Natare Corp. v. Aquatic Renovation Systems Inc.

• Decision Date: 04 December 1997
• Docket Number: No. IP 95-C-0145 B/S.,IP 95-C-0145 B/S.
• Citation: 987 F.Supp. 695
• Parties: NATARE CORPORATION, Plaintiff, v. AQUATIC RENOVATION SYSTEMS INC., d/b/a A.R.S., Inc., and Stewart J. "Jason" Mart, Defendants.
• Court: U.S. District Court — Southern District of Indiana

Page 695

987 F.Supp. 695

NATARE CORPORATION, Plaintiff, v. AQUATIC RENOVATION SYSTEMS INC., d/b/a A.R.S., Inc., and Stewart J. "Jason" Mart, Defendants.

No. IP 95-C-0145 B/S.

United States District Court, S.D. Indiana, Indianapolis Division.

December 4, 1997.

Donald E. Knebel, Dwight D. Lueck, Barnes & Thornburg, Indianapolis, IN, for Plaintiff.

Michael L. Einterz, Indianapolis, IN, James D. Crum, Coots Henke & Wheeler, Carmel, IN, for Defendants.

ENTRY GRANTING PLAINTIFF'S MOTION TO ENFORCE SETTLEMENT

BARKER, Chief Judge.

This matter comes before the Court on Plaintiff's Motion to Enforce Settlement.¹ After full consideration, for the reasons explained below, the Motion is GRANTED. We find that the parties, having previously reached a binding and enforceable settlement agreement, must now abide by that agreement.

FINDINGS OF FACT

This case arises out of a patent dispute between Plaintiff, Natare Corporation ("Natare"), and Defendants, Aquatic Renovation Systems, Inc. and Stewart J. "Jason" Mart (hereafter collectively known as "Mart"). The litigation commenced with Natare's Complaint of February 3, 1995. Shortly thereafter, Mart retained attorney James D. Crum ("Crum") to represent him to settle the dispute or, if necessary, to take it to trial. Mart did not impose any express limitations on Crum's authority to represent him generally or to enter into settlement agreements, with the sole exception of requesting that he, Mart, be allowed to sign off on the final agreement.

The evidence established that the parties discussed settlement from the commencement of the litigation, but settlement discussions began in earnest on March 17, 1997 during a settlement conference before Magistrate Judge Shields. Crum attended the settlement conference on behalf of Mart. Mart did not personally attend the conference. During the conference, Natare presented a proposed consent decree to Crum (Exhibit A to the Motion; Exhibit 1 at the hearing) and informed Crum that the execution of the consent decree was a prerequisite to any settlement. The terms of the consent decree do not require Mart to pay monetary damages to Natare, but do require Mart to concede infringement of the subject patent.

Crum reported on the discussions which occurred at the March 17th settlement conference to Mart later that same day. Mart told Crum that he felt there were other issues not addressed in the consent decree that also needed resolution prior to a settlement. Specifically, Mart was concerned that Natare might sue Mart's customers for patent infringement if the case settled and, further, he wanted any settlement to be confidential. At no time during the discussions with Crum did Mart indicate that the consent decree was unacceptable or impose restrictions on Crum's authority to settle the case.

Thereafter, in response to Mart's requests communicated by and to Crum, Natare drafted a covenant not to sue, agreeing not to sue Mart's customers. Regarding confidentiality, Natare sent to Crum a letter dated March 25, 1997, providing:

Natare is prepared to agree that it will not issue a general press release on the resolution of this dispute with [Defendants], will not make a generalized release to the trade press on the topic, nor will it make specific reference to [Defendants] as subjects of that Decree if it makes reference to the Decree in future generalized advertising.

Plaintiff's Exhibit 2. Mart did not expressly respond to this letter, but there is no evidence that Mart had any dispute over or disagreement with the proposed confidentiality agreement. In a letter dated April 22, 1997, Crum expressly conveyed Mart's acceptance of two parts of the agreement with Natare — the Consent Decree and the Covenant Not to Sue — and implied that the confidentiality issue was resolved as well. That letter provided:

This will confirm this morning's conversation regarding our attempts to resolve the above-mentioned litigation. The Consent Decree and Covenant Not to Sue previously provided are acceptable. However, we believe one additional collateral agreement is necessary to avoid future litigation. We will provide your client a detail of the termination method being used by Aquatic, and ask that Natare make a determination of whether the method is in violation of the subject patent. If it is not, then a stipulation to that effect should conclude this litigation.

Plaintiff's Exhibit 4.

Regarding his statement that "[t]he Consent Decree and Covenant Not to Sue previously provided are acceptable," Crum testified under oath that he wrote that statement only after Mart had "communicated to [Crum] that the consent decree and covenant not to sue were acceptable." Mart also testified that he had discussed the terms of the consent decree with Crum prior to Crum's April 22, 1997 letter without ever imposing any limitations on Crum's authority to enter into a settlement that included the consent decree. In fact, Mart acknowledged that he first saw the consent decree in "late March or early April ... right before May 9, 1997," and did not express any misgivings about the decree until late May, well after the April 22, 1997 letter had been sent to and received by Natare's counsel.

Mart wrote a letter to Crum, dated May 9, 1997, regarding the final issue relating to Mart's termination method that Crum had raised with Natare, without mentioning any of his purported concerns about any other issues, including the consent decree. In response to Crum's April 22, 1997 letter, Natare, in a letter dated May 15, gave its stipulation that the termination method then being used by Aquatic did not violate the subject patent, thus satisfying the lone, remaining condition for settlement as set out in Crum's April 22, 1997 letter. The May 15, 1997 letter from Natare concluded, saying "[n]ow that this issue has been resolved, my client and I look forward to the prompt execution of the Consent Decree." Plaintiff's Exhibit 8. Based on this correspondence, Crum testified that he believed that "there was an agreement" between the parties, a view also shared by Natare's counsel.

At that point, apart from securing the signatures of the parties on the relevant documents, a final agreement had been achieved which allowed the litigation to be concluded. However, when Crum contacted Mart to secure his signature on the consent decree, Mart refused to sign primarily on the grounds that he did not want to admit that he infringed the subject patent. On July 11, 1997, Crum withdrew as counsel for Mart.

CONCLUSIONS OF LAW

Natare seeks to have the Court enforce the settlement agreement achieved by the parties' attorneys based on their written and oral negotiations. Mart maintains that an agreement was never reached and that Crum did not have authority to bind Mart to an agreement. Plaintiff's motion distills into whether Crum had authority to bind Mart to a settlement agreement and, if so, whether an enforceable settlement agreement was actually reached.

I. CRUM HAD AUTHORITY TO BIND DEFENDANTS

"A settlement agreement is merely a contract between the parties to the litigation," and the parties' dispute regarding the settlement agreement at issue is therefore governed by Indiana contract law. Carr v. Runyan, 89 F.3d 327, 331 (7th Cir.1996). Under Indiana agency and contract law, a principal will be bound by a contract its agent enters into on its behalf only if the agent had actual or apparent authority, or if the principal subsequently ratifies the agreement. Id. Actual authority exists where the principal has authorized the agent to enter into such a contract on its behalf. Id. The authorization may be implicit, arising from the actions by the principal that would lead a reasonable agent to believe he possessed such authority. Id.

Natare contends that Crum had both actual and apparent authority to enter into a settlement agreement on Mart's behalf. Prior to September 1996, Natare clearly would have been correct in asserting that, by virtue of Crum's status as Mart's attorney in the litigation, Crum had apparent authority to bind Mart to a settlement agreement. See Ferrara v. Genduso, 214 Ind. 99, 14 N.E.2d 580, 581 (1938); Black v. Krauss, 119 Ind. App. 529, 85 N.E.2d 647, 651 (1949). However, in September 1996, the Indiana Court of Appeals in Gravens v. Auto-Owners Ins. Co., 666 N.E.2d 964 (Ind.Ct.App.1996), cast doubt on Indiana's long-standing doctrine that an attorney has authority to bind the client to a settlement without the client's consent, holding instead "that the requirement that an attorney must obtain his client's authority or consent to settle a case is implicit in the client's right to exercise ultimate authority over the settlement of a case as guaranteed by Prof. Cond. R. 1.2(a)." Id. at 965. Even more pointedly, the Indiana court held that "an attorney does not have authority to compromise an action merely by virtue of the attorney-client relationship." Id. at 966.

In Gravens, the plaintiff hired an attorney to pursue his claim against his insurance company. Id. at 964-65. The plaintiff and his attorney did not discuss the amount for which the plaintiff was willing to settle. Id. Instead, the attorney proceeded to quickly settle the case, without allowing an adequate opportunity for the plaintiff to communicate his settlement preferences. Id. The Indiana Court of Appeal's opinion lacks any mention of ongoing communications between the attorney and his client. Indeed, in Gravens, the attorney's sole source of authority for settling was based on the notion that attorneys have the inherent authority to settle the cases they have been hired to litigate. Id. Further, there was no contention that the attorney in Gravens had implied authority to settle his client's claim based on acts or omissions by his client.

After Gravens was handed down, Federal District Court Judge Robert Miller of the Northern District of Indiana, in Koval v. Simon-Telelect, Inc., 979 F.Supp....