California Mediation and Arbitration

Settlements: Stipulation To Enter Judgment For $300K After Defendant Defaults On One-Time Payment of $75K Is An Unenforceable Penalty

Admission Of Liability For Underlying Claims Or For Damages Alleged Might Have Made A Difference.

        Stipulations to enter judgment upon default for an amount that is larger than an agreed-upon settlement payment continue to confound judges, attorneys, and parties.  In Vitatech International, Inc. v. Sporn, G053477 (4/3  9/29/17) (Aronson, Bedsworth, Ikola) (unpublished), the trial court entered judgment against defendants for more than $300,000, based upon a stipulation for entry of judgment, after defendants failed to pay the agreed-upon settlement amount of $75,000.   Plaintiff Vitatech contended that the $75,000 settlement amount was merely a discount of the agreed-upon liability to encourage prompt and timely payment, and the trial court agreed.

        Defendants did well to appeal.  The Court of Appeal applied "well-established precedent", including Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008), to explain that the stipulated judgment for more than four times the amount Vitatech agreed to accept as full settlement "is an unenforceable penalty because it bears no reasonable relationship to the range of damages the parties could have anticipated would result from Defendants' failure timely to pay the settlement amount."

        COMMENTS:  My colleague Mike Hensley represented the successful appellant in Greentree.  Mike and I are co-contributors to another blawg, California Attorney's Fees.

        An interesting aspect of the Vitatech International, Inc. case is whether appellants properly sought to vacate the judgment under section 473(d), which allows for the vacation of void judgments.  A judgment can be void when the court lacks fundamental authority over the subject matter, question presented, or party, which does not seem to be the case here.  But the Court of Appeal found another example of a void judgment here:  viewed as an unreasonable liquidated damages provision, the judgment was "void as against public policy."

        Finally, what might have saved the stipulated judgment?  The Court of Appeal analyzes other cases in which a stipulated judgment has been found to be valid, and suggests that the stipulated judgment could have survived if the appellants had admitted their liability for the underlying claims or for the damages Vitatech alleged in the complaint.  Apparently merely agreeing to stipulate to the amount of damages alleged in the complaint was not the same as expressly admitting liability for those damages.

Settlement Agreements: Order Granting Motion To Enforce Settlement Agreement Is Affirmed Where Appellant Dwells On Merits Of Underlying Action

In Pro Per Appellant Struggled With Appeals Process.

        Plainitff Denardo, in propria persona, sued Defendant Givens for damages in a dispute arising from a real estate transaction.  With the assistance of counsel, Givens and Denardo mediated their dispute and entered into a written settlement agreement.  Denardo received an initial settlement payment, but did not dismiss the lawsuit.  Having second thoughts about completing the settlement, she filed a "Notice of Motion and Motion to Set Aside the Conditional Settlement."  Givens filed a motion to enforce the settlement under Code of Civ. Proc., section 664.6.  The trial court granted Givens' motion and awarded him attorney fees.  Denardo appeared pro se at a hearing on her motion, but neither party informed the court of an intent to appear or contest a tentative ruling.  The court ordered the case dismissed, and entered judgment, from which Denardo appealed, again in pro se.  Denardo v. Givens, A147537 (1/5  9/25/17) (Bruiniers, Simons, Needham) (unpublished).

        Affirmed.  

        COMMENT:   It is  a real uphill battle to set aside a signed settlement agreement entered into by competent parties represented by counsel in a mediation.   I infer from the fact that Denardo filed a supplemental complaint for Elder Abuse that she was old.  Except for the mediation, she appears to have been in pro per during most of the trial court proceedings, and the appeal.  The Court signals that Denardo may have a poor grasp of what she is doing:  "We begin by reiterating settled rules of appellate review, often unfamiliar to pro se litigants," Justice Bruiniers explains.  According to the Court, Denardo made mistakes typical of pro per parties:  she made "minimal reference to the trial record," she incorporated "extended recitals of 'facts' without any apparent basis in the record," and she dwelled on the merits of her underlying action, though she should have focused on the flaws in the settlement.  The Court of Appeal struggled to understand her contentions, which the Court enumerated, "as best we can discern."  

        Woe betide the in pro per appellant, especially one trying to set aside a signed settlement agreement.

        I note in passing that, according to legal reporter Adam Liptak's "exit interview" with Judge Richard Posner, the immediate reason for  the judge's abrupt announcement of his retirement from the 7th Circuit Court of Appeals was his frustration with the plight of in pro per litigants in the legal system.

        

 

Consumers/Fees/Settlement Agreements: Defendants Contesting Fee Award Lose On Appeal Because In Settlement Agreement, They Agreed To Fee Entitlement

Reasonableness Of Award Did Not Need To Be Addressed, Because Entitlement, Which Parties Agreed To, Was The Real Issue.

        Once a case is settled, some issues need not be litigated, even though the parties may want to do so.  Such was the case in Medina v. South Coast Car Company, Inc., D069820 (4/1  9/19/17) (Benke, Nares, Aaron) (unpublished).

        Medina sued South Coast Car Company, Inc. (SCCC) and Veros Credit, LLC (Veros) in connection with the sale to him of an Audi.  The seller, SCCC, assigned the retail installment sales contract to Veros.  As part of a settlement, defendants agreed they would not dispute the basis for fee entitlement, that Medina would be deemed the prevailing party, and that the defendants could dispute the reasonableness of the attorneys' fees, costs, and prejudgment interest claimed to have been incurred by Medina.

        On appeal, SCCC argued that Medina was not entitled to attorney's fees, and Veros was not liable to pay any fees and costs, "as it was merely the 'holder' of the RISC . . . "

        "Because defendants' myriad challenges on appeal to the award of attorney fees, costs and prejudgment interest are limited to the issue of entitlement, as opposed to their amount, explained Justice Benke, "we have no reason to review the reasonableness of such an award."

        COMMENT:  It is not unusual for a settlement agreement to resolve all issues, reserving the determination of fees to the Court.  However, if fee entitlement and reasonableness of the fees are both contested, then the settlement agreement must be drafted with care, so as to reserve the genuinely contested issues to the Court, instead of stipulating away a genuinely contested issue.  An additional consideration is that reserving the issue of fee entitlement for the court to decide could make it more difficult to settle the case.

Settlement Agreements: 4/2 CCA Holds Trial Court Can Grant Equitable Remedies In Motion Brought Under CCP Section 664.6 To Enforce Settlement Agreement

Trial Court Erred By Ruling It Could Not Grant Equitable Remedies In Motion Under Section 664.6.

        Plaintiff Mathis settled with defendants by agreeing to purchase property from defendants for $1M, with escrow to close in 120 days.  The trial court dismissed the underlying case, while retaining jurisdiction under that convenient device, Cal. Code of Civ. Proc., section 664.6, to enforce the settlement.  Mathis moved to enforce the settlement agreement asking the trial court to grant equitable relief modifying escrow terms by extending the date of closing, and by assigning the property to a nominee.  The trial judge denied the motion, ruling it had no jurisdiction to modify the settlement agreement, and Mathis appealed.  Mathis v. Pacific Mortgage Exchange, Inc., et al., E063868 (4/2  9/7/17) (Ramirez, Miller, Slough) (unpublished).

       "While this was not an unreasonable reading of the statutory language, it was incorrect under established case law. On a motion to enforce a settlement under section 664.6, a trial court has jurisdiction 'to provide any appropriate equitable remedy,'" explained the Court, relying on Lofton v. Wells Fargo Home Mortgage, 230 Cal.App.4th 1050, 1061-1062 (2014).

        Because the trial court has the power to grant equitable relief when enforcing a motion brought under section 664.6, upon remand, the trial judge will have to consider whether it is appropriate to provide the requested relief. 

BEST LINE IN THE OPINION:  "[D]efendants pick up the scent of Mathis's red herring and run off after it."  

Herman Bencke, lithographer.  Library of Congress.

Settlement: Ninth Circuit Confirms High Showing Needed To Set Aside Settlement Based On Fraud On The Court

Nor Did District Court's Purported Use Of Twitter Account To Tweet U.S. Attorney's Announcement About Case Establish Appearance Of Impropriety.

"A lone home looks stark amid the bare pine trees on a hillside above Pine Valley in Jefferson County, Colorado. The trees are lingering reminders, 14 years later (as of 2016) of the 'Hayman Fire,' a 2002 forest fire that became the largest of the Colorado wildfires in the state's recorded history. The arson fire burned 133 homes and 138,114 acres, and wasn't contained for more than a month. The fire was named after a mining ghost town in the area."  Carol M. Highsmith, photographer.  2016.  Library of Congress.

 

        It can be even harder to show fraud on the court than to show fraud on a party.  The standard required for relief based on fraud on the court is very high "in deference to the longstanding policy in favor of the repose of judgments."  United States v. Sierra Pacific Industries, Inc., et al., No. 15-15799 (9th Cir. 7/13/17) (Thomas, Murguia, McCalla).  In Sierra Pacific Industries, defendants sought to set aside a settlement arising from the "Moonlight Fire," in which 46,000 acres of national forests burned.  The government sought $800 million in damages, and the settlement required Defendants to pay $55 million and transfer 22,500 acres of land to the government. 

        The Defendants could not surmount the high burden needed to establish fraud on the court and obtain relief under Fed. R. Civ. P. 60(d)(3).  The Court of Appeals agreed with the district court that Sierra Pacific Industries failed to establish material, intentional misrepresentations that could not have been discovered before settlement, even through due diligence.  It also helped that the settlement agreement specifically provided that facts and claims might differ from facts believed to be true or claims believed to be available, and that the parties assumed the risks of such possible differences.

        Remarkably, a state case proceeding after settlement of the federal case was actually dismissed with prejudice as a result of terminating sanctions, because the California Superior Court concluded that the California Department of Forestry and Fire Protection's attorneys engaged in "pervasive misconduct" and "a systematic campaign of misdirection with the purpose of recovering money from the Defendants."

        Defendants also creatively argued that the district court's use of a twitter account to follow the U.S. Attorney's office on Twitter created an appearance of bias, and that a retweet constituted impermissible comment on the substance of a pending case, violating Canons of judicial conduct.  However, the Court of Appeals concluded that the "claim that an unknown account, not identified with a judge or the judiciary, followed a public Twitter account maintained by the U.S. Attorney does not provide a basis for recusal here."  Furthermore, merely tweeting a link to the U.S. Attorney office announcement did not constitute "public comment" sufficient to require recusal.  "[C]oncerns of improper communication arise in the context of 'the exchange of frequent messages, "wall posts," or "tweets" between a judge or judicial employee and a "friend" on a social network who is also counsel in a case pending before the court.'"

        However, the exoneration comes with an admonition about the use of social media by judges:

"Nonetheless, this case is a cautionary tale about the possible pitfalls of judges engaging in social media activity relating to pending cases, and we reiterate the importance of maintaining the appearance of propriety both on and off the bench."

Mediation/Settlement Agreement: Court Enforces "Short Form" Settlement Agreement Over Objections Of Petitioner

The Neighbor Feud Had Gone On Since 2002.

 

     Wandering Elk, Dakota Indian, smokes peacepipe. c1903. Frank Bennett Fiske, photographer.  Library of Congress.

     The Court of Appeals' reliance on the wisdom of a Croatian proverb offered a strong clue in the first sentence that the Court would enforce peace among feuding neighbors:  "Better a bad harvest than a bad neighbor." Beuchel v. Sup. Ct., B268193 (2/2  5/1/17) (Hoffstadt, Ashmann-Gerst, Goodman) (unpublished).  Another clue was the Court's eagerness to treat the matter, filed as an appeal, as a writ proceeding. In this unpleasant neighbor dispute, there were allegations of spraying plaintiff with a garden hose, trespass to install barbed wire, and installation of surveillance cameras.  The 15 year history of ill-will included a citizen's arrest of plaintiff after defendants allegedly found her in their backyard damaging their fence.

    But let's cut to the chase.  Plaintiff tried to wriggle out of a short-form settlement agreement following a mediation, chiefly on the grounds that she only understood the release of claims to apply to defendants' cross-claims, not her own, as to which the trial court had already granted summary judgment against her.  After neighbors brought a motion to enforce the settlement agreement, which the trial court granted, plaintiff appealed.

    Unsurprisingly, the Court of Appeal denied the plaintiff/petitioner's request, affirming the trial court's grant of the enforcement motion.  

    COMMENT:  Key reasons that the Court was willing to enforce the shorthand form were that it described the settlement "as full and final settlement of the claims raised" in the court case; plaintiff's promise to waive her right to appeal; and a "1542 waiver" that included each parties' waiver of all claims known and unknown.  

     The Court of Appeal added, "The trial court had ample grounds to find that plaintiff's refusal to sign the  short-form agreement was an effort to create controversy where none existed and a thinly veiled attempt to 'cause unnecessary delay' by frivolous means."  As a consequence, the Court upheld a trial court order awarding payment of attorney's fees defendants incurred in moving to enforce the short-form agreement.

      There is a strong tendency to attribute fault to someone who appears to be acting unreasonably.  

Settlement Agreements: Written Agreement To Dismiss Case And Enforce Settlement Agreement Is Enforceable, Though Agreement Was Not Filed With The Court

Court Describes Appeal As “A Tempest In A Teapot.”

     Teapot with cherry or plum blossoms.  Between 1750 and 1850.  Library of Congress.

     California has a convenient procedure for enforcing settlement agreements:  Code of Civil Procedure, section 664.6.  This allows a court to retain jurisdiction of a dismissed case for the purpose of enforcing a settlement agreement.  A request to dismiss must be made orally on the record, or in writing signed by the parties, while the case is pending.  The advantage of the procedure is that the party seeking enforcement need not file a new lawsuit to do so. 

     In Fidelity National Title Insurance Company v. Zuckerman, B265557 (2/3 12/7/16) (Stratton, Edmon, Aldrich) (unpublished), the written Settlement Agreement signed by the parties, and providing for the court’s retention of jurisdiction, was not filed with the court.  And -- you guessed it -- when plaintiff Fidelity moved  in 2015 to enforce the settlement, the defendants objected that the court lacked jurisdiction.  Defendants argued there was no evidence in the record that there was an oral request to retain jurisdiction, nor was a writing signed by all the parties presented to the court before dismissal occurred in 2008.

     The Court of Appeal disagreed.  True, a fully executed settlement requesting retention of jurisdiction had not been filed with the court because the agreement was to be kept confidential.  However, a filed Stipulation for Judgment, referring to previous entry of dismissals, did state the court would retain jurisdiction. The Court of Appeal refused to construe the requirement that a “request” be made during the pendency of the case to mean that the request had to be filed as an actual pleading with the court before dismissal.   Here, the request had indeed been fully executed prior to the dismissal.  Also, a Stipulation for Dismissal of Action and Reservation of Jurisdiction by the Court, signed by counsel, referenced the Settlement Agreement, stating that its terms were confidential, and that it provided for the Court’s retention of jurisdiction, had been filed.  That was enough. For good measure, the Court of Appeal added that because Defendants filed an ex parte application for dismissal and reservation of the court’s jurisdiction, they were estopped from arguing that the court lacked jurisdiction.

     COMMENT:  The case is unpublished and therefore not citable as authority.  The safest approach would be to have a fully executed agreement to retain jurisdiction filed with the court prior to dismissal – and then such tempests in a teacup would be avoided.

Settlement Agreements: California Court Won’t Interfere With Texas Judge’s Ruling Allowing Discovery Of Information Subject To Confidentiality Provisions In California Settlement

There Is No Absolute Bar To Discovery Of Information Designated Confidential In A Settlement Agreement.

     In 2007, Younan Properties entered into a settlement agreement with its CFO Thompson requiring confidentiality.  Thompson had claimed that Younan Properties had engaged in unfair business practices, and wrongfully discharged him.  In 2014, investors sued Younan Properties for fraud in Texas, and commenced to depose Thompson in Texas.

     Younan Properties sought a preliminary injunction in California to prevent Thompson from violating the confidentiality provisions of the parties’ 2007 settlement agreement.  After the trial court denied the request, Younan Properties appealed.

    Younan Properties, Inc. v. Thompson, B266507 (2/4 11/21/16) (Epstein, Manella, Collins) (unpublished) affirms the order of the California trial court declining to interfere with Texas discovery orders, based on comity and the lack of a showing appellants were likely to prevail on the merits.

     COMMENT:  By the time the California Court of Appeal ruled, Thompson had already been deposed in Texas.  Therefore, the Court of Appeal invoked the principle that it “may review moot issues if they are of broad public interest and likely to recur or cause another controversy among the parties.”  Yet the opinion is unpublished.

     An important lesson from this case should be that a confidentiality provision in a settlement agreement cannot absolutely bar court-ordered discovery of relevant information.  Information might be relevant in another lawsuit, there may be compelling reasons that override the right to privacy, and principles of comity may even be involved – as they were here.

Settlement Agreements: Trial Court Holds Broad Release Unambiguously Released Defendants, But Court Of Appeal Holds The Release Is Ambiguous

Contract Must Be Construed As A Whole So As To Give Effect To Every Part, If Reasonably Practicable

     Rodriguez v. Oto, 212 Cal.App.4th 1020 (2013) held language unambiguously releasing “all persons” from liability extended to third parties, entitling a stranger to summary judgment that the stranger had been released, in the absence of countervailing evidence.  In Epic Communications, Inc., v. Richwave Technology, Inc., H037884 (6th Dist. June 23, 2015) (Rushing, Elia, Walsh) (published), the trial judge agreed with defendants Richwave and Wong that a broadly worded release in a settlement agreement between Epic and ALi was unambiguous and released Richwave and Wong from further liability.  

     The release language released ALi’s “past, present, and future . . . assignees, . . . shareholders, . . .  [and] employees.”  Wong and Richwave argued Wong was a past employee of ALi, and Richwave was “an assignee and shareholder of ALi”, such that both were covered by the release and free from liability.

     Epic did well by appealing. 

     The Court of Appeal found that the release, when viewed in light of the entire agreement, was not unambiguous on its face.  For example, the recitals suggested that the release was limited to matters arbitrated between Epic and ALi, and thus did not include claims against Richwave and Wong that were not arbitrated.  The agreement provided for confidentiality, raising an issue as to how third parties could be intended to take advantage of a confidential agreement.

     The Court found “something of a smoking gun” in agreement language providing, “No other person or entity other than the Parties hereto shall be entitled to claim any right or benefit under this” – at which point the paragraph ended without punctuation.

     Once the language was found by the Court to be ambiguous, the barn door opened wide to let in extraneous evidence inconsistent with an intent to release Richwave and Wong.  For example, ALi never objected to Epic’s further legal action against Richwave and Wong, and refused to release confidential documents at the request of Richwave and Wong, unless the court issued an order.

     DRAFTING TIPS:  The Court observes that “whether the parties intended to confer enforceable rights on the party now asserting them,” is a pivotal question in cases such as this one.  Parties should therefore give this question attention when drafting releases – though sometimes parties are reluctant to flag an issue when ambiguity may work in their favor.

     The Court suggests that, had the parties intended to extinguish Epic’s pending claims against Wong and Richwave, “they might have been expected to express the purpose of the settlement agreement more broadly, e.g., as extinguishing all existing and potential claims arising from the events giving rise to the suit and the award.”  Recitals can be a useful tool to expand or contract the scope of an agreement.

     The Court also notes that the use of the term “successor” in the release was “at best . . . ambiguous”.  “Successor” could refer to someone who claims to succeed to certain rights previously owned by another party, or refer to a successor to all the rights under the settlement agreement.  The same problem can exist with the word “assignee” – an assignee of a specific asset, versus an assignee of all the rights under the agreement.  Beware when using the boilerplate phrase “successors and assigns.”