The opinion of the court was delivered by: GETTLEMAN
In 1992, plaintiff Allstate Financial Corporation sued defendants, Utility Trailer of Illinois, Inc. ("Utility"), and Gerald Rhodes ("Rhodes"), claiming that defendants, along with others, participated in a scheme to defraud plaintiff in connection with certain accounts receivable based on invoices issued by Utility, (the "Utility invoices") resulting in losses of $ 477,000.00. The case was set for trial on August 7, 1995.
On July 19, 1995, at a settlement pretrial conference held by the court, the parties reached a settlement agreement pursuant to which: (1) defendant Rhodes would pay Allstate $ 170,000.00 in installments over a three year period in exchange for a mutual general release of all claims; and (2) the case would be dismissed with prejudice. On August 8, 1995, plaintiff performed its part of the bargain by stipulating to dismiss the case with prejudice, with the court to retain jurisdiction to enforce the terms of the settlement agreement, and an order was entered on that date in conformance with the agreement.
Thereafter, the parties negotiated the specific terms to be incorporated in a written document that would memorialize the settlement agreement. On August 13, 1995, a draft document was prepared, the terms of which differed somewhat from those of the settlement agreement reached at the July 19, 1995 pretrial conference. In particular, under the written settlement agreement, Rhodes was to make one lump sum payment of $ 152,500.00 to plaintiff within thirty days of the agreement's execution rather than paying $ 170,000.00 in installments over a three year period.
After the written settlement agreement was drafted, the parties engaged in discussions concerning various indemnity provisions that the defendants demanded from plaintiff to ensure that Rhodes would be free from all future claims by plaintiff or any other individual or entity concerning the subject matter of the instant litigation. During these discussions, plaintiff informed Rhodes that it was a plaintiff in a pending action against Comerica Bank ("Comerica") in a Michigan state court (the "Michigan action") seeking $ 5,030,417.33 for fraud and misrepresentation concerning, among other things, the Utility invoices. Plaintiff also informed Rhodes at that time that, although the Michigan action had been filed almost two years before and was set for trial, Comerica had made no effort to add either of the defendants in the instant case as defendants or third-party defendants in the Michigan action. Defendants then insisted that plaintiff include in the settlement agreement a complete indemnification for any attorneys' fees, costs and damages that might be incurred in the event Comerica brought an action against defendants as a result of the claims by plaintiff against Comerica in the pending Michigan action. Plaintiff refused defendants' demand for such a broad indemnity and, after lengthy negotiations, the parties reached an impasse. Thereafter, a verdict was returned in the Michigan action against plaintiff and in favor of Comerica. It is unclear from the record before this court whether an appeal has been taken by plaintiff in the Michigan action.
In the instant motion, plaintiff seeks to enforce the terms of the settlement agreement embodied in the written settlement document tendered to defendants. As previously mentioned, that agreement differed from the one reached at the settlement pretrial conference by reducing the amount to be paid to plaintiff from $ 170,000.00 in installments to a lump sum of $ 152,500.00. Defendant argues that the written settlement document does not represent the final agreement between the parties and demands inclusion of specific indemnity language in the written agreement.
A motion to enforce a settlement agreement is essentially the same as a motion to enforce a contract. Adams v. Johns-Manville Corp., 876 F.2d 702, 709 (9th Cir. 1989); Herron v. City of Chicago, 618 F. Supp. 1405, 1409 (N.D. Ill. 1985). A federal court has ancillary jurisdiction to enforce a settlement agreement if the parties' obligation to comply with the agreement is part of the dismissal order of the case -- either by a separate provision in which the court retains jurisdiction to enforce the agreement or by incorporating the terms of the agreement in the dismissal order. Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375, 114 S. Ct. 1673, 1677, 128 L. Ed. 2d 391 (1994); Lucille v. City of Chicago, 31 F.3d 546, 548 (7th Cir. 1994), cert. denied, 130 L. Ed. 2d 1074, 115 S. Ct. 1109 (1995). Assuming that it has jurisdiction to enforce a settlement agreement, a federal court will look to the applicable state law in construing the terms of the agreement. Herron, 618 F. Supp. at 1409.
As mentioned above, the parties agree that a settlement had in fact been reached in this court's chambers on July 19, 1995, and recognize that such oral settlement agreements are generally enforceable. See Estate of Glassman v. Glassman, 257 Ill. App. 3d 102, 628 N.E.2d 666, 670, 195 Ill. Dec. 202 (Ill. App. 1 Dist. 1993) (finding oral settlement agreement in presence of court to be binding on both parties and to dictate final terms of agreement). In its dismissal order, this court retained jurisdiction to enforce the parties' agreement in chambers and, accordingly, will construe its terms in conformance with Illinois law.
Herron, 618 F. Supp. at 1409. Illinois law states that ordinary contract construction rules apply to a settlement agreement: the court looks to the parties' conduct in determining their intention to be bound to the terms of the agreement. Northern Trust Company v. Brentwood North Nursing & Rehabilitation Center, 225 Ill. App. 3d 1039, 588 N.E.2d 467, 469, 167 Ill. Dec. 826 (Ill. App. 2 Dist. 1992). Based on the parties' representations in chambers on July 19, 1995, the court finds that the parties intended to be bound by the terms of the oral settlement agreement, which included (1) a payment in installments of $ 170,000.00 in exchange for a mutual general release of all claims and (2) the dismissal of the case with prejudice.
Moreover, as supported by the same evidence and by plaintiff's stipulation to the court's dismissal of this action with prejudice on August 8, 1995, the court finds that the oral settlement agreement reached on July 19, 1995, was a final agreement.
The subsequent drafting of the written document was only to memorialize the terms of the oral agreement; neither a written settlement document nor approval of the agreement by any non-party was a condition precedent to the final oral agreement. Herron, 618 F. Supp. at 670 (fact that parties contemplated oral settlement agreement to be reduced to writing at later date did not render oral agreement as mere negotiation).
A court may rescind an otherwise enforceable settlement agreement if it is demonstrated that there was collusion, fraud, mutual mistake, or tortious or wrongful conduct in procuring the settlement. Jessee v. Amoco Oil Co., 230 Ill. App. 3d 337, 594 N.E.2d 1210, 1217, 171 Ill. Dec. 690 (Ill. App. 1 Dist. 1992). To rescind a settlement agreement on the basis of fraud or misrepresentation, the party seeking rescission must show both misrepresentation of a material fact and its reliance upon such misrepresentation. O'Brien v. Omni Pro Electronics, 1996 U.S. Dist. LEXIS 11725, 1996 WL 459853, at *6 (N.D. Ill.). If a fiduciary relationship exists between the contracting parties, a duty to disclose material information ...