Opinion
FSTCV166030430S
05-20-2019
Matthew Wittman v. Intense Movers, Inc.
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Povodator, Kenneth B., J.T.R.
MEMORANDUM OF DECISION RE MOTION TO ENFORCE SETTLEMENT (#221.00)
POVODATOR, JTR.
"A trial court has the inherent power to enforce summarily a settlement agreement as a matter of law when the terms of the agreement are clear and unambiguous." Audubon Parking Associates Ltd. Partnership v. Barclay & Stubbs, Inc., 225 Conn. 804, 811, 626 A.2d 729 (1993). It is not enough, however, that the parties agree to some or most material terms; they must reach an agreement as to all material terms. Kidder v. Read, 150 Conn.App. 720, 93 A.3d 599 (2014). Simplistically, the issue in this case is whether an undisclosed concern, an issue that a party considers to be a condition to finality and completeness of an agreement, is a matter that the court can consider when that party never articulated that concern as a condition in his settlement discussions with the adversary. Even more simplistically: Can an unarticulated issue render an agreement defective for failing to encompass all material issues?
In particular, this case involves a closely held business, in which the plaintiffs and defendants, as owners, were sufficiently antagonistic to each other that the business could not function properly. The plaintiffs have sought, inter alia, dissolution of the business. Pursuant to statutory procedures, one of the defendants, Alexander Leute, agreed to purchase the plaintiffs’ shares. On or about October 19, 2018, after protracted litigation, the parties executed a memorandum of understanding, facially resolving all of their disputes, requiring payments over time to the plaintiffs for their interest in the business. After passage of the target date for payment of an initial lump-sum without any payment made or confidence that the payment would be made, the plaintiffs filed the current motion to enforce the settlement agreement as embodied in the October 19, 2018 memorandum of understanding, as supplemented/modified by subsequent negotiations of the parties.
The technical focus of this dispute is the completeness of the agreement reached by the parties. The defendants contend that despite the absence of any such language in the memorandum of understanding or subsequent versions of the agreements between the parties, the agreement was contingent on defendant Alexander Leute obtaining financing for the $150,000 initial lump sum payment that was required to be paid on or about December 6, 2018. As the plaintiffs do not agree that there is such a contingency, and deny that there ever was any mention of such a contingency, the question reduces to the existence or non-existence of an agreement between the plaintiffs and defendants of sufficient completeness and definiteness to be enforceable under Audubon.
In Kidder, the parties had not reached an agreement as to when a payment was to be made; although the trial court had concluded that the timing desired by each party would be satisfied by enforcing the agreement on a date that was beyond both parties’ expressed desires (thereby retrospectively satisfying both positions), the Appellate Court concluded that there had not been an agreement as to all of the terms of the claimed agreement, and reversed the trial court’s enforcement of the claimed settlement agreement. (The timing aspect also implicated the amount to be paid, as the defendant’s offer of the amount claimed to be the agreed amount had been conditioned on the lengthier terms for payment that the plaintiff would not accept.) In so ruling, the Appellate Court necessarily rejected the trial court’s determination that the timing issue was not material (that "the date of payment was incidental," 150 Conn.App. 734). In Kidder, there had been counterproposals relating to the specific issue of timing; here, while the plaintiffs had been aware that defendant Alexander Leute was seeking financing, there never was a memorialized (email, letter, etc.) statement that obtaining financing was a condition, and the detailed memorandum of understanding only addressed when payments would be made, without any suggestion of uncertainty as to availability of funding. There is no claim, and certainly no credible claim, that there was any spoken communication stating that the agreement was conditioned on obtaining financing (and the court notes that it appears that spoken interactions were typically followed by emails confirming the results of any discussions).
The methodology used in Kidder, while not mandatory, is instructive and practical. The court reviewed the exchange of communications between the parties, 150 Conn.App. 731, to ascertain whether the parties had entered into a binding agreement. Here, in addition to the detailed memorandum of understanding, there is a record of extensive subsequent communications as submitted by the plaintiffs, augmented by exhibits offered by the defendant at the hearing conducted on January 28, 2019.
Attached to the plaintiffs’ memorandum in support of their motion (#222.00) is an extensive record of communications between the parties, starting with the signed memorandum of understanding dated October 19, 2018. The individual defendants each signed the document, as did counsel on behalf of the plaintiffs. Facially, the document sets forth the material terms of what appears to be a comprehensive agreement, intended to resolve all issues presented in the litigation. Subsequent to the memorandum of understanding, counsel for the plaintiffs drafted a more detailed agreement, incorporating all of the terms of the memorandum of understanding, and on a number of occasions, defendant Alexander Leute asked for changes to be made to some of the terms set forth in that memorandum of understanding, some of the proposed changes being incidental and some going to the substance of material issues, e.g., despite a stated sum in the memorandum of understanding, he sought to reopen the aggregate value to be paid by the defendants to the plaintiffs for acquisition of their interests in the corporate defendant. The email exchanges attached to #222.00 reflect a series of compromises reached between the defendants and the plaintiffs as to those proposed modifications.
All of the proposed changes from defendants were from defendant Alexander Leute, and some of the subjects of proposed changes were personal to him. Accordingly, hereafter, the court will refer to the "defendant" in the singular, specifically referring to Alexander Leute.
Each "just one more thing" message (typically with multiple requests) from the defendant was addressed on the merits by counsel for the plaintiffs, and the email exchanges reflected an agreed resolution in each instance. Eventually the emails from defendant narrowed to the issue of the precise date on which he would be able to provide a check for $150,000, as required under the agreement between the parties, the messages referring generally to the ongoing process of getting a loan to cover the required payment.
The court recognizes that there was one area identified in the memorandum of understanding that had a "to be determined" quality, which arguably would preclude a determination that the initial memorandum of understanding was a final agreement as to all material terms. The memorandum of understanding contemplated that the scope of acts of default would be determined after the signing of the memorandum of understanding. While it may be obvious that the failure to make a required payment would be deemed an act of default, the question of whether there might be a grace period (and if so how long), and whether there would be an opportunity to cure (and if so how long), could be deemed sufficiently material as to negate any characterization of the memorandum of understanding as a complete agreement as to all material terms. Even if that were so, the subsequent agreement drafted by the plaintiffs, which "filled in the blanks" as to those issues, and which were accepted by the defendants in the course of explicit discussions, would seem to have cured any such possible defect in the original memorandum of understanding.
In opposing the motion to enforce the settlement agreement, the defendant’s position is that the agreement between the parties had been conditioned upon him obtaining a loan in order to fund the initial $150,000 payment that was required, a condition that never was satisfied- he had been unable to obtain a loan for that purpose during the timeframe reflected in the email exchanges. At argument before the court, he again insisted that obtaining a loan had been a condition for the agreement that seemingly had been reached.
The court has reviewed all of the email exchanges, including the emails submitted by the defendant at the January 28, 2019 hearing. While there are references to the fact that the defendant was in the process of getting a loan and that the precise timing of sending a check was dependent upon conclusion of that loan process, at no time was the defendant’s success in getting a loan identified as a condition for the agreement. As a practical matter, the court must recognize the distinction between "if"- the argument of the defendant- and "when"- the natural reading of the emails. Even as to the "when" aspect, until well along in the process, the defendant was providing some level of assurance that a timely check would be delivered, e.g., in ¶3 of an email from the defendant (dated November 21, 2018) in Exhibit H to #222.00, the defendant states: "I have several options for producing the initial payment and I am on course for having the check for you by the last week of November but if something goes sideways I don’t want to [be] forced to take out a high interest loan in order to produce the funds by the 16th." This, in turn, appears to have been in response to an earlier email from counsel stating: "The Whitman’s are naturally concerned that you have hinted you may exploit the grace. Even for the initial $150,000 down payment, although you have assured me that you will have the funds by November 30, six days before the payment deadline of December 6. It would go a long way if you confirm your assurance that you will not sit on those funds for 30 days."
The email exchanges make it clear that the defendant sought assurances and/or revisions relating to requirements big and small. He expressed concern about the length of the grace period for periodic payments that would be required. He expressed concerns about a requirement for flat/equal payments each month, given the seasonal fluctuations in revenues, resulting in adjustments to the timetable for monthly payments, requiring lesser payments in slower-business months. Attached to #222.00 as Exhibit J are what appear to be proposed "final" versions of the settlement agreement and related documents, incorporating the changes proposed by the defendant to which the plaintiffs had agreed.
It was not until this process had been going on for well over a month and after the plaintiffs had prepared "final" versions of the settlement agreement and other associated documents, that the defendant first claimed the existence of an overarching contingency to the agreement- his ability to get a loan for the $150,000 initial payment.
The claimed existence of a financing contingency is naturally suggestive of other types of financial transactions where financing contingencies are commonplace. Most notably, a purchase of real estate often is contingent upon the buyer obtaining financing for the purchase, but that contingency excuses a buyer from performance only if there is an explicit mortgage contingency in the purchase agreement. A seller knowing that a buyer is seeking a mortgage is not a substitute for a mortgage contingency clause, and the absence of a mortgage contingency clause in a purchase agreement does not render the agreement somehow incomplete or defective, as a mortgage contingency clause is essential only if the buyer makes it known to the seller that it is essential, that the ability to perform is conditioned on obtaining financing. Even then, a mortgage contingency typically if not always provides a deadline for advising the seller that the buyer is relying on the contingency to decline performance, to avoid a perpetual state of uncertainty, and may provide further details as to parameters of the financing being sought and manner in which notice is to be provided. See, e.g., Li v. Yaggi, 185 Conn.App. 691 (2018).
Therein lies the problem. The defendant never made known to the plaintiff, at the time of the execution of the memorandum of understanding or even in the month (plus) thereafter, that the agreement was contingent upon him getting financing for the initial $150,000 payment. The defendant has pointed to no communication in which he generally referred to obtaining financing as a condition, much less identifying the specific terms of financing (amount, interest rate, term) that would be deemed acceptable to him. Again, the tenor of the emails provided- even those provided by the defendant- was that the financing was a process underway with only some level of uncertainty as to precisely when the financing would be obtained. As the plaintiffs repeatedly addressed the sequential issues raised by the defendant, agreement was always reached, only to be met by additional demands or requests for assurance from the defendant. Never was there a mention of conditioning the settlement on whether funding could be obtained.
Focusing on the exhibits submitted by the defendant, the first exhibit offered, Exhibit A, contains emails from July and August 2018 relating to a loan application process. (There also are references to evaluation of the business.) Thus, while both sides knew that there was a loan application process that had existed prior to October 19, nothing in that exhibit reflects any level of uncertainty about obtaining financing and nothing suggests any contingency based on obtaining financing. Exhibit B are emails in December 2018, and as of December 5, the defendant was reporting that there had been
a mix up with the paperwork which has delayed the loan process. I will be hearing again from [loan personnel at the bank] tomorrow to get a more accurate timeframe as to when the funds will be available. I conservatively estimate that they will arrive between the 14th of December to the 18th ... Once the funds are being transferred to my bank, I will sign the pages requested and mail them to you along with the check. I apologize for the delay.
That email message concludes with "I will keep in touch with you tomorrow and then again on next Wednesday as to when you will have the check and signed pages." (The "pages" appear to be the final settlement documents, complete with notarized signatures.)
In that same exhibit, in an email dated December 10, 2018, the defendant, after indicating that he was in contact with a number of lending sources (brokers and a bank), stated "and if everything goes well, I should be able to send the check and pages the week after next." Thus, even after the December 6 deadline set forth in the memorandum of understanding, the defendant did not suggest any dependence of the execution of a final version of the agreement and associated payment of funds, on his ability to obtain financing.
Conversely, the fact that the parties had continued to fine-tune the agreement, as reflected by the email exchanges submitted to the court, does not undercut the enforceability of the agreement reached on October 19, 2018.
This court has held that [t]he fact that parties engage in further negotiations to clarify the essential terms of their mutual undertakings does not establish the time at which their undertakings ripen into an enforceable agreement. The plaintiff cites no authority, and we have found none, that assigns so draconian a consequence to a continuing dialogue between parties that have agreed to work together. We know of no authority that precludes contracting parties from engaging in subsequent negotiations to clarify or to modify the agreement that they had earlier reached ... Under the modern law of contract, if the parties so intend, they may reach a binding agreement even if some of the terms of that agreement are still indefinite.(Internal quotation marks and citation, omitted.) Hogan v. Lagosz, 124 Conn.App. 602, 616, 6 A.3d 112, 122 (2010).
Related, the emails contained in Exhibit I reflect not only the exhaustion of the plaintiffs’ patience but also that they had agreed to accommodate the defendant’s latest/last set of proposed modifications (to the extent not already incorporated into the settlement agreement).
In an email dated November 19, 2018 in Exhibit I, the defendant demonstrated his lack of understanding of the enforceability of a settlement agreement: "it’s not a deal until the ink from my signature is dry and it has been witnessed by a notary, and you have the document in your hand." It is not clear whether this contributed to the problem- the defendant believing that there was no deal until he signed, overriding any focus on the completeness of anything/everything discussed and agreed prior to signing of a final document.
Indeed, as early as February 2017, the defendant had committed himself to purchase the shares owned by the plaintiffs, when he filed a notice of election to purchase the shares of the plaintiffs, pursuant to General Statutes § 33-900(b); see, #111.00, filed February 27, 2017. Under that statute, "[a]n election pursuant to this section shall be irrevocable unless the court determines that it is equitable to set aside or modify the election." Therefore, almost 22 months prior to the December 6, 2018 target for making an initial lump sum payment of $150,000, the defendant had committed himself to paying the full value of the interests of the plaintiffs, once that value had been determined by agreement of the parties or after a trial of the issue to the court, subject to the discretion of the court as to whether to allow payments to be made over time. Based on references to appraisers and appraisals in the file, the defendant presumably had some idea as to the amount of money he would need to consummate his commitment, long before the settlement reciting aggregate consideration to be paid and the terms/timing for such payments.
Having identified § 33-900, the court notes that subsection (b) further provides that "[a]fter an election has been filed by the corporation or one or more shareholders, the proceeding under subdivision (1) of subsection (a) of section 33-896 may not be discontinued or settled, nor may the petitioning shareholder sell or otherwise dispose of his shares, unless the court determines that it would be equitable to the corporation and the shareholders, other than the petitioner, to permit such discontinuance, settlement, sale or other disposition." The statute encompasses corporations with numerous shareholders, whereby all shareholders are entitled to receive notice of the proceedings if they are not parties. In this situation, however, all of the shareholders are parties, and all of the shareholders signed the memorandum of understanding settling the dispute, either personally or through counsel. Therefore, while the court statutorily has discretion to determine whether a settlement is equitable and fair, the court would require a well-defined and persuasive reason to reject a settlement that all of the parties had worked out over a period of months and to which all shareholders (the same individuals) had agreed. The only basis on which the defendant has challenged the agreement is his contention that there was an implied condition of his obtaining financing, but under the circumstances of this case, including his statutory election to purchase the plaintiffs’ shares, his commitment to a settlement some 20 months later (memorandum of understanding), and his failure ever to identify financing as an intended contingency for the settlement until after the plaintiffs had indicated an intention to seek enforcement of the settlement, the court believes it would be inequitable not to approve the settlement, and therefore the court finds that it is equitable to permit the settlement to go forward.
The court must note that in their reply memorandum, the plaintiffs engage in a somewhat circular line of reasoning. They assume that the settlement agreement is enforceable (because the parties orally agreed to its terms) and use that assumption as a basis for rejecting the defendant’s arguments. In particular, they claim that the merger/integration provision (section 17 of the settlement agreement) precludes consideration of any matters not set forth in the agreement, as a basis for the court to reject the defendant’s claim that there was a finance contingency. The problem, of course, is that the court cannot assume the enforceability of that agreement in order to justify rejecting a challenge to enforceability of that agreement (in the sense of existence of a binding agreement). Conversely, if the court were to assume that the agreement is enforceable, then the court would already have concluded that the agreement is enforceable without regard to the bar of section 17 to the defendant’s challenge to enforceability. In other words, the court cannot assume enforceability in order to determine the threshold issue of enforceability.
For the foregoing reasons, the court has concluded that there was an enforceable settlement agreement between the parties as embodied in the memorandum of understanding, and if not enforceable at that stage, then final and enforceable as modified by the subsequent negotiations of the parties and embodied in the final version of the formal settlement agreement drafted by the plaintiffs. The question then becomes the mechanism by which the court enforces the settlement agreement. As discussed during argument, the case effectively was settled upon the signing of the memorandum of understanding, with the ongoing negotiations being a process of permissible fine-tuning, Hogan, supra . Does the court simply enter an order that the settlement as embodied by the memorandum of understanding is enforceable? Does it add an incorporation of the negotiated changes that were made over the ensuing weeks, to which the parties agreed? Should the court order that the defendants sign the final proposed versions of the settlement agreement and associated documents, or simply declare it operative? The defendants do not appear to have disputed any of the provisions of the claimed-to-be-final documents, other than the lack of recognition of a contingency for obtaining a loan. The plaintiffs appear to have incorporated all of the sequential final demands of the defendant in the documents, as reflected in the November 20 compliance with 4 requests from the defendant and the subsequent compliance with insistence that there be 1000 shares of stock recited in the final operative documents.
The court is cognizant that the defendants are representing themselves at this stage of the proceedings. Until early October 2018, shortly before the final discussions resulting in settlement, defendant William Leute had been represented by counsel. Defendant Alexander Leute has been self-represented since discharging counsel in January 2018. (The email exchanges include at least some references to the defendant recognizing that it might be beneficial to have counsel review the settlement documents, but it is not clear whether that actually ever was done.)
Balancing all of the competing factors/interests, the court believes that it would be highly inefficient to ignore the details that were worked out by the parties in the two months following the signing of the memorandum of understanding on October 19, 2018. In his emails, the defendant referred to various provisions in those attached documents and elicited responses from the plaintiffs in that regard, e.g. a back-and-forth concerning the grace period associated with default as set forth in the security documents. The court therefore concludes that the final version of the formal settlement agreement, with attachments, to which the defendant (and defendant William Leute) agreed (subject only to the unarticulated concern about ability to obtain financing), is enforceable.
There remains the issue of timing of payment. The memorandum of understanding identified December 6, 2018 as a target date for initial payment, but without any indicated significance to the choice of that date. The subsequent emails, especially as December 6 approached and passed, reflected impatience on the part of the plaintiffs as to when payment would be received, but again without any suggestion that there was a mandatory deadline of December 6 for payment. Exhibit M to the affidavit submitted in support of the motion consists mostly of emails after December 6 relating to delays in making that payment (and associated signing of the documents) without eliciting any indication from the plaintiffs that the defendant already was in default or breach. There does not appear to be any "time is of the essence" quality to the timing of initial and subsequent payments; see, e.g., JP Morgan Chase Bank, N.A. v. Cam, 172 Conn.App. 659, 161 A.3d 650 (2017). Conversely, to the extent that the plaintiffs seek to have the defendants ordered to sign the final agreement or otherwise make the agreement immediately enforceable, the court does not and cannot interpret that to be a mandate that the defendants be bound by an agreement that puts them into immediate breach and beyond any grace period or cure period.
Accordingly, the court finds the memorandum of understanding, as modified by the agreement of the parties resulting in the last draft of the final settlement agreement, to be binding on, and enforceable against, the defendants, subject to the modification of all dates specified, such that the initial payment of $150,000 is due on June 10, 2019, and subsequent payments become due in July of 2019 and subsequent months, in accordance with the terms of the agreement of the parties.
Conclusion
The court is satisfied that the parties reached a final agreement as to all material terms of the settlement of their dispute relating to the control and/or dissolution of the defendant corporation. The court need not conclusively determine whether the memorandum of understanding sufficiently embodies an agreement that could be enforceable, as the subsequent discussions of the parties, memorialized in various iterations of the final settlement agreement- to which the defendant agreed- address any possible claim that the memorandum of understanding lacked one or more essential/material elements.
Despite the extensive history of discussions after the October 19 signing of the memorandum of understanding, reflecting sequential resolution of issues raised by the defendant, the defendant has been unable to point to any explicit reference to obtaining financing as a condition for enforceability of the agreement reached by the parties. An unexpressed condition cannot be considered as a missing essential element, sufficient to avoid enforceability of an explicitly-reached agreement.
In July 2018, the record reflects that the defendant had represented to the plaintiffs that he was in the process of obtaining financing (see, #204.00, and exhibit to a July 19, 2018 continuance request, explaining the basis for the plaintiffs’ continuance request: "Defendant Alexander Leute has indicated that he is making progress toward obtaining funding to purchase the Plaintiffs’ shares in Intense Movers but needs more time to complete the necessary paperwork and receive loan funding. A continuance of the 8/7/18 trial to 10/30/18 will allow the parties to work towards possible resolution, thereby avoiding the costs of trial." Thus, at least three months prior to the signing of the memorandum of understanding, the defendant was (or claimed to be) already engaged in efforts to obtain financing, yet from July through November and into December, he expressed no concern to the plaintiffs about what might happen if he were to be unable to obtain financing on terms acceptable to him.
Further, as discussed above, in July 2017 the defendant had committed to purchase the shares of the plaintiffs, such that financing already was a known issue, and his statutory election to purchase those shares was not subject to any financing contingency. While the parties certainly could agree to creation of such a contingency, the record is silent as to any identification of financing as a contingency for the settlement, despite the large number of other concerns he expressed post-memorandum of understanding.
The court recognizes that the defendant is essentially contending that the terms of the settlement are onerous, absent financing of the initial lump sum payment, but it is now some seven months since he signed the memorandum of understanding and approximately 27 months since he committed to purchasing the plaintiffs’ shares. As of the date of the signing of the memorandum of understanding, this case had been assigned for trial on four separate occasions, and continued four times, the last request primarily based on ongoing settlement discussions; it was continued yet an additional time in large measure due to the pendency of this motion. He has repeatedly committed to purchasing the plaintiffs’ shares, such that any onerous quality is self-inflicted.
The parties reached a binding settlement, and the defendants have not challenged the accuracy of the version of the settlement agreement (with attachments) attached to the plaintiffs’ submission in support of this motion (#222.00) as reflecting the terms to which the parties agreed. The agreement is equitable insofar as it represented an agreement among all shareholders, and was the product of extensive negotiation (and at least one effort at mediation), with all shareholders signing off on the memorandum of understanding that is the core of the settlement. Therefore, the agreement of the parties as memorialized in the settlement agreement and attached documents as attached to the plaintiffs’ submission (#222.00), modified as to dates as indicated above (initial payment by June 10, 2019; subsequent payments to commence in July 2019) is enforceable and binding on all of the parties. Again, the court finds the agreement to be equitable, given the circumstances as set forth above.