United States District Court, N.D. Illinois
March 3, 2004.
IMI NORGREN, INC., a Delaware Corporation, Plaintiff,
D&D TOOLING MANUFACTURING, INC., an Illinois corporation, d/b/a ELECTRO METAL PRODUCTS, Defendant
The opinion of the court was delivered by: MORTON DENLOW, Magistrate Judge
MEMORANDUM OPINION AND ORDER
Close only counts in horseshoes not settlement agreements. The
parties in this case have come close to a settlement agreement, but did
not reach one.
This case comes before the Court on Plaintiff IMI Norgren, Inc.'s
("Plaintiff or "IMI"), motion to enforce settlement agreement. Plaintiff
contends the parties reached a settlement agreement. Defendant D&D
Tooling & Manufacturing, Inc., d/b/a Electro Metal Products
("Defendant" or "D&D") acknowledges that the parties were close to
reaching a settlement agreement, but denies that an agreement was ever
reached on all the material terms. In particular Defendant contends that
the parties did not settle the case because 1) they did not reach
agreement on the type of security Defendant would provide to secure a
$270,000 promissory note, and 2) the settlement was contingent on the
parties executing a written settlement agreement, which they did not do.
The Court has carefully considered the parties' briefs and oral
arguments. The following constitute the Court's findings of fact and
conclusions of law. To the extent that certain findings of fact may be
deemed conclusions of law, they shall also be considered conclusions of
law. Similarly, to the extent matters contained in the conclusions of law
may be deemed findings of fact, they shall also be considered findings of
I. ISSUES PRESENTED
This case raises the following issues:
1) Whether securing the note was a material term
of the settlement agreement. Answer: Yes.
2) Whether the settlement was contingent upon
executing a written settlement agreement. Answer:
3) Whether a settlement agreement was ever
reached. Answer: No.
II. FINDINGS OF FACT
A. AUGUST 12, 2003 SETTLEMENT CONFERENCE
1. The proposed settlement framework arose out of a settlement
conference before this Court on August 12, 2003. Present at the
settlement conference were Plaintiffs counsel and Plaintiff, and
Defendant's counsel and Bill Diedrick (representing Defendant). Both
Plaintiff and Bill Diedrick had full authority to settle. The following
settlement framework was reached:
a) cash payout of $300,000 by D&D to IMI
($30,000 up front and $270,000 over nine years);
b) a consent judgment by D&D in the amount of
damages claimed in case, and
c) IMI agrees not to execute the consent judgment
against D&D (other than the $300,000
See Def. Resp., Exs. 1, 2. The following issues were
outstanding at the conclusion of the settlement conference: (1)
Plaintiffs right to review Defendant's insurance policies, and (2)
Defendant's right to consult bank documents to determine whether
Defendant could secure the $270,000 note without violating its loan
agreement with its bank. See id. Neither the insurance policies
nor the banking agreements were present at the settlement conference.
2. No settlement was reached at the August 12, 2003 settlement
conference. The parties agreed to continue their work on the outstanding
issues and to report their status to Judge St. Eve at a status conference
the next day.
B. COMMUNICATIONS AFTER THE SETTLEMENT CONFERENCE
3. By the evening of August 12, 2003, Plaintiff was able to review
Defendant's insurance policies. The review found the policies to be
"satisfactory" and the insurance issue was resolved. The major remaining
issue was security for the loan. See Def. Resp., Exs. 1, 2.
4. On the evening of August 12, 2003, counsel for the parties exchanged
email communications to discuss the settlement. Id. Plaintiffs
counsel sent an email that stated "IMI Norgren accepts D&D's offer"
of $300,000 to be paid $30,000 up front and the remaining $270,000 to be
paid $30,000 overnine years. Def. Resp., Ex 1. Plaintiffs counsel also
wrote that the "note for the $300,000 will be subject to some security
from D&D." Id.
5. Defendant's counsel immediately responded that the parties had
worked out the
major points of the framework of an agreement to
resolve the case [but there is a] concern . . .
over those details that [had] not been finalized
but yet are recognized as being part of the
settlement framework, for example, the collateral
or security to be provided by D&D for its
stream of deferred payments and the documentation
that will be required in connection with the
financial representations made by Bill Diedrick
today. . . .
. . .
While the parties have reached agreement in
principle on the major components of settlement as
noted above and by your e-mail, it is our . . .
view, as expressed to you, that a truly binding
settlement will not have been attained until all
of the specific settlement terms are worked out
and agreed to in a settlement agreement signed by
Def. Resp., Ex. 2. Defendant's counsel also stated that he was "not
authorized by D&D to approve settlement terms." Id.
C. AUGUST 13, 2003 STATUS HEARING BEFORE JUDGE ST. EVE
6. On August 13, 2003, the parties' counsel appeared before Judge St.
Eve. Plaintiff's counsel stated that the parties had "agreed to resolve
the case" and commented that the resolution was "complicated," Pl. Br.,
Ex. A at 2. He asked for time to draft the agreement and, in response to
Judge St. Eve's question about whether the terms were on record, said:
"The offer was spelled out in front of Judge Denlow, and then we agreed
it upon it last night, and memorialized it by email."
Id. at 3.
7. The major terms of the agreement were stated by Plaintiffs counsel
(a) Defendant consented to the amount of damages
as set forth in Plaintiffs summary of damages.
(b) Defendant would execute a note to pay
Plaintiff $300,000 over nine years.
(c) $30,000 of the $300,000, was to be paid up
(d) The note was to be secured in some way.
(e) Defendant would provide a sworn statement
confirming their financial position.
(f) Defendant would assign to Plaintiff its rights
against its insurers.
8. In response to whether he agreed with the terms outlined by
Plaintiffs counsel, Defendant's counsel said: "What counsel has said is
accurate." Id. at 4. He also stated that there were some
"fine-point details" that had to be worked out, such as security.
9. Judge St. Eve commented that there seemed to be "several nuances"
that still needed to be resolved. Id. Judge St. Eve struck the
trial date and gave the parties two weeks to finalize the settlement.
10. As of August 13, 2003, both parties were unaware of the terms and
conditions of the bank lending agreement. The issue of security was not
resolved during the August 13, 2003 status hearing, and it remained the
subject of continued oral and written communications between the parties'
counsel. See Def. Resp., Exs. 3-8. D.
EVENTS FOLLOWING THE AUGUST 13, 2003 STATUS HEARING
11. In late August, Defendant received a minute order from Judge St.
Eve, as a result of Plaintiff's August 28, 2003 motion to enter a consent
judgment and dismiss the case. Def. Memo, of Law, Exs. D, H. The minute
order stated that a consent judgment was entered and the case was
dismissed with prejudice with leave to reinstate. Id. Defendant
did not believe
that this order accurately reflected the result of the August
13, 2003 status hearing. Id. On September 8, 2003, Defendant
consequently filed a motion to vacate the consent judgment. The motion
D&D never consented to entry of consent
judgment on August 28, 2003. Rather, at the call
of the case on August 13, 2003, counsel for
D&D and for Norgren informed the Court that
the parties had agreed to resolve the case, that
major points had been agreed upon, that other
points remained to be worked out, and that
settlement documents were to be prepared and
executed once all terms were finalized.
Def. Memo, of Law, Ex. H. The motion to vacate further stated,
"D&D is willing to agree to entry of a consent judgment only as part
of the complete settlement of the case. D&D has never agreed to a
piecemeal settlement wherein it would suffer a consent judgment prior to
completion and execution of a comprehensive settlement agreement."
Id. Defendant's motion to vacate was granted. Def. Memo of Law,
12. At some time between August 13, 2003 and September 8, 2003,
Defendant examined its bank documents and determined that they
potentially interfered with the possibility of being able to secure the
note. See Def. Resp., Ex. 7; Def. Memo, of Law, Ex. C. The
documents set forth provisions that did not permit Defendant to create a
security interest in favor of other creditors without bank consent, and
prevented D&D from incurring additional debt even if the new debt was
subordinated to the bank debt. Def. Resp., Exs. 3, 7.
13. Plaintiff raised the issue of whether D&D's individual
shareholders would personally guarantee the note, but the individuals
found personal guarantees to be
unacceptable. Def. Resp. at 4.; Def. Resp., Exs. 4,5. Plaintiff
later "confirmed that personal liability of D&D's shareholders was
not to be part of the settlement agreement." Def. Resp. at 4; see
also Def. Resp., Ex. 6. Defendant attempted to resolve the security
dispute by asking Plaintiff to offer an indemnification agreement that
would "hold D&D and the [shareholders] harmless for entering into a
transaction that would unfortunately constitute a default." Def. Resp.,
Ex. 12. Plaintiff was unwilling to enter into such an agreement.
14. On September 8, 2003, Defendant received Plaintiffs draft
settlement agreement. Entering into the settlement agreement without
bank consent would place Defendant in default with its bank.
See Def. Resp., Ex. 3, 7; Def. Resp. at 6. As of yet, no
settlement agreement has been signed and the issue of security has
not been resolved.
15. The parties stipulated in oral arguments, and this Court finds,
that security for the $270,000 note was a material term of the settlement
16. The parties have not entered into a binding and enforceable
III. CONCLUSIONS OF LAW
17. Jurisdiction is founded upon diversity of citizenship under
28 U.S.C. § 1332. The parties have executed limited consents to have
this Court decide the motion to enforce settlement agreement pursuant to
28 U.S.C. § 636(c)(1).
B. SECURITY WAS A MATERIAL TERM
18. Security for the $270,000 was a material term of the settlement The
settlement was subject to Defendant's review of bank documents in order
to assure that nothing in a settlement agreement between the parties
would risk the relationship between Defendant and its bank. During the
status hearing before Judge St. Eve when the terms were read into the
record, Defendant's counsel said that there are "some fine-point details
to work out, such as security, which we haven't hammered out yet." Pl.
Br., Ex. A at 4. Security for the note was a material term because
Plaintiff was unwilling to enter into the settlement without adequate
security for the $270,000 note payable over nine years.
C. NO SETTLEMENT AGREEMENT WAS REACHED
19. The construction and enforcement of settlement agreements are
governed by local contract law. Abbott Labs. v. Alpha Therapeutic
Corp., 164 F.3d 385, 387 (7th Cir. 1999). Under Illinois contract
law, a binding agreement requires a meeting of the mind or mutual assent
as to all material terms. Id.; Pritchett v. Asbestos Claims Mgm't
Corp., 332 Ill. App.3d 890, 896 (5th Dist. 2002) Plaintiff has the
burden of proving the existence of all the elements of a contract.
Hyde Park Union Church v. Curry, 942 F. Supp. 360,363 (N.D. Ill.
1996). Illinois law uses "material" and "essential" interchangeably when
analyzing contract terms. See Academy Chi. Pubs. v. Cheever,
144 Ill.2d 24, 29-30 (1991) ("Offer must be definite as to its material
terms." "The pertinent language of this agreement lacks the definite and
certain essential terms required for the formation of an enforceable
contract."); Rose v.
Mavrakis, 343 Ill. App.3d 1086,1090-91 (1st Dist. 2003);
Pritchett, 332 Ill. App.3d at 896. There will be a meeting of
the minds "where there has been assent to the same things in the same
sense on all essential terms and conditions." Pritchett, 332
Ill. App.3d at 896 (citing La Salle Nat'l Bank v. Int'l Ltd.,
129 Ill. App.2d 381,394 (1970)). Further, for a contract to be definite
and enforceable "its terms and provisions must enable the court to
determine what the parties have agreed to do." Rose, 343
Ill. App.3d at 1091; see also Cheevers, 144 Ill.2d at 30 (quoting
Morey v. Hoffman, 12 Ill.2d 125,131 (1957)).
20. The term pertaining to security is too indefinite in this case. All
that was agreed to was that the payment was to be secured in some
fashion. No other terms were spelled out. If there is ambiguity in an
agreement it will prevent the enforcement of a contract "where the
ambiguity affects the material terms of the contract."
Pritchett, 332 Ill. App.3d at 897 (quoting Wilson v,
Middendorf, 248 Ill. App.3d 870,872 (1993)). Simply stated, the
parties did not agree how to secure the $270,000.
21. There is no enforceable settlement because there was never a
meeting of the minds to resolve how to secure the note.
D. NO AGREEMENT WAS REACHED BECAUSE THE DEFENDANT
CONDITIONED A FINAL SETTLEMENT ON A WRITTEN EXECUTED AGREEMENT
22. Oral settlement agreements may be enforced if there is "an offer,
an acceptance, and a meeting of the minds regarding the terms."
Pritchett, 332 Ill. App.3d at 896. Yet, the Statute of Frauds
requires all contracts that cannot be performed within one year to be
memorialized in a signed writing. Frauds Act § 1. An exception
to the Statute of Frauds exists if a settlement agreement has been
during a court-mandated settlement conference
conducted in the judge's chambers and state[s] the
terms of that agreement in the judge's presence,
there is no danger of enforcement of a contract
which was, in fact, never made. This is so even if
no transcript or written order memorializing the
agreement is prepared on the date the agreement is
Rose, 343 Ill. App.3d at 1097. In such a case, no writing
is required. The policy behind mis rule is that the judge in the
settlement conference can resolve any disputes over whether an agreement
was made. Id. There was no settlement agreement reached at the
settlement conference on August 12, 2003.
23. Email communications memorialized the status of the proposed
agreement based on the progress made during the settlement conference. On
the evening of August 12, 2003, Defendant's counsel clearly stated in his
email that there would be no binding agreement until the terms were
committed to writing and signed. Def. Resp., Ex. 2. On August 13, 2003,
Plaintiffs counsel stated on the record that the agreement was
"memorialized" in the August 12, 2003 emails, and implied that those
terms (including the writing requirement) were the terms of any potential
agreement. PL Br., Ex. A. This fact distinguishes this case from Statute
of Frauds exception in Rose. In this case, a writing was
specifically required in order to have a binding agreement. It is a rule
that "[i]nformal writings between the parties can constitute a binding
settlement agreement unless the parties decide to expressly condition
their deal on the signing of a formal document." Abbott Labs.,
164 F.3d at 388-89. In this
case, the parties agreed that there was no settlement until the
terms were committed to writing and the agreement signed. Neither party
ever signed the proposed settlement agreement.
E. NO SETTLEMENT AGREEMENT WAS REACHED BECAUSE DEFENDANT'S
COUNSEL DID NOT HAVE FULL AUTHORITY TO SETTLE IN THE ABSENCE
OF HIS CLIENT
24. Counsel for Defendant stated in his email that he did not have
authority to "approve settlement terms" on the evening of August 12, 2003
after the settlement conference had ended. Def. Resp., Ex. 2. Illinois
law requires an attorney to have express authority to enter into a
settlement agreement to bind his client:
The authority of an attorney to represent a client
in litigation is separate from and does not
involve the authority to compromise or settle the
lawsuit. An attorney who represents a client in
litigation has no authority to compromise, consent
to a judgment against the client, or give up or
waive any right of the client. Rather, the
attorney must receive the client's express
authorization to do so.
Where a settlement is made out of court and is not
made part of the judgment, the client will not be
bound by the agreement without proof of express
Brewer v, Nat'l Railroad Passenger Corp.,
165 Ill.2d 100,105 (1995); See Khan v. Hasp. Laundry Servs., Inc., No. 01 C
0681, 2002 WL 1610952, at *4 (N.D. Ill. July 18, 2002).
25. Defendant's counsel clearly stated to Plaintiffs counsel that he
did not have any authority to approve settlement terms. Def. Resp., Ex.
2. Further, he stated that the reason specific terms were not discussed
at the settlement conference was because he did not have authority to do
so. Id. Defendant never gave its counsel authority to enter into
that would violate its loan agreement with its lender. In this
case, counsel for Defendant can not bind his client without express
authorization, and no such authorization existed.
The parties negotiated in good faith with the expectation of
entering into a settlement. They came close but did not agree on a
material term nor did they enter into a fully executed written agreement.
Therefore, Plaintiffs motion to enforce settlement is denied and the case
is returned to Judge St. Eve for further proceedings. The parties are
encouraged to continue their settlement efforts.
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