Yockey v. Horn, 88-1274

• Decision Date: 25 August 1989
• Docket Number: No. 88-1274,88-1274
• Citation: 880 F.2d 945
• Parties: Frank YOCKEY, Plaintiff-Appellee, v. Margaret HORN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 945

880 F.2d 945

14 Fed.R.Serv.3d 217

Frank YOCKEY, Plaintiff-Appellee, v. Margaret HORN, Defendant-Appellant.

No. 88-1274.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 1, 1988.

Decided July 26, 1989.

Rehearing Denied Aug. 25, 1989.

Harlan Heller, C. Steve Ferguson, Brent Holmes, Harlan Heller, Ltd., Mattoon, Ill., for defendant-appellant.

Jerry Doyle Miller, Bowen & Miller, Olney, Ill., Robert E. Shaw, Musick & Mitchell, Mt. Vernon, for plaintiff-appellee.

Before WOOD, Jr., EASTERBROOK, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

WOOD, Jr., Circuit Judge.

Defendant-appellant Margaret Horn appeals a judgment entered against her in a diversity case initiated by plaintiff-appellee Frank Yockey for breach of contract. Horn and Yockey are former business partners who, upon the dissolution of their business relationship, entered into a settlement agreement intended to resolve all disagreements between the pair arising from their failed partnership. Yockey now alleges that Horn breached that settlement agreement; the district court agreed and Horn finds herself liable to Yockey in the amount of $50,000.

I. FACTUAL BACKGROUND

Margaret Horn and Frank Yockey share what may mildly be termed an acrimonious relationship. Such was not always the case. Ten years ago, Horn and Yockey began a partnership in the oil business. All seemingly went well for a few years until the association between Yockey and Horn disintegrated in the fall of 1982. Extensive litigation related to the dissolution of the partnership ensued in both federal and state court.

Horn and Yockey eventually entered into a settlement agreement that terminated all pending litigation between the two of them. ¹ In the aftermath of the partnership's dissolution, however, Horn, apparently finding Yockey's business practices to be questionable, contacted one of the partnership's investors, Paul Schrock, sometime in October of 1982. The precise substance of their conversations is not revealed in the record. Schrock did, however, eventually sue Yockey for losses arising out of his investment in the Yockey-Horn endeavor. The settlement agreement entered into by Yockey and Horn in July 1985 had no effect on the then pending Schrock litigation. The Schrock litigation, however, subsequently has had a great deal to do with the Yockey-Horn settlement agreement.

Yockey and Horn were each represented by counsel throughout the settlement negotiations leading up to their agreement; Horn was represented by Harlan Heller, Ltd., the same firm that represented Schrock in his suit against Yockey. Under the terms of the written settlement agreement, Horn received slightly in excess of $126,000. In return, Horn made certain promises to Yockey including the following:

Margaret Horn a/k/a Margaret Yockey ... agrees not to voluntarily participate in any litigation against Frank Yockey ... for events which have occurred from the beginning of the world to the date of the execution of this agreement.

A similar covenant runs from Yockey to Horn. The agreement also includes a liquidated damages clause:

7. LIQUIDATED DAMAGE CLAUSE

Each of the undersigned do [sic] hereby agree that should either violate the terms or conditions of this Settlement Agreement by the institution of any lawsuit against the other or by the voluntary participation in any lawsuit by anyone against either of the undersigned, then in said event, each does hereby agree that the amount of damages sought by the other by reason of the institution of said lawsuit or voluntary participation in lawsuit by another may be difficult to ascertain and calculate, and each of the undersigned does agree that the damages shall be a minimum of Fifty Thousand Dollars ($50,000) in addition to attorney fees incurred by either of the undersigned in the defense of such a suit, and therefore, agree that should either of the undersigned violate the terms and provisions of this Settlement Agreement, then the liquidated damages sustained by reason thereof shall be a minimum of Fifty Thousand Dollars ($50,000) plus attorney fees and court costs.

Both parties signed the agreement, although at different times and places--Horn signed on July 12, 1985 before a notary public in Seminole County, Florida (Horn was by that time, and remains now, a Florida resident); Yockey signed before a Richland County, Illinois notary public on July 23, 1985.

Only one year after the settlement agreement was reached, Horn voluntarily gave an evidence deposition in the Schrock litigation at the offices of Harlan Heller, Ltd. Horn was not under a subpoena or any other court process. It appears that Horn notified the Heller firm that she intended to be in Illinois during July 1986 to visit her elderly mother. Brent Holmes, a partner in the Heller firm, asked Horn if she would give the deposition while in Illinois. Horn agreed.

During the evidence deposition Horn was questioned about her understanding of the nature of an evidence deposition. She stated that she understood that an evidence deposition was the same as testimony given in open court. Horn's evidence deposition was in fact received into evidence at the Schrock trial against Yockey. Schrock was ultimately awarded damages in excess of $111,000, based on Yockey's violation of several sections of the Illinois Securities Act. At oral argument before this court, however, Yockey's attorney conceded that the trial judge in the Schrock litigation did not rely upon Horn's evidence deposition at all in finding Yockey liable to Schrock. ²

Yockey filed a two-count complaint in federal district court for breach of the settlement agreement against Horn on September 12, 1986. In Count I Yockey alleged that Horn had "violated her covenant not to voluntarily participate in litigation against" Yockey by giving the evidence deposition in the Schrock case in the absence of a subpoena or court order. Count I also enumerated in what way Horn's testimony had damaged Yockey, but in the end Yockey based his claim for damages not upon what he could prove as actual damages, but upon the liquidated damages clause of the settlement agreement. Count II of Yockey's complaint alleged that Horn had further violated the settlement agreement by contacting him by telephone and through the mails. ³

Although Yockey made a general declaration of damage as a result of this alleged contact, no specific items of damage were detailed and no dollar figure was suggested in the complaint. Count II was eventually dismissed, but Count I was submitted to the district court judge upon agreed facts and questions of law. ⁴ The district court awarded judgment to Yockey in the amount of $50,000 on Count I. It is from this decision that Horn appeals.

II. ANALYSIS

Horn raises three issues on appeal. First, she alleges that the district court incorrectly found that the giving of an evidence deposition in the Schrock litigation, without being under subpoena, constituted voluntary participation in litigation against Yockey in violation of the settlement agreement. Second, she contends that if her action did violate the settlement agreement then the covenant not to voluntarily participate in litigation is void and unenforceable as against public policy in the state of Illinois. Finally, Horn argues that the liquidated damages clause contained in the agreement is unenforceable as a penalty under Illinois law. ⁵

A. Voluntary Participation in Litigation

At the crux of the first issue is the meaning of Horn's promise not to "voluntarily participate in any litigation against Frank Yockey." Horn contends that this language does not encompass her giving of the evidence deposition against Yockey in the Schrock litigation; Yockey alleges that it does.

We note initially that our standard of review on this issue is de novo, for "construction of the terms of a contract ordinarily presents an issue of law for the court." Morris v. Flores, 174 Ill.App.3d 504, 506, 124 Ill.Dec. 122, 124, 528 N.E.2d 1013, 1015 (2d Dist.1988). ⁶ The district court determined that Horn's unsubpoenaed testimony, given in the evidence deposition and offered at the Schrock trial against Yockey, constituted voluntary participation in litigation against Yockey within the plain meaning of those words as used in the settlement agreement. We agree. Although the phrase is not a term of art in the law, the plain meaning of its component words provide guidance to its interpretation. Black's Law Dictionary 841 (5th ed. 1979) defines "litigation" as a "[l]egal action, including all proceedings therein." (Emphasis added.) To "participate" is to "take part; join or share with others." The American Heritage Dictionary 905 (2d ed. 1982). To do so "voluntarily" means to do so "from one's own free will." Id. at 1355. Putting these three terms together yields a very broad concept: to "voluntarily participate in any litigation" means to willingly and freely take part in any legal proceeding. This language is quite broad, but it is what the parties negotiated at the time of settlement; they included no qualifiers except that the litigation be "against" Frank Yockey. There is no question that Schrock's civil suit for damages was "against" Yockey. It is not for us to rewrite the language of the settlement agreement.

Given the breadth of the language used, it is clear that Horn's giving of the evidence deposition in the Schrock litigation against Yockey was a violation of the settlement agreement. Furthermore, Horn admitted in the stipulated facts submitted to the district court that she sat for the evidence deposition in the Schrock litigation of her own free will. She was under no legal compulsion, nor are there any insinuations of physical or mental duress. Admittedly, she did not instigate the giving of the evidence deposition, and thus she is not a volunteer in this narrower sense. Her ongoing relationship with the law firm of Harlan Heller, Ltd. and the fact that it...