JOHNSON MARCRAFT, INC., Plaintiff, v. WESTERN SURETY COMPANY, Defendant/Third-Party Plaintiff, v. ALEXANDER MECHANICAL CONTRACTORS, INC., Third-Party Defendant/Counter Plaintiff.
Case No. 3:15-1482
IN THE UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION
The Honorable Curtis J. Collier, District Judge
Pending before the Court are the (i) Motion to Dismiss Count II of Johnson Marcraft, Inc.s Complaint filed by Defendant Western Surety Company (Docket No. 80); (ii) Plaintiffs Motion for Sanctions Against Defendant Western Surety Company (Docket No. 88); (iii) Emergency Motion of Alexander Mechanical Contractors, Inc. to Determine Whether an Enforceable Settlement Agreement Exists (Docket No. 115); and, (iv) Johnson Marcraft, Inc.s Motion to Enforce Settlement Against Alexander Contractors, Inc. (Docket No. 116). By order entered on December 18, 2017 (Docket No. 153), all dispositive motions were referred to the undersigned Magistrate Judge for report and recommendation.1
I. MOTION TO DISMISS AND MOTION FOR SANCTIONS
A. Background
The underlying relationships and transactions between the parties giving rise to this lawsuit are recited in the Courts memorandum of June 22, 2016 (Docket No. 40). Those facts are not again recited here except as necessary to add context to the pending matters.
In this breach of contract action, JMI asserts additional claims in Count II for vexatious refusal to pay a claim under Missouri law (Docket No. 1 at 10-11), and, alternatively, for bad faith refusal to pay a claim under Tennessee law in Count III (Docket No. 1 at 11-12). In its answer
Fairly early in this case, a discovery dispute arose about the sufficiency of responses by Defendant Western Surety Company (Western) to discovery requests propounded by Plaintiff Johnson Marcraft, Inc. (JMI). See Plaintiffs Motion to Compel at Docket No. 38. One of the specific discovery requests in dispute was JMIs contention interrogatory seeking description of each ground on which Western alleged that JMIs complaint failed to state a claim with all supporting facts and documents. Id. at ¶¶ 20-31. See also Order entered on July 8, 2016, Docket No. 46 at 7-9. In its ruling on this discovery dispute, the Court held that this was a proper discovery request, which Western could not answer, as it originally did, by simply referencing produced documents. Id. Western was therefore directed to provide the requested information in narrative format under oath with specific detail and to further identify [in its sworn response] by specific Bates numbers the documents that Western contends support or relate to its position, as stated in the narrative interrogatory response. Id. at 9.
There is no dispute that in its amended discovery responses, Western identified only one ground as being the basis for its defense of failure to state a claim, namely, that no money is due or owing to JMI because JMI allegedly did not properly fabricate the materials in question. See Docket No. 62-1 at 4-5 and Docket No. 102 at 1-2. Despite not having identified any other grounds for its failure to state a claim defense, on April 28, 2017, Western filed a motion to dismiss under
This was only one of multiple discovery disputes in this case (and the Court is only aware of those brought to the Courts attention). Following this first discovery contest, Western asserted that documents produced by JMI were insufficient. See Docket Nos. 50, 51, 52, 53, 55, and 56. The Court resolved this matter after a telephonic discovery conference by order entered on November 10, 2016 (Docket No. 57). Then, JMI raised issues of the adequacy of Westerns compelled discovery responses (Docket Nos. 62, 63, ad 66) and the adequacy of Alexanders discovery responses (Docket Nos. 64 and 65). Because of the parties failure to comply with the Courts procedures for resolution of discovery disputes, the Court denied those motions (Docket No. 67), without prejudice to refiling, which did not happen. Then, issues over the scheduling of third-party depositions arose (Docket Nos. 78, 85, and 93), in connection with which Western sought to hold out-of-district witnesses in contempt (Docket Nos. 103, 104, 105, and 106). This discovery dispute traveled to the District of Minnesota and back again. See Docket No. 109. The Court references these additional contests to show that the parties have a long and tortured history of discovery disputes in this case, as a result of which all of the parties have had multiple occasions, and therefore ample opportunity, to fully inform themselves of their respective discovery obligations and the consequences for failing to cooperate in discovery.
B. Analysis
When a party disobeys the pretrial orders of a federal court, the Federal Rules provide that the court may, on motion or on its own, issue any just order, including those authorized by
When applying the substantially similar
The first factor is whether the party‘s failure to cooperate in discovery is due to willfulness, bad faith, or fault; the second factor is whether the adversary was prejudiced by the party‘s failure to cooperate in discovery; the third factor is whether the party was warned that failure to cooperate could lead to the sanction; and the fourth factor in regard to a dismissal is whether less drastic sanctions were first imposed or considered.
Doe v. Lexington-Fayette Urban County Government, 407 F.3d 755, 766 (6th Cir.2005) (quoting Freeland v. Amigo, 103 F.3d 1271, 1277 (6th Cir.1997)). The party seeking to avoid a sanction has the burden of showing that his failure to comply was due to inability, not willfulness or bad faith. United States v. Reyes, 307 F.3d 451, 458 (6th Cir.2002).
As the basis for its failure to disclose a choice of law defense in its discovery responses, Western argues that the defense is not novel and should have been expected by JMI because it cannot recover under both state law theories. Docket No. 102 at 2. Western further contends that there is no prejudice to JMI because the evidence making up the choice of law defense has been brought to the attention of JMI through the Motion to Dismiss itself, and that discovery could be reopened on this issue. Id. at 3-4.
Whether or not JMI should have expected Western to raise this as a ground for failure to state a claim is beside the point. JMI specifically asked in discovery for Western to describe the grounds for any contention that the complaint failed to state a claim. When a dispute arose over the sufficiency of Westerns responses to this discovery request, the issue was presented to the Court, and was intensely contested. The Court compelled Western to identify all of its contentions of failure to state a claim, and that direction was clear and unambiguous. Western cannot now claim that its failure to raise the choice of law argument earlier was an inadvertent omission in discovery responses. Nor can Western rely on any lack of clarity in the Courts directions about Westerns obligations in responding to JMIs contention interrogatories. While the Court stops short of finding that Westerns actions rise to the level of bad faith, the Court does find Westerns failure to identify choice of law as a ground for its failure to state a claim defense to be in willful disregard of the Courts order compelling detailed disclosure of all grounds for that defense. Western has made no showing that its failure to follow the Courts order was due to some inability to comply.
Further, the Court finds that Westerns failure to disclose this contention is prejudicial to JMI. Western bases its Motion to Dismiss on facts that would at least generate, if not require,
With respect to the severity of the sanction and prior warning, the Court notes that the lesser sanction of compelling responses was already afforded to Western. See Order at Docket No. 46.4 Western thus had its chance to cooperate in discovery prior to imposition of sanctions. Further, the Courts earlier order instructed Western in clear and explicit detail to comply with its discovery obligations, which Western elected not to do. Westerns disregard for the opportunity given by the Court to provide a detailed response of all grounds for its claimed defenses compels the conclusion that no lesser sanction would be effective, nor is a lesser sanction warranted at this procedural posture in this case. See e.g. Universal Health Group v. Allstate Insurance Company, 703 F.3d 953 (6th Cir. 2013) (dismissal warranted by plaintiffs discovery violations that prejudiced defendant, even without explicit warning).
Additionally, JMI has clearly elected to proceed with its Count II vexatious refusal to pay claim under Missouri law, and should therefore be required to do so exclusively for the remainder of trial preparation and trial in this case.
II. SETTLEMENT
A. Background
The parties conflicting positions over whether a settlement occurred between JMI and Third-Party Defendant Alexander Mechanical Contractors, Inc. (Alexander) is collateral to the underlying litigation in this case. For that reason again, the Court does not find it necessary to detail the long and tortured procedural history of this case. Instead, the Court will begin its discussion with the circumstances of the parties attempt at settlement that resulted in the instant dispute.6
On August 28, 2017, Mr. Alexander sent a draft release and settlement agreement, which had been drafted by Alexanders counsel, to Mr. Scharf. Mr. Scharf subsequently forwarded the draft release and settlement agreement to his attorneys, who then notified Alexanders counsel by email on August 30, 2017 that the proposed language of the draft settlement agreement was unacceptable. The point of discord about the settlement agreement was whether it would include a release of JMIs claims against Western. At that time, the parties acknowledged that there was no agreement to the global settlement originally provided for in Alexanders draft release and settlement agreement.
Nevertheless, settlement discussions continued between the attorneys, and also between Mr. Scharf and Mr. Alexander separately. There is no dispute that on September 8, 2017, Alexander agreed to settlement in exchange for release of the claims by and between Alexander and JMI exclusive of Western. See Alexander Motion, Docket No. 115 at 4-5. On that date, Alexanders counsel confirmed this agreement by email to JMIs counsel, stating:
Please find enclosed Alexanders acceptance of your settlement offer of $310,000 with a confidential settlement and release of all claims by and between JMI and Alexander.
In addition, we will be following up on this email with a second email that includes an offer ... on behalf of Western Surety
Company for full and final settlement of all claims by JMI against Western Surety Company.
Docket No. 116 at ¶ 17 and Exhibit G (Docket No.116-7).8 This email was accompanied by a draft release and settlement agreement (Docket No. 116-7 at 3).9
JMIs counsel quickly responded by email to Alexanders counsel stating:
We note that neither the email below nor the draft agreement address the condition mentioned in Duanes August 31st email - ie., that the settlement with Alexander for $310,000 must provide that all of JMIs claims against Western Surety Company are preserved. I have added language to this effect in the attached document. Please let me know your thoughts about this language.
Please note that our client has not yet reviewed the draft agreement, and we still need to get approval for that. Nevertheless, I wanted to go ahead and send the revised draft now so that we could keep things moving.
Docket No. 116 at ¶ 19 and Exhibit I (Docket No. 116-9). The specific language proposed by JMI was:
This agreement does not contemplate the dismissal of claims brought by JMI against Defendant Western Surety Company (Western Surety) in the Lawsuit, and JMI expressly reserves all rights it may have against Western Surety, including but not limited to the claims asserted by JMI against Western Surety in the Lawsuit.
Docket No. 116 at Exhibit M (Docket No. 116-13). In all other respects the settlement agreement proposed by Alexander was unchanged. Compare Docket No. 116-7 with Docket No. 116-13. A couple of hours later (still on September 8) counsel for Alexander replied to JMIs counsel as follows: David: We have no problem with the language you added. Docket No. 116 at ¶ 20 and Exhibit J (Docket No. 116-10).
Since my last email, we have conferred with our client. The language of the agreement as last circulated between us is acceptable to our client. Attached is a PDF version of the agreement between JMI and Alexander. There are no substantive changes. I simply added todays date, accepted the previously circulated changes, and cleaned up the signature block. We are forwarding to our client for signature, and we assume that you will do the same since the agreement provides for counterpart signatures.
Docket No. 116 at ¶ 21 and Exhibit K (Docket No. 116-11). Thereafter, on September 11, 2017, JMIs counsel forwarded to Alexanders counsel an executed settlement agreement and release, signed by Mr. Scharf on behalf of JMI. Docket No. 116 at ¶ 23 and Exhibit M (Docket No. 116-13).10 After JMIs counsel forwarded to Alexanders counsel the signed settlement agreement, Alexanders counsel responded that Alexander would not sign that settlement agreement, because JMI was not releasing its claims against Western. Docket No. 116 at ¶ 24 and Exhibit N (Docket No. 116-14). See also Docket No. 115 at 6.
When JMIs counsel raised that the settlement was agreed to by Alexander unequivocally, Alexanders attorneys responded that the statement, [w]e have no problem with the language ... added, was simply an indication of their initial review. Docket No. 116 at ¶ 26 and Exhibit P (Docket No. 116-16). See also Docket No. 115 at 6. Alexanders attorneys further explained that only when the proposed settlement agreement was presented to Alexander for review and signature did they perform research about the effects of release of principals and sureties. Docket No. 115
B. Analysis
A district court has the inherent power to enforce a settlement agreement between parties in litigation. Bamerliease Capital Corp. v. Nearburg, 958 F.2d 150, 152 (6th Cir. 1992); Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988). A court can exercise this power even if that agreement has not been reduced to writing. Bowater N. Am. Corp. v. Murray Mach., Inc., 773 F.2d 71, 77 (6th Cir. 1985). The power of a trial court to enforce a settlement agreement has its basis in the policy favoring the settlement of disputes and the avoidance of costly and time-consuming litigation. Kukla v. National Distillers Products Co., 483 F.2d 619, 621 (6th Cir.1973).
Whether the parties actually reached an agreement is a question of fact for the district court, Moore v. U.S. Postal Serv., 369 Fed.Appx. 712, 717 (6th Cir. 2010), which is governed by state contract law, Cuyahoga Valley Ry. Co. v. U.S. Bank Trust Nat‘l Ass‘n, 515 Fed.Appx. 494, 498 (6th Cir. 2013) (Because settlement agreements are a type of contract, the formation and enforceability of a purported settlement agreement are governed by state contract law.). Here, JMI argues that Missouri law applies, because the last act necessary in reaching as settlement occurred on September 8, 2017, at 4:15 p.m., when JMIs counsel sent an email from St. Louis to Alexanders counsel confirming that the language of the settlement agreement was acceptable to JMI. See Docket No. 117 at 3-4 and No. 116-11. The Court finds it unnecessary to decide whether Missouri
Alexander contends that there was no mutual assent because the final draft settlement agreement would not end Alexanders exposure to future liability, which Alexander maintains was the intent of the parties. It is well established in both Tennessee and Missouri that the mutual assent necessary to bind parties to a contract is judged by an objective standard, looking to the express words of the parties and their visible acts, not their subjective states of mind. Gurley v. King, 183 S.W.3d 30, 43 (Tenn. Ct. App. 2005); Youngs v. Conley, 505 S.W.3d 305, 314 (Mo. Ct. App. 2016).
Objectively, the only reasonable construction of the communications between counsel for JMI and counsel for Alexander is that Alexander agreed to settle with JMI. There is no dispute that on September 8, 2017, Alexander agreed to settlement in exchange for release of the claims by and between Alexander and JMI exclusive of Western. See Alexander Motion, Docket No. 115 at 4-5. The email of that date from Alexanders counsel to JMIs counsel was accompanied by a draft settlement agreement and release to that effect. Docket No. 116-7.
The point where the parties depart on the question of whether a binding settlement exists is the additional language proposed by JMI to clarify that all of JMIs claim against Western Surety Company would be preserved. The answer to that question depends on whether the response of Alexanders counsel that the additional language was no problem evidences unequivocal acceptance and therefore assent.12
The fatal flaw in Alexanders arguments is that Alexanders counsel did not qualify its acceptance of the language preserving JMIs claims against Western in any way. Alexander points to nothing that would give JMI reason to know that the assent of Alexanders counsel was conditioned on client approval or on execution of a written agreement. Nor did Alexanders counsel respond that the proposed additional language was too vague, or that the additional language needed further clarification or wordsmithing. Regardless of Alexanders insistence otherwise, the settlement was unequivocally accepted when Alexander, through its attorneys, agreed that the additional language was no problem.
Alexander attempts to avoid this outcome by raising what is, as JMI correctly notes, essentially a mistake of law argument. However, a mistake of law is not grounds for avoiding a contract. See, e.g., Fidelity & Deposit Co. of Maryland v. F.D.I.C., 45 F.3d 507, 512 (8th Cir. 1995) (Missouri courts generally do not grant relief for a mistake of law); Davis v. Metropolitan Government of Nashville and Davidson County, 620 S.W.2d 532, 535 (Tenn. Ct. App. 1981)
Alexander also contends that the settlement agreement is not enforceable because it was not signed. However, agreements need not even be reduced to writing to be enforceable contracts, unless required by law. Bill Walker & Assocs., Inc. v. Parrish, 770 S.W.2d 764, 771 (Tenn. Ct. App. 1989) (citing Rodgers v Southern Newspapers, Inc., 379 S.W.2d 797, 800 (Tenn. 1964)) and Vulgamott v. Perry, 154 S.W.3d 382, 390 (Mo. Ct. App. 2004). Given that verbal agreements can be enforced, it follows that lack of signatures is generally not fatal to the binding force of an agreement. Moody Realty Co., Inc. v Huestis, 237 S.W.3d 666, 674-75 (Tenn. Ct. App. 2007) (signatures are not always essential to establish a binding contract) and Robinson v. Powers, 777 S.W.2d 675, 679 (Mo. App.1989) (same).
Alexander argues that a writing is required by law. According to Alexander, the reservation of JMIs rights against Western would place Alexander in the role of being responsible for a debt of another within the meaning of Tennessees and Missouris statute of frauds, which require a signed writing evidencing the parties agreement. Docket No. 115 at 12 (emphasis added). The language upon which Alexander relies is that a signed writing is required upon any special promise to answer for the debt ... of another person.
Further, even if Alexander had a basis to argue that the settlement is a promise to pay the debt of Western because of the indemnity relationship, the main purpose rule exception to the statute of frauds eliminates the need for a written agreement whenever the promisor makes an oral promise to pay for the debt of another for his own personal or economic advantage. Wolff Ardis, P.C. v. Kimball Products, Inc., 289 F.Supp.2d 937, 941 (W.D. Tenn. 2003). The court in Wolff Ardis noted that Missouri also follows the main purpose rule. Id. at 942 (citing Sale v. Brown, 396 S.W.2d 750, 756 (Mo. App. 1965)). Here, Alexander cannot support an argument that the main purpose of its settlement with JMI is anything other than for its own benefit in resolving its disputed obligation to JMI.15
Finally, Alexander has offered no authority to support its contentions that the settlement with JMI is unenforceable as contrary to justice, fairness and equity. Docket No. 115 at 14. Alexanders argument is premised on the speculative potential liability that might result to Alexander if Western pursues a claim for indemnity against JMI. Although framed as a fundamental fairness argument, substantively this is the same premise as Alexanders argument
For all of these reasons, Johnson Marcraft, Inc.s Motion to Enforce Settlement Against Alexander Contractors, Inc. (Docket No. 116) should be GRANTED and the Emergency Motion of Alexander Mechanical Contractors, Inc. to Determine Whether an Enforceable Settlement Agreement Exists (Docket No. 115) should be DENIED. The settlement agreement between JMI and Alexander (Docket No. 116-13) should be enforced.
If these recommendations are adopted, resolution of additional pending matters would follow: (i) JMIs Motion for Partial Summary Judgment (Docket No. 79) would be MOOT and (ii) Alexanders Motion to Exclude Dr. Albert Gonzalez (Docket No. 110) would be MOOT.16
III. RECOMMENDATION
Based on the foregoing, the undersigned Magistrate Judge respectfully recommends that:
- Western Surety Companys Motion to Dismiss Count II of Johnson Marcraft, Inc.s Complaint (Docket No. 80) be DENIED.
- JMIs Motion for Sanctions Against Defendant Western Surety Company (Docket No. 88) be GRANTED.
- JMI be found to have elected to proceed solely on its vexatious refusal to pay claim under Missouri law.
- JMIs Motion to Enforce Settlement Against Alexander Contractors, Inc. (Docket No. 116) be GRANTED, and the settlement agreement between JMI and Alexander (Docket No. 116-13 at 4) be enforced.
- The Emergency Motion of Alexander Mechanical Contractors, Inc. to Determine Whether an Enforceable Settlement Agreement Exists (Docket No. 115) be DENIED.
- JMIs Motion for Partial Summary Judgment (Docket No. 79) be terminated as MOOT.
- Alexanders Motion to Exclude Dr. Albert Gonzalez (Docket No. 110) be terminated as MOOT.
ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of Court within fourteen (14) days of service of this Report and Recommendation, in accordance with Local Rule 72.03(b), and must state with particularity the specific portions of this Report and Recommendation to which objection is made. Failure to file written objections within the specified time can be deemed a waiver of the right to appeal the District Courts Order regarding the Report and Recommendation. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).
Respectfully submitted,
BARBARA D. HOLMES
United States Magistrate Judge