Mazzella v. Koken

• Decision Date: 28 October 1999
• Citation: 739 A.2d 531,559 Pa. 216
• Parties: Louis MAZZELLA, Appellant, v. M. Diane KOKEN, Insurance Commissioner of the Commonwealth of Pennsylvania as Statutory Liquidator of Colonial Assurance Company, Appellee.
• Court: Pennsylvania Supreme Court

739 A.2d 531

559 Pa. 216

Louis MAZZELLA, Appellant, v. M. Diane KOKEN, Insurance Commissioner of the Commonwealth of Pennsylvania as Statutory Liquidator of Colonial Assurance Company, Appellee.

Supreme Court of Pennsylvania.

Submitted June 9, 1999.

Decided October 28, 1999.

David C. Franceski, Jr., Philadelphia, William E. Mahoney, Jr., Malvern, Stradley, Ronon, Stevens & Young, Philadelphia, for Louis Mazzella.

Kenneth A. Murphy, Miller, Alfano & Raspanti, Philadelphia, for M. Diane Koken, Ins. Comm.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION

SAYLOR, Justice.

This is an appeal from an order of the Commonwealth Court granting an application to enforce a settlement agreement purportedly reached in the course of an insurance liquidation action. We conclude that the Commonwealth Court erred in finding that the parties had entered into an enforceable settlement agreement, and therefore reverse.

Appellant Louis Mazzella ("Mazzella") is the president and sole shareholder of Colonial Investment Company, which in turn is the sole shareholder of Colonial Assurance Company ("Colonial"). On March 28, 1984, the Commonwealth Court entered an order, to which Mazzella consented, liquidating Colonial pursuant to Article V of the Insurance Department Act (the Act), Act of May 17, 1921, P.L. 789, as amended, 40 P.S. §§ 221.1-221.63.¹

During the course of post-liquidation proceedings, Mazzella filed two actions against the Insurance Commissioner in her capacity as Statutory Liquidator (the "Liquidator").² The first of these actions, commenced in 1991, sought to vacate or modify the liquidation order, or to terminate the proceeding, discharge the Liquidator, and distribute Colonial's assets. The second, commenced in 1993, was a mandamus action to compel the Liquidator to assert causes of action on behalf of Colonial against the Mercantile and General Reinsurance Company. Mazzella asserts that he brought these actions because he believed that the Liquidator was not diligently working to recover assets for, and to reduce liabilities to, the Colonial estate.

On November 3, 1993, the Commonwealth Court directed the parties or their authorized representatives to appear at a settlement conference to be held on December 16, 1993. Counsel for the parties met on December 9, 1993, and apparently reached an agreement on general conditions of settlement. On December 15, 1993, the day before the scheduled conference, counsel for the Liquidator sent to Mazzella's counsel a letter memorializing those conditions and noting that on December 10, 1993, "you advised me that Louis Mazzella is comfortable with the proposed conditions." Those conditions were, inter alia, that Mazzella would withdraw his lawsuits against the Liquidator; that if Mazzella petitioned to intervene in "the Royal Bank objection matter,"³ the Liquidator would not object; that if the assets of the Colonial estate proved sufficient to satisfy all claims against the estate that were properly filed and were accepted by the Liquidator, any surplus would be distributed to Mazzella; and that, "within a time-certain following resolution of the Royal Bank objection matter," the Liquidator would file a petition for distribution of Colonial's assets.

At the conference, counsel for Mazzella and the Liquidator informed the court that the parties had negotiated a settlement. The court directed counsel to submit a formal settlement agreement by January 18, 1994.

On January 13, 1994, Mazzella's counsel submitted to the Liquidator's counsel the draft of a settlement agreement conforming to the terms previously discussed. With regard to the distribution of the estate's assets, the draft agreement specified that "[w]ithin 60 days of the ultimate resolution by this Court [i.e., the Commonwealth Court] of the Royal Bank Claim, the [Insurance] Department shall file a Petition For Distribution Of Assets with this Court in docket 1984 C.D. 851...." Also included in the draft agreement, as one of several "whereas" clauses, was a statement that "the Department represents that a Balance Sheet for the estate of Colonial as of April 30, 1993 is a fair and accurate accounting of the assets and liabilities of the estate of Colonial as of said date." According to that balance sheet, Colonial's liabilities exceeded its assets by $531,443. Included among liabilities, however, was a reserve in the amount of $1,940,000 for the Royal Bank claim. If the court ultimately denied the claim, as proved to be the case, Colonial's assets would exceed its liabilities by approximately $1, 408, 000. The balance sheet noted that "[n]o reserve has been established for claims rejected by the [L]iquidator based on receipt subsequent to the January 1, 1991 bar date."⁴

On January 25, 1994, apparently having received no response, Mazzella's counsel wrote to counsel for the Liquidator, suggesting that they move expeditiously to file the agreement, the date by which the court had directed them to do so having already passed. One week later, Mazzella's counsel wrote to the court to explain that although the recent severe weather had hampered the parties' progress, they hoped to have an agreement on file within a few days.

In February of 1994, Liquidator's counsel made several revisions to the agreement and then returned it to Mazzella for his signature. One such revision concerned the distribution of assets, so that the pertinent paragraph read as follows:

The Liquidator shall file a Petition For Distribution of Assets and Discharge of Liquidator with this Court in docket 1984 C.D. 851 referenced above, and as early as 60, but not later than 120 days after the ultimate resolution of the Royal Bank Claim or any other remaining unresolved claim asserted against Colonial.

(emphasis added). Another revision modified the "whereas clause" concerning the balance sheet so that it read "the Department represents that the Balance Sheet for the estate of Colonial as of April 30, 1993 accurately reflects the assets and liabilities of the estate known to exist at that time" (emphasis added).

Mazzella refused to execute the revised agreement. On March 25, 1994, the Liquidator filed an Application to Enforce Settlement Agreement in which she asserted, inter alia, the following:

32. As early as December 10, 1993, the Liquidator and Mazzella had agreed upon the essential terms of settlement of the pending [lawsuits].

33. Thereafter, the parties, through counsel, merely drafted and modified additional language to embellish the general conditions set forth in the December 10th Agreement.

34. Mazzella's refusal to execute the proposed final draft of the Settlement Agreement And Mutual Release does not denude the document of force and effect.

35. Under Pennsylvania law, the parties' proposed final draft of the Settlement Agreement And Mutual Release is mutually enforceable.

The "proposed final draft" was identified in the Application as the draft sent by the Liquidator's counsel to Mazzella's counsel on February 17, 1994.⁵ In new matter accompanying his response, Mazzella asserted, inter alia, that the changes made to the agreement by the Liquidator were "both major and material" and, therefore, that the February draft did not embody a meeting of the minds between the parties.

Pursuant to a joint motion of the parties, the court entered an order in May of 1994 staying all proceedings on the Liquidator's application to enforce settlement until after the court's resolution of the Royal Bank claim. The claim was resolved in July of 1995, when the court accepted the Liquidator's valuation of zero. See footnote 3, supra.

In April of 1997, the court held a hearing on the application to enforce settlement. In a post-hearing submission, the Liquidator asserted the following:

Through her Application To Enforce Settlement Agreement, the Liquidator seeks enforcement of the settlement reached between the parties in December 1993. Although Mr. Mazzella denies having agreed to the terms of any draft of the Settlement Agreement And Mutual Release generated after January 13, 1994, it is undisputed that both parties agreed to the terms set forth in the January 13, 1994 draft of the document. Accordingly, it is that version of the Settlement Agreement And Release that the Liquidator seeks to enforce.

Post-Hearing Memorandum in Support of Statutory Liquidator's Application at 3-4 (footnotes omitted). Acknowledging that the parties could no longer meet certain deadlines specified in the agreement, the Liquidator argued that the parties were nevertheless equitably bound to comply with the non-temporal terms of the agreement.

By order and unreported opinion filed December 29, 1998, the Commonwealth Court granted the Liquidator's application and directed the parties to comply with all of the terms of the settlement agreement that remained unsatisfied. Among its findings of fact, the court noted that Mazzella had admitted at the evidentiary hearing that, prior to the settlement conference, he had received a letter from his counsel outlining the provisions of the proposed settlement; that he had agreed to those provisions; and that, after the settlement conference, his son and his counsel, both of whom had attended the conference, informed him "that they would get a formal settlement agreement and that it was consistent with the letter [that he had] received from his Counsel." From these and other facts, the court drew the following conclusions: Counsel for Mazzella had actual and express authority to enter into an agreement with the Liquidator on Mazzella's behalf, and did so at the December 1993 settlement conference. The terms agreed to at that time were formalized in the January 1994 settlement agreement, and any subsequent revisions to such agreement were non-material. Because counsel never negotiated for a dollar amount of surplus in the Colonial estate, Mazzella would not be heard to complain...