Pyle v. Wolf Corporation

• Decision Date: 22 October 1972
• Docket Number: Civ. No. 70-693 to 70-696.
• Citation: 354 F. Supp. 346
• Parties: Stoddard H. PYLE, Plaintiff, v. The WOLF CORPORATION et al., Defendants. Robert W. HILL, Plaintiff, v. The WOLF CORPORATION et al., Defendants. Robert E. STALEY, Plaintiff, v. The WOLF CORPORATION et al., Defendants. Arthur J. LEWIS, Plaintiff, v. The WOLF CORPORATION et al., Defendants.
• Court: U.S. District Court — District of Oregon

354 F. Supp. 346

Stoddard H. PYLE, Plaintiff, v. The WOLF CORPORATION et al., Defendants.

Robert W. HILL, Plaintiff, v. The WOLF CORPORATION et al., Defendants.

Robert E. STALEY, Plaintiff, v. The WOLF CORPORATION et al., Defendants.

Arthur J. LEWIS, Plaintiff, v. The WOLF CORPORATION et al., Defendants.

Civ. Nos. 70-693 to 70-696.

United States District Court, D. Oregon.

October 22, 1972.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Bruce M. Hall, Kenneth M. Novack, Rives, Bonyhadi & Hall, Portland, Or., for plaintiffs.

Clifford N. Carlsen, Jr., John R. Bakkensen, Miller, Anderson, Nash, Yerke & Wiener, George H. Fraser, Portland, Or., for defendants.

OPINION

SKOPIL, District Judge:

I

INTRODUCTION

This is an action for breach of an executory accord. The plaintiffs are four individuals who among themselves invested $1,000,000 in a venture with defendant Wolf Corporation (hereinafter, "Wolf") whose business is real estate, oil and gas exploration, and related enterprises.

In 1969 a partnership known as "Wolf 69" was formed for the purpose of exploring for oil on land in which Wolf had acquired an interest from King Resources Company. Wolf was the general partner and exercised managerial control over Wolf 69. The limited partners were obligated to contribute approximately $3,100,000 to finance the intangible expenses of exploration. The arrangement had substantial tax advantages for them. Apparently it was intended that there be two limited partners, Gordon S. Giovanelli and Lawrence E. McCombs. Giovanelli furnished his share, $1.5 million, but McCombs had some difficulty in furnishing his $1.6 million. The Fox-Raff Company, a Seattle stock brokerage firm, sought other investors to take up the $1,000,000 which McCombs could not finance. The nature of the interest which plaintiffs thus purchased is a matter of dispute between the parties. Plaintiffs claim that they are limited partners in Wolf 69, and defendant Wolf apparently regards them only as purchasers of part of McComb's interest.

Approximately one year later, plaintiffs were dissatisfied with their investment and began identical lawsuits seeking various forms of relief.¹ There were a number of defendants in addition to Wolf, including Wolf's officers and directors, King Resources, its officers and directors, two additional corporations which were associated with Wolf, their officers and directors, and others. The complaint alleged violation of various securities laws and regulations as well as fraud and other claims. In March of 1971, the complex litigation apparently was under full steam with numerous discovery proceedings under way.

About this time Wolf commenced serious overtures to plaintiffs seeking a settlement of the lawsuit. One of its principal motivations was its desire to make a public offering of securities, the success of which it felt required disposition of plaintiffs' lawsuit. On March 4, 1971, Harold Willits, an attorney with a substantial interest in Wolf and who shortly thereafter became its Vice President, wrote plaintiffs proposing a settlement for $200,000 cash and 200,000 shares of Wolf common stock (then worth approximately $5.00 per share over the counter). On March 10, Bruce Hall, an attorney for plaintiffs, made a counter offer for $700,000 cash and 145,000 shares of stock. On March 14, Willits responded with an offer of $500,000 cash and 100,000 shares of stock. On March 19, the parties interrupted a deposition, then in progress, in order to negotiate a settlement. This meeting was attended by Willits, who had come to Portland for that purpose; Robert L. Raff, an officer of Fox-Raff Company; Clifford N. Carlsen, Jr., Portland counsel for defendant; Bruce Hall, attorney for plaintiffs; and the plaintiffs Pyle, Hill and Staley.² Robert L. Raff accompanied Willits to Portland at the request of Giovanelli, then President³ of Wolf, because it was anticipated that the basis of the settlement might involve the exchange of stock. During the course of a two-hour discussion, conducted principally between Willits and the plaintiffs Pyle and Hill, plaintiffs agreed to dismiss the lawsuit in exchange for the payment, in installments, of $700,000 in cash, 100,000 shares of unregistered Wolf common stock, the transfer of another 30,000 shares of stock into escrow with ultimate delivery made contingent upon future market performance, and the right to have their stock registered so that they could sell it later. It was also agreed that attorneys for the parties would draw up a written version of the agreement. Plaintiffs previously had scheduled to begin taking depositions of defendant's officers during the following week, but abandoned them because of the settlement. Participants on both sides of the settlement conference expressed mutual relief that it was over and settled.

The case had been set for calendar call the following Monday, March 22, 1971. Either on that date or on the preceding Friday after the meeting, it was reported to the court that the case had been settled. It was transferred to the calendar of cases awaiting final order (AFO Calendar). Also on March 22, Carlsen showed plaintiffs' attorneys the proposed draft he had made of the agreement.⁴ It was his intention to capture in writing the terms and conditions which had been orally agreed upon, and to express in more precise detail some of the terms. For example, the parties had agreed that the cash would be payable in installments and that promissory notes would be executed, representing those installments, and Carlsen drafted promissory notes which he attached at the end of the document. With respect to one term, the anti-dilution clause (discussed more fully infra), Carlsen was uncertain about the acceptability of his draft language and, consequently, he sent his version to Willits first without including it in the draft agreement.

George Rives, an attorney for plaintiffs and Hall's partner, found fault in several aspects of Carlsen's draft. He thereupon drafted his own version incorporating most of the provisions in Carlsen's draft but changing language and adding some other terms. On April 9, Willits sent a copy of the Rives redraft to Sheldon Halpern who was secretary of defendant and New York counsel, registering his objections to four provisions in the Rives redraft which he felt should either be clarified or changed.

From this point on there continued to be discussions among the parties about various aspects of the proposed written version of the agreement, but none was ever signed. However, defendant, on a number of occasions, reassured plaintiffs that the case was settled. For example, at a meeting in early May between Willits and plaintiffs, another lawyer accompanying Willits who indicated that the settlement was too generous was interrupted by Willits saying that the case was already settled and that there was a deal.

On June 21, the case was on the AFO Calendar for call. When the court (Belloni, J.) inquired of the status of the case, he was reassured by Carlsen that it had been settled and that no assistance of the court was required since it only "involved the security and tax lawyers just on the structure of settlement." At a later proceeding when Judge Belloni said he had understood from this exchange that the case was settled, Carlsen replied that he had thought so, too, and that it was his intention to so represent to the court.⁵

However, on June 29, 1971, the plaintiff Stoddard Pyle received a telephone call from Joe Wolf, Chief Executive Officer of defendant. Joe Wolf indicated that he wanted to renegotiate the terms, apparently thinking that they were too generous to plaintiffs. When Pyle protested that an agreement had already been reached, Joe Wolf responded by saying, according to Pyle's uncontradicted testimony, that "Mr. Willits and that attorney came down and settled the case, but I have the money." Thereupon, negotiations broke off and plaintiffs re-renewed their lawsuit, amending the complaint to add a cause of action against Wolf for breach of an executory accord. Shortly thereafter one of the defendants to the original complaint, King Resources, entered reorganization proceedings and an order of the bankruptcy court stayed further litigation, at least against King Resources. Plaintiffs moved for summary judgment on the new count, which motion was denied.

The issue presented by this added count for breach of an accord was segregated from the other counts and tried to the Court on July 5, 6, 7 and 10, 1972.⁶ On August 16, 1972, the Court heard arguments of counsel for both sides.

Plaintiffs claim that on March 19, 1971, the parties entered into a binding and enforceable contract which was later breached. Defendant denies that the March 19 settlement was anything more than a tentative one, and that it was contingent upon further agreement on other additional material questions and upon the ultimate execution of a written contract. Defendant also maintains that even if there was a contract on March 19, it is unenforceable because contrary to the Statute of Frauds.

Plaintiffs' alternate position is that if an enforceable contract was not created, defendant is equitably estopped from denying it because of its subsequent behavior. In light of the ruling which the Court makes on plaintiffs' contract claim, the Court does not reach the issue of equitable estoppel.

II

THE EXISTENCE OF THE CONTRACT

When adversaries in a lawsuit agree to settle it and to revise their contractual relations, the accord and compromise is enforceable provided that the requirements for formation of contracts are met. All States Investors, Inc. v. Bankers Bond Co., 343 F.2d 618 (6th Cir.), cert. denied, 382 U.S. 830, 86 S.Ct. 69, 15 L.Ed.2d 74 (1965); Ladd v. General Insurance Co., 236 Or. 260, 387 P.2d 572 (1963); Ohlson v. Steinhauser, 218 Or. 532, 315 P.2d 136, 346 P.2d 87 (1959). Courts frequently summarily enforce settlements of pending...