Plaintiff’s motion to enforce a settlement agreement in principle was denied because some material terms of that agreement were not included in the version the plaintiff sought to enforce. GeoLogic Computer Sys., Inc. v. MacLean, Case No. 10-13569 (D. Mich., Dec. 10, 2014).
Status of the case. Counsel for the parties to a software copyright infringement lawsuit purportedly reached an agreement in principle to settle the litigation. One of the material terms of the preliminary agreement was a status quo non-compete. However, the parties could not reach a consensus with respect to the wording. The plaintiff then settled with some of the defendants, deleting from that settlement any reference to a non-compete, and moved to enforce the old agreement in principle — minus the non-competition clause — against the non-settling defendants. They objected to the motion on the ground that they could not be forced to accept a compromise significantly different from the one to which they had acquiesced. The court agreed and denied the motion to enforce.
The settlement in principle. After three years of hard-fought pretrial litigation in a federal court in Michigan, the district court judge referred the case to a magistrate judge for settlement negotiations. In October 2013, the parties’ attorneys informed the magistrate judge orally that they had an agreement. The judge directed them to recite on the record “the overarching terms,” and they purported to do so. One was that two corporate defendants would pay approximately $1.5 million to the plaintiff over time, with the payments guaranteed by the individual defendant owners of those corporations. Another term was that certain other defendants who were salespersons — people the court referred to as the “Non-Compete Defendants” — would compete with those corporations only with respect to relationships already existing. The purpose of the covenant was to restrict the Non-Compete Defendants from interfering with the earning potential of those corporations to such an extent that they might be unable to liquidate their indebtedness to the plaintiff. The magistrate judge directed the attorneys to memorialize the settlement.
A partial settlement. Unfortunately, the parties were unable to achieve unanimity, but the plaintiff and the Non-Compete Defendants did reach agreement. They would pay the plaintiff $730,000. Reference to a non-competition covenant was omitted. The Non-Compete Defendants committed that they would — and they did — support the plaintiff’s subsequent motion to enforce as against the non-settling defendants the settlement agreement in principle (minus, of course, the non-compete).
Objections. In their opposition to the motion to enforce, the non-settling defendants — the two corporations and their owners — contended that during settlement negotiations all parties had agreed that the non-compete was a material term, and no party had expressed any objection to it. Moreover, by protecting the corporations’ income stream, the non-compete also served potentially to shield the individual guarantors from a default by the corporations which would trigger their own duty to pay. Also, the non-settling defendants pointed out that if payment in full was not made, the plaintiff might claim entitlement to valuable rights relating to the software, and those defendants wondered aloud whether the plaintiff might be surreptitiously promoting non-payment. In response, the plaintiff countered that the draft non-compete provision was solely for the plaintiff’s benefit, to increase the likelihood that it would be paid, and therefore the non-settling defendants would not be prejudiced by deletion of that provision.
The court’s decision. The trial judge agreed with the parties objecting to the motion to enforce. The settlement in principle was not identical in all material respects to the order the plaintiff sought to have entered. The court said that the subjective purpose of the omitted non-compete — here, supposedly to protect the plaintiff — is irrelevant. The defendants never agreed to a settlement without that provision, and so the court was precluded from granting the motion to enforce.
Takeaways. This case reminds us that a motion to enforce a “settlement agreement in principle” will be denied unless all parties assented to every significant term. Here, the agreement the plaintiff sought to enforce differed in several material respects — most notably, the deleted non-compete — from the settlement to which the parties purportedly had agreed several months earlier. Those differences doomed the contested motion to enforce.