(Bankruptcy Case No. 09 B 27094)
The opinion of the court was delivered by: Judge Joan H. Lefkow
MEMORANDUM OPINION AND ORDER
David Leibowitz ("the Trustee") filed a motion to enforce a settlement agreement between Rudolph Trebels, Marc Langs, and Greenwich Insurance ("Greenwich") (collectively "the parties"). (Dkt. 30). Trebels and Langs oppose the Trustee's motion arguing that the parties never settled the case. On September 21, 2012, the court held an evidentiary hearing to determine whether the parties had reached a settlement agreement.
On July 27, 2009, IFC Credit Corporation ("IFC") filed a petition for relief under chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq., in the United States Bankruptcy Court for the Northern District of Illinois (Case No. 09 B 27094). Trebels was the president and chief executive officer of IFC. Langs served as the company's chief financial officer. On April 30, 2010, the Trustee filed suit against Trebels and Langs, alleging that they breached their fiduciary duties as officers of IFC, committed fraud, and were liable to the estate for unjust enrichment. Greenwich had issued Trebels and Langs a $5 million directors and officers liability policy ("D&O policy") and agreed to defend Trebels and Langs against the Trustee's claims. The policy is a "wasting insurance policy" such that the ongoing costs of defense are subtracted from the total available payout under the policy. (Trustee's Mot., at 2.) The policy, as amended, authorizes Greenwich to enter into settlements with the consent of its insureds.
The Settlement Negotiations
On May 23, 2012, the Trustee, Greenwich, Trebels and Langs*fn1
had a settlement conference. The parties did not reach a
settlement but continued to discuss a price at which both sides would
agree to resolve the matter. On May 25, 2012, Langs emailed Trebels
and the Trustee that he and Trebels had received approval to make a
settlement proposal for $900,000. On May 30, 2012, the Trustee
rejected the offer noting that the "proposal is for inadequate
consideration." (Dkt. 37, Ex. 5.) The Trustee attached to its reply
email a draft settlement "Term Sheet" and wrote that the Term Sheet
"incorporates the only terms under which the Trustee will continue to
discuss settlement." (Id.)
The Term Sheet contained 11 terms: term (1), an amount and time for payment; terms (2) - (4) and (9), the releases of the respective parties; term (5), acknowledgment that the parties would execute a final written settlement agreement incorporating the terms of the Term Sheet and that settlement would be conditional on the bankruptcy court's approval; terms (6) - (7), dismissal of specified pending litigation, including the Trustee's avoidance action against Trebels; term (8), reservation of Greenwich's rights; term (10), reservation of the Trustee's rights; and term (11), allowance of "other usual and customary terms of settlement as the Parties may agree."
The negotiations continued during the next two months. Counsel for Greenwich, John Duchelle, testified at the hearing that, on July 17, 2012, he received a telephone call from Langs, who advised that he and Trebels were willing to settle for $975,000 and the term sheet. Counsel for Greenwich testified that he needed approval from Trebels, and Langs agreed that Trebels would confirm. On July 21, 2012, Trebels confirmed, emailing Greenwich that he and Langs agreed to increase the settlement offer to $975,000,
In accordance with your request and your authority from Greenwich, Rudy Trebels has agreed with Marc Langs to increase the settlement offer to the Trustee to $975,000, for full dismissal of the Trustee case, full mutual releases regarding that case, and dismissal of Rudy Trebels, Trebels family members, and Trebels-related entities from the Avoidance actions. This is a bottom-line offer and we will not agree to any further increase (nor to any holdback for any other insured). Please also advise the Trustee that this offer shall remain open until close of business, Tuesday, July, 24. (Dkt. 30, Ex. 2.) Greenwich called the Trustee about the offer and, at the Trustee's request, Greenwich forwarded Trebels's email to the Trustee. On July 24, 2012, the Trustee replied to Greenwich accepting "the settlement offer from Trebels and Langs as it has been communicated to us by you on behalf of them and on behalf of Greenwich." (Id.) The Trustee continued,
As you are aware, the settlement is something that will require court approval. Further, it is our understanding that the settlement is going to be on the terms incorporated in the term sheet that was circulated in May in conjunction with the mediation (except that the dollar amount of the settlement will be $975,000). We will need to get the settlement documented and assume that Defendants will take the first stab at that. Please confirm that our understanding is consistent and let us discuss the logistics of getting the settlement documented and executed. (Id.)
The next day, on July 24, 2012, Greenwich emailed Trebels and Langs indicating that the Trustee had agreed in principle to the deal and requested that they send a redline incorporating their revisions into the May 2012 Term Sheet circulated by the Trustee. Over the next several days, Trebels, Langs, and Greenwich incorporated their revisions into the Term Sheet, which Greenwich then sent to the Trustee. On July 31, 2012, Trebels sent the Trustee further revisions to the Term Sheet.
Later on July 31, 2012, the Trustee responded noting that the revised Term Sheet "broaden[ed] the settlement beyond the terms" accepted by the Trustee. (Dkt. 37, Ex. 4.) The Trustee took particular issue with Paragraph 9 regarding privileged emails (a term which had not been included in the May 2012 Term Sheet nor had it been discussed between the parties prior to that time).*fn2 In Paragraph 9, Langs sought the return and destruction of two emails that he had sent to a criminal defense attorney named Patrick Cotter ("the Cotter ...