R.O. Parsons v. Orthalliance, Inc. , 130 F. App'x 353 ( 2005 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
May 3, 2005
No. 03-15681
THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D.C. Docket No. 00-CV-2934
R.O. PARSONS, D.M.D., M.S.D., P.C. and
RONALD PARSONS, D.M.D., M.S.D.,
Plaintiffs-Appellees,
versus
ORTHALLIANCE, INC., f.k.a.
U.S. ORTHODONTIC CARE, INC.,
Defendant-Appellant.
__________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(May 3, 2005)
Before BIRCH and DUBINA, Circuit Judges, and SHAPIRO*, District Judge.
*
Honorable Norma L. Shapiro, United States District Judge for the Eastern District of
Pennsylvania, sitting by designation.
PER CURIAM:
Dr. Ronald Parsons, D.M.D., M.S.D. and R.O. Parsons, D.M.D., M.S.D.,
P.C. (together “Parsons”) filed this action against Orthalliance, Inc., f/k/a U.S.
Orthodontic Care, Inc (“Orthalliance”) for breach of contract and fraud.
Orthalliance appeals from the District Court’s dismissal for lack of subject matter
jurisdiction under Federal Rule of Civil Procedure 12(b)(1).
FACTS AND PROCEDURAL HISTORY
The relevant facts are undisputed. Dr. Parsons is a licensed orthodontist and
president of Parsons, PC, an orthodontic practice in Georgia. Orthalliance owns
the assets and manages the business affairs of orthodontic practices. This
litigation arose out of a contract between the parties. During mediation, the parties
executed a document setting out certain terms of a proposed settlement. The
District Court found it was a binding, enforceable settlement agreement, and
dismissed this action as moot. On appeal, Orthalliance contends the document
was not a binding, enforceable settlement agreement.
Parsons first entered into a contract with Orthalliance in 1997. The contract
provided that Parsons would transfer assets to Orthalliance in exchange for its
management services. In 2002, Parsons filed this action alleging Orthalliance was
liable for breach of contract and fraud. Orthalliance removed to the District Court
2
for the Northern Division of Georgia, and counterclaimed for breach of contract
and unpaid service fees. Orthalliance then became a wholly-owned subsidiary of
Orthodontic Centers of America, Inc. (“OCA”), and OCA assumed control of the
litigation.
Orthalliance, OCA and Parsons engaged in mediation, with all parties
represented by counsel. On January 30, 2003, a document containing the terms of
a settlement (“the Term Sheet”)1 was signed by all parties and the mediator. The
four-page, handwritten document contained eleven paragraphs roughly outlining
the sale of the Parsons practice to OCA and some unnamed buyer. The sale was to
close by July 1, 2003. The document also anticipated a “final settlement
agreement” to be executed later:
7. The parties will endeavor to complete the documents to effectuate
the final terms of the settlement agreement within 30 days after the
execution of this terms sheet. In the event the parties fail to complete
the final settlement agreement within that time period, the parties
agree that Plaintiffs may depose the following five witnesses: Dr.
Kubisch, Dr.Schmidt, Dr. Durbin, Dr. Palmisano, and Dr. Pridemore.
Defendants will be entitled to re-depose Dr. Parsons.2
[...]
1
Parsons referred to the document as “the Mediation Settlement Agreement” in their
pleadings, while Orthalliance referred to it as “the Term Sheet.” The District Court referred to it
as “the Mediation Settlement Terms.” We use the phrase “Term Sheet” because the document
contains a clause referring to it as a “term sheet.”
2
At the time of the mediation, discovery deadlines had passed.
3
9. Upon the execution of the settlement agreements, which shall
include standard mutual releases, the parties shall dismiss their
respective claims with prejudice.
Numerous issues remained unresolved, so the parties continued to discuss
the terms of a final settlement agreement. Orthalliance located a potential third
party buyer, but Parsons refused to provide the buyer with financial and patient
demographic information relating to his practice. Parsons requested that
Orthalliance provide a letter of credit on which he could draw if the sale did not
close by July 1. The parties negotiated how and when Parsons would receive the
full balance of the purchase price, and the consequences if the sale did not close.
They attempted to renegotiate some provisions of the Term Sheet to change the
structure of the deal from a stock purchase to an asset acquisition. Counsel
exchanged written drafts of a final settlement agreement, but the parties failed to
reach an agreement within thirty days, as required by Paragraph 7 of the Term
Sheet.
On March 12, 2003, the District Court issued a consent order:
The parties having agreed to the underlying terms for settlement, and
for good cause shown, it is hereby ORDERED that remaining time
limits in the Scheduling Order, including the time for filing all
necessary motions, are hereby STAYED to provide the parties with
sufficient time in which to prepare and execute the documents
necessary for settlement. The parties shall within sixty (60) days of
entry of this Order: (1) inform the Court that settlement discussions
4
are ongoing and seek an additional extension of this Court’s Order at
that time; (2) file a Stipulation of Dismissal pursuant to Rule 41 of
the Federal Rules of Civil Procedure upon successful completion of
the settlement documents; or (3) submit to the Court a revised
Scheduling Order outlining the dates by which the parties are to file
all remaining motions.
The parties continued to discuss the terms of a final settlement agreement, but
negotiations failed, and no settlement agreement was reached.
On July 8, 2003, the District Court issued an order:
It has come to the Court’s attention that the parties have not reached a
settlement or are unwilling to conclude the settlement. Therefore, the
Court ORDERS the parties to submit a consolidated pretrial order
within twenty (20) days of the entry of this Order. This case will be
placed on the August 11, 2003 trial calendar.
Parsons then moved for dismissal of the action for lack of subject matter
jurisdiction, or in the alternative, for leave to amend their complaint to allege
breach of the Term Sheet. Orthalliance, opposing the motion to dismiss, argued
that the Term Sheet was not binding or enforceable, and that no final agreement
was ever reached.
The District Court applied the contract law of Georgia to the Term Sheet
and ruled that it created a binding, enforceable settlement agreement, so that there
was no longer any case or controversy.3 See United Airlines, Inc. v. McDonald,
3
The District Court had subject matter jurisdiction based on the diversity of citizenship
of the parties. Because the parties were from different states, the District Court conducted a
5
432 U.S. 385, 400 (1977) (settlement typically moots a case or controversy). The
court held it no longer had subject matter jurisdiction, and granted Parsons’
motion to dismiss the action.4
STANDARD OF REVIEW
We review de novo a district court’s determination of subject matter
jurisdiction under Rule 12(b)(1). Asociacion De Empleados Del Area Canalera v.
Panama Canal Com'n, 329 F.3d 1235, 1237-1238 (11th Cir. 2003).
DISCUSSION
Generally, the settlement of a dispute between the parties renders the case
moot. Local No. 8-6, Oil, Chemical & Atomic Workers International Union v.
Missouri, 361 U.S. 363 (1960); U.S. Fire Ins. Co. v. Caulkins Indiantown Citrus
Co., 931 F.2d 744, 748 (11th Cir. 1991). A case as a whole is not moot if there are
still issues in dispute or the settlement is tentative. University of Texas v.
Camenisch, 451 U.S. 390, 394 (1981); Coopers & Lybrand v. Livesay, 437 U.S.
463, 465 n.3 (1978). Mootness questions arising out of a putative settlement
choice of law analysis and determined that Georgia law applied according to the traditional rule
of lex loci contractus.
4
The parties never entered into a stipulation of dismissal under Federal Rule of Civil
Procedure 41(a)(1). The District Court did not enter an order under Rule 41(a)(2); it could not
have done so without the consent of Orthalliance, since Orthalliance had counterclaimed against
Parsons before Parsons served the motion to dismiss.
6
should be answered according to the intent of the parties and general contract
principles. Insurance Concepts, Inc. v. Western Life Ins. Co., 639 F.2d 1108,
1111-12 (5th Cir. 1981); 13A C. WRIGHT ET AL., FEDERAL PRACTICE AND
PROCEDURE, § 3533.2 (2d ed. 1984).
The text of the Term Sheet makes clear the intent of the parties. The Term
Sheet contains no release of claims. Paragraphs 7 and 9 merely anticipate
additional, future agreements -- most notably a “final settlement agreement,”
“which shall include standard mutual releases.” Paragraph 9 makes the execution
of a future settlement agreement a condition precedent to any release. See Jackson
Electric Membership Corp. v. Georgia Power Co., 364 S.E.2d 556, 557 (Ga.
1988) (“Such conditions are facts and events, which though subsequent to the
making of the contract, are nevertheless precedent to the right of immediate
performance.”) Paragraph 7, allowing for additional depositions, shows the
parties’ intent to continue the litigation if no final settlement occurred within thirty
days. By dismissing the action, the District Court ignored the intent of the parties
and rewrote the contract. See Piggly Wiggly Southern, Inc. v. Heard, 405 S.E.2d
478, 480 (Ga. 1991) (courts are not authorized to rewrite contracts). As written,
the Term Sheet was too tentative and incomplete to create a final settlement. See
University of Texas, 451 U.S. at 394; Coopers & Lybrand, 437 U.S. at 465 n.3.
7
The parties failed to reach a final settlement after signing the Term Sheet.
The parties continued to negotiate numerous material issues, such as the identity
of the third party buyer, how and when Parsons would receive the full balance of
the purchase price, and the consequences of a failure to close. Several written
drafts of a final settlement agreement were exchanged and rejected. These
ongoing negotiations and the failure to reach a final settlement demonstrate that
the case and controversy remained alive.5 The District Court retained subject
matter jurisdiction and should not have dismissed this action.
CONCLUSION
The District Court erred in granting Parsons’ motion to dismiss the action
for lack of subject matter jurisdiction. REVERSED and REMANDED for
proceedings not inconsistent with this opinion.6
5
The District Court recognized this by its July 8, 2003 order placing the case on the trial
calendar, more than five months after the Term Sheet was signed.
6
This opinion does not preclude a future settlement or dismissal on other grounds.
8