Opinion
Civil No. 03-4186 ADM/RLE.
March 30, 2005
George G. Eck, Esq., Dorsey Whitney LLP, Minneapolis, MN, on behalf of Plaintiff.
Ernest W. Grumbles III, Esq., and Joel Bergstrom, Esq., Merchant Gould P.C., Minneapolis, MN, on behalf of Defendants.
ORDER
I. INTRODUCTION
This matter is before the undersigned United States District Judge on Luigino's, Inc.'s ("Luigino's" or "Plaintiff") Objection [Docket No. 45] to Magistrate Judge Raymond L. Erickson's Report and Recommendation ("RR") [Docket No. 42]. Judge Erickson's RR recommended this Court grant Societes des Produits Nestlé S.A., and Nestlé Prepared Foods Company's (collectively, "Defendants") Motion to Enforce Settlement Agreement [Docket No. 17]. On March 23, 2005, oral argument was heard on this matter. The factual and procedural background in this matter is set forth in the RR and is incorporated by reference for purposes of the present Objection. For the reasons set forth below, the Objection is denied and the RR is adopted.
II. DISCUSSION
The district court must undertake an independent, de novo, review of those portions of a RR to which objection is made and "may accept, reject, or modify, in whole or part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C); see also D. Minn. LR 72.1(c)(2).
Plaintiff objects to the RR on three grounds. First, Plaintiff argues the Magistrate Judge erroneously failed to conduct an evidentiary hearing despite the existence of a material dispute of fact regarding the intent of the parties. Second, Plaintiff objects to the finding that a written and fully executed settlement agreement was not a condition precedent to a binding settlement agreement. Finally, Plaintiff objects to the conclusion that, even if a written and fully executed settlement agreement was a condition precedent, Defendants unilaterally excused and waived that requirement.
It is well established that a district court possesses the inherent or equitable power summarily to enforce an agreement to settle a case pending before it. Wilson v. Wilson, 46 F.3d 660, 664 (7th Cir. 1995) (citing precedent from the 4th, 5th, 6th, 9th, 10th, 11th and DC Circuits). Under Minnesota law, "[s]ettlement agreements are governed by basic principles of contract law." Sheng v. Starkey Labs, Inc., 53 F.3d 192, 194 (8th Cir. 1995). Before enforcing a settlement, a district court must conclude that agreement has been reached on all material terms. Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988) (citing Ozyagcilar v. Davis, 701 F.2d 306, 308 (4th Cir. 1983)). The question of whether a particular term is material "is a legal determination for the Court." Transclean Corp. v. Motorvac Technologies, Inc., 2002 U.S. Dist. LEXIS 19312, *27 (D. Minn. Sept. 30, 2002).
All parties agree, and this Court concurs, that Minnesota law controls this matter. See Transclean Corp. v. Motorvac Technologies, Inc., 2002 U.S. Dist. LEXIS 19312, *10-11 (D. Minn. Sept. 30, 2002).
"When interpreting a contract, the Court must ascertain and give effect to the expressed intentions of the parties." Id. at *10-11 (citations omitted). As the RR correctly notes, "[i]ntent to contract . . . is based upon the objective manifestation and conduct of the parties, and not upon their subjective, but unmanifested intent." RR at 9.See id. at 29; Powell v. MVE Holdings, Inc., 626 N.W.2d 451, 460 (Minn.Ct.App.), rev. denied (Minn. July 24, 2001);Asia Pacific Indus. Corp. v. Rainforest Café, Inc., 380 F.3d 383, 385 (8th Cir. 2004). Where the language of a settlement agreement is clear and unambiguous, it should be interpreted so as to give effect to "its plainly expressed intent and not what was intended to be written." See Wessels, Arnold Henderson v. Nat. Med. Waste, Inc., 65 F.3d 1427, 1436 (8th Cir. 1995).
A. Need for an Evidentiary Hearing
As an initial matter, Plaintiff contends the Magistrate Judge erred by recommending the settlement agreement be enforced without the benefit of an evidentiary hearing. Plaintiff claims a material dispute exists as to the parties' intentions concerning whether the agreement had to be executed to be binding. Plaintiff notes the Eighth Circuit has stated, "[a]s a general rule, when the parties dispute the existence or terms of a settlement agreement, the parties must be allowed an evidentiary hearing."Sheng, 53 F.3d at 194. Plaintiff argues the Court should hold an evidentiary hearing to allow "examination of defendants' counsel in particular to determine the meaning of the several statements which evidence defendants' intent not to be bound by the settlement agreement until it was fully executed." Pl.'s Objection to and Appeal from Magistrate Judge's RR Granting Defs.' Mot. to Enforce Settlement Agreement [Docket No. 48] at 10.
Although an evidentiary hearing is necessary when the existence or terms of a settlement agreement are in dispute, evidence of subjective intent is inappropriate where the scope and terms of a contract are unambiguous. See Gatz v. Federal Deposit Ins. Corp., 836 F.2d 1089, 1095 (8th Cir. 1988). This is not a case where the parties contest the existence of a settlement agreement or the meaning and scope of the written terms. The material facts themselves are not in dispute. The sole issue is whether those material facts evidence an objective intent to be bound only upon execution of the settlement agreement. Furthermore, Plaintiff did not raise the issue of the need for an evidentiary hearing until after the Magistrate Judge issued an adverse ruling. Plaintiff now claims an evidentiary hearing is necessary to "determine the meaning of the several statements which evidence defendants' intent not to be bound by the settlement agreement until it was fully executed," rather than to adduce additional material facts. However, it is well established that the intent of contracting parties is determined from each party's "outward manifestation . . . rather than a party's subjective intent." TNT Props., Ltd. v. Tri-Star Developers, LLC., 677 N.W. 2d 94, 102 (Minn.Ct.App. 2004) (citations omitted). As a result, this Court finds an evidentiary hearing would add only inadmissible parole evidence to the record. See Gatz, 836 F.2d at 1095; Transclean Corp., 2002 U.S. Dist. LEXIS at *6-7. Consequently, Plaintiff's request for an evidentiary hearing is denied.
B. Execution was not a Condition Precedent to a Binding Settlement Agreement
Plaintiff objects to the RR's finding that the parties evinced no objective intent to be bound only upon execution of the settlement agreement. In support of its position, Plaintiff cites "evidence" of: (1) the removal of an effective date of April 1, 2004 from the April 7, 2004 draft agreement; (2) a provision requiring "within ten (10) days of the execution and delivery of this Agreement, the parties, through their counsel, shall execute a Stipulation of Dismissal with Prejudice;" (3) an e-mail from Defendants' counsel stating "to speed this up, we would like to revise to remove Societe des Produits du Nestle (would require internal counsel to fly to Switzerland to get a signature);" and (4) an e-mail from Defendants' counsel stating "[a]s a further condition of acceptance of your requested exhaustion periods, Nestle wants to get your execution copies back later today or tomorrow at the latest." The parties do not debate the facts themselves but contest their legal significance.
A settlement agreement may be enforceable even if it is not in writing or is not executed. See, e.g., Bergstrom v. Sears, Roebuck Co., 532 F. Supp. 923, 932 (D. Minn. 1982); Shell v. Amalgamated Cotton Garment, 871 F. Supp. 1173, 1181 n. 16 (D. Minn. 1994). In evaluating whether the parties exhibited an objective intent to be bound by the settlement prior to execution of a written document, courts consider "the course of negotiations, agreement on material terms, whether the parties described the settlement as such, and whether any existing disagreements were merely technicalities." Sears, Roebuck Co., 532 F. Supp. at 932-33 (citation omitted). There is a distinction between cases that reference a future contract in writing and those that require the agreement be reduced to writing and executed as a condition precedent to completion.See TNT Props., Ltd., 677 N.W.2d at 100. "[W]here the parties know that execution of a written contract was a condition precedent to their being bound, there can be no binding contract until the written agreement was executed." Powell, 626 N.W.2d at 460 (quoting Dataserv Equip., Inc. v. Tech. Fin. Leasing Corp., 364 N.W.2d 838, 841 (Minn.Ct.App. 1985)).
Plaintiff admits the Settlement Agreement does not contain a provision explicitly requiring execution as condition precedent to a binding contract. Plaintiff's attorney and Chief Executive Officer aver it was their "intention" and "understanding" that Plaintiff did not intend to be bound by the Settlement Agreement until it was executed. Eck Decl. [Docket No. 32] ¶ 7; Bubar Decl. [Docket No. 31] ¶ 7. However, as the RR correctly noted, the "secret, unexpressed intention of the parties does not matter." RR at 12 (quoting Transclean Corp., 2002 U.S. Dist. LEXIS at * 29 (citations omitted)). Despite being represented by sophisticated counsel who entered into complex and prolonged negotiations, there is no evidence either party suggested including an explicit provision requiring execution before the Agreement became effective.
Plaintiff claims it objectively demonstrated its intent to be bound only upon execution when it removed the effective date of April 1, 2004 from the April 7, 2004 draft of the Agreement. The effective date, which had been inserted by Defendants in the March 15, 2004 draft, remained blank until June 1, 2004 when the parties finalized the exhaustion provisions. See Grumbles Aff. [Docket No. 20] ¶¶ 7-8, 13. Plaintiff argues the effective date of April 1, 2004 was removed because "it was clear that the settlement agreement would not be reduced fully to writing and executed by or on that date." See Eck Decl. ¶ 8.
This Court agrees with the RR's conclusion that merely removing the effective date of April 1, 2004 is not evidence the parties intended to be bound only upon execution. Instead, the circumstances surrounding the removal of the effective date bolster Defendants' contention that an enforceable agreement was created on June 1, 2004. As Plaintiff notes, the effective date was removed because certain material terms of the Agreement remained unresolved. On June 1, 2004, the effective date was reinserted without objection, suggesting negotiations were complete and the Agreement would be "reduced fully to writing . . . by or on that date." See Eck Decl. at ¶ 8. Plaintiff's contention that the April 1, 2004 effective date was removed and left blank because the Agreement could not be executed by that date is refuted by the subsequent negotiations. Both parties agreed to and included an effective date of June 1, 2004 even though they did not expect to execute the Agreement until June 2, 2004. Grumbles Aff. ¶ 14, Ex. G. Finally, because all of the Agreement's critical obligations flowed from the effective date, the parties intended to be bound by the effective date rather than the date on which the parties executed the agreement.
Plaintiff also claims a provision and statements concerning the intention of the parties to dismiss the lawsuit only after the parties signed the Agreement evidences an intent to be bound only upon execution. The Agreement consistently contained a provision providing that, "[w]ithin ten (10) days of the execution and delivery of this Agreement, the parties, through their counsel, shall execute a Stipulation of Dismissal with Prejudice." On June 1, 2004, Defendants' counsel stated that, "once we receive the signed versions from you tomorrow, let's call the judge's calendar clerk tomorrow with an update." See Grumbles Aff., Ex. H. Additionally, in a May 3, 2004 e-mail, Defendants' counsel proposed, "to speed this up, we would like to revise to remove Societe des Produits du Nestle (would require internal counsel to fly to Switzerland to get a signature)." Id. Ex. E.
These statements and the Agreement's provision about dismissal of the underlying lawsuit are insufficient to evince Defendants' objective intent to be bound only upon execution of the Agreement. This Court concurs with the RR's finding that these statements are similar to those made in Bergstrom v. Sambo's Restaurants, Inc., 687 F.2d 1250, 1257 (8th Cir. 1982). InBergstrom, defendant's attorney wrote plaintiff a letter stating, "any comments you or your attorneys have on the documents should be presented to me as soon as possible so that a final lease can be acknowledged and executed by the parties."Id. The Eighth Circuit found the "language does not evidence, as [the defendant] contends, an expression of its intent that there be no agreement between the parties until their integrated contract was prepared, but only that a final lease document would be prepared for execution by the parties." Id. Although an explicit assertion is not necessary to establish an intent not to be bound in the absence of a signed agreement, objective evidence must nevertheless exist of the parties intent to be bound only upon execution. See Massee v. Gibbs, 210 N.W. 872, 873 (Minn. 1926).
In the present case, the statements and dismissal provision demonstrate Defendants' understanding that the Agreement would ultimately be executed, rather than an intent to be bound only upon execution. In addition, the provision concerning the execution of the Stipulation of Dismissal only requires that the parties execute the Stipulation within 10 days after the Agreement was signed. Nothing prevents the parties from executing the Stipulation of Dismissal earlier. Plaintiff's argument that these statements and the provision in the agreement demonstrate Defendants' intent not to be bound until signing is undermined by a July 1, 2004 e-mail sent by Defendants' counsel to Plaintiff. Grumbles Aff., Ex. G. The e-mail states, "we should give [the District Court] a call to advise the matter has been settled," despite the fact that neither the Agreement nor the Stipulation of Dismissal had yet been executed. Id. As a result, this Court agrees with the RR's conclusion that the provision in the Agreement, "which permits delaying the dismissal of the lawsuit until after the execution of the Agreement . . . [is] a matter of prudence, rather than . . . an indication that the parties intended on being bound only upon signing the Agreement." RR at 16.
Plaintiff also relies on a June 1, 2004 e-mail from Defendants' counsel requiring, "[a]s further condition of acceptance of your requested exhaustion periods, Nestle wants to get your execution copies back later today or tomorrow at the latest" as evidence of the parties' intent not to be bound in the absence of execution. Grumbles Aff. Ex. G. To determine the meaning of this statement, it is necessary to consider the context in which it was made.
During a May 14, 2004 telephone conversation, Plaintiff advised Defendant that the "only issue that remained, as raised by his client, was the proposed 180-day period . . . to exhaust all non-conforming packaging and product." Id. ¶ 10 (emphasis in original). On June 1, 2004, Plaintiff sent Defendants a proposal concerning the exhaustion period and reiterated that the timing was the only issue remaining for resolution. Id. ¶ 12. Plaintiff's counsel also noted, if the terms of exhaustion were acceptable, his client would be available to execute the agreement on the following day. Id.
Later that same day, Defendants left Plaintiff a voice mail message accepting the proposed exhaustion period "on the condition that the parties finalize agreement and process immediately." Id. ¶ 13. Defendants subsequently sent Plaintiff an e-mail with a document designated as the "final version of the Agreement" attached. Id. ¶ 13, Ex. G. The e-mail stated "as a condition of Nestle's acceptance of these terms, the Effective Date will be defined as June 1, 2004," asked that the Agreement be "forward[ed] to your client for execution," and asserted, "[a]s a further condition of acceptance of your requested exhausted periods, Nestle wants to get your execution copies back later today or tomorrow at the latest." Id. ¶ 13, Ex. G.
On the afternoon of June 1, 2004, after both parties had an opportunity to review the Agreement, they added an additional reference to the 21-day phase-in proposal. At this time, Defendants' counsel confirmed no other changes were needed, a statement which Plaintiff's counsel "expressly acknowledged."Id. ¶ 14. The parties agreed that "execution [of the Agreement] was set to go forward the following day. Id. The conversation concluded with Plaintiff requesting Defendants send the Settlement Agreement to him "and he would get it to his client for signature the next day." Id.
The statements made by Defendants on June 1, 2004 do not demonstrate an objective intent to be bound only upon execution of the Agreement. These statements represent a counteroffer, which Plaintiff subsequently accepted. On June 1, 2004, Plaintiff proposed terms of exhaustion. Those terms were acceptable to Defendants provided Plaintiff met two additional requirements — adding an effective date of June 1, 2004 and finalizing the Agreement by returning executed copies to Defendants by the following day. Under Minnesota law, "an acceptance, to be valid and give rise to a binding contract, must be made in unequivocal and positive terms and comply exactly with the requirements of the offer." Minar v. Skoog, 50 N.W.2d 300, 302 (Minn. 1951). Since Defendants sought to "vary, add to, or qualify the terms of the offer," their response "constitute[d] a rejection of the offer and a counteroffer." Id at 302; see also Abrahamson v. Abrahamson, 613 N.W.2d 418, 423 (Minn.Ct.App. 2000).
Later that day, Plaintiff agreed to both of Defendants' proposed terms. Plaintiff told Defendants that the Agreement, which included the effective date of June 1, 2004, "looked fine" but asked that the parties include an additional reference to the 21-day provision. Grumbles Aff. ¶ 14. Plaintiff's counsel also agreed "execution was set to go forward the next day" and "expressly confirmed" no other changes were necessary. Id. Consequently, Defendants' insistence on an effective date of June 1, 2004 and execution of the Agreement by the following day constituted a counteroffer. When Plaintiff accepted the counteroffer, it became part of the final Agreement and, because all the terms were agreed to in their entirety by both parties, the Agreement became binding.
This analysis is bolstered by the Comments to Restatement (Second) of Contracts, Section 27, which provides:
Parties who plan to make a final written instrument as the expression of their contract necessarily discuss the proposed terms of the contract before they enter into it and often, before the final writing is made, agree upon all the terms which they plan to incorporate therein. This they may do orally or by exchange of several writings. It is possible thus to make a contract the terms of which include an obligation to execute subsequently a final writing which shall contain certain provisions. If parties have definitely agreed that they will do so, and that the final writing shall contain these provisions and no others, they have then concluded the contract.
Comments to Restatement (Second) of Contracts § 27(a), quoted inSchaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 743 (8th Cir. 2002); see RR at 22. Plaintiff and Defendants exchanged several drafts of the proposed terms of the Agreement with the understanding that the terms would ultimately be memorialized in a "final written instrument." Defendants suggested, and Plaintiff agreed, that one of those terms include the obligation to "execute . . . [the] final writing." Once the parties agreed to that obligation, and to all other terms, the Settlement Agreement was concluded.
Finally, Plaintiff's counsel avers it was understood that he did not possess final settlement authority and Luigino's only authorized him to negotiate a possible settlement as instructed, at each step of the process, by his client. See Pl.'s Supplemental Brief (stating "[e]ach draft of the agreement was forwarded to Luigino's for comment and further instruction, and each suggested revision put forth by Defendants ultimately required Luigino's blessing"). In support of its position, Plaintiff points to a March 15, 2004 e-mail in which Defendants' counsel wrote, ". . . we have now been able to connect with all appropriate in-house legal and business folks to get clearance on a settlement revision." Grumbles Aff. Ex. C. As a result, Plaintiff argues its counsel was without authority to accept the Agreement and Plaintiff was entitled to propose modification of the agreement on June 2, 2004 concerning abandonment of its Lean Gourmet trademark application. Id. ¶ 16. Plaintiff argues that although no challenge was made to the provision earlier in negotiations, it should not be precluded from renegotiating it on June 2, 2004, since the Agreement was not yet executed.
"Whether a settlement is oral or in writing, attorneys must have authorization to settle in order to bind their clients."Transclean Corp., 2002 U.S. Dist. LEXIS at *18-19 (citing Minn. Stat. § 481.08). An attorney may bind his client to a settlement agreement when the client has expressly authorized the attorney to do so, impliedly accepts the statement, ratifies the agreement or is estopped from denying the validity of the settlement. See id; Rosenberg v. Townsend, Rosenberg Young, Inc., 376 N.W.2d 434, 437, 482-83 (Minn.Ct.App. 1990); Schumann v. Northtown Ins. Agency, Inc., 452 N.W.2d 482 (Minn.Ct.App. 1990); Larson v. Heritage Square Assocs., 952 F.2d 1533, 1537 (8th Cir. 1992) (a client "must sustain a heavy burden to establish that his attorney acted without any kind of authority") (internal citations omitted).
Plaintiff never featured its argument that its attorney did not have authority to bind Luigino's to a settlement agreement until the Court requested supplemental briefing on the issue. See February 23, 2005 Order [Docket No. 55]. Until that point, Plaintiff only argued the Agreement was not binding until executed. Furthermore, the language of the March 15, 2004 e-mail undermines Plaintiff's argument that counsel needed approval from Luigino's before he could accept the Agreement. First, the e-mail was sent months earlier when negotiations were in their nascent stages, not when discussions were reaching their culmination. Second, its language, and Plaintiff's counsel's argument that he received guidance from his client at each step, suggests Plaintiff was already familiar with the material provisions of the Agreement as proposed on June 1, 2004. This conclusion is also strengthened by Plaintiff's statement in a May 14, 2004 telephone conversation to Defendants that the "only issue that remained, as raised by his client, was the proposed 180-day period . . . to exhaust all non-conforming packaging and product." Id. ¶ 10 (emphasis of "only" in original; emphasis of "as raised by his client" added). Finally, the provision Plaintiff sought to revise on June 2, 2004 was in each draft from the first offer made by Defendants on February 16, 2004 through the final version approved by the parties. Plaintiff had repeatedly reviewed and approved the language and gave repeated assurances both before and on June 1, 2004 that no other changes to the Agreement were necessary. As a result, this Court finds Plaintiff's counsel had authority to bind Plaintiff and Plaintiff was precluded on June 2, 2004 from renegotiating a provision. By June 2, 2004, the Agreement was already binding.
For the aforementioned reasons, Plaintiff's objection to the RR's finding that the parties did not evince an objective intent to be bound only upon execution of the Agreement is denied.
C. Defendants Waived Execution as a Condition Precedent
Plaintiff objects to the RR's finding that, assuming the statement in Defendants' July 1, 2004 e-mail was intended to require execution as a condition precedent to creating a binding settlement agreement, "the condition was intended solely for the benefit of the Defendants, and that Defendants excused the occurrence of that condition, by pressing forward with the instant Motion." RR at 20. The finding served as an alternate basis for the RR's recommendation. Plaintiff argues the objective evidence demonstrates Plaintiff intended execution as a condition precedent. As a result, Plaintiff claims such a condition benefits both parties equally and cannot be unilaterally waived by Defendants.
A condition precedent is "an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due." Seman v. First State Bank, 394 N.W.2d 557, 560 (Minn.Ct.App. 1986). "A party may unilaterally excuse a condition precedent if the condition was intended solely for that party's benefit and protection."Transclean Corp., 2002 U.S. Dist. LEXIS at *30 (citing Dolder v. Griffin, 323 N.W.2d 773, 778 (Minn. 1982); Hanson v. Moeller, 376 N.W.2d 220, 224 (Minn.Ct.App. 1985)). "A condition is impliedly excused when the party benefited by the condition continues to demand performance knowing that the condition has not been met." Transclean Corp., 2002 U.S. Dist. LEXIS at *30 (citing Appollo v. Reynolds, 364 N.W.2d 422, 424 (Minn.Ct.App. 1985)).
Assuming, arguendo, Defendants' statement that "[a]s a further condition of acceptance of your requested exhaustion periods, Nestle wants to get your execution copies back later today or tomorrow at the latest" constitutes a condition precedent, the plain text indicates the term was offered for the benefit and protection of Defendants. As previously noted, Plaintiff accepted the term and incorporated it into the Settlement Agreement through ensuing conversations on July 1, 2004. Defendants unilaterally waived this condition precedent by seeking enforcement of the Settlement Agreement despite Plaintiff's failure to execute it by June 2, 2004. See Transclean Corp, 2002 U.S. Dist. LEXIS at * 31 (finding "plaintiffs have excused the condition precedent by seeking to enforce the settlement agreement, even though [defendant] has not fulfilled the condition").
For the aforementioned reasons, Plaintiff's Objection is denied and the RR is affirmed in its entirety.
III. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS HEREBY ORDERED that:1. The RR [Docket No. 42] is AFFIRMED;
2. Plaintiff's Objection to the RR [Docket No. 45] is DENIED;
3. Defendants' Motion to Enforce Settlement Agreement [Docket No. 17] is GRANTED. LET JUDGMENT BE ENTERED ACCORDINGLY.