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Artuk, Inc. v. AKT Corporation

United States District Court, N.D. Illinois, Eastern Division

August 7, 2014

ARTUK, INC., ARTHUR P. SCHUELER, and PLASTIC TECHNOLOGIES, INC., Plaintiffs and Counterdefendants,
AKT CORPORATION and FRANZ SCHOENECKER, Defendants and Counterplaintiffs.


JAMES F. HOLDERMAN, District Judge.

The court overrules Plaintiffs' objections and, after considering the parties' respective presentations, adopts Magistrate Judge Valdez's June 6, 2014 Report and Recommendation (Dkt. No. 114) in its entirety. Defendants' amended motion to enforce the settlement agreement (Dkt. No. 31) is granted.

The parties are ordered to fulfill their obligations under the October 2, 2013 settlement agreement, which include the following: (1) Schueler shall purchase Schoenecker's stake in Artuk for the price of $600, 000; (2) Artuk shall retain Schoenecker as a consultant for six months from the date of Schueler's purchase of Artuk and Artuk shall pay Schoenecker $50, 000 for his consulting services; (3) the parties shall enter into a five-year non-compete agreement consistent with the terms reached on October 2, 2013 and set forth in email correspondence between Mark Malloy and Marios Karayannis between October 7, 2013 and October 15, 2013 (Dkt. No. 34 Exs. A, B, C; Dkt. No. 58 Ex. C)[1]; and (4) the parties shall release any and all claims associated with this lawsuit. Defendants' motion to appoint receiver and motion for preliminary injunction and for attorneys' fees and costs (Dkt. No. 32) and Plaintiffs' motion for an accounting and turnover order (Dkt. No. 98) are denied as moot. This case is dismissed with prejudice.


Before the court are Plaintiffs' objections to Judge Valdez's Report and Recommendation (Dkt. No. 114 ("R&R")) addressing Defendants' Amended Notice of Motion and Motion to Enforce Settlement Agreement."[2] (Dkt. No. 31). On June 6, 2014, Judge Valdez recommended that the court grant Defendants' motion.[3] On June 19, 2014, Plaintiffs objected to Judge Valdez's Report and Recommendation as provided by Federal Rule of Civil Procedure 72(b)(2) and 28 U.S.C. § 636(b)(1)(C). (Dkt. No. 115.) On July 1, 2014, Defendants filed a response in opposition to Plaintiffs' objections. (Dkt. No. 116.) On July 15, 2014, although not expressly permitted under Rule 72(b), Plaintiffs filed a reply brief. (Dkt. No. 117.) The court has considered all of the parties' filings and, for the following reasons, the court adopts Judge Valdez's Report and Recommendation in its entirety. Because the settlement agreement reached on October 2, 2013 controls the parties' dispute and is a valid, enforceable contract under Illinois law, the court grants Defendants' amended motion to enforce the settlement agreement.


"When a magistrate judge prepares a report and recommendation for a district court, the governing statute provides that the district court shall make a de novo determination' with respect to any contested matter." Kanter v. C.I.R., 590 F.3d 410, 416 (7th Cir. 2009) (citing 28 U.S.C. § 636(b)(1)(C)). According to the Seventh Circuit:

De novo review requires the district judge to decide the case based on an independent review of the evidence and arguments without giving any presumptive weight to the magistrate judge's conclusion. The district judge is free, and encouraged, to consider all of the available information about the case when making this independent decision. A district judge may be persuaded by the reasoning of a magistrate judge or a special master while still engaging in an independent decision-making process.

Mendez v. Republic Bank, 725 F.3d 651, 661 (7th Cir. 2013) (citing United States v. Raddatz, 447 U.S. 667, 676 (1980)). "The magistrate judge's recommendation on a dispositive matter is not a final order, and the district judge makes the ultimate decision to adopt, reject, or modify it." Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 760 (7th Cir. 2009).


An in-depth discussion of the facts underlying the lawsuit can be found in Magistrate Judge Valdez's Recommendation and Report. (R&R at 1-6.) Rather than reciting the facts at length here, the court repeats only those facts relevant to the issue before the court, which is whether the parties entered into an enforceable settlement agreement on October 2, 2013. The parties are Franz Schoenecker ("Schoenecker"), Arthur Schueler ("Schueler"), Artuk, Inc. ("Artuk"), AKT Corporation ("AKT"), and Plastic Technologies, Inc. ("PTI"). Schoenecker and Schueler are equal shareholders, officers, and directors of Artuk, which is a joint venture formed to sell plastic reflective devices. Schoenecker and Schueler each own separate business, AKT and PTI, which also manufacture and sell a variety of reflective devices. Schoenecker and Schueler eventually had a falling out, followed by myriad accusations of fraud and- ultimately-this lawsuit. For the sake of clarity, the court will refer to Schueler, PTI, and Artuk as "Plaintiffs" and Schoenecker and AKT as "Defendants."

As Judge Valdez noted in her Report and Recommendation, the parties have reached an apparent settlement on several occasions but cannot seem to cross the finish line. On August 23, 2013, the parties participated in a private mediation with retired Wisconsin Supreme Court Justice Janine Geske. (R&R at 4.) Although the mediation ended without an agreement, the parties continued to talk over email during the following weeks. ( Id. ) On September 4, 2013, Plaintiffs' attorney Marios Karayannis ("Karayannis") sent Defendants' attorney Mark Malloy ("Malloy") an email with a "final offer" to pay $600, 000 for Schoenecker's interest in Artuk, plus $50, 000 for Schoenecker to provide "consulting services" during the six months following the sale. ( Id.; Dkt. No. 17 Ex. A.) Karayannis ended his September 4 email with a note that "[i]if we can agree on a purchase price, I would assume we would be able to agree upon suitable language for non-compete agreements, etc." ( Id. ) On September 6, 2013, after exchanging two more emails discussing counteroffers and minor terms, Malloy emailed Karayannis to accept the offer of $600, 000 for Schoenecker's interest in Artuk and $50, 000 for the six month consulting agreement (the "September 6 Settlement"). (R&R at 4-5; Dkt. No. 17 Ex. D.) Karayannis responded the same day to confirm Defendants' acceptance of the offer, (R&R at 5; Dkt. No. 17 Ex. E), and on September 19, 2013, Malloy and Karayannis appeared before this court and reported that they had reached a settlement. (Dkt. No. 14.)

On September 27, 2013, after Plaintiffs refused to close the deal, Defendants filed a motion to enforce the September 6 Settlement. (Dkt. No. 16.) On October 1, 2013, although Defendants' motion remained pending, the parties participated in a further round of settlement discussions with Judge Valdez. (Dkt. No. 22.) The parties made progress but left the settlement conference without an agreement. The next day, however, counsel for Plaintiffs and Defendants separately telephoned Judge Valdez's chambers to advise the court that they had resolved their differences and reached a settlement agreement. (Dkt. Nos. 23, 24.) The major terms of the October 2, 2013 settlement, which differed slightly from the previous settlements, were as follows: (1) Schueler agreed to purchase Schoenecker's interest in Artuk for $600, 000; (2) Artuk agreed to retain Schoenecker as a consultant for six months after the sale and pay him $50, 000 in monthly installments; (3) the parties agreed to extend a non-compete agreement, which they had discussed the day before, from three years to five years; and (4) the parties agreed to release all claims and dismiss the current lawsuit (the "October 2 Settlement"). (R&R at 10; Tr. 360:13-25, 361:1-9.)[4]

Over the next two weeks, Malloy and Karayannis exchanged proposed language and drafts as they attempted to reduce their oral settlement agreement to writing. (R&R at 11; Dkt. No. 58 Exs. B-F.) On October 15, 2013, Malloy sent Karayannis revised versions of the settlement documents, including the five-year non-compete agreement (the "October 15 Non-Compete"). (Dkt. No. 58 Ex. F.) According to Malloy's email, the revised documents reflected Karayannis's edits as of October 15, 2013. ( Id. ) On October 16, 2013, Malloy and Karayannis jointly contacted the court to request that the October 17, 2013 status date be postponed until after the deal closed on October 31, 2013. On October 17, without explanation, Karayannis stopped replying to emails. Between October 17 and October 24, Malloy sent Karayannis a number emails seeking information about the settlement documents and the logistics for the closing, but received no response. (Dkt. No. 34 Exs. D, E, F.) On October 25, 2013, Ronald Boorstein ("Boorstein") filed an appearance on behalf of Plaintiffs (Dkt. No. 26) and telephoned Malloy to relay that he was replacing Karayannis and had concerns with "one area of the closing documents." (Dkt. No. 34 ¶ 14.) Boorstein subsequently emailed Malloy a document titled "Noncompetition Provisions, " which Boorstein stated would "create the complete and effective separation in accordance with the intentions of the parties and specify appropriate damages for any breach or violations of them." (Dkt. No. 34 Ex. H.) Boorstein's revised ...

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