Laserage Technology Corp. v. Laserage Laboratories, Inc.

• Decision Date: 13 August 1992
• Docket Number: 91-3555,Nos. 91-3497,s. 91-3497
• Citation: 972 F.2d 799
• Parties: LASERAGE TECHNOLOGY CORPORATION, an Illinois Corporation, Plaintiff-Counterdefendant-Defendant-Appellant Cross-Appellee, and Arthur O. Capp, Counterdefendant-Defendant-Appellant Cross-Appellee, v. LASERAGE LABORATORIES, INCORPORATED, doing business as Laserage Technology Group Laboratories, a California Corporation, and Laserage Technology West, Incorporated, doing business as Laserage Technology Group West, an Oregon Corporation, Defendants-Plaintiffs-Appellees Cross-Appellants, and Laserage Technology Southeast Limited, doing business as Laserage Technology Group Southeast, a California Limited Partnership, Defendant-Appellee, and James E. Byrum, Individually and as Trustee of the Byrum Family Trust, Defendant-Counterclaimant-Appellee Cross-Appellant, v. CAPCO INCORPORATED, an Illinois Corporation, Grant Sisson, Theodore Otterbacher, et al., Counterdefendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 799

972 F.2d 799

LASERAGE TECHNOLOGY CORPORATION, an Illinois Corporation,

Plaintiff-Counterdefendant-Defendant-Appellant Cross-Appellee, and Arthur O. Capp, Counterdefendant-Defendant-Appellant Cross-Appellee, v. LASERAGE LABORATORIES, INCORPORATED, doing business as

Laserage Technology Group Laboratories, a California

Corporation, and Laserage Technology West, Incorporated,

doing business as Laserage Technology Group West, an Oregon

Corporation, Defendants-Plaintiffs-Appellees Cross-Appellants,

and

Laserage Technology Southeast Limited, doing business as

Laserage Technology Group Southeast, a California

Limited Partnership, Defendant-Appellee,

and

James E. Byrum, Individually and as Trustee of the Byrum

Family Trust, Defendant-Counterclaimant-Appellee Cross-Appellant, v. CAPCO INCORPORATED, an Illinois Corporation, Grant Sisson, Theodore Otterbacher, et al., Counterdefendants-Appellees.

Nos. 91-3497, 91-3555.

United States Court of Appeals, Seventh Circuit.

Argued May 21, 1992.

Decided Aug. 13, 1992.

William J. Gibbons (argued), Richard A. Levy, Mark S. Mester, Latham & Watkins, Chicago, Ill., for Laserage Laboratories, Inc.

Theodore J. Low (argued), Charles A. Valente, Altheimer & Gray, Chicago, Ill., Thomas Davis, Zion, Ill., for Laserage Technology Corp., Arthur O. Capp.

Before COFFEY and KANNE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

The central question in this appeal is whether the district court erred in concluding that the parties had reached a binding settlement of three related lawsuits. We conclude that the district court properly enforced the parties' settlement agreement and affirm for the reasons that follow.

I.

The trilogy of cases underlying this appeal arose out of related disputes arraying Laserage Technology Corporation ("Laserage") and its principal shareholder, Arthur O. Capp against James E. Byrum and the two corporations he controls, Laserage Laboratories, Inc. and Laserage Technology West, Inc. For form's sake, we refer to each side collectively as "LTC" and "Labs-West," respectively. The underlying disputes stemmed from a business relationship gone sour (Mr. Byrum is also a minority shareholder in Laserage), and contained various and overlapping claims for breach of contract, breach of fiduciary duties, trademark infringement, and misappropriation of trade secrets. LTC and Labs-West engaged in extensive and often acrimonious discovery from 1987 to 1990, making several unsuccessful attempts to settle their disputes along the way. Finally, on February 26, 1990, LTC and Labs-West appeared before Judge (now Chief Judge) Moran and reported that they had reached a settlement agreement resolving their disputes that provided for LTC's buy-out of Mr. Byrum's minority interest in Laserage. That settlement agreement was embodied in a series of correspondence that LTC and Labs-West had exchanged during the previous thirty days.

When LTC and Labs-West began to reduce their settlement agreement to a formal document, however, they encountered a snag as to a term concerning security for LTC's purchase of Mr. Byrum's shares in Laserage. LTC contended that the settlement agreement contemplated that Mr. Byrum would retain none of his shareholder rights during the gradual buy-out of his shares by LTC. Conversely, Labs-West contended that it had agreed that Mr. Byrum would relinquish voting rights for all his shares in Laserage, but would retain, as security, other shareholder rights in Laserage for those shares not yet purchased by LTC. ¹ When the parties reported this snag to Judge Moran, he suggested that they resolve their purported differences through a mediator; that effort failed. Labs-West then moved to enforce the settlement agreement with LTC. After considering documentary evidence submitted by both LTC and Labs-West, Judge Moran granted Labs-West's motion, deciding that LTC and Labs-West had entered into a binding settlement agreement that included the retention of Mr. Byrum's shareholder rights (other than voting rights). R. 126. LTC sought reconsideration of the district court's order. R. 176. After again considering LTC's arguments and documentary submissions, Judge Moran denied LTC's motion by again concluding that LTC's position could not be reconciled with the contemporaneous correspondence and the representations made to the court in February. R. 129.

As provided by the parties' settlement agreement, Judge Moran then held a valuation hearing pursuant to Ill.Rev.Stat. ch. 32, p 12.55(g) to determine the fair value of Mr. Byrum's Laserage shares. Expert's retained by both sides testified as to the fair value of Mr. Byrum's minority interest in Laserage. Supp.R., Tr. 15-92, 168-269. LTC's expert valued Laserage at $5,000,000, and concluded that the court should arrive at the value of Mr. Byrum's shares by applying a minority discount to his interest. See R. 188 at 3. Labs-West's expert proffered a figure of $6,364,000, and concluded that a minority discount was not applicable to Mr. Byrum's interest. R. 188 at 4. Based upon the testimonial and documentary evidence presented, Judge Moran set the value of Laserage at $6,000,000, finding Mr. Byrum's shares worth $1,235,375 ($13.13 per share) and declining to impose a minority discount. R. 188.

Next, Labs-West filed a motion seeking reimbursement of the expert fees it incurred in connection with the valuation hearing, see Ill.Rev.Stat. ch. 32, p 12.55(g), and a motion seeking fees and costs it believed it unjustifiably incurred as a result of LTC's repudiation of the settlement agreement, see Fed.R.Civ.P. 11; 28 U.S.C. § 1927. R. 143-44. The district court denied Labs-West's motions, and entered final judgments in all three underlying cases. R. 72-74. Thereafter, both LTC and Labs-West appealed.

II.

LTC asserts that the district court erred in concluding that it had reached a binding settlement agreement with Labs-West that allowed Mr. Byrum to retain his shareholder rights. Principally, LTC believes that no enforceable agreement was reached because there was no "meeting of the minds" as to this security term. We believe that LTC misconstrues the often-deceptive "meeting of the minds" metaphor. ² "A settlement agreement is a contract and as such, the construction and enforcement of settlement agreements are governed by principles of local law applicable to contracts generally. Air Line Stewards and Stewardesses Assoc. v. Trans World Airlines, Inc., 713 F.2d 319, 321 (7th Cir.1983). Here, we look to Illinois contract law for guidance. In interpreting a contract under Illinois law, "the paramount objective is to give effect to the intent of the parties as expressed by the terms of the agreement." International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co., 168 Ill.App.3d 361, 119 Ill.Dec. 96, 102, 522 N.E.2d 758, 764 (1988). Consequently, in assessing LTC's and Labs-West's intent, their "[s]ecret hopes and wishes count for nothing" because the "status of a document as a contract depends on what the parties express to each other and to the world, not on what they keep to themselves." Skycom Corp. v. Telstar Corp., 813 F.2d 810, 814-15 (7th Cir.1987) (reversing summary enforcement of settlement agreement where record did not reveal an existing, complete bargain). That is, Illinois follows the objective theory of intent. See Air Line Stewards, supra; East Richland Educ. Ass'n v. Illinois Educ. Labor Rel. Bd., 173 Ill.App.3d 878, 124 Ill.Dec. 63, 80-81, 528 N.E.2d 751, 768-69 (1988); Geier v. Hamer Enterprises, Inc., 226 Ill.App.3d 372, 168 Ill.Dec. 311, 321-22, 589 N.E.2d 711, 722-23 (1992). As a result, whether LTC and Labs-West had a "meeting of the minds" as to security for the purchase of Mr. Byrum's Laserage shares is determined by reference to what the parties expressed to each other in their writings, not by their actual mental processes. See Skycom, 813 F.2d at 814 (determination of "intent does not invite a tour through Walter's cranium, with Walters as the guide.").

We believe that the district court correctly determined that on the evidence available a jury could reach but one conclusion about the binding quality of LTC's and Labs-West's settlement agreement and its provision to allow Mr. Byrum to retain shareholder rights (other than voting rights). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986); Skycom, 813 F.2d at 817. ³ Because of the district court's extensive treatment of this issue, see R. 126, we highlight but a few of the factors that we believe conclusively supports the district court's decision. First, it was LTC that restarted the parties toward settlement on January 26 by proposing that Mr. Byrum relinquish his voting rights, but not his other shareholder rights, in Laserage. ⁴ R. 57, Ex. A. LTC consistently refused to provide Mr. Byrum a more traditional form of security (such as a letter of credit) for the purchase of his Laserage shares. R. 57 at 2. Second, on February 6, Labs-West specifically accepted LTC's January 26 proposal as to the security term. Id., Ex. B. The next day, LTC responded to Labs-West, noting that it might "pay [Mr. Byrum] off quicker [than required] just to get rid of him." R. 57, Ex. C. It makes little sense for LTC to have an incentive to "get rid of" Mr. Byrum if it understood at this juncture that he had absolutely no shareholder rights. Without those rights, Mr. Byrum was simply an unsecured creditor.

Third, and perhaps most significantly, Labs-West's next response (February 9) to LTC explicitly refers to the "amended arbitration agreement attached to your January 26, 1990 proposal." R. 57, Ex. D. Thus, at this point it was apparent to all the world, including LTC, that Labs-West believed it was agreeing to allow Mr. Byrum to retain his shareholder rights other than voting rights. Despite that clarity, however, LTC's next communication with Labs-West did not...