The issue of this appeal is the enforceability of a disputed settlement agreement resulting from mediation. The mediation produced an itemized “Agreement in Principle” (AIP or agreement) between the parties. The AIP called for the execution of final settlement documents and mutual releases. Over the ensuing three months the parties exchanged three drafts of final papers. When that drafting process appeared to stall, the plaintiff Targus Group International, Inc. (Targus or company), began suit in the Superior Court against the defendants Howard Sherman, Sean Brosmith, and Scott Oshry (Sherman group or group) for enforcement of the AIP by remedies of damages and specific performance. The Sherman group denied liability and subsequently moved for summary judgment. A Superior Court judge allowed the motion against three ancillary claims by Targus, but denied it upon Targus’s claims of breach of the AIP and breach of the covenant of good faith and fair dealing implicit in the AIP. Upon those counts he ordered the entry of summary judgment in favor of Targus pursuant to Mass.R.Civ.P. 56(c), as amended,
Factual background. The following undisputed facts emerge from the summary judgment record.
1. The parties’ business relationship. In 1992 the Sherman group founded Roundhouse, Inc. (Roundhouse). Sherman served as its chief executive officer, and Brosmith and Oshry as vice-
In 2000 Targus purchased one hundred percent of the stock of Roundhouse in exchange for $79 million in cash and Targus stock. During the next two years, Targus concluded that the Sherman group had not accurately represented Roundhouse’s financial condition and resulting stock purchase value, and called upon the group to pay damages for breach of warrantied representations underlying the purchase price. The Sherman group countered that Targus had made certain misrepresentations about its financial condition apparently affecting the value of the Targus stock received by the group as part of the acquisition price for their Roundhouse shares.
2. The mediation process. In June, 2003, the parties agreed to undertake mediation. They executed a detailed agreement with a highly regarded mediator in Boston. An opening session went forward in Boston on August 15, 2003. All principals and their counsel attended. That session did not produce a solution. During the ensuing months, the parties kept open the mediation process as Targus furnished the Sherman group with requested information about the Targus claims.
On July 13, 2004, a second formal mediation session took place in Boston. It extended from the morning until near midnight. Targus appeared in the person of an authorized director, two accounting experts, and counsel; Howard Sherman, an accounting expert, and counsel appeared for the Sherman group. At the conclusion of the session, the mediator drafted the AIP and submitted it to the parties. After inspection, the principals signed it (Sherman for the group; the Targus director for the company); their counsel signed also; and the mediator initialed it. It provided as follows:
“Agreement in Principle
“Targus Mediation
“July 13, 2004
“Howard Sherman, Sean Brosmith, and Scott Oshry (‘Sell*424 ers’) and Targus Group International (‘Company’) agree in principle to settle all the claims, causes of action and disputes between them arising out of or relating to the acquisition of Roundhouse by the Company on August 31, 2000, on the following terms and conditions:
“1. Sellers retain 3,000,000 Company shares; return the balance of 781,803 shares.
“2. Sellers pay Company $2,500,000.00 as follows:
— $500,000 personal note from Sellers payable within 6 months of settlement and personally guaranteed by sellers;
— $2,000,000 upon a liquidity event for Company, not guaranteed, non-recourse.
“3. Sellers’ stock in Company to be pledged and escrowed against the back end payment obligation; pledge to be clean for filing purposes.
“4. Sellers not entitled to Board seat.
“5. Sellers remain passive shareholders, i.e. no communications to Company emplоyees (other than personal communications unrelated to the Company), board or advisors. Sellers shall receive from the Company only audited financial statements so long as they remain shareholders.
“6. Company will look into whether it has sold the CD Projects and Glacier Gear lines of business. As to such, if it has sold the businesses not subject to the non-competes, it will terminate the non-competes as to those lines.
“7. Execution and exchange of final settlement documents and mutual releases in a form satisfactory to counsel, including release of any claims by Sellers for severance under the Roundhouse Option Plan. The releases shall indemnify, defend and hold harmless Sellers from any claims, causеs of action, cross-claims or demands arising out of or relating to the Company’s filing of
*425 any claims against other Roundhouse selling shareholders.
“/s/ [Howard Sherman] /s/ [Director William R Logan]
For Selling Shareholders For Targus
“APPROVED AS TO FORM AND CONTENT:
“/s/ Counsel_ /s/ Counsel_
Attorneys for Shareholders Attorneys for Targus
“EDO
(Mediator).”
3. Proposed final documents. On August 11, 2004, counsel for Targus forwarded to counsel for the Sherman Group a draft final settlement agreement. The draft release by Targus recited that Targus “indemnifies [the three members of the Sherman group] . . . from any and all claims . . . arising out of or relating to the acquisition of Roundhouse, Inc. by Targus on August 21, 2000 . . . .” A short covering electronic mail message (e-mail) by Targus counsel made no specific reference to the provisions of the draft. By a responsive e-mail of September 8, 2004, Sherman group counsel inquired about term 6: whether Targus had sold its compact disc case business line so as to release the Sherman group from its obligаtion (apparently under the stock sale agreement of 2000) to refrain from competition in that product. On the same day Targus counsel replied that Targus retained that business (a possible sale had “fallen through”) so that the noncompetition covenant would remain in force.
At some point several weeks after the July 13, 2004, mediation session, the Sherman group proposed to Targus that the company offer to all Roundhouse shareholders the option to settle with Targus on the same terms provided to the three members of the group. The parties do not dispute that such a proposal passed between them. However, the record does not tell us the date or the identities of the сommunicants.
On September 24, 2004, Sherman group counsel forwarded
On October 14, 2004, Targus counsel forwarded the third draft. The covering e-mail to Sherman group counsel recited the belief that the “current draft accurately reflects [the terms recorded with the mediator], and we believe is ready for execution. Please let me know as soon as possible whether there are any remaining issues. We would like to get the papers signed no later than next week.” This draft retained the provision extending the settlement opportunity to former Roundhouse shareholders. It deleted the provision for indemnification of the Sherman group.
When the Sherman group did not respond to the third draft, Targus commenced suit twenty-six days later for specific enforcement of the AIR, including its own duty to indemnify the Sherman group against any claims resulting from Targus action against other former Roundhouse shareholders.
4. Targus’s subsequent merger. On November 22, 2005, Targus formally merged with a separate entity known as Targus Acquisition Corp. so as to accomplish the cancellation of all outstanding Targus stock. As of that date the Sherman group had not returned the 781,803 shares of stock, or paid the $500,000 at a time six months after the final mediation, or pledged their remaining 3,000,000 shares of Targus stock to secure the $2,000,000 paymеnt obligation, as provided in terms 1, 2, and 3, respectively, of the AIR. Consequently the merger process created a “Holdback Escrow Account” (escrow account)
5. The Superior Court decision. After examination of the substantial summary judgment record, the judge concluded that the AIP “was a result of an elaborate process of sophisticated mediation”; that it furnished all the essential terms of a completed agreement; and that the contemplated final documents would constitute a memorialization of that already binding agreement. The judge concluded further that “[njowhere in the Agreement in Principle does it say, or even hint, that it is qualified or that the parties intend only to be bound by the execution of some more detailed agreement.”
Upon that reasoning, the judge ruled that the Sherman group had violated the AIP and its implied covenant of good faith and fair dealing so as to entitle Targus to the remedies of substantial compensatory damages: (1) the sum of $500,000 due as of January 13, 2005, a date six months after the settlement created by the AIP on July 13, 2004; (2) the sum of $2,000,000 payable upon the liquidity event of the merger of November 22, 2005; and (3) the vаlue of the 781,803 shares of unretumed Targus stock, to be set as of the date of the merger at $2.0987 per share. The judge ruled also that Targus was entitled to prejudgment statutory interest at the rate of twelve percent from the dates of the respective breaches (January 13, 2005, and November 22, 2005) with two deductions: (1) the amount of market interest earned by the respective sums of $500,000 and $2,000,000 in the escrow account maintained by Targus after the merger; and (2) the amount of interest held by Targus upon the excess sum in the escrow account.
Discussion. 1. Standard of review. In review of the allowance of summary judgment, an appellate court works from the same record as the motion judge and decides the motion de novo. See Miller v. Cotter,
2. Validity of the AIP. An enforceable agreement requires (1) terms sufficiently complete and definite, and (2) a present intent of the parties at the time of formation to be bound by those terms. See McCarthy v. Tobin,
(a) Completeness. As evidence of incompleteness, the group emphasizes that the parties titled the mediation result as an agreement “in principle” and required the creation of further documents to conclude their settlement. Massachusetts courts have found preliminary writings to be incomplete and nonbinding in circumstances in which essential terms remained unresolved or in whiсh the participants visibly reserved their commitment for the later documents. The decisions invoked by the Sherman group belong to that category of “imperfect negotiation.”
The use of the phrase “in principle” and the need for further documents does not preclude the formation of a binding agreement. Sufficient completeness depends upon the substance of the terms approved by the parties.
Here the text of the AIP and the undisputed circumstances of its formation support its completeness. The document makes no reference to unresolvеd issues or unfinished business. It anticipates no further mediation sessions. All principals signed; simultaneously, their attorneys signed the document with “APPROV(AL) AS TO FORM AND CONTENT’ (emphasis supplied). By contrast, the AIP calls for the execution and exchange of final settlement documents and mutual releases only “in a form satisfactory to counsel” (emphasis supplied), terminology indicating that the AIP had resolved all matters of “content” or substance and that the parties were progressing from the negotiation of terms to the details of implementation.
The AIP culminated from a professional mediation process begun thirteen months earlier by a detailed contract and conducted by a recognized expert. During the interim the parties engaged in a first extensive session (in August, 2003) attended
(b) Indefiniteness. The Sherman group characterizes two material terms of the AIP as too indefinite for enforcement and therefore fatal to the validity of the settlement. The first is the provision in term 2 that the group will make a payment to Targus of $500,000 “within 6 months of settlement.” They view that due date as uncertain. The second is the provision of term 6 that Targus will determine whether it has sold two lines of business (certain clothing and compact disc items) and, if so, will release the Sherman group from existing noncompetition covenants.
Ambiguous or indeterminate material terms can render an attempted agreement too uncertain for enforcement. See Blair v. Cifrino,
The due date for payment of the $500,000 within six months of settlement does not create serious uncertainty. In instances of ambiguity, a court may furnish a time element reasonable in the circumstances of the parties’ dealings. Middleborough v. Middle-
The subject of the noncompetition covenants did not comprise an element of critical indefiniteness. It presented a verifiable objective contingency accepted by the Sherman group. Either Targus had, or had not, divested the lines of product underlying the restriction upon the Sherman group. Targus reported on September 8, 2004, that it had retainеd the compact disc case business and therefore would maintain the pertinent covenants. Two weeks later the Sherman group counsel proposed that Targus release the covenants voluntarily, but not as a matter of contractual duty.
(c) The intent to be bound. Finally, the Sherman group challenges the requisite intent of Targus to be bound by the terms of the AIP. As evidence of a genuine issue of material fact, it points specifically to Targus’s treatment in the post-AIP drafts of its promise in term 7 to indemnify the group against subsequent claims by other former Roundhouse shareholders. The Sherman group argues that Targus intentionally treated the indemnification issue as unresolved by the AIP and still open for continuing negotiation.
In the analysis of this cоntention the critical first point is that the requisite intent is the “present intent” at the moment of the formation of a contested agreement. See Situation Mgmt. Sys., Inc. v. Malouf, Inc.,
The text of the AIP is telling. In the opening sentence the parties recite that they “agree” to settle all pertinent “claims, causes of action and disputes” upon the ensuing seven terms. The main verb of the document, “agree,” uses the present tense and the unqualified indicative mood. It does not state that they “will agree” in the future upon fulfillment of any open conditions. It embodies a current intent of all signatories. Further, the AIP doеs not employ any “invalidating clause” or reservation of agreement until execution of later final documents of implementation, an option extended by the case law to parties unprepared for a firm commitment. See Goren v. Royal Invs. Inc.,
Finally, the underlying mediation process would рromote a considered result. The duration of the entire process (thirteen months), the exchange of information, the guidance of a skilled mediator, the participation of counsel and financial experts, and the extended final session would naturally inform and ripen the parties’ intentions. The deliberative quality of the process bringing parties to a settlement can evidence the firmness of their intentions to agree. See Basis Technology Corp. v. Amazon.com, Inc.,
In our view, the parties’ exchanges of final drafts and e-mails during the ensuing three months did not present a genuine issue of material fact of thеir intentions to be bound at the time of the execution of the AIP. In the course of their post-AIP drafting of implementation papers, the Sherman group proposed a release from their noncompetition covenants and the extension of equivalent settlement opportunities to other former Roundhouse shareholders; Targus appeared to want to retreat from its indem
The implied covenant provides “that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract . . . .” Anthony’s Pier Four, Inc. v. HBC Assocs.,
Here the summary judgment record leaves the mentality of the Sherman group unresolved as a genuine issue of material fact. Both sides engaged in post-AIP bargaining over implementation. The e-mails covering their exchanges of drafts were generally concise and unrevealing about motives and good or bad faith. The bargaining and any developing view of motives ended abruptly with the start of litigation. Because the question of good faith remains disputable, we reverse the summary judgment in favor of Targus upon this claim.
4. Damages issues, (a) Valuation of the Targus stock unreturned by the Sherman group. The group argues that the judge incorrectly used the merger date, November 22, 2005, as the point of valuation of the 781,803 shares of Targus stock retained by the group in violation of term 1 of the AIR The price per share on that date was $2.0987. Under the rule of George v. Coolidge Bank & Trust Co.,
In the circumstances, a more fundamental principle of com
(b) Prejudgment interest. For judgments resulting from breach of contract, G. L. c. 231, § 6C, as amended by St. 1982, c. 183, § 3, directs the award of prejudgment interest “at the contract rate, if established, or at the rate of twelve percent per annum from the date of the breach.” The AIR established no interest rates in the event of breach. For the $500,000 payment due within “6 months of settlement,” the judge correctly fixed the date of breach as January 13, 2005, and set the statutory entitlement in motion from that day. He accurately set November 22, 2005 (the occurrence of the “liquidity event” by merger), as the date of breach by nonpayment of the $2,000,000. In addition, he reasonably set November 22, 2005, as the breach date for the Sherman group’s failure to return the value of the 781,803 shares or (at $2.0987 per share) the sum of $1,640,769.96. (In
(c) Deduction from prejudgment interest. In accordance with the judge’s intention to prevent duplicative recoveries, the Sherman group is entitlеd to a deduction from its prejudgment interest obligation in the amount of the total interest earned by all funds withheld by Targus representatives in the escrow account from inception through the pendency of this litigation. No subtraction from that total shall result from any delay in the transmittal by the Sherman group of its Targus shares after the merger. The allowance to Targus of any overlapping interest from both the statute and the escrow account would constitute redundant awards.
Conclusion. We affirm summary judgment in favor of Targus upon the claim of breach of contract (count two). We reverse summary judgment in favor of Targus upon the claim of breach of the implied covenant of good faith and fair dealing (count four). We affirm the assessment of compensatory damages and statutory interest recited in the final judgment. We affirm also the reduction of the Sherman group’s statutory interest obligation by the amount of all interest earned upon sums withheld by Targus in the escrow account, as ordered by the judge.
So ordered.
Notes
“Summary judgment, when appropriate, may be rendered against the moving party.” Mass.R.Civ.P. 56(c).
The record appendix refers to clothing and compact disc case lines of business.
Appropriate postargument letters from counsel to the panel provided assistance about the course of dealing after the July 13, 2004, mediation, but could not specify these details.
The record does not disclose the amount of that excеss. The judge did not have the reliable information necessary to compute it. The record contains an affidavit from Sherman dated May 3, 2007, reporting that the Sherman group had tendered their shares shortly after November 22, 2005, and that after negotiations the Targus representatives had delivered $3,861,895 to them on
Targus’s complaint presented five distinct claims: count one for breach of the 2003 agreement for mediation by refusal to participate in good faith; count two for breach of the AIP for failure to execute final settlement papers; count three for breach of the implied covenant of good faith and fair dealing within the 2003 mediation agreement; count four for breach of the implied covenant of good faith and fair dealing within the AIP; and count five for unfair or deceptive conduct as to both agreements in violation of G. L. c. 93A, § 11. The judge allowed summary judgment in favor of the Sherman group upon counts one, three, and five; and entered summary judgment against the Sherman group upon counts two and four. Targus has not appealed from the adverse judgments entered on counts one, three, and five.
The phrase originated in the case of Lyman v. Robinson,
The Sherman group cites several Federal decisions for the proposition that an agreement “in principle” referring to a later “formal agreement” amounts to a nonbinding agreement to agree. See Skycom Corp. v. Telstar Corp.,
The Sherman group relies upon cases in which subsequent conduct exposes earlier disagreement or misunderstanding in the formation of an agreement so as to negate the required intention. See, e.g., Blomendale v. Imbrescia,
In the course of his memorandum and order for summary judgment, the judge commented, “To this Court, what occurred in the exchange of settlement-paper drafts following the execution of the Agreement was confirmation of the aphorism that ‘the enemy of good is perfect.’ ” In our view and in the judge’s terms, neither side abandoned a “good” compromise in pursuit of a “perfect” result.
Targus’s deletion of its indemnification promise in the October draft created the impression of a potential breach of the AIP. However, when the Sherman group did not respond to the draft, Targus reaffirmed its compliance with the AIP by its November lawsuit for specific enforcement of all its terms.
In the Superior Court, one of the Sherman group counsel submitted an affidavit statement that Targus counsel had made a post-AIP comment that the company would not indemnify the Sherman group. If we were to treat the аffidavit representation as admissible nonhearsay under Mass.R.Civ.P. 56(e), it would not undermine the binding validity of the accomplished AIP, but rather suggest a subsequent breach if Targus had acted upon such a renunciation of a material term. See note 12, infra.
The Sherman group accurately observes that here, in contrast with the circumstances in Basis Technology Corp. v. Amazon.com, Inc.,
The Sherman group did neither. Targus then confirmed its intention to be bound by the AIP by commencement of the present suit for specific enforcement of all its terms. In short, the AIP endured through the postagreement discussions or maneuvers.
In circumstances of an ambiguous writing, the discussions of altered terms might furnish evidence casting doubt upon the firmness of the parties’ intentions. Even so, Massachusetts law would favor interpretation producing “a valid and enforcеable undertaking rather than one of no force and effect.” Lafayette Place Assocs. v. Boston Redev. Authy.,
This outcome accords more closely with the judge’s entry of summary judgment in favor of the Sherman group upon Targus’s charge of unfair or deceptive conduct under G. L. c. 93A, § 11 (count five of its complaint).
Before entry of final judgment, the judge, by a memorandum and then by an order, called upon the parties to submit papers addressing the terms of a comprehensive final judgment. He identified one of the terms as the value of the 781,803 shares. By affidavit Sherman reported that the group had attempted to tender its shares “[s]hortly after” November 22, 2005. That information failed to create any genuine issue of material fact of an alternate tender date and value. It left the judge with November 22, 2005, as the closest valuation date.