U.S. v. Orr Const. Co.
| Decision Date | 10 August 1977 |
| Docket Number | No. 77-1414,77-1414 |
| Citation | 560 F.2d 765 |
| Parties | UNITED STATES of America for the use of Great Lakes Plumbing & Heating Co., Plaintiff-Appellee, v. ORR CONSTRUCTION COMPANY, St. Arnaud Electric Company, Nager Electric Company, Inc., and E. C. Ernst, Inc., Individually and d/b/a Orr and Associates, a joint venture, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Keith F. Bode, Chicago, Ill., Arthur S. Friedman, New York City, Jay A. Canel, Chicago, Ill, for defendants-appellants.
Stephen Novack, Chicago, Ill., for plaintiff-appellee.
Before SWYGERT and WOOD, Circuit Judges, and CAMPBELL, Senior District Judge. 1
The issue in this appeal is whether an agreement entered into by the parties to settle a dispute arising out of an earlier contract is sufficiently definite to be enforceable. We hold that the agreement is unenforceable and reverse the district court's judgment.
Defendant Orr and Associates ("Orr") acted as the general contractor for the United States Army Corps of Engineers in the construction of the Chicago Bulk Mail Center in Forest Park, Illinois. On May 1, 1972, Orr entered into a subcontract with plaintiff Great Lakes Plumbing & Heating Co. ("Great Lakes") calling for Great Lakes to provide plumbing, heating, ventilation, air conditioning, site drainage, and site utilities for the Bulk Mail Center.
The project was completed by 1975. On February 6, 1976, Great Lakes filed suit against Orr in the district court for the Northern District of Illinois, contending that a substantial amount of money to which it was entitled under the subcontract remained unpaid. Great Lakes sought relief under the Miller Act, 40 U.S.C. §§ 270a, 270b, which requires the contractor for any federal building to furnish a bond and permits any person who furnished labor or material in the construction of the building to bring an action in federal court for payment out of that bond. Great Lakes also sought relief under a pendent claim that Orr had breached the subcontract.
On July 9, 1976, representatives of both parties met in an effort to settle the lawsuit. They entered into the following written agreement:
O & A will issue final payment in the amount of $613,350.00 as final contract settlement with GLHP and all of their subcontractors with proper legal releases from all parties. It is anticipated that all legal releases and final payment will be exchanged by the end of July, 1976. 2
The attorneys for the parties then attempted to draft the "proper legal releases" contemplated in the July 9 agreement. On July 22, 1976, counsel for Orr sent a proposal to counsel for Great Lakes. See Appendix A. The terms of this draft were unacceptable to counsel for Great Lakes, who responded with a counterproposal on July 29. See Appendix B. The attorneys then began negotiating by telephone in an effort to settle their differences.
The parties have different accounts of the facts that ensued. Orr contends that by August 4, after repeated negotiations by telephone, counsel for Orr and counsel for Great Lakes agreed that they had reached an impasse on the issue of releases and further agreed to break off negotiations unless there was a change in position. Orr also asserts that sometime between August 6 and August 18 it learned that, contrary to its previous understanding, the Army Corps of Engineers had decided it would not immediately pay Orr for the work done on the Bulk Mail Center, making it economically unfeasible for Orr to immediately pay any of its subcontractors. This caused Orr to announce on August 18 that it no longer wished to settle the Miller Act claim and that it would no longer negotiate on the issue of legal releases under the July 9 agreement.
Great Lakes contends that no impasse was reached on August 4 and that counsel for both sides merely agreed on that date that they had no further suggestions. It asserts that as late as August 16 an Orr employee had a conversation with counsel for Great Lakes and expressed the hope that the issue of legal releases could be settled. Great Lakes agrees that Orr irrevocably withdrew from negotiations on August 18 because of the Army Corps of Engineers' change of position.
On September 1, 1976, Great Lakes filed a motion in the district court to enforce the July 9 settlement agreement. It also sought an award of punitive damages against Orr for its conduct in connection with the settlement negotiations. Both parties treated this motion as one for summary judgment.
On November 15, 1976, the district court held that the July 9 agreement was binding and enforceable. It concluded that the dispute between the parties centered around whether they intended to be bound under the July 9 document and found, after examining the relevant circumstances surrounding the negotiation and execution of the agreement, that the parties did intend to be bound. It further concluded that the agreement was not unenforceable simply because it provided for the execution of releases in the future. The court found that the parties intended to enter into "the appropriate and customary legal releases" and that negotiations broke down because of a dispute as to the form, rather than the substance, of the releases. 3
The court also ordered the parties to submit proposed releases and briefs in support of their proposals. Each party submitted the proposal which it had made during the negotiation period following the July 9 agreement. On March 21, 1977, the court ordered the parties to adopt Great Lakes' proposal because it would better effectuate their intent, expressed in the July 9 agreement, to tender "all legal releases."
The court disposed of the remaining issue in the case on March 29, 1977 by denying Great Lakes' claim for punitive damages. It also directed the entry of a final judgment pursuant to Fed.R.Civ.P. 54(b). Orr now appeals the district court's judgment insofar as it holds that the July 9 agreement is enforceable and that the parties should adopt the releases proposed by Great Lakes.
Orr's initial contention is that the district court's certification of a final judgment on March 29, 1977 was erroneous because Great Lakes' claim for punitive damages was still under adjudication. This argument is frivolous. The district court disposed of the punitive damages claim on the same day that it certified the case as final. The fact that the district court's minute order denying punitive damages was a separate document from the order of certification is irrelevant. The court adjudicated all of the issues in the lawsuit by March 29, and it was entirely appropriate for it to certify the case for appeal at that time.
We turn now to a review of the merits of the district court's judgment. At the outset, we must determine what law controls this case, a question which the district court never faced. The parties have not directly addressed this issue, but they seem to implicitly agree that the validity and construction of the July 9 agreement ought to be determined under Illinois law. Because they have supplied no reasons to support this assumption, however, we shall independently examine the question.
The district court's jurisdiction over the original dispute between Great Lakes and Orr was conferred by the Miller Act. The Supreme Court has held that "(t)he Miller Act provides a federal cause of action, and the scope of the remedy as well as the substance of the rights created thereby are matters of federal not state law." F. D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116, 127, 94 S.Ct. 2157, 2164, 40 L.Ed.2d 703 (1974). Therefore, if this case had gone to trial the issue of whether Great Lakes was entitled to payment would have been resolved under federal law.
It is clear that the district court has the power to enforce settlement agreements reached by the parties in federal cases because otherwise the court would be frustrated It would be anomalous to utilize state law to determine the validity of the settlement agreement reached by the parties in this case, when federal law governs the substantive rights of the parties and provides the basis on which the parties were able to bring the matter into federal court in the first place, and when jurisdiction over the settlement agreement only exists as a derivative of the original federal action. We therefore hold that the enforceability of the July 9 agreement must be decided as a matter of federal law.
in its effort to resolve cases over which it has been given explicit jurisdiction by Congress. But it is equally true that the court's jurisdiction to enforce a settlement agreement must derive from its original jurisdiction over the complaint. Federal courts do not have common law contracts jurisdiction, and they cannot enforce settlement agreements except insofar as those agreements are ancillary to the resolution of cases over which they do have jurisdiction.
Orr's primary argument is that the July 9 agreement is not an enforceable contract because it is too indefinite. Specifically, Orr contends that the parties never reached a meeting of the minds on the phrase "proper legal releases" contained in the agreement, as evidenced by their inability to agree on the substance of the releases during the negotiations following July 9.
The district court primarily focused on whether the parties intended the July 9 agreement to be a binding and complete settlement of the lawsuit in determining whether the agreement was enforceable. It found that the parties did intend to be bound, and that the ensuing disagreement about the releases was a dispute about the performance of the July 9 agreement rather than an indication that no binding agreement existed.
We affirm the district court's finding that the parties intended to be bound under the July 9 agreement and that they further intended that that agreement would encompass a complete settlement of...
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