Opinion
No. 3:99-CV-592 (EBB).
June 23, 2000.
MEMORANDUM OF DECISION ON PLAINTIFFS' MOTION TO ENFORCE SETTLEMENT AND NATIONSCREDIT ASSERTION OF A SECURITY INTEREST IN SUCH SETTLEMENT
INTRODUCTION
On December 7, 1999 Plaintiffs herein (including one Dorothy Gezurian, a plaintiff who had filed a separate state court action), the Individual Defendants, and Nationscredit Commercial ("NCC") participated in a mediation with Honorable Robert C. Zampano, at Mediation Consultants, Inc. A representative of the insurance carrier for the Individual Defendants, Chubb Insurance Co. ("Chubb" or the "Company"), also participated, representing that he had full authority to settle the matter on behalf of the Individual Defendants. After a day-long mediation, Chubb reached an oral settlement agreement with the Plaintiffs. Plaintiffs state that the only condition Chubb wanted in the formal settlement papers was that Plaintiffs' counsel represented no other plaintiffs that could be future litigants and/or neither counsel had been approached by any potential plaintiffs in regard to this matter. This guarantee was given. Defense counsel for the Individual Defendants assert that, in addition to that guarantee, the Chubb representative demanded that the Individual Defendants also authorize the settlement. This was of concern because, even if a settlement had been reached with the Individual Defendants, they allegedly would still be involved in the litigation as primary witnesses.
But see pages 8-9 of this Ruling.
Upon reaching this settlement, Judge Zampano announced same to NCC. NCC advised that it would sue Chubb in order to "block" any individual settlement, as it took the position that any monies paid out by Chubb had to be paid to MedEd under the terms of a Security Agreement between NCC and MedEd dated December 3, 1996. Plaintiffs refused the offer of settlement proffered by NCC and the mediation ended.
Plaintiffs have now moved to enforce the settlement agreement and NCC has filed its moving papers setting forth its rationale for claiming a security interest in the settlement monies.
A. The Enforceability of the Settlement Agreement
Summary enforcement is not only essential to the efficient use of judicial resources, but also preserves the integrity of settlement as a meaningful way to resolve legal disputes.Audubon Parking Assoc., Ltd. Partnership v. Barclay Stubbs, Inc., 225 Conn. 804, 812 (1993) (when parties agree to settle a lawsuit they are effectively contracting for the right to avoid trial). "The power of a trial court to enter a judgment enforcing a settlement agreement has its basis in the policy favoring the settlement of disputes and the avoidance of costs and time-consuming litigation." Kukla v. National Distillers Products Co., 483 F.2d 619, 621 (6th Cir. 1973). Accord, Joe v. First Bank System, Inc., 202 F.3d 1067, 1070 (8th Cir. 2000);Massachusetts Casualty Insurance Co., v. Forman, 469 F.2d 259, 261 (5th Cir. 1972); Autera v. Robinson, 469 F.2d 1197, 1199 (D.C. Cir. 1969); Keithley Edwards, et al, v. Born, Inc., 608 F. Supp. 580, 582 (D.V.I. 1985). "One who attacks a settlement agreement must bear the burden of showing that the contract he made is tainted with invalidity, either by fraud practiced upon him or by a mutual mistake under which both parties acted."Callen v. Pennsylvania R.R. Co., 332 U.S. 625, 630 (1948).
It is also well established that parties are bound to the terms of a contract even though it is not signed and is an oral agreement. See Main Line Theaters, Inc. v. Paramount Film Distributing Corp., 298 F.2d 801, 802-04 (3d Cir.), cert. denied, 370 U.S. 939 (1962). See also Schwartzchild v. Martin, 191 Conn. 316, 320-321 (1983) (parties may be bound even if contract not signed), cited in Cyr. v. Schwitzer, et al., 1998 WL 420778 at * 1 (Conn.Super. 1998) Accord Green v. John H. Lewis Co., 436 F.2d 389, 390 (3d Cir. 1971) (same), citing Good v. Pennsylvania R.R. Co., 384 F.2d 384 (3d Cir. 1967) and other cases collected.
The only essential prerequisite for a valid settlement agreement is that the Plaintiffs and the Chubb representative mutually assent to the terms and conditions of the settlement. "It is well recognized that an agreement to settle a lawsuit, voluntarily entered into, is binding on the parties." Pugh v. Super Fresh Food Markets, Inc. 640 F. Supp. 1306, 1308-08 (E.D.Pa. 1986), cited in Zauner v. Brewer, 1992 WL 205 179 at * 2. (Conn.Super. 1992).
Finally, a settlement is still binding even if a party has a change of heart between the time of the agreement to the terms of the settlement and the time those terms are reduced to writing. Morris v. Scardelletti, et al., 1995 WL 708550 at * 1 (E.D.Pa. 1995). However, once a settlement is reached, the agreement may not be repudiated by either party. Rather, such an agreement will be summarily enforced by the court. See, e.g., Montgomery v. Smith, 40 Conn. Sup. 358 (Conn.Super. 1985) (parties orally agreed to settlement, which Court enforced, even though defendant had a change of heart and no formal stipulation had been entered on the record). See also, V'Soske v. Barwick. 404 F.2d 495 (2d Cir. 1968) (agreement enforced against defendant for sale of multi-million dollar business despite failure to agree on several significant terms)
Applying these standards, the Court holds that the oral settlement agreement reached among the Plaintiffs herein and the Individual Defendants, through the Chubb representative, will be enforced by this Court. As stated by the Main Line, Schwartzchild and Cyr Courts, parties are bound to the terms of a contract even though it is not signed and is an oral agreement. The settlement agreement, entered voluntarily by the parties, is binding on the parties, even though additional terms are left to be negotiated. The Chubb Insurance adjustor, representing the Individual Defendants, clearly had the right and authority to enter into a settlement on their behalves, which the Court finds he did. The sole guarantee requested by counsel for the Individual Defendants during the mediation was that counsel for the Plaintiffs represented no other plaintiffs that could be future litigants and/or neither of Plaintiffs' counsel had been approached by any potential plaintiffs to the matter. Such guarantee was given. The Individual Defendants' counsel offered to draft the settlement agreement and forward it to Plaintiffs' counsel. No draft was ever forthcoming, although Plaintiffs' counsel made several telephone calls to defense counsel, which were not answered.
At the January 12 conference, held by this Court on the record, defense counsel represented to the Court that there was not a settlement agreement because certain "indemnifications and guarantees" had not been met by counsel. It was obvious that Plaintiffs' counsel had no idea what these additional indemnifications and guarantees were. Since this representation did not comport with the oral settlement reached, Plaintiffs' counsel initially telephoned defense counsel in this regard and, when the call was ignored, put the same inquiry in writing. Unbelievably, defense counsel stated that such request needed to be put in the form of a discovery request, a requirement soundly disavowed by this Court.
The Court holds that defense counsel has a duty to formalize the settlement agreement entered into at the mediation. Any further requirements shall be set forth therein and shall be reasonable to effectuate this settled matter. The settlement is still binding even if the Individual Defendants, through the Chubb representative, had a change of heart between the time of the settlement agreement and the time its terms will be reduced to a writing. Montgomery v. Smith, 40 Conn. Sup. 358, (Conn.Super. 1985) (parties orally agreed to settlement, which Court enforced, even though defendant had a change of heart). Accord V'Soske v. Barwick, 404 F.2d 495 (2d Cir. 1968)
As noted above, it is well established that the Plaintiffs and the Individual Defendants, through their Chubb representative, are bound to the terms of their agreement even though it is not signed as yet and remains an oral agreement. To require an end to this part of this litigation effectuates the public policy favoring the settlement of disputes and the avoidance of any more time-consuming litigation. Too much time and effort has already been expended in enforcing this settlement agreement.
For each and all of the reasons set forth herein, the Court will summarily enforce the Settlement Agreement reached by the Plaintiffs and the Individual Defendants at the mediation. The formal settlement documents shall be forwarded to Plaintiffs' counsel, by the Individual Defendants' counsel on or before July 23, 2000. The documents are to reflect the settlement agreement culminated at the mediation and will add no "additional" onerous or impossible guarantees and indemnifications, other than what would normally be placed in such an agreement. Should the documents do so, Plaintiffs' counsel may contact this Court for an in camera review of the formalized Settlement Agreement.
B. The Alleged Security Interest of Nationscredit Commercial Corp.
Defendant Nationscredit Commercial Corp. ("NCC") asserts that it has a security interest in any insurance proceeds paid to the Plaintiffs by the Individual Defendants and will, accordingly, block this settlement agreement. The Court disagrees.
Although both parties have argued in their papers the contents and meaning of the Director's Officer's Policy (D O), neither actually had the policy upon which they relied. The Court now has a copy of such policy and finds that it runs to the Individual Defendants and not to MedEd or NCC.
The critical portion of the Chubb ("Chubb" or the "Company") policy is Part Two, entitled "Executive Liability and Indemnification." The very first page sets forth significant coverage gaps which exist between the overall Executive Protection Policy and the D O portion thereof. For the Court's purpose, the most important gap is gap number 1 which provides that MedEd, as the insured organization, is not directly insured by this endorsement. Rather, the insured persons are defined as [A]ny person who has been, now is, or shall become a duly elected director or a duly elected or appointed officer, or a past, present, and future employee of [MedEd Holdings, Inc. and its subsidiaries]." The Executive Indemnification Coverage Insuring Clause 2 provides that Chubb will pay on behalf of MedEd all loss to which MedEd grants indemnification to each insured person, which the insured person has become obligated to pay on account of any claim. Inasmuch as MedEd is in no financial position to be able to grant indemnification, the D O policy nowhere requires such be given. If MedEd "fails or refuses [indemnification] other than for reason of financial impairment. . . . then Chubb will pay such claim which is subject to the deductibles set forth in Insuring Clause Two but will not pay for any of the exclusions set forth in subsections 5 and 6 of the coverage section." (Emphasis in original) A review of the exclusions demonstrates that they are inapplicable to the present case. This is also clear to Chubb, as it tendered a defense in this case.
If NCC could allegedly have a security interest in the settlement agreement authorized by Chubb, then it would, a fortiori, have a security interest in the legal fees paid in defense of the claim, which it has not alleged. The court agrees with Plaintiffs that this is indicative of waiver as to that in which it claims a security interest.
This defense is permitted by Section 11, which provides, in pertinent part, that the insured person may not agree to settle a claim, incur any defense costs, or admit liability with respect to any claim without Chubb's written consent, which consent will not be unreasonably withheld. Patently, this did not occur in this case, as Chubb assumed the defense of the matter and the Chubb representative with settlement authority worked out the settlement agreement, which is permitted by Section 11, ¶ 3.
Finally, in contradistinction to NCC's claim, nowhere does this Policy require the Individual Defendants to give their assent to any settlement arrived at. Even if, as claimed by the Individual Defendants' counsel, the Chubb representative ordered this as a condition of settlement, the fact that these Defendants refused to give consent because they would still be required to be involved with the litigation as witnesses was unreasonable. Just as Chubb was required to grant consent to the Individual Defendants to prosecute the action on their own, the policy clearly states that such consent shall not be "unreasonably withheld". As, in this instance, it is asserted that the Individual Defendants refused to give permission to settle simply because they would be witnesses in the ongoing litigation, which they will be in any event, the Court hereby orders that the Individual Defendants grant their consent, as the alleged withholding of same is unreasonable and clearly undermines the public policy of encouraging settlement.
The financial impairment clause noted above is also relevant to the alleged security interest in the Chubb authorization to settle the case. NCC, although it has not seen the policy at issue, contends that it "understands" that it obligates the insurer to reimburse MedEd in regard to MedEd's alleged obligations to indemnify its officers and directors. NCC asserts that, to the extent Chubb "reimburses" MedEd for the indemnification payments it has made to its officers and directors, NCC is entitled to those "reimbursement proceeds." However, NCC and every other party involved herein has repeatedly asserted in this action that MedEd has no assets to make any payments to anyone, including indemnification payments to the Individual Defendants. Hence, MedEd is financially impaired within the meaning of the policy. Thus, there will never be "reimbursement proceeds" to which any security interest of NCC would attach. Furthermore, since the settlement monies proposed to be paid by the Company to Plaintiffs are clearly not "reimbursement proceeds", NCC cannot assert a security interest in these monies.
As to NCC's reliance on its security agreement with MedEd, their propositions are unavailing to them. The Security Agreement gives NCC all interest in collateral to secure Corporate MedEd's obligations under the Financing Documents. Lawsuits against companies and/or its officer and directors could never be considered as "collateral", as they plainly are considered to be liabilities and insurance policies covering such liabilities simply cannot be fit into the definition of "collateral."
Finally, the Court agrees with Plaintiffs that Section 3 of the Security Agreement provides that NCC's security interest is in that property of the "corporation" itself in which it has an ownership interest. In the section detailing its security interest in insurance policies, it is apparent that security interest flows only to those policies in which MedEd itself has such an ownership interest. The Court holds that, to the extent the Security Agreement pertains to insurance policies, it does so quite clearly with respect to payments from insurance companies to the corporation, not to third parties such as the Plaintiffs herein. See Security Agreement at Sections 2(d) and 3 at p. 5-6.
For these reasons, then, the Court holds the NCC does not have a security interest in the settlement monies running from the Individual Defendants, as authorized by the defense insurance company, Chubb, to these Plaintiffs.
CONCLUSION
For each and every reason set forth herein, the Motion to Enforce Settlement Agreement [Doc. No. 69] is GRANTED. Further, this settlement agreement cannot be blocked by NCC, as it has no security in the settlement proceeds.
SO ODERED.
Dated at New Haven, Connecticut this 23rd day of June, 2000.