City Equities Anaheim, Ltd., In re

• Decision Date: 26 April 1994
• Docket Number: No. 92-56266,92-56266
• Citation: 22 F.3d 954
• Parties: In re CITY EQUITIES ANAHEIM, LTD., a California limited partnership, a/k/a City Equities Anaheim, Debtor. CITY EQUITIES ANAHEIM, LTD., a California limited partnership, a/k/a City Equities Anaheim, Appellant, v. LINCOLN PLAZA DEVELOPMENT COMPANY, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 954

22 F.3d 954

25 Bankr.Ct.Dec. 916

In re CITY EQUITIES ANAHEIM, LTD., a California limited partnership, a/k/a City Equities Anaheim, Debtor CITY EQUITIES ANAHEIM, LTD., a California limited partnership, a/k/a City Equities Anaheim, Appellant, v. LINCOLN PLAZA DEVELOPMENT COMPANY, Appellee.

No. 92-56266.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 31, 1994.

Decided April 26, 1994.

Oakley C. Frost, Menke, Fahrney & Carroll, Costa Mesa, CA, for appellant.

Robin Meadow, Loeb and Loeb, Los Angeles, CA, for appellee.

Appeal from the United States District Court for the Central District of California.

Before: SNEED, THOMPSON, and RYMER, Circuit Judges.

Opinion by Judge SNEED.

SNEED, Circuit Judge:

This case involves a settlement agreement that contained a sublease and a "drop dead clause" whereby the defendant would automatically forfeit its sublease in the event of its default. Defendant defaulted, and the bankruptcy court enforced the settlement agreement according to its terms. The district court affirmed. We also affirm.

I. FACTS AND PROCEEDINGS BELOW

Plaintiff Lincoln Plaza Development Co. (Lincoln) held a leasehold interest in 17 acres of commercial property in Anaheim, California. In 1984, Lincoln subleased the Anaheim property to Inner Cities Equity, which later assigned its sublease interest to defendant City Equities Anaheim, Ltd. (CEA).

CEA entered Chapter 11 reorganization proceedings in 1990. Thereupon, Lincoln challenged CEA's sublease, contending that the assignment by Inner Cities Equity to CEA was invalid. After extensive litigation, CEA tried another tack and engaged Amerivest Workout Specialists (Amerivest) to negotiate a settlement.

This yielded some success. On May 9, 1991, CEA, Amerivest, and Lincoln entered into a Memorandum Agreement. Under this agreement, Amerivest and Mark Sandorf Properties, Inc. (Sandorf) would obtain a controlling interest in CEA. CEA eventually would acquire the property underlying Lincoln's lease. In the interim, CEA would make a series of monthly sublease payments to Lincoln. The parties later executed a formal sublease agreement to CEA.

In the Memorandum Agreement, CEA expressly waived "all claims that this Memorandum ... is not enforceable or should be cancelled, rescinded, changed or reformed" due to any actual or claimed breach by Amerivest of any duty or obligation. CEA also represented that it relied "only on the representations and agreement(s) set forth in this Memorandum and not on any other oral or written communication." CEA made similar representations in the sublease agreement.

The Memorandum Agreement also contained a "drop dead clause." In the event of its default, CEA would forfeit all claims to the Anaheim property. ¹ Finally, although the parties intended the Memorandum Agreement to be fully binding, they also agreed to conclude a final and more complete Settlement Agreement.

The bankruptcy court approved the Memorandum Agreement and the related sublease. It ordered CEA to make the interim payments required under these agreements and expressly approved the drop dead clause. The court also authorized CEA to enter into "any and all additional documents reasonably required to effectuate" the Memorandum Agreement.

The parties executed the final Settlement Agreement on August 26, 1991. The final agreement largely mirrored the Memorandum Agreement but added a provision authorizing Lincoln to enforce its terms by notice and motion. ² Shortly after signing the Settlement Agreement, CEA discovered that Amerivest and Sandorf did not plan to fund the next monthly payment to Lincoln. As a consequence, CEA defaulted on this payment.

Lincoln then filed a motion before the bankruptcy court to enforce the drop dead provision. One can imagine hearing the trap door fall. CEA filed a brief and several declarations in opposition, alleging that Amerivest and Sandorf fraudulently induced it to enter into the various settlement agreements by promising to fund the required monthly payments. The bankruptcy court rejected CEA's contention and granted Lincoln's motion. The U.S. District Court for the Central District of California affirmed. CEA appeals, alleging that the bankruptcy court erred by (1) not conducting a full "adversary proceeding," (2) failing to approve CEA's petition for counsel before ruling on Lincoln's motion, and (3) considering the terms of the Settlement Agreement rather than limiting itself to the Memorandum Agreement. We have jurisdiction under 28 U.S.C. Sec. 158(d).

II. ENFORCEMENT OF SETTLEMENT AGREEMENTS

Settlement agreements are designed to, and usually do, end litigation, not create it. Nevertheless, disputes occasionally arise between settling parties as to the formation, terms, and enforceability of their compacts. This case involves just such a dispute and the propriety of a court's procedures in resolving that dispute.

Twenty-five years ago, the D.C. Circuit observed that "[i]n many federal courts, the practice has developed, in lieu of a full-dressed proceeding to compel observance of a settlement agreement, of bringing the dispute on less formally for handling by the trial judge." Autera v. Robinson, 419 F.2d 1197, 1200 (D.C.Cir.1969). Thus, "[i]t is now well established that the trial court has power to summarily enforce on motion a settlement agreement entered into by the litigants while the litigation is pending before it." Id. This circuit also recognizes a trial court's inherent enforcement power. See, e.g., Dacanay v. Mendoza, 573 F.2d 1075, 1078 (9th Cir.1978).

The practice of summary enforcement evolved for two reasons. First is the "high judicial favor" accorded the voluntary settlement of disputes. Autera, 419 F.2d at 1199. Second is the efficiency of having one court see litigation through to its conclusion, thereby avoiding duplication of effort. See id. at 1200 n. 10.

Like many rules of thumb, this well-settled practice has limits. Summary enforcement "is ill-suited to situations presenting complex factual issues related either to the formation or the consummation of the [settlement] contract, which only testimonial exploration in a more plenary proceeding is apt to satisfactorily resolve." Russell v. Puget Sound Tug & Barge Co., 737 F.2d 1510, 1511 (9th Cir.1984) (quoting Autera, 419 F.2d at 1200). ³ Accordingly, we have found enforcement upon motion inappropriate where material facts concerning the existence or terms of a settlement were in dispute, Callie v. Near, 829 F.2d 888, 890 (9th Cir.1987), or where a settlement agreement was apparently procured by fraud, Russell, 737 F.2d at 1511.

A bankruptcy court, as a court of equity, likewise possesses the power to summarily enforce settlements. See In re Springpark Assocs., 623 F.2d 1377, 1380-81 (9th Cir.), cert. denied, 449 U.S. 956, 101 S.Ct. 364, 66 L.Ed.2d 221 (1980) (bankruptcy court has inherent power to enforce settlement providing for termination of automatic stay to permit foreclosure). ⁴ Along with this power, of course, come the attendant limitations.

On appeal, our standard of review appears to be for abuse of discretion. Callie, 829 F.2d at 890. However, a court has no discretion to enforce a settlement where material facts are in dispute; an evidentiary hearing must be held to resolve such issues. See id.

With this history and analysis as a guide, we turn to the case before us.

III. DISCUSSION

A. Failure to Conduct an Adversary Proceeding

CEA first claims that the bankruptcy court erred in enforcing the Memorandum Agreement upon motion. It argues that the court should have conducted an "adversary proceeding," complete with a complaint, answer, oral testimony, cross-examination, and the like. We disagree. Like any other trial court, the bankruptcy court had the inherent power summarily to enforce a settlement agreement with respect to an action pending before it. In re Springpark Assocs., 623 F.2d at 1380-81. Summary enforcement is particularly suited to, and indeed seems virtually implicit in, an agreement with terms as unequivocal, and with consequences of default as utter and final, as this one.

It is true that summary enforcement is inappropriate where material facts concerning the existence or terms of a settlement agreement are in dispute. Callie, 829 F.2d at 890-91. Here, however, no material facts are in dispute. CEA does not dispute its intent to be bound by the Memorandum Agreement; that agreement expressly proclaims its binding nature. Nor does CEA contest the unequivocal meaning of the drop dead clause. Rather, it argues that Amerivest fraudulently induced it to enter into the agreement by promising to fund the required payments. Even assuming that Amerivest made such promises, CEA could not have reasonably relied on them. In the Memorandum Agreement and the related sublease, CEA expressly and unambiguously admitted that it was not relying on any inducements not contained therein. See Brae Transp., Inc. v. Coopers & Lybrand, 790 F.2d 1439, 1445 (9th Cir.1986); Fisher v. Pennsylvania Life Co., 69 Cal.App.3d 506, 511, 138 Cal.Rptr. 181, 184 (1977). Further, CEA expressly waived the right to assert any claim against Lincoln based on Amerivest's conduct. A promise which carries on its face its own denial deserves no legal protection.

Despite the lack of a material factual dispute, CEA argues that Lincoln's motion was an action to recover property and thus constituted an adversary proceeding under Bankruptcy Rule 7001. Accordingly, it contends, the full panoply of the Bankruptcy Rules should have applied.

We may assume, without deciding, that Rule 7001 applies to settlement agreements. Even so, the proceedings here sufficiently complied with the Bankruptcy Rules. First, we reject CEA's contention that Lincoln should have preceded its motion with a formal complaint. The parties' dispute was before the court long before the Memorandum Agreement even existed. There was no need to repeat the...