Bamerilease Capital Corp. v. Nearburg, 90-3452

Citation958 F.2d 150
Decision Date23 April 1992
Docket NumberNo. 90-3452,90-3452
PartiesBAMERILEASE CAPITAL CORP., Plaintiff-Appellee, v. Eugene E. NEARBURG, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

Marilyn Shea-Stonum (briefed), William D. Manson (argued), Jones, Day, Reavis & Pogue, Cleveland, Ohio, for plaintiff-appellee.

Richard L. Jackson, Dallas, Tex. (argued and briefed), for defendant-appellant.

Before JONES and NELSON, Circuit Judges, and MILES, Senior District Judge. *

NATHANIEL R. JONES, Circuit Judge.

Defendant-appellant Eugene E. Nearburg appeals the district court's order enforcing a settlement agreement and awarding plaintiff-appellee Bamerilease Capital Corporation attorney's fees in this contract dispute. For the following reasons, we affirm the district court.

I

This case was originally filed in the United States District Court for the Northern District of Texas by Bamerilease Capital Corporation in November of 1985. Subsequent to the filing of this case, Bamerilease Capital Corporation changed its name to BA Leasing & Capital Corporation ("BA"). The case was filed against GEX Hardy, Inc., GEX Kentucky, Inc., General Exploration Corporation, and Holmes Land Company (collectively, "GEX Companies"), and Eugene E. Nearburg, the companies' chief executive officer and the largest single stockholder of the parent company. The suit alleged various breaches of contract and various types of tortious conduct by all of the defendants. On April 16, 1986, several months after the filing of the complaint, the four GEX Companies filed bankruptcy petitions, causing the case to be stayed with respect to them. The claims against the GEX Companies have been resolved in the Chapter 11 cases.

In January 1989, this case was transferred to the United States District Court for the Northern District of Ohio pursuant to BA's motion to transfer. On October 20, 1989, the district court set a November 6, 1989 trial date for this case. Later, the trial date was changed to November 8, 1989. Thereafter, the parties began negotiations in an attempt to settle the case. A meeting to this end was held in Dallas, Texas, on November 3, 1989. Different settlement approaches were discussed at the November 3 meeting, and by the end of the day a "tentative" settlement agreement had been reached. On November 6, 1989, BA's counsel sent Nearburg and his counsel a letter outlining her understanding of the structure and terms of the agreement reached on November 3, 1989.

On November 7, 1989, the court received three letters. Letter number one was a letter to Judge Manos from BA's counsel. It stated that a "tentative" settlement agreement between Bamerilease and Nearburg had been reached on November 3, 1989, and outlined the agreement. Letter number two was a letter from Nearburg's counsel to BA's counsel stating that "[w]e are in agreement with the structure of the settlement as outlined in your letter of November 6, 1989, to Judge Manos with the following substituted language." J.A. at 44. This letter was signed by Nearburg. Finally, letter number three was from Nearburg's counsel to BA's counsel, stating that "I enclose a copy of a Fax [telecopy] letter which Mr. Nearburg and I have signed to evidence the agreement. I think you can represent to the Court that the matter is finally concluded." J.A. at 46.

After delivering these letters to the court, BA's counsel commenced drafting the documentation in support of the settlement agreement. On November 14, 1989, BA's counsel sent Nearburg's counsel a draft of the settlement agreement. On November 15, 1989, Nearburg voiced general dissatisfaction with the draft. The remainder of November 15 and the following day were devoted to negotiating the parties' differences.

On November 17, 1989, the parties again met in Dallas, Texas, to affix their signatures to the final draft, which Nearburg refused to sign. Nearburg refused to honor the terms of the alleged settlement agreement, and BA filed a motion to enforce the settlement agreement. A full evidentiary hearing was conducted on this motion, and on April 16, 1990, the court entered judgment in favor of BA. This appeal followed.

The issues raised on appeal are: (1) whether the district court erred in failing to apply state law in ruling upon the enforceability of the settlement agreement; (2) whether the district court's proceedings violated Nearburg's right to due process by not affording him a full trial; (3) whether the district court's judgment violates the Full Faith and Credit Clause, the Due Process Clause, or both; (4) whether the district court's findings are supported by the record; (5) whether the district court erred in awarding attorneys' fees; and finally, (6) whether the district court erred in granting BA's motion to substitute parties.

II

The first and primary issue in this appeal is whether the district court erred in failing to apply state law when ruling upon the enforceability of the alleged settlement agreement. For the reasons discussed below, we think the district court erred in failing to look to the appropriate state law.

"It is well established that courts retain the inherent power to enforce agreements entered into in settlement of litigation pending before them." Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir.1988). Settlement agreements are a type of contract and are therefore governed by contract law. Hageman v. Signal L.P. Gas, Inc., 486 F.2d 479, 487 (6th Cir.1973). Thus, "[w]hether [a settlement agreement] is a valid contract between the parties is determined by reference to state substantive law governing contracts generally." White Farm Equip. Co. v. Kupcho, 792 F.2d 526, 529 (5th Cir.1986); see also Lockette v. Greyhound Lines, 817 F.2d 1182, 1185 (5th Cir.1987) ("In this case, where jurisdiction is based upon diversity of citizenship, we will apply the substantive law of Louisiana to determine whether the settlement agreement allegedly entered into ... is enforceable."); Wong v. Bailey, 752 F.2d 619, 621 (11th Cir.1985) ("The construction and enforcement of settlement agreements are governed by principles of the state's general contracts law."). This is distinguishable from the question of "[w]hether a settlement agreement, ... tested under state law, has been accepted by a federal court and properly incorporated into a valid and enforceable judgment [, which] is purely a matter of federal procedure." White Farm, 792 F.2d at 529.

The primary question on appeal is whether Nearburg entered into a settlement agreement, which is a question of contract law. Hence, it was incumbent upon the lower court to "apply the choice of law rules of the forum state." Lee v. Hunt, 631 F.2d 1171, 1174 (5th Cir.1980), cert. denied, 454 U.S. 834, 102 S.Ct. 133, 70 L.Ed.2d 112 (1981). Therefore, we conclude that the district court erred in failing to look to state law when determining the enforceability of the settlement agreement.

III

Although the district court's failure to apply Ohio law to this problem was error, we find that applying the correct law produces the same result. Ohio's choice of law rules direct us to apply lex loci --the law of the place of the contract's making--to determine the validity or enforceability of a contract. Arsham v. Banci, 511 F.2d 1108, 1114 (6th Cir.1975). The district court found that the settlement agreement was negotiated and made on November 3, 1989 in Texas. J.A. at 40-41, 49. Thus, Texas law governs the enforceability of this settlement agreement.

Nearburg claims that Texas law would invalidate the agreement between the parties, because he never signed the final documents. "[T]he enforceability of a settlement agreement in a diversity case tried in a federal district court in Texas is governed by the provisions of Rule 11, Texas Rules of Civil Procedure." Borden v. Banacom Mfg. and Marketing, Inc., 698 F.Supp. 121, 123 (N.D.Tex.1988). Rule 11 provides in relevant part that "no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record...." Id. (quoting Tex.R.Civ.P. 11).

Although at first blush this rule may seem to support the claims of the appellant, the Texas courts have not so interpreted it. The Texas courts do not insist upon a literal interpretation of the language, so long as the reason for Rule 11's existence is not overlooked: the rule is an attempt to prevent the "misunderstandings and controversies" that oral agreements sometimes generate. Kennedy v. Hyde, 682 S.W.2d 525, 529 (Tex.1984) (quoting Birdwell v. Cox, 18 Tex. 535, 537 (1857); see also Borden 98 F.Supp. at 124 (letter setting out a draft of a previously reached settlement agreement, where the court had been informed that the parties had agreed on a settlement, found to be the "substantial equivalent" of a signed, written agreement); Anderegg v. High Standard, Inc., 825 F.2d 77, 81 (5th Cir.1987), cert. denied, 484 U.S. 1073, 108 S.Ct. 1046, 98 L.Ed.2d 1009 (1988) (Texas courts will recognize formally written and signed statements of settlement or their substantial equivalents.). As the Texas Court of Appeals has interpreted it, "the purpose of requiring that agreements either be in writing or entered of record is that it avoids the untenable situation of the trial judge having to place each attorney on the stand to determine which one is telling the truth." Fidelity & Casualty Co. of New York v. McCollum, 656 S.W.2d 527, 528 (Tex.Ct.App.1983). Such confusion is not a problem here. In the instant case, the parties exchanged letters, sending copies of most of them to the district court as well, in which they outlined in writing the settlement agreement made on November 3. These letters represented that an agreement had been reached, and it was on this ground that the district court removed their case from the docket....

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