan. On March 22, 2006, the attorneys conducted a telephonic mediation conference with Shellan. Attorneys Mike Morgan and Barbara Duffy represented the Pryde plaintiffs. Attorney Jeff Smyth and George Kargianis, an attorney and a family friend, represented the Pryde defendants. The attorneys participated from their respective offices and none of the parties were present with the mediator. Prior to the telephone conference, Morgan prepared and distributed a "term sheet" which outlined the Pryde plaintiffs' most recent counteroffer. During the mediation, the parties worked off of the "term sheet," discussing each issue listed. The mediator conferred on the phone with both sets of attorneys and then spoke with each side individually. "[W]e split up . . . caucus from joint to separate so I could talk to each of you separately to convey your various ideas, proposals, et cetera." Shellan understood that counsel needed to consult with their clients, and he assumed the attorneys were doing so during the breaks. At the conclusion of the mediation, all participants believed they had reached an agreement. Shellan congratulated the parties and commended them for sticking with the negotiations in the face of a very difficult case. None of the parties placed any conditions on the agreement. Morgan was asked to prepare the final agreement and obtain the signatures of Curt and Fawn before sending the document to Smyth for the Pryde defendants to sign. The day after concluding the mediation, Shellan called JAMS and told the case worker the case had been settled and asked her to send a CR 2A stipulation to the parties and a notification of settlement to the trial court.
Morgan prepared the documents and called Smyth to confirm that they reflected the oral agreement. Curt and Fawn then signed the documents and Morgan sent the agreement to Smyth on March 24, 2006. Morgan received no further word from the Pryde defendants until March 28, 2006 when Smyth sent an email message to Morgan stating, "[m]et with clients. Things under control. Will have a response to you today. You'll like it." Later that day, Smyth emailed again. "Still working on the dox. I'll have to get them over to you in the morning." Morgan replied, "`Working' is an interesting concept, but will take a look when it arrives. Thought you and I had gone through all of the material changes to the Memo based on the Wednesday call." Smyth replied, "Believe me. This is a Mariano Rivera save if I can pull it off." On March 29, rather than returning the signed agreement, Smyth sent Morgan a "counteroffer" with different terms.
After receiving the "counteroffer," plaintiffs' counsel Barbara Duffy sent an email message to the accountants resuming trial preparations that had been stayed by agreement. Smyth countered by email,
I was very much surprised to see this direction from Ms. Duffy this morning. It seemed to me that we had achieved a full and fair settlement. But our counteroffer which contained not only identical economic terms as Curt's offer, but actually improved Curt's liquid position over his offer, has apparently been rejected without comment.
The Pryde plaintiffs subsequently filed a motion to enforce the agreement reached on March 22 and memorialized in the March 24 writing. The court ordered an evidentiary hearing on the matter pursuant to CR 2A.
At the evidentiary hearing, the trial court allowed Shellan to testify that the parties had reached an agreement during the telephone conference. In addition, the court heard testimony from Morgan, Smyth, Kargianis, Ann, Marc, and Bjorn's attorney. Following two days of testimony, the court enforced the settlement agreement after finding CR 2A inapplicable because no genuine dispute existed. "In the instant matter no such dispute has been shown because it is undisputed that an agreement was reached on March 22, 2006." The court found that the March 24 document reflected the oral agreement reached during the telephone conference and was enforceable. The Pryde defendants appeal the enforcement of the agreement and the findings of fact supporting the court's ruling.
After securing enforcement of the agreement, the Pryde plaintiffs moved for CR 11 sanctions against Marc and Smyth. The trial court declined to impose sanctions. The Pryde plaintiffs cross-appeal this denial of sanctions.
DISCUSSION
Civil Rule 2A applies to disputed settlements and stipulations.
No agreement or consent between parties or attorneys in respect to the proceedings in a cause, the purport of which is disputed, will be regarded by the court unless the same shall have been made and assented to in open court on the record, or entered in the minutes, or unless the evidence thereof shall be in writing and subscribed by the attorneys denying the same.
"[T]he `purport' of an agreement is disputed only when its existence or material terms are disputed." In re Ferree, 71 Wn. App. 35, 40, 856 P.2d 706 (1993). The rule exists in order to avoid disputes and give certainty and finality to settlement agreements. Eddleman v. McGhan, 45 Wn.2d 430, 432, 275 P.2d 729 (1954). To this end, CR 2A should be applied literally. If an agreement is not made on the record in open court or memorialized in a writing signed by the disputing party, CR 2A precludes enforcement, whether or not common law requirements are met. In re Ferree, 71 Wn. App. at 40. "[N]oncompliance with the rule . . . leaves the court with no alternative. It must disregard the conflicting evidence." Eddelman, 45 Wn.2d at 432 (predecessor rule). If either the genuine dispute or the recording requirement was not satisfied, the trial court's decision to hold an evidentiary hearing was an error of law.
I. Threshold Determination Of Genuine Dispute
Upon petitioning the trial court for enforcement of a settlement agreement, the moving party must show that there is no genuine dispute about the existence or material terms of the agreement. Ferree, 71 Wn. App. at 41; Patterson v. Taylor, 93 Wn. App. 579, 584, 969 P.2d 1106 (1999). To trigger the bar to enforcement in CR 2A, the responding party must allege specific facts to controvert the existence or terms of the agreement. "[S]econd thoughts about the amount of the settlement and . . . desire not to abide by it do not make the agreement disputed within the meaning of CR 2A. Lavigne v. Green, 106 Wn. App. 12, 20, 23 P.3d 515 (2001). Nor do "the unsworn assertions of . . . counsel" create a genuine dispute. Ferree, 71 Wn. App. at 45-6. Affidavits and declarations are the preferred way of establishing a dispute. Ferree, 71 Wn. App. 42-43.
"An alternative way of doing so is producing live testimony, if the trial court so allows . . . However, this would seem needlessly wasteful of judicial resources. Although live testimony is needed to resolve a genuine dispute of fact, it is not needed to determine whether a genuine dispute of fact exists in the first instance." Id. at 42-43 (internal citations omitted).
When a moving party relies on affidavits or declarations to show that a settlement agreement is not genuinely disputed, the governing principles should be the same as those that apply in summary judgment proceedings — whether a genuine dispute of material fact exists. Ferree at 43. An extensive evidentiary inquiry into the nature of the dispute is not triggered unless the remaining conditions of the rule have been satisfied. This conserves judicial resources by "insur[ing] that negotiations undertaken to avert or simplify trial do not propagate additional disputes that then must be tried along with the original one." Ferree, 71 Wn. App. at 41.
The Pryde plaintiffs supported their motion with declarations and affidavits. The Pryde defendants disputed the motion to enforce the purported agreement with declarations and affidavits as well. The trial court determined, "[p]laintiffs have met their initial burden of proving an enforceable settlement agreement; [h]owever, the Pryde [d]efendants have raised factual issues." We concur with the trial court on this threshold determination that an evidentiary hearing was necessary.
II. The Writing Requirement
Once the responding party has met this minimum threshold showing a genuine dispute, the burden shifts to the moving party to establish that the parties have complied with the other requirements of CR 2A. One of two conditions must be satisfied — the agreement must be "made and assented to in open court on the record, or entered in the minutes" or "in writing and subscribed by the attorneys denying the same." No party alleged that the agreement had been put on the record in open court or that a formal contract had been signed by all parties. When the agreement has not been formalized on the record, the court must ascertain the existence of a writing, "subscribed" by the attorney now denying the agreement. This alternative has been interpreted less strictly, allowing the court to look to informal writings if the contesting party has not signed a formal contract. Morris v. Maks, 69 Wn. App. 865, 869, 850 P.2d 1357 (1993).
The in-court option for compliance requires strict adherence to the literal meaning of the provision. An undisputed stipulation made before a judge and court reporter in chambers was not "made in open court." Graves v. P.J. Taggares Co., 25 Wn. App. 118, 122, 605 P.2d 348 (1980) aff'd on other grounds, 94 Wn.2d 298, 616 P.2d 1223 (1980).
The Pryde defendants assign error to the trial court's post-hearing conclusion of law that the email correspondence between the parties rose to the level of an informal, subscribed writing. In effect, this is a challenge to the threshold decision that a sufficient writing existed under CR 2A so as not to preclude an evidentiary hearing on enforcement. The threshold showing of a CR 2A writing relies on affidavits and declarations, not on evidence from the subsequent evidentiary hearing. So, "the governing principles should be the same as those that apply in summary judgment proceedings." Ferree, 71 Wn. App. at 43. In a summary judgment motion, review is de novo and we view the facts and inferences in favor of the nonmoving party. Evans Son, Inc. v. City of Yakima, 136 Wn. App. 471, 475, 149 P.3d 691 (2006). As a result, the Pryde defendants receive the benefit of all reasonable inferences.
A. Intent Of The Parties To Be Bound By An Informal Writing
To satisfy CR 2A through an informal writing, "[w]e must be able to conclude that the parties agreed to the subject matter; all of the provisions of the agreement were set out in the writings; and `the parties intended a binding agreement prior to the time of the signing and delivery of a formal contract.'" Evans, 136 Wn. App. at 476, (quoting Morris, 69 Wn. App. at 869). The determination on this point must be made under the summary judgment standard based on the affidavits and the purported agreement. Ferree 71 Wn. App. at 43. If the writing requirement was not satisfied by this evidence, then setting the hearing was an error of law.
Live testimony was taken only after the court's order finding that the writing requirement had been satisfied. That testimony may not now be used to determine if the writing requirement was satisfied.
The written agreement to be enforced here was prepared by Morgan and signed by his clients. The plain language of the document states, "all parties need to sign the Memo for this agreement to become effective." This language is unambiguous. The language contradicts the moving party's assertion that the prior oral agreement was intended to be enforceable without signing a final document or that an informal exchange of writings was contemplated. It is undisputed that the Pryde defendants or their representative had not yet signed the document. As a result, a genuine issue of material fact exists as to the intent of the Pryde defendants to be bound. Under the summary judgment standard, the plaintiffs have not carried their burden of showing that each party intended to be bound before signing the final agreement. This is fatal to utilizing the informal writing requirement. Therefore, CR 2A bars enforcement of the purported agreement. The motion to enforce should have been denied; failure to do so was an error of law.
We also note that Jex Bjorn was a party to the law suit and had not signed the purported agreement. Bjorn was not represented during the mediation. Bjorn was not Smyth's client and Smyth had no authority to settle for Bjorn. The draft prepared by Morgan included a signature line for him. Without Bjorn's signature, the parties had not achieved a settlement of claims between all parties.
B. Sufficiency Of The Informal Writings
Even if the Pryde plaintiffs' motion to enforce had survived the determination of mutual intent to be bound by an informal contract, it failed to satisfy the other requirements of an informal writing requirement. Because no formal, signed contract exists, the plaintiffs rely on the email correspondence between Smyth and Morgan as informal writings that rise to the level of a "subscribed" agreement. The trial court found that the parties reached a meeting of the minds during the mediation and the email exchange discussed the written documents prepared by Morgan on March 24. "The terms of the Settlement Agreement were recorded in writing, and Mr. Smyth's email communication of March 28 2006 and March 30, 2006 is a writing signed by him in which he acknowledges that the attorneys had reached a `full and fair' agreement." The trial court believed the agreement had been authorized the day of the mediation and had no conditions, contingencies or reservations. Because this assignment of error concerns the threshold writing requirement, we review only the documentary evidence and declarations before the court de novo, as we would in a summary judgment motion. Ferree, 71 Wn. App. at 43.
Morgan, the Pryde plaintiffs' attorney prepared a draft settlement agreement and then called Smyth to discuss the changes to the agreement that resulted from the mediation. Morgan secured Curt and Fawn's signatures and faxed the document to Smyth on Friday March 24, 2006. This is the agreement they seek to enforce. The content of the agreement is not so much at issue. Instead, the issue is whether or not Smyth communicated in writing a present agreement to that content. The agreement, if it exists, lies in a series of email messages between Smyth and Morgan sent starting on March 28 to March 30. On March 28, this exchange is pertinent:
We do not question that email can substitute for regular mail to establish an informal writing.
Smyth: "Met with clients. Things under control. Will have a response to you today. You'll like it."
Smyth: "Still working on the dox. I'll have to get them over to you in the morning."
Morgan: "`Working' is an interesting concept, but will take a look when it arrives. Thought you and I had gone through all of the material changes to the Memo based on the Wednesday call."
Smyth: "Believe me. This is a Mariano Rivera save if I can pull it off."
Smyth sent a "counteroffer" to Morgan on March 29, which stated "I attach hereto a revised set of settlement documents, representing the same deal economics we have negotiated, but containing (1) necessary protections for Marc and Lisa; and (2) a new potential upside for Curt and Fawn."
The key email message upon which the trial court relied was sent March 30. After learning that the Pryde plaintiffs had resumed preparations for trial, Smyth emailed his concern:
I was very much surprised to see this direction from Ms. Duffy this morning. It seemed to me that we had achieved a full and fair settlement. But our counter-offer which contained not only identical economic terms as Curt's offer, but actually improved Curt's liquid position over his offer, has apparently been rejected without comment.
An exchange of letters can yield an enforceable settlement agreement. Morris, 69 Wn. App. at 872. To determine whether informal writings are sufficient to establish a contract, even if a more formal agreement is contemplated, the court considers, "whether (1) the subject matter has been agreed upon, (2) the terms are all stated in the informal writings, and (3) the parties intended a binding agreement prior to the time of the signing and delivery of a formal contract." Id. at 869 (citing Loewi v. Long, 76 Wash. 480, 484, 136 P. 673 (1913)). In Morris, the letters exchanged include a confirmation letter and a response that explicitly stated that the confirmation letter accurately reflected the agreed settlement and included a few clarifications on some of the terms. Id. at 867-68. The court found this exchange satisfied the requirements for a binding settlement agreement. Id. at 872. By contrast, the court did not enforce an agreement based on letters where, "[t]he letters show the parties desire to reach a settlement, the amount for the settlement, and the expectation that a settlement and release will be signed. But there is no suggestion here that the letters themselves are the binding agreement." 136 Wn. App. at 478.
Unlike Morris v. Mak, no email message from Smyth expressly acknowledges that the proposed terms accurately reflect the agreement and states a present intent to be bound prior to signing the formal document. His email messages of March 28 suggest a problem with the documents, and that he is working on changes in an attempt to save a deal. The email messages do not state or imply that he and his clients had a present intent to be bound by the draft they had received. On March 29, Smyth sent Morgan a draft he calls a counteroffer. While this may not have been strictly a counteroffer in the contract formation sense, at a minimum it indicated the lack of present intent to accept the Morgan draft. The March 30 email message from Smyth does not express a present intent to be bound to any identified terms. The "full and fair settlement" reference may allow an inference of prior agreement. But the statement does not indicate whether it refers to the oral agreement made during negotiations, to Morgan's draft agreement, or some other document. "Full and fair settlement" likely does not refer to his own counteroffer. The oral agreement alone cannot satisfy the writing requirement. The plaintiff's have rejected the counteroffer. And, the concurrent reference to the "counteroffer" belies a prior intent to be bound to Morgan's draft. The summary judgment standard entitles the Pryde defendants to any inferences from the facts. Ferree 71 Wn. App. at 44. We conclude that reasonable inferences from the email message establish the absence of present intent to be bound, the lack of certainty about what "full and fair settlement" refers to, and the lack of terms of any agreement.
While a formal, integrated, written contract is unnecessary for CR 2A, the informal writings must contain a clear expression of the terms and an intent to be bound by the informal writings. Evans, 136 Wn. App. at 478-9. The standard for informal writings has not been satisfied. The trial court erred as a matter of law in concluding that the writing requirement of CR 2A was satisfied.
But even, if we assume that the trial court did not err in determining that the informal writing requirement was met, we next examine whether an enforceable agreement existed. This evaluation takes place in light of the evidentiary hearing rather than merely the affidavits and documentary evidence. As a preliminary matter, we must address the challenge to the allowance of the mediator's testimony at that hearing.
III. Admissibility Of The Mediator Testimony
The Pryde defendants contend that the mediator, Shellan, improperly testified about the purported agreement. The Pryde defendants made a motion to quash the subpoena issued to secure Shellan's testimony. The trial court denied the motion and allowed Shellan to testify about whether the parties reached a settlement agreement during the telephone conference on March 22. This was not error. Under the Uniform Mediation Act, a mediator may disclose, "[w]hether the mediation occurred or has terminated, whether a settlement was reached." RCW 7.07.060(2). The UMA applies to referrals or agreements to mediate made on or after January 1, 2006. RCW 7.07.903(1). The parties can also agree to abide by the UMA in a signed record. RCW 7.07.903(2).
On December 12, 2005, the trial court ordered the parties to mediate. That mediation took place on February 28, 2006, and failed. According to the trial court's findings of fact, the parties agreed to continue settlement discussions after that failure. Therefore, the parties agreed to further mediation, not included in the court referral, after February 28, 2006. The parties also signed a JAMS agreement on February 28, 2006. The JAMS agreement stated that "[t]he parties agree to submit this case for mediation and agree the matters discussed herein are confidential," and cited RCW 7.07.070, the specific section of the UMA that discusses confidentiality. The Pryde defendants claim that the JAMS agreement does not purport to incorporate the entire UMA and only cites the general confidentiality provision. However, citation to the UMA suggests that the parties contemplated that the new act would apply when the mediation occurred.
Appellants assign error to a portion of the finding of fact concerning the application of the UMA, but do not assign error to the portion which says the parties agreed to continue discussions after the court-ordered settlement conference failed.
The parties demonstrated an intent to follow the UMA in the JAMS agreement. And, the UMA applies to agreements to mediate after January 1, 2006 and the alleged agreement occurred as a result of mediation that occurred after the UMA took affect. The trial court properly allowed Shellan's testimony as to "[w]hether the mediation occurred or has terminated, whether a settlement was reached" under RCW 7.07.060(2).
IV. Enforceability Of The Contract If CR 2A Was Satisfied
A. Existence Of A Genuine Dispute
The Pryde defendants assign error to the trial court's conclusion that the parties did not have a genuine dispute. According to the trial court, no such dispute existed "because it is undisputed that an agreement was reached on March 22, 2006 and the evidence supports a conclusion that the terms of the agreement are accurately reflected in the written documents." As a result of its conclusion that "no such dispute has been shown," the trial court determined that, "CR 2A is not a bar to enforcement of the March 22 agreement." In reviewing a trial court's conclusions of law, we first determine if the findings of fact were supported by substantial evidence on the record. If so, we then decide whether those findings of fact support the conclusions of law. Landmark Dev., Inc. v. City of Roy, 138 Wn.2d 561, 573, 980 P.2d 1234 (1999).
The trial court conclusion after the evidentiary hearing that CR 2A does not bar enforcement, because the parties lack a genuine dispute, was error. CR 2A only presents a possible bar to enforcement at the initial inquiry into the existence of a genuine dispute and the on-the-record or writing requirements. Once these criteria are met, an evidentiary hearing is not held to determine if CR 2A applies, but to determine the ultimate question of enforceability by inquiring into the formation and terms of the potential contract. A genuine dispute had already been established. So, CR 2A is no longer a bar to enforcement. The "genuine dispute" language employed by the trial court in its findings of fact and conclusions of law confused the threshold question of the "genuine dispute" with the ultimate question of the enforceability of the contract. In all probability, the court intended the statement to reflect its conclusion that the parties had reached an enforceable contract. However, as explained above, the evidence does not support such a conclusion. The court erred.
B. Smyth's Authority To Bind Clients
The Pryde defendants further assign error to the trial court's determination that Smyth had the authority to settle the agreement on behalf of all of the defendants. The trial court found that "[a] number of breaks were taken during which the attorneys stated that they were consulting with their clients." Shellan testified that the attorneys had opportunities to discuss with their clients during the mediation, but that he did not know if the attorneys spoke with their clients. "I was told that we'd all have to talk to our clients. The respective sides — both sides told me that. And we took breaks in between. Whether they actually did I have no way of knowing. I was not a participant." Shellan assumed that the attorneys had the authority to settle. However, this assumption was incorrect with respect to Ann.
Generally, an attorney's authority to settle an action is presumed but that authority is limited. "As an attorney, he is impliedly authorized to enter into stipulations and waivers concerning procedural matters to facilitate the hearing. However, in his capacity as attorney, he has no authority to waive any substantial right of his client. Such waiver, to be binding upon the client, must be specially authorized by him." In re Houts, 7 Wn. App. 476, 481, 499 P.2d 1276 (1972). Absent express authority or an informed consent or ratification, attorneys may not waive, compromise or bargain away a client's substantive rights." Morgan v. Burks, 17 Wn. App. 193, 200, 563 P.2d 1260 (1977).
In response to questions about whether she had authorized Smyth to settle the case as he thought best, Ann replied, "No. No one is going to settle this but me." She also testified that she, Marc, and Lisa were "all working together" and that Marc did not have authority to settle the claims either. She further stated that when she read the draft agreement from the plaintiffs she found it unacceptable because "[i]t didn't say specifically what it was supposed to that I had wanted." She vehemently proclaimed, "I will not sign any copy of a settlement that I'm not in agreement with. I will fight it. I will fight it if it gives me a stroke, like it gave my husband a stroke."
The trial court acknowledged that Ann and Harry were unavailable for consultation during the telephone mediation and had not authorized the agreement. "[T]he undisputed evidence is that she was unavailable to Mr. Smyth on March 22 and that she was not consulted by him on that day prior to his reaching agreement with the other attorneys. No other evidence was presented to establish that [Ann] had expressly authorized Mr. Smyth to enter into the agreement reached on March 22." Nonetheless, the trial court found that the lack of express authority did not impact the enforcement of the agreement. This conclusion of law is not supported by evidence since we have no evidence that Ann expressly authorized, consent to or ratified the agreement.
Ann clearly did not authorize the agreement reached during the telephone mediation or the agreement as written in the draft circulated by Morgan. Smyth had no authority to bind Ann to any agreement that compromised her substantive rights. As a result, if Ann's substantive rights were diminished, the agreement is unenforceable.
C. Ann's Material Terms
The trial court reached a conclusion of law that: "[s]ince there is no significant difference between the no contact covenant agreed to by Mr. Smyth on March 22 and the one to which [Ann] expressly agreed on March 29, 2006 . . . and since authority with regard to the financial terms had been delegated to Marc Pryde, the court concludes that Mr. Smyth did not surrender a substantial right." Other than the conclusion that the no-contact provisions in the purported settlement agreement and the "counteroffer" do not differ significantly, the trial court provides no other findings on Ann's substantive rights. However, the evidence shows that the two no-contact provisions differed significantly.
The no-contact provision in the purported agreement runs between all the parties — Harry, Ann, Marc, Lisa, Curt and Fawn — and states that "[w]ithout first being given written permission to do so, the parties will not, directly or indirectly through third parties, contact another party." The no-contact restraint lasts one year and any breach of the covenant requires resolution through binding arbitration. The "counteroffer" covenant only restricts Curt and Fawn from contacting Ann; it is not reciprocal. "Absent advance written permission from Ann Pryde to do so, during the duration of this agreement neither Curt Pryde nor Fawn Johnson Pryde will intentionally contact or communicate with Ann Pryde." Furthermore, this version of the no-contact order remains in effect for 24 months and does not include an arbitration requirement. The original covenant does not provide judicial enforcement to protect Ann, merely allows for arbitration.
Smyth testified to the defendants' serious concerns about the original covenant. "The no-contact covenant that came was a mutual covenant that bound everybody, including Marc and Lisa. And that was a big sticking point, because they all live in the same neighborhood, and my client's fear was that they were going to run into each other at the grocery store and one or more of them would get hauled away in a paddy wagon as a result of violating a no-contact order." Substantial evidence does not support the trial court's findings nor its conclusion that there was no "significant difference" between the two no contact covenants.
Shellan testified that the "no-contact order was all emotion, nothing else." However, he admitted that he "imagine[d] it was important to her [Ann Pryde]." During the in-person negotiations, "there was quite a bit of comment made" about the terms of the no contact covenant. Ann's testimony shows a clear sense of victimization by Curt and Fawn. "You have to know that the day this was filed they picked the Saturday morning that has special significance for our family. They had it hand delivered, not to our attorneys. After it was hand delivered, another one was slipped under my door with my name on it just to make sure, Mom, you know." She believed that the trauma of the suit had caused her husband to have a stroke. "My husband had a stroke a month after they deposed him . . . he was absolutely distraught as to what they were doing, and the deposition was so heart-breaking. I sat across the table and saw my son and his wife snicker and laugh at his testimony. And a month later he has a stroke." The no-contact covenant needed to protect Ann and Harry, but not lead to accidental violations and further legal action. The no-contact order, while perhaps an emotional issue, was an important point of negotiation between the parties. In disregarding the differences between the no-contact covenants, the trial court erroneously trivialized Ann's concerns. The trial court found that the March 24 Settlement Agreement "contains all material terms in detail." However, the no contact covenant was a material term for Ann; this is undisputed.
In addition to the no-contact agreement, Ann adamantly insisted that any settlement needed to include language that Curt's allegations against his family were unfounded and "sets this straight." And she was equally adamant that she would determine if the language was adequate. "No one is going to speak for me. After all of the wreckage, the trauma and ultimately the tragedy that this suit brought upon a man who's absolutely undeserving of it. I will decide what the verbiage will be, and no one will talk for me." The purported agreement from March 22 did not contain an adequate statement. "They did not apologize, for one thing, for the damage. They did not — they diluted — they did not acknowledge they were paying us money. It did not say that what they had — complaints against us were false. There was — well, it was just not specific like it was supposed to be." This language was extremely important to Ann in order to salvage her family's reputation and allow them to move forward. In her mind, any settlement that did not include an acceptance of responsibility by Curt and Fawn, was lacking a material term. Ann would not have consented to any agreement without such verbiage. The substantial evidence does not show that Smyth had authority to settle on her behalf. Furthermore, the evidence does not support the trial court's conclusions of law finding an enforceable agreement.
Smyth did not have authority to settle for Ann. If an attorney does not have authority to settle, even an unequivocal stipulation is unenforceable. See, Graves, 94 Wn.2d at 301-305. In this case, Ann neither agreed to the terms nor authorized settlement on her behalf. The trial court should not have held the evidentiary hearing or enforced the settlement. Based on these compelling facts, we reverse.
V. CR 11 Sanctions
Curt and Fawn requested CR 11 sanctions because of allegedly egregious conduct by Marc and Smyth. The trial court denied the sanctions. We review a trial court's ruling on CR 11 sanctions for abuse of discretion. Eugster v. City of Spokane, 110 Wn. App. 212, 231, 39 P.3d 380 (2002). A trial court abuses its discretion when a decision is manifestly unreasonable or based on untenable grounds. Wash. State Physicians Ins. Exch. Ass'n v. Fisons Corp., 122 Wn.2d 299, 339, 858 P.2d 1054 (1993). "The abuse of discretion standard recognizes that deference is owed to the trial judge who is better positioned than an appellate court to decide the issue." Eugster, 110 Wn. App. at 231 (citing Fisons, 122 Wn.2d at 339). CR 11 sanctions are mandatory if a violation occurs. Miller v. Badgley, 51 Wn. App. 285, 300, 753 P.2d 530 (1988).
"CR 11 imposes requirements on attorneys who sign and file any `pleading, motion, or legal memorandum.'" Bryant v. Joseph Tree Inc., 119 Wn.2d 210, 218, 829 P.2d 1099 (1992). Under the rule, signing attorneys certify that the pleadings are well grounded in fact, warranted by existing law or a good faith argument, not interposed for an improper purpose and denials of factual contentions are warranted on the evidence. The Pryde plaintiffs contend that Marc and Smyth "jump[ed] from theory to theory to avoid performance under the [s]ettlement [a]greement" and that the defendants "presented no fewer than seven baseless legal arguments, each supported by demonstrably false affidavit testimony."
A. Roycroft Condominiums
The Pryde defendant's first defense to the motion to enforce was that a letter from counsel representing condominium owners from a Pryde Corporation development had changed the possibilities for settlement. According to Marc's declarations, his concerns about the settlement agreement "were reinforced when we received a letter from construction defect counsel concerning the Roycroft condominium project. . . . The letter identified a potentially significant statutory construction defect claim, confirming my concerns as to whether the contingency reserves proposed by Curt and his counsel were adequate." According to the Pryde plaintiffs, this was "a dodge" because the Roycroft claims were not new. The trial court apparently agreed with the Pryde plaintiffs, including in its findings of fact that "[w]hile the parties were unaware on March 22, 2006 that the [h]omeowner's [a]ssociation had retained an attorney, the claims being made were not a new disclosure, and had been addressed during discussions among counsel since at least March 1, 2006, and accounted for in the [s]ettlement [a]greement." Based on this finding, the trial court did not find Marc and Smyth's contention persuasive. Despite this finding, the trial court does not appear to have found the affidavit amounted to violation of CR 11.
This is from a document from the sealed portion of the record.
B. Shellan's Testimony
In the reply in support of motion to strike Shellan's testimony, Smyth wrote that "we believe that such a report [by Shellan] would in all likelihood not be unfavorable to the defendants." According to the Pryde plaintiffs, Smyth made this statement despite having been given a copy of the transcript of the conference call with Shellan and knowing that Shellan would testify unequivocally that the parties reached an agreement during the conference. However, this statement is not untruthful because testimony that the parties reached an oral agreement does not satisfy the requirements of CR 2A, so it would not harm the defendants' position that the agreement was unenforceable.
Smyth also argued that Shellan never saw the final documents drawn up by Morgan. However, Smyth knew that Morgan had overnight mailed the documents to Shellan. Smyth knew that Shellan had seen the documents.
C. The "Agreement To Agree"
In the briefing and declarations opposing the motion to enforce, the Pryde defendants and Smyth claim that the March 24 settlement was an "agreement to agree." The Pryde plaintiffs contend that the Pryde defendants knew the parties had reached an agreement and the contrary assertion was baseless.
D. Fixed Payment
Smyth and Marc claimed that they negotiated a fixed payment from the holdbacks. The court disagreed. The Pryde plaintiffs contend this was a baseless contention.
E. Smyth's Authority To Settle
Finally, Smyth and Marc argue that Smyth did not have authority to settle the case. The trial court disagreed with this as well.
Most of these allegedly "baseless" arguments come down to issues of credibility. Based on the findings of fact, the trial court found most of Smyth and Marc's testimony unpersuasive. However, the trial court still declined to award CR 11 sanctions against Smyth and Marc. This suggests that, while unpersuasive, the claims were not baseless. The trial court did not abuse its discretion in denying sanctions.
We affirm the trial court's decision to deny the CR 11 sanctions. We reverse the trial court's decision that the parties had reached an agreement in settlement of the litigation and remand for trial.