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Gabaldon v. City of Peoria

United States District Court, Ninth Circuit

September 27, 2013

Troy and Christine Gabaldon, Plaintiffs,
v.
City of Peoria, Mr. Juan Gabriel Luera-Harris and Jane Doe Luera-Harria, David Barela and Jane Doe Barela, Charles Kunde and Jane Doe Kunde, Defendants.

ORDER

JAMES A. TEILBORG, Senior District Judge.

Pending before the Court is Plaintiffs' Motion to Enforce Settlement (Doc. 24). Defendants have filed a response (Doc. 25). The parties appeared before the Court for oral argument on this issue on September 25, 2013. The issue before the Court is at what point in negotiating a settlement is a binding agreement reached between the parties.

I. BACKGROUND

On June 25, 2013, the Court entered an order giving Plaintiffs until July 26, 2013, to effectuate service on Defendants. (Doc. 23). On July 2, 2013, without having served Defendants, Plaintiffs' counsel initiated settlement negotiations with Defendants' counsel. (Doc. 24-1). Following numerous offers and counter offers concerning a dollar amount for the settlement only, on July 15, Defendants' counsel sent a letter via email to Plaintiffs' counsel stating "the City has authorized me to make a final offer of $10, 000.00 as full settlement of this case. I expect, given your correspondence, that you will get back to me soon and let us know how you would like to proceed." (Doc. 24-4). Plaintiffs' counsel immediately emailed Defendants' counsel back and stated, "The Gabaldons accept the offer of $10, 000. Please forward a release." (Doc. 24-5). On July 23, Defendants' counsel sent Plaintiffs' counsel an email stating, "Attached please find a draft of the release in the Gabaldon case. Please make any comments, corrections and/or proposed changes." (Doc. 25-1 at 4). Plaintiffs' counsel replied the next day, "Hi Michael: I've lined out confidentiality. I don't believe that is allowable under the open meetings laws and, in any event, it wasn't dickered for. Please take a look." ( Id. ). Over the course of six more emails sent between July 25 and July 26, the parties continued to negotiate the language of the confidentiality clause in the release. ( Id. at 1-3). Ultimately, the Plaintiffs' counsel ended negotiations and filed the pending motion on July 26. ( Id. at 1). Plaintiffs did not attempt to serve Defendants after entering into settlement negotiations.

Plaintiffs argue that the case settled on July 15 and that is why they did not attempt to serve Defendants after that date. (Doc. 24 at 5). Plaintiffs request that the Court enforce any agreement that was reached by the terms of emails sent between the parties' attorneys from July 2 to July 25. ( Id. at 6) (citing the emails between the parties' attorneys Docs. 24-1 through 24-10). Defendants have filed a response and contend that no agreement was reached, only a dollar amount was agreed on, and that the parties were still negotiating terms of the agreement when the deadline for service expired and Plaintiffs filed the pending motion. (Doc. 25).

II. ANALYSIS

A. Settlement Agreement

"It is well-established that before a binding contract is formed, the parties must mutually consent to all material terms. A distinct intent common to both parties must exist without doubt or difference, and until all understand alike there can be no assent." Hill-Shafer P'ship v. Chilson Family Trust, 799 P.2d 810, 814 (Ariz. 1990) (en banc). "A contract may be formed, even if not formally executed, if it is clear the parties intended to bind themselves to the terms." Johnson Int'l, Inc. v. City of Phx., 967 P.2d 607, 611 (Ariz.Ct.App. 1998) (citing AROK Constr. Co. v. Indian Constr. Servs., 848 P.2d 870, 876 (Ariz.Ct.App. 1993); restatement (Second) of Contracts § 27 (1981)). "A manifestation of assent sufficient to conclude a contract is not prevented from doing so because the parties manifest an intention to memorialize their already made agreement in writing." Rennick v. O.P.T.I.O.N. Care Inc., 77 F.3d 309, 313-14 (9th Cir. 1996) (citing Restatement (Second) of Contracts § 27 (1981)). However, "if a party knows that the other intends no obligation to exist until the written agreement is made, the earlier manifestation does not constitute a contract." Rennick, 77 F.3d at 314 (citing Restatement (Second) of Contracts § 27 comment b). For a court to enforce the not executed contract, the court must be able to determine that there was a manifestation of mutual assent. Johnson, 967 P.2d at 612. Thus, the Court must look to the surrounding circumstances to determine whether the parties intended their non-executed agreement to be immediately effective, or whether the parties intended the agreement would only become binding upon the execution of the written agreement. Rennick, 77 F.3d at 314; see also Johnson, 967 P.2d at 612.

The question before the Court is whether all material terms were agreed to or not in these circumstances. The Court finds that no settlement agreement was reached for the Court to enforce in this case because the parties did not agree to all material terms of their settlement. The Court's conclusion is first supported by the Restatement. "[L]ike any agreement, a settlement agreement was a type of contract that required manifestation of mutual assent to the material terms of the agreement." Restatement (Second) of Contracts § 1 (1981) (citing Rachford v. Air Line Pilots Ass'n Int'l, 375 F.Supp.2d 908, 937 (N.D. Cal. 2005)). A waiver and release is an essential term of a settlement agreement that cannot be left for future negotiation. Id. (citing Rachford, 375 F.Supp.2d at 937) ("here, there was no showing that parties had agreed to any specific form of waiver and release, an essential term of settlement agreement that could not be left for future negotiation.").

As no Arizona court has addressed this exact issue, Plaintiffs argue that the District of Columbia Court of Appeals has held that a confidentiality clause "that was not mentioned prior to coming to terms, [ ] cannot be forced upon an objecting party by later planting it in the settlement agreement." (Doc. 24 at 4) (citing Dyer v. Bilaal, 983 A.2d 349, 358 (D.C. 2009)).

In the absence of controlling statutory or case authority, Arizona courts generally follow the Restatement of the Law on a particular subject if its position, as applied to the claim at issue, "is logical, furthers the interests of justice, is consistent with Arizona law and policy, and has been generally acknowledged elsewhere." Ramirez v. Health Partners of S. Ariz., 972 P.2d 658, 665 (Ariz.Ct.App. 1998) (citing Ft. Lowell-NSS Ltd. P'ship v. Kelly, 800 P.2d 962 (Ariz. 1990); Cannon v. Dunn, 700 P.2d 502, 503 (Ariz.Ct.App. 1985)). Further, Arizona courts routinely look to guidance from courts of other states on matters of first impression. See, e.g., Tritschler v. Allstate Ins. Co., 144 P.3d 519, 527 (Ariz.Ct.App. 2006) (citing Hull v. DaimlerChrysler Corp., 99 P.3d 1026, 1028 (Ariz.Ct.App. 2004)).

Freeman v. Sorchych, 245 P.3d 927, 932 (Ariz.Ct.App. 2011), review denied (Aug. 31, 2011). However, in Bilaal, the case relied on by Plaintiffs, the parties clearly reached an agreement on the material terms of a settlement agreement before a confidentiality clause was discussed. In that case, the defendants' attorney sent the plaintiffs' attorney an emailed settlement offer that expressly laid out five specific terms of the settlement. Bilaal, 983 A.2d at 355-56. Plaintiffs' attorney agreed to these terms and the parties went before the court declaring that they had reached a settlement. Id. at 356. Plaintiffs' attorney then read into the record the material terms agreed upon and defendants' attorney did not make any corrections. Id. Subsequently, the parties attempted to draft a more comprehensive agreement but disputed whether to include a confidentiality clause. Id. After negotiations broke down, plaintiffs filed a motion to enforce the material terms of the settlement agreement. Id. The trial court upheld the settlement agreement without the confidentiality clause and the Court of Appeals affirmed, finding that as negotiated the confidentiality clause was not a material term. Id. at 358. However, the Court of Appeals made it clear that a confidentiality provision "certainly could have been deemed material but neither party referred to confidentiality in the e-mail, in the acceptance, or in open court" when the material terms were again expressed and neither party objected to them. Id.

In this case, unlike Bilaal, as negotiated the confidentiality clause in the release was a material term. The parties were still clearly engaged in negotiating the terms of the agreement when Plaintiffs filed the pending motion. The parties had merely agreed on a dollar amount and not on the rest of the terms. In Bilaal, the circumstances surrounding a binding agreement was much more evident as the parties clearly agreed to material terms, even going so far as to read the specific terms in open court before reducing the agreement to writing. A confidentiality provision was not one of the terms negotiated prior to the parties mutually assenting to their clear duties under the agreement.

In this case, Plaintiffs initiated the settlement negotiations and after agreeing on a dollar amount for settlement, Plaintiffs' counsel took the further step of stating "Please forward a release." (Doc. 24-5). While Plaintiffs' counsel argues this is mundane and not significant as to the lone material term agreed upon in these circumstances, the Court finds this statement by counsel and the result this statement had is quite significant to the negotiation process in this case. Had Plaintiffs' counsel simply replied to Defendants' counsel's email and stated "we accept the offer" he would have a stronger argument that there was a clear and binding agreement.[1] Instead, Plaintiffs' counsel said "Please forward a release" and in so doing, Plaintiffs not Defendants, inextricably tied the release to the agreement and made the release a material term. Even after Defendants' counsel sent the ...


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