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CAPEK v. MENDELSON

May 10, 1993

JOHN C. CAPEK, et al. Plaintiffs
v.
MARK MENDELSON, et al. Defendants v. M. MARK MENDEL, et al. Third Party Defendants



The opinion of the court was delivered by: EDUARDO C. ROBRENO

 EDUARDO C. ROBRENO, J.

 MAY 10, 1993

 Before the Court are plaintiff Allen L. Feingold's motion to "strike, set aside, and mark void" the settlement agreement between the parties, and defendants Mark Mendelson and Hampton Real Estate Group, Inc.'s ("the Mendelson defendants") motion to enforce the settlement agreement and "strike" Feingold's motion. The ultimate issue raised in both motions is whether the parties have reached a binding settlement agreement which puts an end to this hard fought business litigation. *fn1"

 I. BACKGROUND

 Plaintiffs in this matter are John C. Capek, C. Richard Scipione, Athole G. Jacobi, William Kozin, and Allen L. Feingold. Feingold is an attorney. He appears in this matter on behalf of himself and plaintiffs Jacobi and Kozin. *fn2" On November 29, 1991, plaintiffs filed a complaint against the Mendelson defendants. The complaint set forth a number of claims arising out of the promotion and sale of certain securities. The Mendelson defendants subsequently filed a third party complaint against third party defendants M. Mark Mendel and M. Mark Mendel, Ltd. ("the Mendel defendants"). The Mendel defendants thereupon counterclaimed against the Mendelson defendants. Later, plaintiffs Capek and Scipione were granted leave to amend their complaint to assert direct claims against the Mendel defendants.

 The case was transferred to my docket on August 24, 1992. Although at the time of the transfer the case had been pending for nearly a year and while the litigation had engendered much acrimony among the parties, not so much as a single deposition had been taken. This state of affairs lead the Court to conclude: "After a review of the pleadings, . . . consideration of the discovery motions before the court, and a hearing, it is clear to the court that, left to their own devices, the litigants in this case will continue to squander not only their own time and money but also will continue to call upon scarce judicial resources." Capek v. Mendelson, 143 F.R.D. 97 (E.D. Pa. 1992). In an effort to break the logjam the Court entered a case management order providing for expedited deadlines and procedures for the conduct of discovery, setting a discovery cutoff date of December 18, 1992, and specially listing the case for trial to begin on February 15, 1993. At the request of the parties, the Court also agreed to preside over settlement discussions. Capek, 143 F.R.D. at 98 .

 On September 22, 1992 and September 24, 1992, the Court met with counsel for all parties, with nearly all the principals also present. By the conclusion of the second conference, which began in late afternoon and extended until past 8 p.m., all parties except plaintiffs Capek and Scipione had reached agreement on all issues. Because plaintiffs Capek and Scipione refused to agree to the terms of the settlement reached in chambers, the September 24, 1992 settlement conference ended without the parties reaching a settlement. This much is agreed to by all parties.

 The efforts to settle the case that followed the conferences in chambers, i.e. the conduct of the parties between September 24, 1992 and December 29, 1992, the date on which a written settlement agreement was finally signed by all parties, gives rise to the instant motions. Because the motions turn, in large part, on factual issues arising out of the question of whether negotiations between the parties resulted in a binding settlement prior to the signing of the final written agreement, the Court held a hearing on February 16, 1993. See Tiernan v. Devoe, 923 F.2d 1024, 1031 (3d Cir. 1991) ("Where material facts concerning the existence or terms of an agreement to settle are in dispute, the parties must be allowed an evidentiary hearing," quoting Mid-South Towing Co. v. Har-Win, Inc., 733 F.2d 386, 390 (5th Cir. 1984)). At the hearing, the parties engaged in direct and cross examination of witnesses, and provided documentary evidence in support of their positions. The following is a summary of the evidence gleaned from the proof presented at the hearing.

 After signing the October 6 letter, the parties exchanged at least three written drafts of a lengthy settlement agreement. Each version of the settlement agreement contained a provision that required interim payments on specified dates. *fn4" Consistent with the October 6 letter, the earliest of these drafts stated that the Mendelson defendants' final payment would be due on December 28, 1992. The drafts and the October 6 letter, however, differed as to the date for final distribution of the settlement proceeds to the plaintiffs. Specifically, the drafts stated that distribution to the plaintiffs would take place five or six business days after the date of the last payment *fn5" or "as soon thereafter as the rules of the banking institution permit, to allow for clearance of checks," whichever is later, while the October 6 letter had contemplated distribution on the day after tender of the last interim payment.

 Sometime after the signing of the October 6 letter, Feingold informed the parties that he wanted to receive his proceeds during the 1992 calendar year. Feingold asked that the parties change the date for final payment to December 24, 1992. Feingold testified at the hearing that the purpose of this request was to assure that he would receive distribution of the proceeds during the 1992 calendar year. The latter versions of the written settlement agreement exchanged by the parties incorporated this change. Feingold also objected to the fact that the early draft settlement agreement did not include a provision relating to the assignment of some of the other plaintiffs' rights to Feingold. Language to this effect was eventually incorporated into the written agreement. Each version *fn6" of the settlement agreement, including the final version, also included the following language:

 
In the event, however, that the entire settlement funds are not paid in accordance with the above schedule all monies paid theretofore will be returned to the sources from whence they came, there will be no settlement, and the provisions of this Release will be deemed void and of no effect.

 Finally, after the parties had included Feingold's changes in the written drafts and had worked out other minor details, inter se, Feingold signed the final version of the settlement agreement on December 23, 1992. Several days later, Feingold learned, apparently for the first time, that the last three of the Mendelson defendants' four interim payments had not been escrowed. Instead of escrowing these payments, the Mendelson defendants had delivered checks, on the dates set forth in the October 6 letter and in the draft settlement agreements, to their attorneys, brothers Allen and Martin Weinberg, who withheld delivery of these checks to the escrow agent. *fn7" At the hearing, Messrs. Weinberg both testified that they withheld the checks because it was their belief that no settlement agreement had yet been reached. See, e.g., Transcript of February 16 Hearing ("Transcript"), at 33, 37, 39, 59, 78. Allen Weinberg testified that each time he received one of these latter three checks from the Mendelson defendants, he notified the escrow agent and counsel for plaintiffs Capek and Scipione that he was holding the moneys. Allen Weinberg, however, did not inform Feingold that he had received these checks from the Mendelson defendants or that he was keeping them in his possession instead of delivering them to the escrow agent. The reason stated by Allen Weinberg for not notifying Feingold of his actions was that, according to Weinberg, Capek and Scipione, and not Feingold, were the parties principally concerned about the timing of payments, and that Capek and Scipione were the parties who offered the most resistance to finalizing a settlement. Therefore, in Weinberg's view, the parties most affected by his act of withholding of the checks were the parties he notified, i.e. the escrow agent, Capek, and Scipione. Transcript, at 59, 78.

 The last party signed the written settlement agreement on December 29, 1992. That same day, immediately upon being advised that the last party had signed, the Weinbergs delivered the checks to the escrow agent. Four business days later, on January 5, 1993, the escrow agent attempted to disburse the appropriate funds to each of the plaintiffs. Feingold, however, refused to accept the check for the amount he was entitled to receive. Instead, Feingold claimed that the settlement agreement had been rendered void because: 1) the Mendelson defendants' interim payments had not been submitted to the escrow agent on the appropriate dates, and 2) the failure of the Mendelson defendants to make interim payments caused the disbursement of settlement proceeds to take place in an untimely fashion.

 Despite this protestation, Feingold subsequently accepted that portion of his share of the settlement proceeds paid by the Mendel defendants, plus an amount of "damages" from the Mendel defendants for "late" distribution. Feingold did not disclose to the Court the amount of damages paid by the Mendel defendants.

 Feingold now wants the settlement agreement "rescinded" and the case scheduled for trial. All other parties, i.e. his co-plaintiffs, the defendants, and the third party defendants, want the settlement agreement enforced.

 II. DISCUSSION

 A. Jurisdiction *fn8"

 Questions relating to the enforcement of settlement agreements typically arise under one of two scenarios. *fn9" In the first, the trial court is asked to evaluate the enforceability of a settlement agreement after the underlying dispute has already been dismissed by virtue of the settlement. *fn10" The case sub judice, however, was never dismissed, since the parties did not formally advise the Court that the case had been "settled" (prior to the recent flurry of enforcement motions), *fn11" or request dismissal of the case pursuant to Local Rule of Civil Procedure 23(b), relating to the dismissal of settled cases. Thus, no order of dismissal was ever issued. In fact, this action has been on the Court's active docket since the time it was filed and it was specially listed to be tried on February 15, 1993.

 The facts underlying the current motions, therefore, present the second scenario in which settlement enforcement issues arise: "The action is still pending, and the party seeking enforcement of the settlement agreement asserts the agreement -- repudiated by his adversary -- to terminate the action." Musifilm, B.V. v. Spector, 568 F. Supp. 578, 581 (S.D.N.Y. 1983), citing, Autera v. Robinson, 136 U.S. App. D.C. 216, 419 F.2d 1197 (D.C. Cir. 1969); Morris v. Gaspero, 522 F. Supp. 121 (E.D.Pa. 1981); United States v. Buckner & Moore, Inc., 505 F. Supp. 409 (W.D. Okla. 1979), and Fairfax Countywide Citizens Ass'n. ...


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