Maksoud v. Hopkins ( 2019 )

1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 DR. CHARBEL MAKSOUD, Case No.: 3:17-cv-00362-H-WVG 13 Plaintiff, ORDER: 14 v. (1) ADOPTING MAGISTRATE 15 BRUCE HOPKINS, et al., JUDGE’S REPORT AND 16 Defendants. RECOMMENDATION (Doc. No. 184); 17 (2) ENFORCING SETTLEMENT; 18 (3) REQUIRING PARTIES TO FILE A STATUS UPDATE IN 19 30 DAYS; 20 (4) DENYING AS MOOT DEFENDANT GUELTON’S 21 MOTIONS IN LIMINE (Doc. 22 Nos. 157, 158, 159, 160, 161) 23 On July 17, 2019, the magistrate judge issued a report and recommendation (“R&R”) 24 recommending that the Court summarily enforce the settlement agreement entered between 25 Plaintiff Charbel Maksoud and Defendant Philippe Guelton, and enter final judgment. 26 (Doc. No. 184.) Guelton filed his objections to the R&R on August 1, 2019. (Doc. No. 27 185.) Maksoud replied to the objections on August 8, 2019. (Doc. No. 187.) With the 28 1 Court’s leave, Guelton filed a sur-reply on August 12, 2019. (Doc. Nos. 188, 188-1, 190.) 2 For the following reasons, the Court adopts the R&R and enforces the settlement 3 agreement. The Court also denies as moot Guelton’s five motions in limine. 4 BACKGROUND 5 This action involves a shareholder dispute in which Maksoud invested in a now- 6 defunct company, BT Software and Research, Inc. (“BT”).1 (Doc. No. 35) Guelton was 7 involved with BT as an advisor and then as a board member. (Doc. No. 135 at 2–3.) 8 Maksoud brought numerous claims against Guelton and other persons involved with BT. 9 (Doc. No. 35.) At this point in time, Guelton is the only remaining Defendant in the case. 10 After confirming the availability of the parties and counsel, the Court scheduled trial 11 to commence on April 18, 2019. (Doc. No. 149.) On March 25, 2019, the magistrate judge 12 conducted a Mandatory Settlement Conference with the parties, but settlement was not 13 reached on that day. (Doc. No. 155.) The parties agreed to conduct another settlement 14 conference after opportunity to exchange information and documentation. (See Doc. No. 15 182 at 6–7.) Guelton specifically agreed to provide Maksoud any information to help 16 Maksoud determine the value of a proposed assignment of Guelton’s legal claims against 17 insurance carriers. (Id.) The magistrate judge then conducted a further settlement 18 conference on March 28, 2019, at which the parties stated that they had not communicated 19 at all since the prior conference, despite their agreement to do so. (Id.) 20 The parties then reached a settlement agreement on April 2, 2019, and the magistrate 21 judge conducted a teleconference to memorialize the terms of the agreement. (Doc. No. 22 183.)2 Maksoud and his counsel, Marc Lazo, appeared. (Id. at 2.) Guelton and his counsel, 23 Dariush Adli, appeared. (Id.) Lazo stated the terms of the settlement on the record, and all 24 25 1 The factual background of this case is given in greater detail in the Court’s prior order granting in part 26 and denying in part Guelton’s motion for summary judgment, Doc. No. 135. 2 Maksoud also resolved his claims against Defendant Tirrell Payton at that settlement conference. (Doc. 27 Nos. 166, 168.) Maksoud and Payton then filed a joint motion to dismiss Payton with prejudice, which 28 the Court granted on April 30, 2019. (Doc. No. 176.) The Court did not retain jurisdiction over the 1 parties and counsel confirmed on the record that Lazo’s recitation was accurate. (Id. at 7– 2 9.) Under the settlement agreement, Maksoud would dismiss with prejudice all claims 3 against Guelton in exchange for: (1) Guelton paying Maksoud a $17,500 lump sum within 4 10 days of full execution of the settlement agreement; and (2) Guelton executing a written 5 assignment of rights, assigning Maksoud “rights to prosecute any and all claims against 6 any and all insurance companies who could potentially have afforded coverage for Mr. 7 Guelton’s defense in this case[.]” (Id. at 7–8.) Further, both parties agreed to waive 8 attorneys’ fees and costs, and to execute any additional documentation necessary to 9 consummate the settlement. (Id. at 8.) After Lazo recited these terms, both Maksoud and 10 Guelton stated that they understood and agreed to be bound by the terms. (Id. at 9.) Because 11 the essential terms of the settlement had been memorialized on the record, the magistrate 12 judge set a schedule for exchanging drafts of the settlement agreement, the execution and 13 payment of the settlement agreement, and a deadline for filing a joint motion to dismiss. 14 (Doc. No. 167.) Because the case had been resolved, the Court vacated the trial dates and 15 reminded the parties that they remained obligated to comply with the magistrate judge’s 16 orders. (Doc. No. 169.) 17 The magistrate judge then held a status conference on April 10, 2019 because a 18 problem with the settlement had arisen. (Doc. Nos. 170, 171.) Lazo, appearing for 19 Maksoud, reported that after the parties exchanged settlement agreement drafts, Guelton 20 produced a release agreement that had at no point prior been discussed or disclosed. (Doc. 21 No. 182 at 2–3.) The release agreement, executed by Guelton, released all claims that 22 Guelton may have held against his former employer and former defendant in this case, 23 SheKnows Media (“SheKnows”). (Id.) The release covered any bad faith claims that 24 SheKnows may have had against its insurers. (Doc. No. 178-1 at 35.) Adli, appearing for 25 Maksoud, stated that he did not know about the release agreement until after he sent the 26 written settlement agreement to Guelton for his review. (Doc. No. 182 at 3–4.) When 27 Guelton sent the written settlement draft back to Adli, he told Adli that he had found the 28 release agreement. (Id.) 1 In light of this, Guelton asked Maksoud to include in the settlement agreement a 2 term requiring Maksoud to indemnify Guelton if he is ever sued by SheKnows for breach 3 of the release agreement. (Id. at 3.) Maksoud rejected the request, demanding that the 4 parties proceed with the settlement agreement as memorialized on the record. (Id. at 4–5.) 5 Thus, the magistrate judge directed the parties to meet and confer, and agreed to accept a 6 motion to enforce the settlement if the parties could not resolve the dispute on their own. 7 (Doc. No. 172.) The magistrate judge issued a briefing schedule, stating that any motion 8 by Plaintiff to enforce the settlement was due by April 23, 2019. (Id.) Guelton’s opposition 9 would be due May 1, 2019, and the magistrate judge would conduct a hearing on the motion 10 on May 31, 2019. (Id.) 11 The deadline expired, and Maksoud had not filed any motion. On April 29, 2019, 12 the magistrate judge then held a telephonic status conference with counsel for the parties 13 because Maksoud wanted to file an untimely motion. (Doc. No. 180.) The magistrate judge 14 denied Maksoud leave to file the untimely motion. (Id. at 5.) However, the magistrate judge 15 stated that the May 31st attorneys-only hearing would remain on the calendar so that the 16 parties could argue their positions in-person. (Id.) Despite the magistrate judge’s clear 17 instruction, Maksoud filed his untimely motion anyway on May 3, 2019. (Doc. No. 178.) 18 The magistrate judge struck this motion from the record because Maksoud did not have the 19 Court’s leave to file the untimely motion. (Id.) 20 On May 31, 2019, the magistrate judge convened a hearing as scheduled to permit 21 the parties to be heard on the issue of settlement enforcement. (Doc. Nos. 172 at 2; 180 at 22 5.) Charles Ferrari appeared for Guelton. (Doc. No. 181 at 2.) Maksoud’s counsel failed to 23 appear. (Id. at 2–3.) The magistrate judge allowed Ferrari to briefly speak, but then to avoid 24 ex parte communications, terminated the proceedings when Ferrari began to substantively 25 argue. (Id. at 5.) After the hearing, the magistrate judge issued a sua sponte R&R 26 recommending that the Court summarily enforce the settlement agreement on the terms 27 that were memorialized on record and enter final judgment. 28 / / / 1 DISCUSSION 2 I. Legal Standard 3 “It is well settled that a district court has the equitable power to enforce summarily an 4 agreement to settle a case pending before it.” Callie v. Near, 829 F.2d 888, 890 (9th Cir. 5 1987). This includes instances where a settlement agreement is entered on the record, but 6 then reneged by either party. See Henderson v. Yard House Glendale, LLC, 456 F. App’x 7 701, 702 (9th Cir. 2011) (“The district court did not abuse its discretion in enforcing the 8 settlement agreement after Henderson entered into it on the record in open court, but later 9 refused to execute a formal agreement[.]”). The requirements for court-enforcement of a 10 settlement are that (1) the agreement be complete, id., and (2) both parties must have either 11 agreed to the terms of the settlement or authorized their respective counsel to settle the 12 dispute, Harrop v. Western Airlines, Inc., 550 F.2d 1143, 1144–45 (9th Cir. 1977). The 13 Court will interpret the agreement pursuant to “familiar principles of contract law.” Jeff D. 14 v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989). In California, “[t]he essential elements of a 15 contract are: parties capable of contracting; the parties’ consent; a lawful object; and 16 sufficient cause or consideration.” Lopez v. Charles Schwab & Co., 118 Cal. App. 4th 17 1224, 1230 (2004) (citing Cal. Civ. Code § 1550). 18 II. Analysis 19 After thorough consideration of the magistrate judge’s R&R and the parties’ 20 arguments, the Court concludes that the parties entered into an enforceable settlement 21 agreement on April 2, 2019.3 The Court therefore, in agreement with the magistrate judge, 22 concludes that enforcement of the settlement is proper. 23 Neither party disputes that three of the requisite contract elements under California 24 law are met here—the parties are capable of contracting, the object of the settlement 25 26 3 The parties do not dispute that no written agreement was required under these circumstances. “[U]nless a writing is required by the statute of frauds, oral settlement agreements are enforceable in the same 27 manner as oral agreements in general.” Nicholson v. Barab, 233 Cal. App. 3d 1671, 1672 (1991). The 28 parties’ settlement agreement is not one of the types of agreements that is invalid without a writing under 1 agreement is lawful, and there is sufficient consideration for the agreement. (See Doc. No. 2 185 at 9.) Therefore, the Court turns its analysis to whether the parties agreed to the terms 3 of the settlement agreement, whether the settlement agreement is complete, and whether 4 the agreement should be rescinded due to mistake of fact. 5 A. Consent to Terms of the Agreement 6 In order for the Court to enforce a settlement, both parties must have either agreed 7 to the terms of the settlement or authorized their respective counsel to settle the dispute, 8 Harrop, 550 F.2d at 1144–45. California law also “requires that the parties’ reach mutual 9 assent or consent on definite or complete terms.” Netbula, LLC v. BindView Dev. Corp., 10 516 F. Supp. 2d 1137, 1155 (N.D. Cal. 2007) (citing Merced County Sheriff's Employees’ 11 Ass’n v. Merced County, 188 Cal. App. 3d 662, 670 (1987)). “Mutual assent may be 12 manifested by written or spoken words, or by conduct[.]” Knutson v. Sirius XM Radio Inc., 13 771 F.3d 559, 565 (9th Cir. 2014) (citing Binder v. Aetna Life Ins. Co., 75 Cal. App. 4th 14 832, 850 (1999)). “Courts must determine whether the outward manifestations of consent 15 would lead a reasonable person to believe the offeree has assented to the agreement.” Id. 16 (citing Meyer v. Benko, 55 Cal. App. 3d 937, 942–43 (1976)). 17 Here, the both Guelton and Maksoud expressly agreed to the essential terms of the 18 settlement agreement on the record before the magistrate judge. During the April 2, 2019 19 teleconference held by the magistrate judge, Guelton and Maksoud each appeared, along 20 with their respective counsel. (Doc. No. 183 at 2.) Lazo, Maksoud’s counsel, recited the 21 following essential terms of the settlement agreement: 22 Dr. Maksoud will dismiss all claims with prejudice against Mr. Guelton, including a Civil Code Section 1544 waiver, in exchange for the following 23 two items of consideration: 24 The first being payment of $17,500 in one lump sum, readily available funds, 25 within 10 days of full execution of the settlement agreement, and a written assignment of rights to prosecute any and all claims against any and all 26 insurance companies who could potentially have afforded coverage for Mr. 27 Guelton’s defense in this case, which assignment will be incorporated into the settlement agreement. 28 1 . . . . 2 Both parties waive attorneys’ fees and costs and will agree to execute any additional documentation necessary to consummate the settlement. 3 (Id. at 7–8.) Adli, Guelton’s counsel, confirmed that Lazo had accurately recited the 4 material and essential terms of the settlement agreements. (Id. at 8.) Guelton and Maksoud 5 then each confirmed that Lazo accurately recited the terms, and that they understood and 6 agreed to be bound by the terms. (Id. at 8–9.) By doing so, the parties undoubtedly 7 manifested their mutual assent to settlement of this case based on the terms recited by Lazo 8 on record before the magistrate judge.4 9 B. Completeness 10 The Court may only enforce a settlement agreement if it is complete. Callie, 829 11 F.2d at 890. “The formation of a settlement contract requires agreement on its material 12 terms.” Id. at 891. “[W]here material facts concerning the existence or terms of an 13 agreement to settle are in dispute, the parties must be allowed an evidentiary hearing.” Id. 14 at 890. An evidentiary hearing is not required where the settlement agreement itself is not 15 disputed. See Calcor Space Facility, Inc. v. McDonnell Douglas Corp., 5 F. App’x 787, 16 789 (9th Cir. 2001). 17 Here, the settlement agreement is complete because the parties agreed to the 18 settlement terms on record. At the April 2, 2019 hearing, Lazo stated on record all of the 19 terms essential to the settlement agreement, and both Guelton and Maksoud stated that they 20 understood and agreed to the terms. (See Doc. No. 183 at 7–9.) As aptly noted by the 21 magistrate judge, Doi v. Halekulani Corp., 276 F.3d 1131 (9th Cir. 2002) is akin to the 22 situation presented here. There, the Ninth Circuit stated: 23 / / / 24 / / / 25 26 4 The parties mutually assented to only those terms listed by Lazo on the record at the April 2, 2019 27 teleconference. This does not include Guelton’s later proposal for adding a term requiring Maksoud to 28 indemnify Guelton if he is ever sued by SheKnows for breach of the release agreement. (Doc. No. 182 at 1 In the typical case when one party seeks to enforce a settlement agreement against another, parties exchange phone calls and e-mails, and perhaps even 2 drafts of a settlement agreement, outside of court. See, e.g., Ciaramella v. 3 Reader's Digest Ass’n, Inc., 131 F.3d 320 (2d Cir. 1997). At some point in the process, one party concludes that a final agreement has been reached; the other 4 party, however, disagrees. We can understand how a party could dispute 5 having made a binding agreement in such a case. 6 This, however, is not the typical case. Rather, here, the plaintiff made a binding settlement agreement in open court: when read the terms of the 7 agreement, and asked if she agreed with them, Doi simply responded, “yeah.” 8 At a time where the resources of the federal judiciary, and this Circuit especially, are strained to the breaking point, we cannot countenance a 9 plaintiff’s agreeing to settle a case in open court, then subsequently 10 disavowing the settlement when it suits her. The courts spend enough time on the merits of litigation; we need not (and therefore ought not) open the flood 11 gates to this kind of needless satellite litigation. 12 Id. at 1141. Further, no evidentiary hearing is required here because the parties do not 13 dispute the existence or terms of the agreement. See id. at 1139 (“Thus, there was no need 14 for an evidentiary hearing on whether an agreement existed, or what its terms were: the 15 parties dispelled any such questions in open court.”). Therefore, the Court may enforce the 16 April 2, 2019 settlement agreement because the parties consented to its terms and it is 17 complete, and no evidentiary hearing is required. 18 C. Mistake of Fact 19 Guelton objects to the magistrate judge’s R&R on the grounds that settlement 20 agreement should be rescinded because he made a material mistake of fact, he promptly 21 gave notice of rescission, he should not bear the risk of the mistake, and enforcement would 22 be unconscionable. (Doc. No. 185.) In anticipation of this, the magistrate judge’s R&R 23 concludes that “setting aside the settlement under the circumstances of this case would be 24 untenable because there was no mistake of fact here—only complete lack of diligence 25 despite having ample opportunity.” (Doc. No. 184 at 11.) The Court concludes that the 26 settlement agreement should not be rescinded. 27 California law permits a party to rescind a contract if “the consent of the party 28 rescinding, or of any party jointly contracting with him, was given by mistake[.]” Cal. Civ. 1 Code § 1689(b)(1). California law defines “mistake of fact” as “a mistake, not caused by 2 the neglect of a legal duty on the part of the person making the mistake, and consisting in: 3 1. An unconscious ignorance or forgetfulness of a fact past or present, material to the 4 contract; or, 2. Belief in the present existence of a thing material to the contract, which 5 does not exist, or in the past existence of such a thing, which has not existed.” Id. § 1577. 6 A party claiming mistake of fact “must establish the following facts to obtain rescission of 7 a contract: (1) the defendant made a mistake regarding a basic assumption upon which the 8 defendant made the contract; (2) the mistake has a material effect upon the agreed exchange 9 of performances that is adverse to the defendant; (3) the defendant does not bear the risk 10 of the mistake; and (4) the effect of the mistake is such that enforcement of the contract 11 would be unconscionable.” Donovan v. RRL Corp., 26 Cal. 4th 261, 264 (2001), as 12 modified (Sept. 12, 2001). “In obtaining rescission for any mistake, whether bilateral or 13 unilateral, the party seeking rescission must always prove the first three elements recited 14 by Donovan.” Jessen v. Oie Lian Yeh, No. H032364, 2008 WL 4411567, at *8 (Cal. Ct. 15 App. Sept. 30, 2008) (unpublished). 16 Here, Guelton has failed to establish the Donovan elements necessary for rescission 17 of the settlement agreement. Guelton is the adversely affected party, but any potential 18 adverse effects are merely speculative at this time. As part of the settlement agreement, 19 Guelton agreed to assign Maksoud “rights to prosecute any and all claims against any and 20 all insurance companies who could potentially have afforded coverage for Mr. Guelton’s 21 defense in this case[.]” (Doc. No. 183 at 7–8.) This would allow Maksoud to bring claims 22 against SheKnows or its insurer. (See Doc. No. 182 at 4–5.) In turn, SheKnows could sue 23 Guelton for breach of the release agreement. This is why Guelton requested an 24 indemnification term be added to the agreement, which Maksoud declined. (Id. at 3–5.) 25 However, a contract will only be rescinded due to mistake if the party arguing for 26 rescission was the adversely-affected party and does not bear the risk of the mistake. See 27 Donovan, 26 Cal. 4th at 264. Here, based on the circumstances, Guelton should bear the 28 risk. “[T]he court may allocate the risk to a party because it is reasonable under the 1 circumstances to do so.” Grenall v. United of Omaha Life Ins. Co., 165 Cal. App. 4th 188, 2 193 (2008) (citing Donovan, 26 Cal. 4th at 283). California law “instructs that the risk of 3 a mistake must be allocated to a party where the mistake results from that party’s neglect 4 of a legal duty.” Donovan, 26 Cal. 4th at 283 (citing Cal Civ. Code § 1557; M.F. Kemper 5 Const. Co. v. City of L.A., 37 Cal. 2d 696 (1951)). 6 Here, the release agreement was solely within Guelton’s possession and knowledge 7 since at least its execution date of February 26, 2018. (See Doc. No. 178-1 at 39.) Nothing 8 indicates that Maksoud or his counsel had any knowledge of the release agreement or bear 9 any responsibility for the late-disclosure of the release agreement. Guelton only agreed to 10 the settlement terms at the April 2, 2019 teleconference after the magistrate judge gave him 11 opportunity to investigate his records. On March 25, 2019, the magistrate judge held a 12 Mandatory Settlement Conference with the parties, but settlement was not reached on that 13 day. (Doc. No. 155.) The parties agreed to conduct another settlement conference after 14 opportunity to exchange information and documentation. (See Doc. No. 182 at 6–7.) 15 Guelton specifically agreed to provide Maksoud any information to help Maksoud 16 determine the value of a proposed assignment of Guelton’s legal claims against insurance 17 carriers. (Id.) The magistrate judge then conducted a further settlement conference on 18 March 28, 2019, at which the parties stated that they had not communicated at all since the 19 prior conference, despite their agreement to do so. (Id.) Thus, Guelton was on notice that 20 he should review his documents for anything relevant to the settlement agreement’s terms 21 and had opportunity to do so before voluntarily settling on April 2, 2019. 22 At this time, Guelton’s concerns regarding the settlement agreement’s terms are 23 merely speculative. Nothing indicates that Guelton has any claims against SheKnows or its 24 insurers that would be assigned to Maksoud, or that SheKnows would take action against 25 Guelton. By settling this case on the eve of trial, the parties have avoided the substantial 26 costs of going to trial. Further, by going to trial, Guelton would have risked liability of 27 $250,000. (See Doc. No. 35.) The terms of the settlement agreement are favorable to the 28 parties as an efficient resolution of the case. The Court therefore concludes that Guelton 1 || should bear the risk of his late-disclosure of the release agreement, and Guelton has failed 2 ||to show that the settlement agreement should be rescinded due to mistake of fact. 3 || Accordingly, the Court concludes that the settlement agreement entered by the parties on 4 ||record should be enforced because it meets the California contract requirements, the parties 5 consented to its terms, and it is complete. 6 CONCLUSION 7 For the foregoing reasons, the Court adopts the magistrate judge’s report and 8 ||recommendation. The Court therefore enforces the settlement agreement entered on the 9 ||record before the magistrate judge on April 2, 2019. The Court orders Guelton to comply 10 || with the terms of the settlement agreement and pay Maksoud $17,500 within 30 days. The 11 Court orders the parties to file a status report in 30 days. The Court reserves the right to 12 ||take appropriate action if the parties fail to comply with the Court’s orders. The Court 13 denies as moot Guelton’s motions in limine, Doc. Nos. 157, 158, 159, 160, 161. 14 IT IS SO ORDERED. 15 || DATED: August 13, 2019 | | 16 MARILYN BW. HUFF, Distric ge 17 UNITED STATES DISTRICT COURT 18 19 20 21 22 23 24 25 26 27 28