Court: District Court, S.D. Iowa; January 2, 2012; Federal District Court
The court addressed two motions: defendants’ motion to compel enforcement of a settlement agreement with the plaintiff and the plaintiff’s motion to enforce the same agreements. The existence of a settlement agreement is acknowledged, but there is contention regarding the distribution of $70,000 held in the defendants’ counsel's trust account. The parties agreed that no evidentiary hearing was necessary, allowing the court to decide based on the written submissions and additional exhibits.
Key participants in the settlement negotiations included Westlake's counsel and MLP's counsel, along with mediator Roger Stone. Westlake, having acquired a 300-unit apartment complex under construction, alleged that the completed project did not meet agreed-upon standards, leading to litigation against MLP, which in turn sought claims against subcontractors for deficiencies.
In late 2010, MLP settled with three subcontractors for $70,000, which was then placed in MLP's counsel's trust account. The current dispute centers on whether Westlake is entitled to this amount in addition to a separate settlement with MLP. During a two-day mediation in September 2011, discussions focused on a comprehensive cash settlement involving contributions from both subcontractors and MLP's insurance providers. Westlake sought additional contributions from MLP's principals, which MLP rejected. Following the mediation, alternative settlement structures were discussed, including assigning MLP’s claims against its excess insurance carrier to Westlake to potentially reduce the cash settlement requirement.
On September 9, Mr. Eckley and Mr. Lantz approached Mr. Schwartz with a settlement idea, receiving positive feedback. They subsequently contacted Mr. Stone, who relayed a proposal to Mr. Schwartz and Mr. Koehler on September 12. The proposal included a $1 million offer from MLP’s primary insurance carrier, nearly $2.5 million from subcontractors, and an additional $3 million from MLP, which would assign its claims against an excess carrier for potential reimbursement up to $2 million. Mo Sinclair, co-owner of Westlake, emphasized the need for contributions from MLP’s principals, Mr. McCurdy and Mr. Porta. On September 13, Mr. Schwartz informed Mr. Eckley that his clients would not contribute financially due to their protected personal assets, disappointing Mr. Stone.
On September 14, Mr. Stone communicated Mo Sinclair's impatience and highlighted the importance of contributions from MLP’s principals, noting they would benefit significantly from any settlement. He continued to secure additional funds from subcontractors, reporting on September 16 a total of $2,807,500 in commitments, including the anticipated $1 million from the primary insurance carrier, while still seeking contributions from MLP individuals.
Despite Mr. Stone's efforts, Mr. Schwartz reiterated on September 18 that his clients would not contribute. Concerned about the viability of the settlement, Mr. Stone urged Mr. Schwartz on September 19 to reconsider, suggesting an additional contribution of $192,500 could facilitate a settlement. Following further discussions, on September 25, Mr. Schwartz authorized a formal settlement proposal of $1.1 million to Westlake, with $1 million expected from the primary insurance carrier.
Mr. Schwartz stated that Westlake would receive the settlement funds currently being negotiated by Roger Stone with subcontractors, although he was unaware of the exact amounts. The proposal included an assignment of MLP’s claims against its excess carrier to Westlake. The MLP corporate defendants would confess judgment up to $15 million, with partial satisfaction from the amounts paid to Westlake and by subcontractors. Westlake would covenant not to enforce the judgment against any assets other than the excess insurance policy and would reimburse the defendants up to $100,000 from the recovery after legal fees and expenses.
On September 26, 2011, Mr. Eckley emailed that the plaintiff accepted all offers except from Fieldstone and TKP. Westlake expected to accept total monetary offers of $2,907,500, comprising $1.1 million from MLP’s primary insurer and $1,807,500 from subcontractor payments. Mr. Schwartz noted the need to resolve details before finalizing the agreement due to an impending trial date and a scheduled pretrial conference on September 27.
On the morning of the pretrial conference, Mr. Stone emailed a summary of the settlement amounts totaling $2,907,500, which included $1 million from the primary insurer and contributions from MLP individuals and the trust account. Mr. Schwartz, busy with pretrial preparations, did not review the attached spreadsheet. During the pretrial conference, Mr. Eckley indicated the parties were close to a resolution, and after a brief adjournment, Mr. Schwartz outlined the settlement terms, confirming Westlake's receipt of funds from subcontractors without involvement from the excess carrier. Mr. Eckley and others agreed to draft a Memorandum of Understanding that afternoon, with Mr. Lantz suggesting it include all contributions as per Mr. Stone’s spreadsheet, although Mr. Schwartz was hesitant due to concerns about liability for other parties' payments.
Plaintiff is set to receive $1,807,500 from subcontractors negotiated by Roger Stone, along with $1.1 million from defendants and their primary insurance carrier, totaling $2,907,500. During discussions on September 27, Mr. Schwartz did not review Mr. Stone’s spreadsheet and was unaware of it until later. While there were discussions about including Mr. Stone's contributions in the Memorandum of Understanding (MOU), the $70,000 in the trust account was not addressed. The MOU included provisions for the assignment of MLP’s claims against an excess insurance carrier, a corporate confession of judgment not to exceed $15.6 million, and the $100,000 reimbursement from any recovery against the excess carrier. The satisfaction amount implicitly included the $70,000 in the trust account. The MOU was signed by Mr. Eckley and Mr. Schwartz on September 27, with Westlake's counsel tasked with drafting the formal settlement agreement, which MLP's counsel reviewed and noted the trust account issue on November 2, 2011. Both parties seek court enforcement of the settlement agreement but dispute whether the $70,000 was included in the cash component of the agreement. The law supports the settlement of disputes, and the court has inherent authority to enforce such agreements. Contract law principles apply to the enforcement of the settlement, requiring mutual assent to the terms through an offer and acceptance, based on objective evidence. The court’s jurisdiction is based on diversity of citizenship, applying Iowa law to the contract issues, with the parties' intentions being the primary concern in interpreting the agreement.
The intention behind a settlement agreement is determined by the actions and statements of the parties, rather than any undisclosed intentions they may have had. Relevant factors include the relationship between the parties, the transaction's subject matter, preliminary negotiations, and the course of dealings. In Iowa, attorneys are presumed to have the authority to bind their clients to settlements, and unless there is evidence of fraud or inequitable conduct, a unilateral mistake made by a party is not enough to void an agreement. MLP argues that Westlake mistakenly believed its settlement offer included an additional $70,000 from a trust account, viewing itself as a victim of a deceptive tactic.
The situation reflects a misunderstanding of the settlement terms, which can still be enforceable if one party's interpretation aligns with their understanding while the other party is aware of that interpretation. Iowa courts refer to the Restatement (Second) of Contracts for such guidance. MLP and Westlake's counsel reached mutual assent on the settlement during a pretrial conference, later documented in a Memorandum of Understanding. MLP intended for the $1.1 million payment to include the $70,000 from the trust account, although this was not communicated to Westlake. Westlake understood the offer to consist of $1 million from MLP’s insurer, $100,000 from MLP’s principals, and additional funds from subcontractors, which included the trust account amount.
Westlake’s interpretation of MLP’s offer is contingent upon the application of subsection (2)(b) of Restatement, 20. If Westlake was unaware of its misunderstanding and MLP knew of this mistake but did not correct it, MLP is bound to Westlake's understanding. Conversely, if Westlake was aware of its misunderstanding or MLP was unaware of it, the trust account amount of $70,000 is not enforceable in the settlement agreement. The Restatement defines "reason to know" as having information that would lead a reasonable person to infer the existence of a fact. Iowa law supports this principle, indicating that the true meaning of an offer is based on what a reasonable person would interpret, not on the intent of the offeror.
MLP asserts that Westlake should have understood that the total amount from Mr. McCurdy, Mr. Porta, and MLP's primary insurer was $1.1 million, excluding the trust account funds. MLP contends that they were not obligated to reoffer the trust account amount, which was initially proposed during mediation but not accepted, and that subsequent communications clarified that only the $1.1 million and additional amounts from subcontractors still in negotiations were being offered. MLP’s communications indicated that the subcontractors whose funds were held in trust had already settled, and therefore, their amounts were not part of the current offers. The later Memorandum of Understanding reaffirmed this alignment with earlier communications, emphasizing the importance of the negotiation context facilitated by a mediator in this complex case.
During the mediation on September 6-7, MLP offered a total of $1,687,500, which included $1 million from the primary insurance carrier, $617,500 from the excess insurer, and $70,000 from a trust account. The third-party subcontractors countered with a combined offer of $1,312,500, resulting in an overall cash offer of $3 million to Westlake. Westlake demanded additional contributions from MLP’s principals, Mr. McCurdy and Mr. Porta, which they refused, leading to a situation where the $70,000 was not considered a contribution from them. Subsequent settlement discussions were hindered by Westlake's insistence on contributions from McCurdy and Porta.
Emails exchanged prior to a September 25 offer indicated Westlake’s counsel believed the $100,000 included in that offer was the required contribution from McCurdy and Porta, with the offer contingent upon reimbursement from the excess insurance carrier. The settlement agreement explicitly stated this $100,000 would be paid by them. At the same time, Mr. Stone and Westlake’s counsel were unaware that MLP intended for the $100,000 to be largely funded by the trust account’s $70,000.
The $70,000 was presented during the September mediation, and though MLP was not obligated to keep it available during ongoing negotiations, it remained part of the discussion regarding the subcontractor settlement. Mr. Stone's experience suggested that the trust account funds were still part of the settlement package. Westlake accepted MLP’s September 25 offer based on the belief that $1,807,500 from the subcontractors included the trust account amount, as indicated in a September 27 spreadsheet. The clarity regarding whether the trust account amount was considered part of the payments from MLP or the subcontractors remained ambiguous, with both interpretations being reasonable based on the context of the negotiations and communications exchanged.
Westlake's counsel, Mr. Eckley and Mr. Lantz, were regarded as "persons of superior intelligence" under the 'reason to know' definition in the Restatement. The language used in both the September 25 offer and the September 27 summary regarding subcontractor payments suggested to experienced lawyers that MLP may not have intended for the $70,000 in the trust account to be a separate contribution in addition to the $1.1 million already paid. However, this language should be assessed in the context of the overall negotiation history and the complexity of the settlement discussions at that time.
Mr. Eckley and Mr. Lantz were aware of Mr. Stone’s spreadsheet, which indicated that the $70,000 was included among the subcontractor payments during the negotiation of the Memorandum of Understanding. The parties had agreed on a partial satisfaction amount of $2,907,500, which included this contribution. Hence, the counsel could reasonably expect that MLP’s lawyers would address any inaccuracies in the spreadsheet.
Regarding MLP’s understanding of its offer, it was evident that MLP should have known Westlake expected the $1 million from MLP’s primary insurance, $100,000 from Mr. McCurdy and Mr. Porta, and the $70,000 as part of the overall settlement package, especially given Westlake's consistent demands for contributions from MLP. However, the situation regarding the separate payment of the $70,000 was less clear. If MLP’s counsel, Mr. Schwartz or Mr. Koehler, had reviewed the spreadsheet, there would be no doubt that MLP understood Westlake's interpretation of the offer. Mr. Schwartz claimed he had not reviewed the spreadsheet on September 27, and Mr. Koehler did not provide evidence of awareness either.
Ultimately, despite lacking direct knowledge of the misunderstanding, MLP had reason to know of its offer's misinterpretation based on available information that a person of ordinary or superior intelligence would infer.
MLP’s counsel, Mr. Schwartz and Mr. Koehler, received an email from Mr. Stone summarizing the final amounts committed to a settlement. They recognized that Mr. Eckley and Mr. Lantz also received this email and would likely rely on Mr. Stone’s summary, which is typical in mediation. MLP possessed information indicating their offer was misunderstood by both Westlake and the mediator, and their failure to review this information does not shift the consequences of the misunderstanding to Westlake. The Court concluded that Westlake had no reason to believe it misunderstood MLP’s offer, while MLP had reason to know of Westlake’s misunderstanding, which was not corrected. Therefore, MLP is bound to its offer as Westlake understood it.
Westlake accused MLP of acting in bad faith regarding a $70,000 trust account, claiming MLP's dilatory tactics delayed the resolution of the case and caused damages due to additional attorney fees and loan expenses. The Court previously declined to compel MLP to perform undisputed aspects of the settlement while the trust account dispute remained unresolved. However, MLP agreed to proceed with the settlement of third-party claims, which was executed following a court order. The Court found no evidence of bad faith by MLP warranting sanctions, and would require both parties to bear their own attorney fees unless one was determined to be the prevailing party. Westlake, as the prevailing party on cross motions, is entitled to seek reasonable attorney fees under the settlement agreement. The Court ordered that MLP and Westlake execute the Settlement and Release Agreement, granting in part and denying in part their motions to enforce the settlement agreements.
An agreement has been reached regarding a trust account totaling $70,000, with MLP executing the agreement while reserving rights concerning the trust account provisions. Westlake and MLP are required to fulfill their obligations, including financial payments, consent judgments, and dismissals, within twenty days. Westlake is permitted to submit a claim for attorney fees within fourteen days. The court has determined an evidentiary hearing is unnecessary due to the absence of substantial factual disputes regarding the settlement agreement. The court restored the case caption to its original form at the time of the settlement announcement, noting that only an assigned third-party claim against Fieldstone Products, L.L.C. remains for trial. MLP's mediator, Mr. Stone, indicated that it is customary for previous offers to remain in the negotiation process, and the current dispute has delayed the assignment of MLP’s third-party claim against Fieldstone, which had a trial scheduled for November 7, 2011. MLP contends that the $70,000 in the trust account was intended as "defendants’ money," while Westlake highlights that MLP's primary insurer had a subrogation interest and that subcontractors were exposed to contribution claims. The misunderstanding stems from differing interpretations of the $70,000's intended use: MLP's view as part of payments from Mr. McCurdy and Mr. Porta, versus Westlake's view of it as part of subcontractor settlement payments. The court concluded that Mr. Stone did not act as MLP's agent in communicating settlement terms, affirming the role of a lawyer-mediator as a neutral facilitator in Iowa.
The notion of a "neutral" mediator conflicts with the role of an agent for a party, as established in Moss v. Parr Waddoups Brown Gee. Loveless. Mediators serve as intermediaries to facilitate communication regarding settlement offers. Mr. Stone's communication regarding the settlement amounts was significant, particularly amid the chaotic final preparations for the pretrial conference on September 27, where multiple communications were happening simultaneously. Despite the potential oversight of Mr. Stone's email by MLP and Westlake's counsel on the morning of September 27, attention was focused later that afternoon when counsel met to finalize the settlement terms. Westlake contends that its unilateral misunderstanding of the settlement should warrant reformation of the agreement, citing MLP’s alleged fraudulent nondisclosure regarding the $70,000 trust account. However, the Court finds that MLP's actions do not constitute fraudulent nondisclosure as defined in the relevant legal standards. Westlake requested the Court to isolate the trust account issue for a separate judgment under Fed. R.Civ. P. 54(b), enabling an appeal on that matter while allowing the rest of the settlement to be enforced. The Court expresses uncertainty about the procedural appropriateness of this request, noting that without a Rule 54(b) order, the ruling is not a final judgment due to pending third-party claims. MLP, if adversely affected by this ruling, could seek a Rule 54(b) motion or a motion under Fed. R.Civ. P. 62 to address appeal and enforcement matters, but it is deemed premature to resolve these issues at this time.
