White Farm Equipment Co. v. Kupcho

• Decision Date: 23 June 1986
• Docket Number: No. 85-2509,85-2509
• Parties: WHITE FARM EQUIPMENT CO., Plaintiff-Appellee, v. Joseph G. KUPCHO, d/b/a Haufler Equipment; Wanda Kupcho and Kup Equipment Co., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 526

792 F.2d 526

WHITE FARM EQUIPMENT CO., Plaintiff-Appellee, v. Joseph G. KUPCHO, d/b/a Haufler Equipment; Wanda Kupcho and Kup Equipment Co., Defendants-Appellants.

No. 85-2509.

United States Court of Appeals Fifth Circuit.

June 23, 1986.

William J. Salyer, San Antonio, Tex., for defendants-appellants.

Robert B. McNeal, Mark B. Meyers, Eugene R. Preaus, New Orleans, La., for White Farm Equipment.

Appeal from the United States District Court for the Western District of Texas.

Before RUBIN, POLITZ, and JOHNSON, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

This appeal unsuccessfully seeks to set aside a judgment enforcing a settlement agreement reached after the case was called for trial and thereafter read into the record and approved by the court. Litigants may not disavow compacts thus made and approved, for avoiding the bargain would undermine its contractual validity, increase litigation, and impair efficient judicial administration.

White Farm Equipment sued Joseph G. Kupcho, Wanda M. Kupcho, and KUP Equipment Company, Inc. for amounts due for supplies and parts sold to them for their business as a White Farm dealer. The case came on for trial, and, after opening argument, the judge suggested that the parties adjourn to another room and make a final attempt at settlement. With their principals present, the parties spent over two hours together negotiating a settlement agreement.

The Kupchos agreed to pay White Farm $87,500. White Farm agreed to give them credit against that amount for the value of any usable repair parts they returned. In order to determine the amount of credit to be granted, it was necessary for the Kupchos to take an inventory of the repair parts in their possession and to forward the data to White Farm for a determination of the repair parts' value. It was agreed that values would be set according to White Farm's current dealer code book. After the parties had reached this agreement, they returned to court and read their agreement into the record. The judge approved the substance of the agreement and instructed the parties to work out any unresolved details and to draft documents reflecting their agreement for submission to the court within one week.

Before the Kupchos had prepared their inventory, White Farm forwarded a written settlement agreement to their counsel. Counsel for both White Farm and the Kupchos discussed revisions to the settlement agreement, leaving blanks to be filled in upon the completion of the inventory and valuation of the repair parts. Thereafter, White Farm received the Kupchos' inventory and processed the data through its computer to obtain the credit figure, an amount that proved to be substantially greater than had originally been estimated by the parties.

White Farm's counsel attempted to communicate with the Kupchos' counsel to inform him of the credit figure and to execute the settlement agreement. His phone calls were not returned. White Farm's counsel then sent to the Kupchos' counsel the settlement agreement with the valuation of the repair parts inserted, but, again, received no response. After the court required a status report, the Kupchos' counsel told the court and, for the first time, White Farm's counsel, that he had retired from the practice of law and wished to withdraw from the case before the execution of the settlement agreement.

After the district court rebuked the Kupchos' lawyer for attempting to retire before the case was completed, the lawyer informed the court that his client was having financial difficulties. The court observed that the Kupchos' tactics were "an advantageous way to get the case off the docket setting," by agreeing to a settlement then repudiating the agreement, but gave the parties more time to attempt to consummate the settlement.

After no progress had been made, White Farm filed a motion to enforce the agreement. The court held a hearing with both the Kupchos' original and their new lawyer present. The court found that the Kupchos and their counsel knew that a settlement agreement had been reached and dictated into the record, that the written draft of the agreement substantially complied with the stipulation of settlement entered into by the parties, and that the credits were valued in accordance with the parties' understanding. The court thereafter signed a final judgment incorporating and enforcing the settlement agreement.

Joseph G. Kupcho filed bankruptcy proceedings while the case was on appeal, however, the bankruptcy court modified the automatic stay in order to allow this action to proceed, and the other parties are unaffected.

While the defendants attempt to develop ambiguities and uncertainties in the agreement, the district court found it clear and enforceable. The record amply supports this conclusion, and we are bound to respect the district court's findings absent clear error. ¹

The defendants do not dispute the authority of their original trial counsel under Texas law to make the agreement. They assert, instead, four arguments: (1) the oral agreement read into the record was not valid or binding because a material element--the value of the repair parts credit--was undetermined; (2) they withdrew from the settlement agreement before the judgment was entered; (3) the final judgment of the court did not comport with the settlement agreement; and (4) the settlement agreement should be governed by Texas Business and Commerce Code Sec. 35.62, which would place a greater value on the repair parts. The last two arguments were not raised below, but are resourcefully suggested to us for the first time on appeal. We, therefore, do not consider their merits.

In support of their first argument, the defendants refer us to Texas Rule of Civil Procedure 11, which describes the procedures by which settlement agreements are made enforceable in the Texas courts. They assert that Rule 11 is part of the substantive law of Texas in determining whether an enforceable settlement agreement has been reached. ² We need not decide whether it is substantive or procedural, however, because the parties concede that the settlement agreement was made in open court and read into the record and is therefore enforceable under the Rule.

A settlement agreement is a contract, but, when incorporated into a judgment, becomes a court decree. Whether it is a valid contract between the parties is determined by reference to state substantive law governing contracts generally. For example, challenges to a settlement agreement based on interpretation of an ambiguous term, capacity to contract, fraud, or indefiniteness of a term all turn on the applicable state law. ³ Whether a settlement agreement, thus tested under state law, has been accepted by a federal court and properly...